The Gabelli Equity Income Fund
Annual Report — September 30, 2022
To Our Shareholders,
For the fiscal year ended September 30, 2022, the net asset value (NAV) total return per Class AAA Share of The Gabelli Equity Income Fund was (10.1)% compared with a total return of (15.5)% for the Standard & Poor’s (S&P) 500 Index. Other classes of shares are available. See page 4 for performance information for all classes.
Enclosed are the financial statements, including the schedule of investments, as of September 30, 2022.
Investment Objective and Strategy (Unaudited)
Our stock selection process is based on the investment principles of Graham and Dodd, the first investors to articulate the fundamentals of value investing. Their work provided the framework for value investing, and we contributed to this framework with the discipline of Private Market Value with a Catalyst™. This proprietary research and valuation method identifies companies whose shares are selling at a discount to intrinsic value, with an identifiable path to realizing, or surfacing, that private market value. We define private market value as the price an informed acquirer would pay for an entire enterprise. The catalyst comprises identifiable events or circumstances that might reasonably result in the narrowing of the difference between the public market price of the stock and our estimate of the private market value. This realization of value can take place gradually or suddenly, with company specific changes such as management changes or restructurings, sale of assets or of the business as a whole, or industry changes such as changes in regulation or changes in competition.
The Fund will seek to achieve its investment objective through a combination of capital appreciation and current income by investing, under normal market conditions, at least 80% of its net assets in income producing equity securities. Income producing equity securities include, for example, common stock, preferred stock, and convertible securities.
| As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.gabelli.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. To elect to receive all future reports on paper free of charge, please contact your financial intermediary, or, if you invest directly with the Fund, you may call 800-422-3554 or send an email request to info@gabelli.com. |
Performance Discussion (Unaudited)
During the fourth quarter of 2021, stock market volatility intensified and supply chain, labor, and raw material headwinds challenged operations for many companies, increasing inflation and the fear of higher interest rates. Despite this, consumer demand remained strong and in December the national unemployment level approached pre-pandemic levels when it declined to 3.9%. While the Omicron variant presented challenges, households and corporations were able to continue to operate with little restriction.
Markets declined in the first quarter of 2022 with the S&P 500 Index falling 4.6%. Two years of a macro environment underpinned by economic reopening and expansion was finally replaced by one with significantly elevated inflation, rising interest rates, and the first major war in Europe in over 70 years. At its March meeting, the Fed raised interest rates by a quarter percentage point and signaled hikes at all six remaining meetings of the year, launching a campaign to tackle rampant inflation as risks to economic growth continued to mount.
In the second quarter of 2022, large and small capitalization stocks both declined, high grade bonds were down 7%, and gold retraced 3%. April and June brought some of biggest market declines in years as the reality of higher interest rates and the increasing prospect of a global slowdown took hold. While the rotation to Value that began in late 2021 continued into this year, by the end of Q2 there was no place to hide as energy stocks and other statistically cheap securities succumbed to the selling.
The third quarter of 2022 was the third straight quarter of the S&P 500 being down. Although the U.S. economy drew closer to normal after over two years of global pandemic shutdowns, and supply chain disruptions, the main concern investors faced was inflation. After keeping the Federal Funds rate near zero since just after the start of the COVID-19 pandemic, the Fed has been in catch-up mode and raising rates aggressively this year, including two 75 bp increases in the third quarter. Amid this tightening, signs of economic weakness are emerging, most notably in the housing market. Soaring mortgage rates sent home prices down 6% in August from their June peak, the biggest two month drop in nearly a decade. This weakness threatens to spill over to other areas of the economy imminently.
Among our better performing stocks for the fiscal year were Genuine Parts Co. (5.5% of net assets as of September 30, 2022), the auto parts supply company that owns the NAPA brand. The company beat sales and earnings expectations in the second quarter, as consumers hold on to their cars and trucks for longer, and spend more to maintain them. Sales for the full year should be up double digits for Genuine Parts as they are able to pass along price increases to their customers; another top contributor is tobacco product producer Swedish Match AB (6.2%). The company has been benefiting from the growth of the smokeless tobacco market in both Scandinavia and the U.S., as public smoking bans and health concerns are driving consumers to seek alternative tobacco products to cigarettes. The company has a tobacco free nicotine pouch product called ZYN that is growing rapidly in the U.S. as well as around the world. In May, the company announced that its board recommended an all cash offer from Philip Morris International (PM) for SEK 106 per share, creating a global smoke free champion and accelerating PM’s goal of having over 50% of revenues come from smoke free products.
A few of our weaker performers were Paramount Global, (1.3%), a globally scaled content company with networks including CBS, Showtime, Nickelodeon, MTV, Comedy Central, VH1, BET, thirty television stations and the Paramount movie studio. Share prices have declined as headwinds from cord cutting consumers and a decrease in TV media segment’s profitability affect the company’s cash flow and debt burden. The company has better used its increased scale to navigate the shifts in consumer behavior and monetization primarily through the successful launch of its Paramount+ direct-to-consumer platform; another top detractor was DISH Network Corp., (0.4%), which is a direct broadcast satellite provider with other telecommunications services. DISH has seen a continued decrease in net pay-TV subscribers and retail wireless net subscribers. Revenues and net incomes have so far been weaker in 2022 when compared with the previous year.
We appreciate your confidence and trust.
| The views expressed reflect the opinions of the Fund's portfolio manager and Gabelli Funds, LLC, the Adviser, as of the date of this report and are subject to change without notice based on changes in market, economic, or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results. |
Comparative Results
Average Annual Returns through September 30, 2022 (a)(b) (Unaudited)
Total returns and average annual returns reflect changes in share price, reinvestment of distributions, and are net of expenses.
| | | | | | | | | | | | | | | Since | |
| | | | | | | | | | | | | | | Inception | |
| | | 1 Year | | 5 Year | | 10 Year | | 15 Year | | (1/2/92) |
| ClassAAA(GABEX) | | | (10.08 | )% | | | 4.71 | % | | | 7.52 | % | | | 5.61 | % | | | 9.12 | % |
| S&P 500 Index (c) | | | (15.47 | ) | | | 9.24 | | | | 11.70 | | | | 8.03 | | | | 9.40 | |
| Lipper Equity Income Fund Average (c) | | | (8.18 | ) | | | 6.42 | | | | 9.13 | | | | 6.09 | | | | 8.18 | |
| Class A (GCAEX) (d) | | | (10.05 | ) | | | 4.71 | | | | 7.52 | | | | 5.62 | | | | 9.11 | |
| With sales charge (e) | | | (15.22 | ) | | | 3.48 | | | | 6.89 | | | | 5.20 | | | | 8.90 | |
| Class C (GCCEX) (d)(f) | | | (10.84 | ) | | | 3.92 | | | | 6.71 | | | | 4.82 | | | | 8.62 | |
| With contingent deferred sales charge (g) | | | (11.73 | ) | | | 3.92 | | | | 6.71 | | | | 4.82 | | | | 8.62 | |
| Class I (GCIEX) (d) | | | (9.81 | ) | | | 4.98 | | | | 7.79 | | | | 5.88 | | | | 9.25 | |
| (a) | The Fund’s fiscal year ends September 30. |
| (b) | The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days of purchase. |
| (c) | The S&P 500 Index is a market capitalization weighted index of 500 large capitalization stocks commonly used to represent the U.S. equity market. Inception performance is as of December 31, 1991. The Lipper Equity Income Fund Average includes the 30 largest equity funds in this category tracked by Lipper, Inc. Dividends are considered reinvested. You cannot invest directly in an index. |
| (d) | The Class AAA Share NAVs are used to calculate performance for the periods prior to the issuance of Class A Shares and Class C Shares on December 31, 2003 and Class I Shares on January 11, 2008. The actual performance of the Class A Shares and Class C Shares would have been lower due to the additional fees and expenses associated with these classes of shares. The actual performance of the Class I Shares would have been higher due to lower expenses related to this class of shares. |
| (e) | Performance results include the effect of the maximum 5.75% sales charge at the beginning of the period. |
| (f) | Effective January 3, 2022, the Equity Income Fund's Class C Shares have been "closed to all purchases." "Closed to all purchases" means neither new investors nor existing shareholders may purchase any additional Class C Shares after the Effective Date. These changes have no effect on existing shareholders' ability to redeem shares of the Equity Income Fund as described herein. |
| (g) | Assuming payment of the 1% maximum contingent deferred sales charge imposed on redemptions made within one year of purchase. |
In the current prospectuses dated January 28, 2022, the expense ratios for Class AAA, A, and I Shares are 1.42%, 1.42%, and 1.17%, respectively. See page 14 for the expense ratios for the year ended September 30, 2022. Class AAA and Class I Shares do not have a sales charge. The maximum sales charge for Class A Shares is 5.75%.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at www.gabelli.com.
Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. 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.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI EQUITY INCOME FUND (CLASS AAA SHARES) AND S&P 500 INDEX (Unaudited)
| Average Annual Total Returns* |
| | 1 Year | 5 Year | 10 Year |
| Class AAA | (10.08)% | 4.71% | 7.52% |
* Past performance is not predictive of future results. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
The Gabelli Equity Income Fund
Disclosure of Fund Expenses (Unaudited)
| For the Six Month Period from April 1, 2022 through September 30, 2022 | Expense Table |
We believe it is important for you to understand the impact of fees and expenses regarding your investment. All mutual funds have operating expenses. As a shareholder of a fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of a fund. When a fund’s expenses are expressed as a percentage of its average net assets, this figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The Expense Table below illustrates your Fund’s costs in two ways:
Actual Fund Return: This section provides information about actual account values and actual expenses. You may use this section to help you to estimate the actual expenses that you paid over the period after any fee waivers and expense reimbursements. The “Ending Account Value” shown is derived from the Fund’s actual return during the past six months, and the “Expenses Paid During Period” shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading “Expenses Paid During Period” to estimate the expenses you paid during this period.
Hypothetical 5% Return: This section provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio. It assumes a hypothetical annualized return of 5% before expenses during the period shown. In this case – because the hypothetical return used is not the Fund’s actual return – the results do not apply to your investment and you cannot use the hypothetical account value and expense to estimate the actual ending account balance or expenses you
paid for the period. This example is useful in making comparisons of the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees, if any, which are described in the Prospectus. If these costs were applied to your account, your costs would be higher. Therefore, the 5% hypothetical return is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The "Annualized Expense Ratio" represents the actual expenses for the last six months and may be different from the expense ratio in the Financial Highlights which is for the fiscal year ended September 30, 2022.
| | | Beginning | | Ending | | Annualized | | Expenses |
| | | Account Value | | Account Value | | Expense | | Paid During |
| | | 04/01/22 | | 09/30/22 | | Ratio | | Period * |
| The Gabelli Equity Income Fund | |
| Actual Fund Return | | | | | | | | |
| Class AAA | | $1,000.00 | | $857.70 | | 1.41 | % | | $ | 6.57 | |
| Class A | | $1,000.00 | | $858.20 | | 1.41 | % | | $ | 6.57 | |
| Class C | | $1,000.00 | | $853.50 | | 2.16 | % | | $ | 10.04 | |
| Class I | | $1,000.00 | | $859.10 | | 1.16 | % | | $ | 5.41 | |
| Hypothetical 5% Return | | | | | | | | | |
| Class AAA | | $1,000.00 | | $1,018.00 | | 1.41 | % | | $ | 7.13 | |
| Class A | | $1,000.00 | | $1,018.00 | | 1.41 | % | | $ | 7.13 | |
| Class C | | $1,000.00 | | $1,014.24 | | 2.16 | % | | $ | 10.91 | |
| Class I | | $1,000.00 | | $1,019.25 | | 1.16 | % | | $ | 5.87 | |
| * | Expenses are equal to the Fund’s annualized expense ratio for the last six months multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183 days), then divided by 365. |
Summary of Portfolio Holdings (Unaudited)
The following table presents portfolio holdings as a percent of net assets as of September 30, 2022:
The Gabelli Equity Income Fund
| Food and Beverage | | | 17.6 | % |
| Financial Services | | | 13.2 | % |
| Consumer Products | | | 7.5 | % |
| Automotive: Parts and Accessories | | | 5.7 | % |
| Diversified Industrial | | | 5.4 | % |
| Retail | | | 5.1 | % |
| Equipment and Supplies | | | 4.7 | % |
| Health Care | | | 4.6 | % |
| Machinery | | | 3.8 | % |
| Telecommunications | | | 3.6 | % |
| Energy and Utilities: Oil | | | 3.5 | % |
| Business Services | | | 3.5 | % |
| Energy and Utilities: Natural Gas | | | 2.2 | % |
| Computer Software and Services | | | 2.0 | % |
| Electronics | | | 1.9 | % |
| Transportation | | | 1.7 | % |
| Computer Hardware | | | 1.7 | % |
| Metals and Mining | | | 1.6 | % |
| Building and Construction | | | 1.6 | % |
| Entertainment | | | 1.4 | % |
| Specialty Chemicals | | | 1.0 | % |
| Agriculture | | | 0.9 | % |
| Energy and Utilities: Integrated | | | 0.6 | % |
| Aerospace | | | 0.5 | % |
| Energy and Utilities: Services | | | 0.5 | % |
| Cable and Satellite | | | 0.5 | % |
| Energy and Utilities: Electric | | | 0.5 | % |
| Real Estate Investment Trusts | | | 0.5 | % |
| Communications Equipment | | | 0.3 | % |
| Environmental Services | | | 0.2 | % |
| Broadcasting | | | 0.2 | % |
| Automotive | | | 0.2 | % |
| Consumer Services | | | 0.1 | % |
| Energy and Utilities: Water | | | 0.1 | % |
| Hotels and Gaming | | | 0.1 | % |
| Paper and Forest Products | | | 0.1 | % |
| Wireless Communications | | | 0.0 | %* |
| Publishing | | | 0.0 | %* |
| Other Assets and Liabilities (Net) | | | 1.4 | % |
| | | | 100.0 | % |
* Amount represents less than 0.05%.
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-PORT. 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-PORT 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 800-SEC-0330.
Proxy Voting
The Fund files Form N-PX with its complete proxy voting record for the twelve months ended June 30, no later than August 31 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.
The Gabelli Equity Income Fund
Schedule of Investments — September 30, 2022
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | | | | COMMON STOCKS — 98.6% | | | | | | | | |
| | | | | Aerospace — 0.5% | | | | | | | | |
| | 2,000 | | | Lockheed Martin Corp. | | $ | 47,350 | | | $ | 772,580 | |
| | 8,200 | | | Rockwell Automation Inc. | | | 246,347 | | | | 1,763,902 | |
| | | | | | | | 293,697 | | | | 2,536,482 | |
| | | | | Agriculture — 0.9% | | | | | | | | |
| | 50,000 | | | Archer-Daniels-Midland Co. | | | 1,281,567 | | | | 4,022,500 | |
| | 11,000 | | | The Mosaic Co. | | | 170,792 | | | | 531,630 | |
| | | | | | | | 1,452,359 | | | | 4,554,130 | |
| | | | | Automotive — 0.2% | | | | | | | | |
| | 10,000 | | | PACCAR Inc. | | | 386,268 | | | | 836,900 | |
| | | | | | | | | | | | | |
| | | | | Automotive: Parts and Accessories — 5.7% | | | | | | | | |
| | 75,000 | | | Dana Inc. | | | 1,181,712 | | | | 857,250 | |
| | 180,500 | | | Genuine Parts Co. | | | 8,115,799 | | | | 26,952,260 | |
| | | | | | | | 9,297,511 | | | | 27,809,510 | |
| | | | | Broadcasting — 0.2% | | | | | | | | |
| | 45,000 | | | Liberty Global plc, Cl. A† | | | 1,033,770 | | | | 701,550 | |
| | 9,000 | | | Liberty Global plc, Cl. C† | | | 195,254 | | | | 148,500 | |
| | | | | | | | 1,229,024 | | | | 850,050 | |
| | | | | | | | | | | | | |
| | | | | Building and Construction — 1.6% | | | |
| | 30,000 | | | Carrier Global Corp. | | | 254,818 | | | | 1,066,800 | |
| | 39,500 | | | Fortune Brands Home & Security Inc. | | | 390,211 | | | | 2,120,755 | |
| | 22,500 | | | Herc Holdings Inc. | | | 684,644 | | | | 2,337,300 | |
| | 47,500 | | | Johnson Controls International plc | | | 871,643 | | | | 2,337,950 | |
| | | | | | | | 2,201,316 | | | | 7,862,805 | |
| | | | | Business Services — 3.5% | | | | | | | | |
| | 10,800 | | | Automatic Data Processing Inc. | | | 518,883 | | | | 2,442,852 | |
| | 26,300 | | | Mastercard Inc., Cl. A | | | 529,331 | | | | 7,478,142 | |
| | 2,400 | | | MSC Industrial Direct Co. Inc., Cl. A | | | 165,490 | | | | 174,744 | |
| | 32,000 | | | Pentair plc | | | 622,795 | | | | 1,300,160 | |
| | 17,800 | | | S&P Global Inc. | | | 788,492 | | | | 5,435,230 | |
| | | | | | | | 2,624,991 | | | | 16,831,128 | |
| | | | | Cable and Satellite — 0.5% | | | | | | | | |
| | 129,000 | | | DISH Network Corp., Cl. A† | | | 2,343,606 | | | | 1,784,070 | |
| | 15,000 | | | EchoStar Corp., Cl. A† | | | 344,371 | | | | 247,050 | |
| | 15,000 | | | Liberty Media Corp. - Liberty Braves, Cl. A† | | | 423,698 | | | | 422,250 | |
| | | | | | | | 3,111,675 | | | | 2,453,370 | |
| | | | | Communications Equipment — 0.3% | | | | |
| | 42,000 | | | Corning Inc. | | | 481,575 | | | | 1,218,840 | |
| | | | | | | | | | | | | |
| | | | | Computer Hardware — 1.7% | | | | | | | | |
| | 37,200 | | | Apple Inc. | | | 681,135 | | | | 5,141,040 | |
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | 24,500 | | | International Business Machines Corp. | | $ | 1,892,888 | | | $ | 2,910,845 | |
| | | | | | | | 2,574,023 | | | | 8,051,885 | |
| | | | | Computer Software and Services — 2.0% | | | | | |
| | 90,000 | | | Hewlett Packard Enterprise Co. | | | 509,279 | | | | 1,078,200 | |
| | 37,000 | | | Microsoft Corp. | | | 1,033,780 | | | | 8,617,300 | |
| | | | | | | | 1,543,059 | | | | 9,695,500 | |
| | | | | Consumer Products — 7.5% | | | | | | | | |
| | 6,000 | | | Edgewell Personal Care Co. | | | 182,805 | | | | 224,400 | |
| | 50,000 | | | Energizer Holdings Inc. | | | 1,257,737 | | | | 1,257,000 | |
| | 30,000 | | | Essity AB, Cl. A | | | 529,907 | | | | 594,720 | |
| | 1,000 | | | National Presto Industries Inc. | | | 30,628 | | | | 65,050 | |
| | 34,000 | | | Reckitt Benckiser Group plc | | | 1,008,398 | | | | 2,268,651 | |
| | 3,050,000 | | | Swedish Match AB | | | 3,576,325 | | | | 30,231,626 | |
| | 41,000 | | | Unilever plc, ADR | | | 818,025 | | | | 1,797,440 | |
| | | | | | | | 7,403,825 | | | | 36,438,887 | |
| | | | | Consumer Services — 0.1% | | | | | | | | |
| | 1,600 | | | Allegion plc | | | 19,252 | | | | 143,488 | |
| | 15,000 | | | Rollins Inc. | | | 14,913 | | | | 520,200 | |
| | | | | | | | 34,165 | | | | 663,688 | |
| | | | | Diversified Industrial — 5.4% | | | | | | | | |
| | 78,000 | | | Crane Holdings Co. | | | 2,384,873 | | | | 6,828,120 | |
| | 34,000 | | | Eaton Corp. plc | | | 1,256,618 | | | | 4,534,240 | |
| | 1,500 | | | Honeywell International Inc. | | | 32,160 | | | | 250,455 | |
| | 8,600 | | | Ingersoll Rand Inc. | | | 45,820 | | | | 372,036 | |
| | 48,000 | | | ITT Inc. | | | 961,318 | | | | 3,136,320 | |
| | 36,500 | | | Jardine Matheson Holdings Ltd. | | | 1,849,122 | | | | 1,848,360 | |
| | 22,000 | | | nVent Electric plc | | | 230,823 | | | | 695,420 | |
| | 108,000 | | | Textron Inc. | | | 841,688 | | | | 6,292,080 | |
| | 150,000 | | | Toray Industries Inc. | | | 1,002,210 | | | | 737,718 | |
| | 8,000 | | | Trane Technologies plc | | | 137,872 | | | | 1,158,480 | |
| | 22,000 | | | Trinity Industries Inc. | | | 290,669 | | | | 469,700 | |
| | | | | | | | 9,033,173 | | | | 26,322,929 | |
| | | | | Electronics — 1.9% | | | | | | | | |
| | 6,500 | | | Sony Group Corp. | | | 138,865 | | | | 417,045 | |
| | 30,000 | | | Sony Group Corp., ADR | | | 682,008 | | | | 1,921,500 | |
| | 48,500 | | | TE Connectivity Ltd. | | | 1,600,853 | | | | 5,352,460 | |
| | 10,000 | | | Texas Instruments Inc. | | | 147,000 | | | | 1,547,800 | |
| | | | | | | | 2,568,726 | | | | 9,238,805 | |
| | | | | Energy and Utilities: Electric — 0.5% | | | | | |
| | 7,500 | | | Avangrid Inc. | | | 210,171 | | | | 312,750 | |
| | 19,000 | | | Korea Electric Power Corp., ADR† | | | 223,895 | | | | 129,200 | |
| | 8,000 | | | Portland General Electric Co. | | | 334,816 | | | | 347,680 | |
See accompanying notes to financial statements.
The Gabelli Equity Income Fund
Schedule of Investments (Continued) — September 30, 2022
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | | | COMMON STOCKS (Continued) | | | | | | |
| | | | | Energy and Utilities: Electric (Continued) | | | | | | | | |
| | 63,000 | | | The AES Corp. | | $ | 291,918 | | | $ | 1,423,800 | |
| | | | | | | | 1,060,800 | | | | 2,213,430 | |
| | | | | Energy and Utilities: Integrated — 0.6% | | | | | |
| | 50,000 | | | Energy Transfer LP | | | 13,799 | | | | 551,500 | |
| | 21,000 | | | Eni SpA | | | 220,487 | | | | 224,539 | |
| | 6,500 | | | Iberdrola SA, ADR | | | 98,020 | | | | 241,865 | |
| | 57,000 | | | OGE Energy Corp. | | | 760,843 | | | | 2,078,220 | |
| | | | | | | | 1,093,149 | | | | 3,096,124 | |
| | | | | Energy and Utilities: Natural Gas — 2.2% | | | | | |
| | 105,500 | | | National Fuel Gas Co. | | | 4,687,433 | | | | 6,493,525 | |
| | 11,500 | | | ONE Gas Inc. | | | 48,202 | | | | 809,485 | |
| | 59,000 | | | ONEOK Inc. | | | 5,368 | | | | 3,023,160 | |
| | 7,500 | | | Southwest Gas Holdings Inc. | | | 153,948 | | | | 523,125 | |
| | | | | | | | 4,894,951 | | | | 10,849,295 | |
| | | | | Energy and Utilities: Oil — 3.5% | | | | | | | | |
| | 3,000 | | | Callon Petroleum Co.† | | | 117,351 | | | | 105,030 | |
| | 43,000 | | | Chevron Corp. | | | 1,712,765 | | | | 6,177,810 | |
| | 4,500 | | | ConocoPhillips | | | 82,502 | | | | 460,530 | |
| | 7,200 | | | Devon Energy Corp. | | | 73,144 | | | | 432,936 | |
| | 12,000 | | | Exxon Mobil Corp. | | | 312,521 | | | | 1,047,720 | |
| | 57,400 | | | Hess Corp. | | | 2,744,140 | | | | 6,256,026 | |
| | 18,000 | | | Marathon Petroleum Corp. | | | 234,717 | | | | 1,787,940 | |
| | 13,500 | | | TotalEnergies SE, ADR | | | 230,259 | | | | 628,020 | |
| | | | | | | | 5,507,399 | | | | 16,896,012 | |
| | | | | Energy and Utilities: Services — 0.5% | | | | | |
| | 4,000 | | | Dril-Quip Inc.��� | | | 96,160 | | | | 78,080 | |
| | 84,000 | | | Halliburton Co. | | | 1,527,900 | | | | 2,068,080 | |
| | 10,000 | | | Schlumberger NV | | | 240,037 | | | | 359,000 | |
| | | | | | | | 1,864,097 | | | | 2,505,160 | |
| | | | | Energy and Utilities: Water — 0.1% | | | | | |
| | 3,600 | | | Essential Utilities Inc. | | | 26,544 | | | | 148,968 | |
| | 18,500 | | | Severn Trent plc | | | 464,897 | | | | 486,453 | |
| | | | | | | | 491,441 | | | | 635,421 | |
| | | | | Entertainment — 1.4% | | | | | | | | |
| | 37,800 | | | Grupo Televisa SAB, ADR | | | 350,008 | | | | 203,364 | |
| | 6,000 | | | Madison Square Garden Entertainment Corp.† | | | 128,559 | | | | 264,540 | |
| | 2,500 | | | Madison Square Garden Sports Corp.† | | | 301,305 | | | | 341,650 | |
| | 285,000 | | | Paramount Global, Cl. A | | | 6,751,924 | | | | 6,138,900 | |
| | | | | | | | 7,531,796 | | | | 6,948,454 | |
| | | | | Environmental Services — 0.2% | | | | | | | | |
| | 7,500 | | | Republic Services Inc. | | | 284,610 | | | | 1,020,300 | |
| | | | | | | | | | | | | |
| | | | | Equipment and Supplies — 4.7% | | | | | | | | |
| | 6,500 | | | A.O. Smith Corp. | | | 17,320 | | | | 315,770 | |
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | 14,000 | | | Danaher Corp. | | $ | 406,841 | | | $ | 3,616,060 | |
| | 158,000 | | | Flowserve Corp. | | | 1,981,245 | | | | 3,839,400 | |
| | 50,000 | | | Graco Inc. | | | 853,683 | | | | 2,997,500 | |
| | 18,500 | | | Minerals Technologies Inc. | | | 703,572 | | | | 914,085 | |
| | 130,000 | | | Mueller Industries Inc. | | | 2,364,448 | | | | 7,727,200 | |
| | 15,000 | | | Parker-Hannifin Corp. | | | 809,385 | | | | 3,634,650 | |
| | | | | | | | 7,136,494 | | | | 23,044,665 | |
| | | | | Financial Services — 13.2% | | | | | | | | |
| | 2,000 | | | Alleghany Corp.† | | | 295,806 | | | | 1,678,740 | |
| | 19,000 | | | AllianceBernstein Holding LP | | | 0 | | | | 666,140 | |
| | 19,000 | | | American Express Co. | | | 459,057 | | | | 2,563,290 | |
| | 19,000 | | | Ameris BanCorp. | | | 200,916 | | | | 849,490 | |
| | 3,700 | | | Argo Group International Holdings Ltd. | | | 66,521 | | | | 71,262 | |
| | 5,195 | | | Banco Santander Chile, ADR | | | 29,250 | | | | 72,782 | |
| | 125,000 | | | Bank of America Corp. | | | 823,246 | | | | 3,775,000 | |
| | 12,000 | | | BNP Paribas SA | | | 513,665 | | | | 512,821 | |
| | 25,000 | | | Credit Suisse Group AG | | | 135,501 | | | | 100,740 | |
| | 40,000 | | | Interactive Brokers Group Inc., Cl. A | | | 596,884 | | | | 2,556,400 | |
| | 15,000 | | | Jefferies Financial Group Inc. | | | 263,160 | | | | 442,500 | |
| | 8,500 | | | JPMorgan Chase & Co. | | | 164,948 | | | | 888,250 | |
| | 51,000 | | | Julius Baer Group Ltd. | | | 1,644,750 | | | | 2,248,404 | |
| | 21,000 | | | Kinnevik AB, Cl. A† | | | 509,320 | | | | 280,816 | |
| | 63,500 | | | Loews Corp. | | | 2,344,007 | | | | 3,164,840 | |
| | 11,200 | | | M&T Bank Corp. | | | 956,465 | | | | 1,974,784 | |
| | 15,200 | | | Marsh & McLennan Companies Inc. | | | 415,551 | | | | 2,269,208 | |
| | 10,000 | | | Morgan Stanley | | | 497,929 | | | | 790,100 | |
| | 5,800 | | | Popular Inc. | | | 93,651 | | | | 417,948 | |
| | 64,000 | | | SLM Corp. | | | 311,552 | | | | 895,360 | |
| | 122,000 | | | State Street Corp. | | | 5,565,671 | | | | 7,418,820 | |
| | 6,000 | | | T. Rowe Price Group Inc. | | | 122,374 | | | | 630,060 | |
| | 297,000 | | | The Bank of New York Mellon Corp. | | | 7,458,271 | | | | 11,440,440 | |
| | 15,000 | | | The Goldman Sachs Group Inc. | | | 1,887,537 | | | | 4,395,750 | |
| | 24,300 | | | The PNC Financial Services Group Inc. | | | 1,914,956 | | | | 3,630,906 | |
| | 53,000 | | | Valley National BanCorp. | | | 331,250 | | | | 572,400 | |
| | 118,000 | | | Webster Financial Corp. | | | 2,730,948 | | | | 5,333,600 | |
| | 113,000 | | | Wells Fargo & Co. | | | 3,182,298 | | | | 4,544,860 | |
| | | | | | | | 33,515,484 | | | | 64,185,711 | |
| | | | | Food and Beverage — 17.6% | | | | | | | | |
| | 1,000 | | | Anheuser-Busch InBev SA/NV | | | 15,876 | | | | 45,812 | |
| | 200,000 | | | Brown-Forman Corp., Cl. A | | | 3,430,702 | | | | 13,512,000 | |
| | 34,000 | | | Campbell Soup Co. | | | 1,061,533 | | | | 1,602,080 | |
See accompanying notes to financial statements.
The Gabelli Equity Income Fund
Schedule of Investments (Continued) — September 30, 2022
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | | | | COMMON STOCKS (Continued) | | | | | | | | |
| | | | | Food and Beverage (Continued) | | | | | | | | |
| | 19,000 | | | Coca-Cola Europacific Partners plc | | $ | 427,500 | | | $ | 809,780 | |
| | 10,000 | | | Coca-Cola Femsa SAB de CV, ADR | | | 340,562 | | | | 583,900 | |
| | 5,800 | | | Constellation Brands Inc., Cl. A | | | 71,940 | | | | 1,332,144 | |
| | 35,000 | | | Danone SA | | | 1,347,433 | | | | 1,666,036 | |
| | 35,000 | | | Davide Campari-Milano NV | | | 117,659 | | | | 312,558 | |
| | 49,500 | | | Diageo plc, ADR | | | 3,063,927 | | | | 8,405,595 | |
| | 81,500 | | | Fomento Economico Mexicano SAB de CV, ADR | | | 1,986,761 | | | | 5,114,125 | |
| | 1,000 | | | General Mills Inc. | | | 26,640 | | | | 76,610 | |
| | 1,700,000 | | | Grupo Bimbo SAB de CV, Cl. A | | | 1,363,229 | | | | 5,973,783 | |
| | 93,000 | | | Heineken NV | | | 4,417,436 | | | | 8,190,258 | |
| | 132,000 | | | ITO EN Ltd. | | | 2,344,495 | | | | 5,344,573 | |
| | 17,500 | | | Kellogg Co. | | | 910,204 | | | | 1,219,050 | |
| | 4,000 | | | McCormick & Co. Inc. | | | 137,120 | | | | 292,720 | |
| | 31,200 | | | McCormick & Co. Inc., Non-Voting | | | 675,130 | | | | 2,223,624 | |
| | 33,000 | | | Mondelēz International Inc., Cl. A | | | 594,465 | | | | 1,809,390 | |
| | 31,800 | | | Nestlé SA | | | 653,040 | | | | 3,451,043 | |
| | 54,000 | | | Nissin Foods Holdings Co. Ltd. | | | 1,657,298 | | | | 3,757,203 | |
| | 31,300 | | | PepsiCo Inc. | | | 2,107,123 | | | | 5,110,038 | |
| | 23,800 | | | Pernod Ricard SA | | | 2,337,623 | | | | 4,404,962 | |
| | 31,200 | | | Remy Cointreau SA | | | 1,660,939 | | | | 5,225,705 | |
| | 30,000 | | | Sapporo Holdings Ltd. | | | 664,276 | | | | 659,158 | |
| | 10,000 | | | The Coca-Cola Co. | | | 208,400 | | | | 560,200 | |
| | 1,000 | | | The Hershey Co. | | | 36,300 | | | | 220,470 | |
| | 50,000 | | | The Kraft Heinz Co. | | | 1,403,471 | | | | 1,667,500 | |
| | 32,000 | | | Yakult Honsha Co. Ltd. | | | 799,840 | | | | 1,859,463 | |
| | | | | | | | 33,860,922 | | | | 85,429,780 | |
| | | | | Health Care — 4.6% | | | | | | | | |
| | 4,000 | | | Abbott Laboratories | | | 91,738 | | | | 387,040 | |
| | 3,000 | | | AbbVie Inc. | | | 74,560 | | | | 402,630 | |
| | 3,200 | | | Alcon Inc. | | | 106,703 | | | | 186,176 | |
| | 75,000 | | | Baxter International Inc. | | | 1,657,103 | | | | 4,039,500 | |
| | 4,400 | | | Bio-Rad Laboratories Inc., Cl. A† | | | 432,651 | | | | 1,835,416 | |
| | 87,500 | | | Bristol-Myers Squibb Co. | | | 2,105,675 | | | | 6,220,375 | |
| | 69,500 | | | Demant A/S† | | | 672,691 | | | | 1,730,973 | |
| | 6,400 | | | GSK plc, ADR | | | 270,041 | | | | 188,352 | |
| | 8,000 | | | Haleon plc, ADR† | | | 57,324 | | | | 48,720 | |
| | 29,700 | | | Henry Schein Inc.† | | | 306,559 | | | | 1,953,369 | |
| | 16,000 | | | Merck & Co. Inc. | | | 283,402 | | | | 1,377,920 | |
| | 12,000 | | | Novartis AG, ADR | | | 585,253 | | | | 912,120 | |
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | 1,600 | | | Organon & Co. | | $ | 12,724 | | | $ | 37,440 | |
| | 20,000 | | | Pfizer Inc. | | | 320,152 | | | | 875,200 | |
| | 42,500 | | | Roche Holding AG, ADR | | | 781,653 | | | | 1,726,350 | |
| | 2,000 | | | Zimmer Biomet Holdings Inc. | | | 158,739 | | | | 209,100 | |
| | 170 | | | Zimvie Inc.† | | | 3,097 | | | | 1,678 | |
| | | | | | | | 7,920,065 | | | | 22,132,359 | |
| | | | | Hotels and Gaming — 0.1% | | | | | | | | |
| | 12,000 | | | MGM Resorts International | | | 144,776 | | | | 356,640 | |
| | 1,500 | | | Wynn Resorts Ltd.† | | | 71,983 | | | | 94,545 | |
| | | | | | | | 216,759 | | | | 451,185 | |
| | | | | Machinery — 3.8% | | | | | | | | |
| | 6,000 | | | Caterpillar Inc. | | | 35,181 | | | | 984,480 | |
| | 47,800 | | | Deere & Co. | | | 1,549,705 | | | | 15,959,942 | |
| | 9,500 | | | Otis Worldwide Corp. | | | 365,921 | | | | 606,100 | |
| | 8,500 | | | Xylem Inc. | | | 274,006 | | | | 742,560 | |
| | | | | | | | 2,224,813 | | | | 18,293,082 | |
| | | | | Metals and Mining — 1.6% | | | | | | | | |
| | 80,000 | | | Freeport-McMoRan Inc. | | | 937,109 | | | | 2,186,400 | |
| | 136,500 | | | Newmont Corp. | | | 3,244,212 | | | | 5,737,095 | |
| | | | | | | | 4,181,321 | | | | 7,923,495 | |
| | | | | Paper and Forest Products — 0.1% | | | | | |
| | 21,500 | | | Svenska Cellulosa AB SCA, Cl. A | | | 89,315 | | | | 276,266 | |
| | | | | | | | | | | | | |
| | | | | Publishing — 0.0% | | | | | | | | |
| | 3,000 | | | Value Line Inc. | | | 41,976 | | | | 131,700 | |
| | | | | | | | | | | | | |
| | | | | Real Estate Investment Trusts — 0.5% | | | | | |
| | 7,800 | | | Indus Realty Trust Inc. | | | 224,765 | | | | 408,486 | |
| | 63,000 | | | Weyerhaeuser Co. | | | 991,974 | | | | 1,799,280 | |
| | | | | | | | 1,216,739 | | | | 2,207,766 | |
| | | | | Retail — 5.1% | | | | | | | | |
| | 14,000 | | | Cie Financiere Richemont SA, Cl. A | | | 470,500 | | | | 1,337,712 | |
| | 22,700 | | | Copart Inc.† | | | 200,428 | | | | 2,415,280 | |
| | 6,700 | | | Costco Wholesale Corp. | | | 307,049 | | | | 3,164,209 | |
| | 89,000 | | | CVS Health Corp. | | | 2,975,872 | | | | 8,487,930 | |
| | 46,500 | | | Ingles Markets Inc., Cl. A | | | 724,037 | | | | 3,683,265 | |
| | 67,000 | | | Seven & i Holdings Co. Ltd. | | | 2,010,760 | | | | 2,687,777 | |
| | 3,000 | | | The Home Depot Inc. | | | 83,470 | | | | 827,820 | |
| | 59,000 | | | Walgreens Boots Alliance Inc. | | | 1,805,941 | | | | 1,852,600 | |
| | 1,000 | | | Walmart Inc. | �� | | 43,340 | | | | 129,700 | |
| | | | | | | | 8,621,397 | | | | 24,586,293 | |
| | | | | Specialty Chemicals — 1.0% | | | | | | | | |
| | 2,700 | | | Albemarle Corp. | | | 27,305 | | | | 713,988 | |
| | 2,500 | | | Ashland Inc. | | | 58,813 | | | | 237,425 | |
| | 6,700 | | | FMC Corp. | | | 142,955 | | | | 708,190 | |
| | 44,000 | | | H.B. Fuller Co. | | | 908,899 | | | | 2,644,400 | |
See accompanying notes to financial statements.
The Gabelli Equity Income Fund
Schedule of Investments (Continued) — September 30, 2022
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | | | COMMON STOCKS (Continued) | | | | |
| | | | | Specialty Chemicals (Continued) | | | | | | |
| | 2,000 | | | NewMarket Corp. | | $ | 7,719 | | | $ | 601,660 | |
| | 600 | | | Quaker Chemical Corp. | | | 6,478 | | | | 86,628 | |
| | | | | | | | 1,152,169 | | | | 4,992,291 | |
| | | | | Telecommunications — 3.6% | | | | | | | | |
| | 105,000 | | | BCE Inc. | | | 2,004,577 | | | | 4,403,700 | |
| | 190,000 | | | Deutsche Telekom AG, ADR | | | 2,540,249 | | | | 3,241,400 | |
| | 12,000 | | | Orange SA, ADR | | | 138,547 | | | | 107,880 | |
| | 2,000 | | | Proximus SA | | | 36,706 | | | | 20,767 | |
| | 65,000 | | | Telefonica SA, ADR | | | 274,093 | | | | 210,600 | |
| | 121,500 | | | Telephone and Data Systems Inc. | | | 3,227,521 | | | | 1,688,850 | |
| | 94,000 | | | TELUS Corp. | | | 713,431 | | | | 1,866,840 | |
| | 160,000 | | | Verizon Communications Inc. | | | 5,448,818 | | | | 6,075,200 | |
| | | | | | | | 14,383,942 | | | | 17,615,237 | |
| | | | | Transportation — 1.7% | | | | | | | | |
| | 98,700 | | | GATX Corp. | | | 3,135,264 | | | | 8,404,305 | |
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | | | | Wireless Communications — 0.0% | | | | | |
| | 74,000 | | | BT Group plc, Cl. A | | $ | 206,260 | | | $ | 100,265 | |
| | 10,000 | | | Telesat Corp., New York† | | | 111,800 | | | | 78,100 | |
| | 20,000 | | | Turkcell Iletisim Hizmetleri A/S, ADR | | | 91,562 | | | | 53,200 | |
| | | | | | | | 409,622 | | | | 231,565 | |
| | | | | TOTAL COMMON STOCKS | | | 185,069,912 | | | | 479,434,805 | |
| | | | | | | | | | | | | |
| | | | | WARRANTS — 0.0% | | | | | | | | |
| | | | | Retail — 0.0% | | | | | | | | |
| | 28,000 | | | Cie Financiere Richemont SA, expire 11/22/23† | | | 0 | | | | 12,486 | |
| | | | | | | | | | | | | |
| | | | | TOTAL INVESTMENTS — 98.6% | | $ | 185,069,912 | | | | 479,447,291 | |
| | | | | | | | | | | | | |
| | | | | Other Assets and Liabilities (Net) — 1.4% | | | | 6,599,210 | |
| | | | | | | | | | | | | |
| | | | | NET ASSETS — 100.0% | | | | | | $ | 486,046,501 | |
| † | Non-income producing security. |
| ADR | American Depositary Receipt |
See accompanying notes to financial statements.
The Gabelli Equity Income Fund
Statement of Assets and Liabilities
September 30, 2022
| Assets: | | | |
| Investments, at value (cost $185,069,912) | | $ | 479,447,291 | |
| Cash | | | 5,561 | |
| Receivable for Fund shares sold | | | 11,737,802 | |
| Dividends receivable | | | 1,268,456 | |
| Prepaid expenses | | | 28,430 | |
| Total Assets | | | 492,487,540 | |
| Liabilities: | | | | |
| Line of credit payable | | | 5,258,000 | |
| Payable for Fund shares redeemed | | | 439,069 | |
| Payable for investment advisory fees | | | 421,038 | |
| Payable for distribution fees | | | 100,300 | |
| Payable for accounting fees | | | 7,500 | |
| Other accrued expenses | | | 215,132 | |
| Total Liabilities | | | 6,441,039 | |
| Net Assets | | | | |
| (applicable to 63,473,682 shares outstanding) | | $ | 486,046,501 | |
| Net Assets Consist of: | | | | |
| Paid-in capital | | $ | 195,568,509 | |
| Total distributable earnings | | | 290,477,992 | |
| Net Assets | | $ | 486,046,501 | |
| | | | | |
| Shares of Capital Stock, each at $0.001 par value: | | | | |
| Class AAA: | | | | |
| Net Asset Value, offering, and redemption price per share ($230,926,021 ÷ 28,535,920 shares outstanding; 150,000,000 shares authorized) | | $ | 8.09 | |
| Class A: | | | | |
| Net Asset Value and redemption price per share ($95,185,378 ÷ 11,959,639 shares outstanding; 50,000,000 shares authorized) | | $ | 7.96 | |
| Maximum offering price per share (NAV ÷ 0.9425, based on maximum sales charge of 5.75% of the offering price) | | $ | 8.45 | |
| Class C: | | | | |
| Net Asset Value and redemption price per share ($31,619,853 ÷ 9,264,294 shares outstanding; 50,000,000 shares authorized) | | $ | 3.41 | (a) |
| Class I: | | | | |
| Net Asset Value, offering, and redemption price per share ($128,315,249 ÷ 13,713,829 shares outstanding; 50,000,000 shares authorized) | | $ | 9.36 | |
Statement of Operations
For the Year Ended September 30, 2022
| Investment Income: | | | |
| Dividends (net of foreign withholding taxes of $306,110) | | $ | 11,123,598 | |
| Interest | | | 5,238 | |
| Total Investment Income | | | 11,128,836 | |
| Expenses: | | | | |
| Investment advisory fees. | | | 5,636,697 | |
| Distribution fees - Class AAA | | | 702,567 | |
| Distribution fees - Class A | | | 268,179 | |
| Distribution fees - Class C | | | 437,816 | |
| Shareholder services fees | | | 391,143 | |
| Shareholder communications expenses | | | 156,837 | |
| Custodian fees | | | 91,124 | |
| Legal and audit fees | | | 68,745 | |
| Registration expenses | | | 64,512 | |
| Directors’ fees | | | 45,273 | |
| Accounting fees | | | 45,000 | |
| Interest expense | | | 18,316 | |
| Miscellaneous expenses | | | 49,249 | |
| Total Expenses | | | 7,975,458 | |
| Less: | | | | |
| Expenses paid indirectly by broker (See Note 6) | | | (4,725 | ) |
| Net Expenses | | | 7,970,733 | |
| Net Investment Income | | | 3,158,103 | |
| Net Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency: | | | | |
| Net realized gain on investments | | | 44,895,112 | |
| Net realized loss on foreign currency transactions | | | (17,254 | ) |
| Net realized gain on investments and foreign currency transactions | | | 44,877,858 | |
| Net change in unrealized appreciation/depreciation: | | | | |
| on investments | | | (100,590,233 | ) |
| on foreign currency translations | | | (18,793 | ) |
| Net change in unrealized appreciation/depreciation on investments and foreign currency translations | | | (100,609,026 | ) |
| Net Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency | | | (55,731,168 | ) |
| Net Decrease in Net Assets Resulting from Operations | | $ | (52,573,065 | ) |
(a) Redemption price varies based on the length of time held.
See accompanying notes to financial statements.
The Gabelli Equity Income Fund
Statement of Changes in Net Assets
| | | Year Ended
September 30, 2022 | | | Year Ended
September 30, 2021 | |
| | | | | | | |
| Operations: | | | | | | | | |
| Net investment income | | $ | 3,158,103 | | | $ | 3,696,072 | |
| Net realized gain on investments, securities sold short, and foreign currency transactions | | | 44,877,858 | | | | 68,927,126 | |
| Net change in unrealized appreciation/depreciation on investments and foreign currency translations | | | (100,609,026 | ) | | | 82,921,021 | |
| Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (52,573,065 | ) | | | 155,544,219 | |
| | | | | | | | | |
| Distributions to Shareholders: | | | | | | | | |
| Accumulated earnings | | | | | | | | |
| Class AAA | | | (22,272,154 | ) | | | (33,908,511 | ) |
| Class A | | | (8,652,015 | ) | | | (10,265,934 | ) |
| Class C | | | (7,436,270 | ) | | | (11,014,210 | ) |
| Class I | | | (9,375,536 | ) | | | (14,518,170 | ) |
| | | | (47,735,975 | ) | | | (69,706,825 | ) |
| Return of capital | | | | | | | | |
| Class AAA | | | (25,806,376 | ) | | | (23,401,915 | ) |
| Class A | | | (10,503,964 | ) | | | (8,046,305 | ) |
| Class C | | | (5,196,111 | ) | | | (7,915,693 | ) |
| Class I | | | (12,186,613 | ) | | | (8,957,061 | ) |
| | | | (53,693,064 | ) | | | (48,320,974 | ) |
| Total Distributions to Shareholders | | | (101,429,039 | ) | | | (118,027,799 | ) |
| | | | | | | | | |
| Capital Share Transactions: | | | | | | | | |
| Class AAA | | | 6,853,900 | | | | 1,047,718 | |
| Class A | | | 26,476,191 | | | | 25,393,934 | |
| Class C | | | (3,093,552 | ) | | | 1,702,442 | |
| Class I | | | 28,598,222 | | | | (11,136,577 | ) |
| | | | | | | | | |
| Net Increase in Net Assets from Capital Share Transactions | | | 58,834,761 | | | | 17,007,517 | |
| | | | | | | | | |
| Redemption Fees | | | 428 | | | | 215 | |
| | | | | | | | | |
| Net Increase/(Decrease) in Net Assets | | | (95,166,915 | ) | | | 54,524,152 | |
| Net Assets: | | | | | | | | |
| Beginning of year | | | 581,213,416 | | | | 526,689,264 | |
| End of year | | $ | 486,046,501 | | | $ | 581,213,416 | |
See accompanying notes to financial statements.
The Gabelli Equity Income Fund
Financial Highlights
Selected data for a share of capital stock outstanding throughout each year:
| | | | | | Income (Loss) from Investment
Operations | | Distributions | | | | | | | | | | | Ratios to Average Net Assets/Supplemental Data |
Year Ended
September 30 | | Net Asset Value,
Beginning of Year | | Net Investment
Income (Loss)(a) | | Net Realized
and Unrealized
Gain (Loss) on
Investments | | | Total from
Investment
Operations | | Net Investment
Income | | Net Realized
Gain on
Investments | | Return of Capital | | Total Distributions | | Redemption Fees(a)(b) | | Net Asset Value,
End of Year | | Total Return† | | Net Assets, End of
Year (in 000’s) | | Net Investment
Income (Loss) | | Operating Expenses(c)(d) | | Portfolio
Turnover
Rate |
| Class AAA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 10.85 | | | $ | 0.06 | | | $ | (1.01 | ) | | $ | (0.95 | ) | | $ | (0.06 | ) | | $ | (0.78 | ) | | $ | (0.97 | ) | | $ | (1.81 | ) | | $ | 0.00 | | | $ | 8.09 | | | (10.08 | )% | | $ | 230,926 | | | 0.56 | % | | 1.42 | % | | 1 | % |
| 2021 | | | 10.04 | | | | 0.07 | | | | 3.00 | | | | 3.07 | | | | (0.08 | ) | | | (1.24 | ) | | | (0.94 | ) | | | (2.26 | ) | | | 0.00 | | | | 10.85 | | | 31.32 | | | | 297,369 | | | 0.64 | | | 1.42 | | | 1 | |
| 2020 | | | 13.61 | | | | 0.10 | (e) | | | (0.02 | ) | | | 0.08 | | | | (0.11 | ) | | | (2.39 | ) | | | (1.15 | ) | | | (3.65 | ) | | | 0.00 | | | | 10.04 | | | 0.93 | | | | 272,980 | | | 0.75 | (e) | | 1.45 | | | 0 | (f) |
| 2019 | | | 19.09 | | | | 0.13 | | | | (0.38 | ) | | | (0.25 | ) | | | (0.15 | ) | | | (3.72 | ) | | | (1.36 | ) | | | (5.23 | ) | | | 0.00 | | | | 13.61 | | | (1.09 | ) | | | 377,589 | | | 0.76 | | | 1.45 | | | 1 | |
| 2018 | | | 22.84 | | | | 0.19 | | | | 1.34 | | | | 1.53 | | | | (0.20 | ) | | | (3.68 | ) | | | (1.40 | ) | | | (5.28 | ) | | | 0.00 | | | | 19.09 | | | 6.77 | | | | 521,485 | | | 0.82 | | | 1.40 | | | 0 | (f) |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 10.69 | | | $ | 0.06 | | | $ | (0.99 | ) | | $ | (0.93 | ) | | $ | (0.06 | ) | | $ | (0.77 | ) | | $ | (0.97 | ) | | $ | (1.80 | ) | | $ | 0.00 | | | $ | 7.96 | | | (10.05 | )% | | $ | 95,186 | | | 0.57 | % | | 1.42 | % | | 1 | % |
| 2021 | | | 9.92 | | | | 0.08 | | | | 2.95 | | | | 3.03 | | | | (0.08 | ) | | | (1.24 | ) | | | (0.94 | ) | | | (2.26 | ) | | | 0.00 | | | | 10.69 | | | 31.31 | | | | 98,631 | | | 0.65 | | | 1.42 | | | 1 | |
| 2020 | | | 13.49 | | | | 0.10 | (e) | | | (0.02 | ) | | | 0.08 | | | | (0.11 | ) | | | (2.39 | ) | | | (1.15 | ) | | | (3.65 | ) | | | 0.00 | | | | 9.92 | | | 0.95 | | | | 69,201 | | | 0.75 | (e) | | 1.45 | | | 0 | (f) |
| 2019 | | | 18.97 | | | | 0.13 | | | | (0.38 | ) | | | (0.25 | ) | | | (0.15 | ) | | | (3.72 | ) | | | (1.36 | ) | | | (5.23 | ) | | | 0.00 | | | | 13.49 | | | (1.08 | ) | | | 72,778 | | | 0.76 | | | 1.45 | | | 1 | |
| 2018 | | | 22.73 | | | | 0.19 | | | | 1.33 | | | | 1.52 | | | | (0.20 | ) | | | (3.68 | ) | | | (1.40 | ) | | | (5.28 | ) | | | 0.00 | | | | 18.97 | | | 6.76 | | | | 86,332 | | | 0.82 | | | 1.40 | | | 0 | (f) |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 5.24 | | | $ | (0.01 | ) | | $ | (0.42 | ) | | $ | (0.43 | ) | | $ | (0.04 | ) | | $ | (0.78 | ) | | $ | (0.58 | ) | | $ | (1.40 | ) | | $ | 0.00 | | | $ | 3.41 | | | (10.84 | )% | | $ | 31,620 | | | (0.21 | )% | | 2.17 | % | | 1 | % |
| 2021 | | | 5.81 | | | | (0.01 | ) | | | 1.70 | | | | 1.69 | | | | (0.05 | ) | | | (1.24 | ) | | | (0.97 | ) | | | (2.26 | ) | | | 0.00 | | | | 5.24 | | | 30.29 | | | | 51,140 | | | (0.12 | ) | | 2.17 | | | 1 | |
| 2020 | | | 9.48 | | | | 0.00 | (b)(e) | | | (0.02 | ) | | | (0.02 | ) | | | (0.06 | ) | | | (2.39 | ) | | | (1.20 | ) | | | (3.65 | ) | | | 0.00 | | | | 5.81 | | | 0.27 | | | | 53,605 | | | 0.00 | (e)(g) | | 2.20 | | | 0 | (f) |
| 2019 | | | 15.03 | | | | (0.00 | )(b) | | | (0.32 | ) | | | (0.32 | ) | | | (0.05 | ) | | | (3.72 | ) | | | (1.46 | ) | | | (5.23 | ) | | | 0.00 | | | | 9.48 | | | (1.87 | ) | | | 100,467 | | | (0.00 | )(g) | | 2.20 | | | 1 | |
| 2018 | | | 19.17 | | | | 0.01 | | | | 1.13 | | | | 1.14 | | | | (0.07 | ) | | | (3.68 | ) | | | (1.53 | ) | | | (5.28 | ) | | | 0.00 | | | | 15.03 | | | 6.02 | | | | 176,167 | | | 0.07 | | | 2.15 | | | 0 | (f) |
| Class I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 12.35 | | | $ | 0.10 | | | $ | (1.17 | ) | | $ | (1.07 | ) | | $ | (0.08 | ) | | $ | (0.77 | ) | | $ | (1.06 | ) | | $ | (1.92 | ) | | $ | 0.00 | | | $ | 9.36 | | | (9.81 | )% | | $ | 128,315 | | | 0.81 | % | | 1.17 | % | | 1 | % |
| 2021 | | | 11.15 | | | | 0.12 | | | | 3.34 | | | | 3.46 | | | | (0.11 | ) | | | (1.24 | ) | | | (0.91 | ) | | | (2.26 | ) | | | 0.00 | | | | 12.35 | | | 31.71 | | | | 134,073 | | | 0.89 | | | 1.17 | | | 1 | |
| 2020 | | | 14.68 | | | | 0.14 | (e) | | | (0.02 | ) | | | 0.12 | | | | (0.14 | ) | | | (2.39 | ) | | | (1.12 | ) | | | (3.65 | ) | | | 0.00 | | | | 11.15 | | | 1.14 | | | | 130,903 | | | 1.00 | (e) | | 1.20 | | | 0 | (f) |
| 2019 | | | 20.13 | | | | 0.19 | | | | (0.41 | ) | | | (0.22 | ) | | | (0.19 | ) | | | (3.72 | ) | | | (1.32 | ) | | | (5.23 | ) | | | 0.00 | | | | 14.68 | | | (0.86 | ) | | | 208,893 | | | 1.00 | | | 1.20 | | | 1 | |
| 2018 | | | 23.75 | | | | 0.26 | | | | 1.40 | | | | 1.66 | | | | (0.26 | ) | | | (3.68 | ) | | | (1.34 | ) | | | (5.28 | ) | | | 0.00 | | | | 20.13 | | | 7.07 | | | | 357,812 | | | 1.08 | | | 1.15 | | | 0 | (f) |
| † | Total return represents aggregate total return of a hypothetical investment at the beginning of the year and sold at the end of the year including reinvestment of distributions and does not reflect the applicable sales charges. |
| (a) | Per share amounts have been calculated using the average shares outstanding method. |
| (b) | Amount represents less than $0.005 per share. |
| (c) | The Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. For all years presented, there was no impact on the expense ratios. |
| (d) | The Fund incurred interest expense during the fiscal years ended September 30, 2022, 2021, 2020, 2019, and 2018. If interest expense had not been incurred, the ratio of operating expenses to average net assets would have been 1.41%, 1.41%, 1.42%, 1.40%, and 1.39% (Class AAA and Class A), 2.16%, 2.16%, 2.17%, 2.15%, and 2.14% (Class C), and 1.16%, 1.16%, 1.17%, 1.15%, and 1.14% (Class I), respectively. |
| (e) | Includes income resulting from special dividends. Without these dividends, the per share income (loss) amounts would have been $0.09 (Class AAA and Class A), $(0.01) (Class C), and $0.13 (Class I), respectively, and the net investment income (loss) ratio would have been 0.68% (Class AAA and Class A), (0.07)% (Class C), and 0.93% (Class I), respectively. |
| (f) | Amount represents less than 0.5%. |
| (g) | Amount represents less than 0.005%. |
See accompanying notes to financial statements.
The Gabelli Equity Income Fund
Notes to Financial Statements
1. Organization. The Gabelli Equity Income Fund, a series of the Gabelli Equity Series Funds, Inc. (the Corporation), was incorporated on July 25, 1991 in Maryland. The Fund is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), and is one of four separately managed portfolios (collectively, the Portfolios) of the Corporation. The Fund seeks to provide a high level of total return on its assets with an emphasis on income. The Fund commenced investment operations on January 2, 1992.
2. Significant Accounting Policies. As an investment company, the Fund follows the investment company accounting and reporting guidance, which is part of U.S. generally accepted accounting principles (GAAP) that may require the use of management estimates and assumptions in the preparation of its 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.
The global outbreak of the novel coronavirus disease, known as COVID-19, has caused adverse effects on many companies, sectors, nations, regions, and the markets in general, and may continue for an unpredictable duration. The effects of this pandemic may materially impact the value and performance of the Fund, its ability to buy and sell fund investments at appropriate valuations, and its ability to achieve its investment objectives.
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 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 obligations 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, 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. Certain securities are valued principally using dealer quotations. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. OTC futures and options on futures for which market quotations are readily available will be valued by quotations received from a pricing service or, if no quotations are available from a pricing service, by quotations obtained from one of more dealers in the instrument in question by the Adviser.
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 with the valuation and changes in valuation of similar securities, including a comparison of foreign securities with the equivalent U.S.
The Gabelli Equity Income Fund
Notes to Financial Statements (Continued)
dollar value American Depositary Receipt 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.
The inputs and valuation techniques used to measure fair value of the Fund’s investments are summarized into three levels as described in the hierarchy below:
| ● | Level 1 — quoted prices in active markets for identical securities; |
| ● | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.); and |
| ● | Level 3 — significant unobservable inputs (including the Board’s determinations as to the fair value of investments). |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in the aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of the Fund’s investments in securities by inputs used to value the Fund’s investments as of September 30, 2022 is as follows:
| | | Valuation Inputs | | | | |
| | | Level 1
Quoted Prices | | | Total Market Value
at 09/30/22 | |
| INVESTMENTS IN SECURITIES: | | | | | | |
| ASSETS (Market Value): | | | | | | |
| Common Stocks (a) | | $ | 479,434,805 | | | $ | 479,434,805 | |
| Warrants (a) | | | 12,486 | | | | 12,486 | |
| TOTAL INVESTMENTS IN SECURITIES – ASSETS | | $ | 479,447,291 | | | $ | 479,447,291 | |
| (a) | Please refer to the Schedule of Investments for the industry classifications of these portfolio holdings. |
The Fund held no Level 3 investments at September 30, 2022 or September 30, 2021.
Additional Information to Evaluate Qualitative Information.
General. The Fund uses recognized industry pricing services – approved by the Board and unaffiliated with the Adviser – to value most of its securities, and uses broker quotes provided by market makers of securities not valued by these and other recognized pricing sources. Several different pricing feeds are received to value domestic equity securities, international equity securities, preferred equity securities, and fixed income securities. The data within these feeds are ultimately sourced from major stock exchanges and trading systems where these securities trade. The prices supplied by external sources are checked by obtaining quotations or actual transaction prices from market participants. If a price obtained from the pricing source is deemed unreliable, prices will be sought from another pricing service or from a broker/dealer that trades that security or similar securities.
Fair Valuation. Fair valued securities may be common or preferred equities, warrants, options, rights, or fixed income obligations. Where appropriate, Level 3 securities are those for which market quotations are not available, such as securities not traded for several days, or for which current bids are not available, or which are restricted as to transfer. When fair valuing a security, factors to consider include recent prices of comparable securities that are publicly traded, reliable prices of securities not publicly traded, the use of valuation models,
The Gabelli Equity Income Fund
Notes to Financial Statements (Continued)
current analyst reports, valuing the income or cash flow of the issuer, or cost if the preceding factors do not apply. A significant change in the unobservable inputs could result in a lower or higher value in Level 3 securities. The circumstances of Level 3 securities are frequently monitored to determine if fair valuation measures continue to apply.
The Adviser reports quarterly to the Board the results of the application of fair valuation policies and procedures. These may include backtesting the prices realized in subsequent trades of these fair valued securities to fair values previously recognized.
Securities Sold Short. The Fund enters 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 broker retains collateral for the value of the open positions, which is adjusted periodically as the value of the position fluctuates. During the fiscal year ended September 30, 2022, there were no short sales outstanding.
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 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 purchase 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 inability 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 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 Securities. The Fund may invest up to 15% of its net assets in securities for which the markets are restricted. Restricted securities include securities whose disposition is subject to substantial legal or contractual
The Gabelli Equity Income Fund
Notes to Financial Statements (Continued)
restrictions. The sale of restricted securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than 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. At September 30, 2022, the Fund did not hold any restricted securities.
Securities Transactions and Investment Income. Securities transactions are accounted for on the trade date with realized gain/(loss) on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded on an accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method or amortized to earliest call date, if applicable. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities that are recorded as soon after the ex-dividend date as the Fund becomes aware of such dividends.
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.
Distributions to Shareholders. Distributions to shareholders are recorded on the ex-dividend date. The characterization of distributions to shareholders is 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 GAAP. 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 for federal income tax purposes 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. Permanent differences were primarily due to tax equalization utilized during the year, prior year post financial statement adjustments, and tax treatment of partnership expenses. These reclassifications have no impact on the NAV of the Fund. For the fiscal year ended September 30, 2022, reclassifications were made to increase paid-in capital by $372,852, with an offsetting adjustment to total distributable earnings.
The Gabelli Equity Income Fund
Notes to Financial Statements (Continued)
The tax character of distributions paid during the fiscal years ended September 30, 2022 and 2021 was as follows:
| | | Year Ended September 30, 2022* | | | Year Ended September 30, 2021* | |
| Distributions paid from: | | | | | | | | |
| Ordinary income | | $ | 3,432,763 | | | $ | 4,817,998 | |
| Net long term capital gains | | | 44,793,364 | | | | 67,752,576 | |
| Return of capital | | | 53,693,064 | | | | 48,320,974 | |
| Total distributions paid | | $ | 101,919,191 | | | $ | 120,891,548 | |
| * | Total distributions paid differs from the Statement of Changes in Net Assets due to the utilization of equalization. |
The Fund has a fixed distribution policy. Under the policy, the Fund declares and pays monthly distributions from net investment income, capital gains, and paid-in capital. The actual source of the distribution is determined after the end of the calendar year. Pursuant to this policy, distributions during the calendar year are made in excess of required distributions. To the extent such distributions are made from current earnings and profits, they are considered ordinary income or long term capital gains. Distributions sourced from paid-in capital should not be considered as dividend yield or the total return from an investment in the Fund. The Board 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.
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.
At September 30, 2022, the components of accumulated earnings/losses on a tax basis were as follows:
| Net unrealized appreciation on investments and foreign currency translations | | $ | 290,477,993 | |
| Total | | $ | 290,477,993 | |
At September 30, 2022, the temporary difference between book basis and tax basis net unrealized appreciation on investments was due to deferral of losses from wash sales for tax purposes and tax basis adjustments on investments in partnerships.
The following summarizes the tax cost of investments and the related net unrealized appreciation at September 30, 2022:
| | | Cost | | Gross Unrealized Appreciation | | Gross Unrealized Depreciation | | Net Unrealized Appreciation |
| Investments | | $188,955,354 | | $306,861,063 | | $(16,369,126) | | $290,491,937 |
The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the
The Gabelli Equity Income Fund
Notes to Financial Statements (Continued)
applicable tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the Statement of Operations if the tax positions were deemed not to meet the more-likely-than-not threshold. During the fiscal year ended September 30, 2022, the Fund did not incur any income tax, interest, or penalties. As of September 30, 2022, the Adviser has reviewed all open tax years and concluded that there was no impact to the Fund’s net assets or results of operations. The Fund’s federal and state tax returns for the prior three fiscal years remain open, subject to examination. On an ongoing basis, the Adviser will monitor the Fund’s tax positions to determine if adjustments to this conclusion are necessary.
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.
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. Under the Class AAA, Class A, and Class C Share Plans, payments are authorized to G.distributors, LLC (the Distributor), an affiliate of the Adviser, at annual rates of 0.25%, 0.25%, 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 sales of securities during the fiscal year ended September 30, 2022, other than short term securities and U.S. Government obligations, aggregated $2,911,825 and $59,112,974, respectively.
6. Transactions with Affiliates and Other Arrangements. During the fiscal year ended September 30, 2022, the Fund paid $3,923 in brokerage commissions on security trades to G.research, LLC, an affiliate of the Adviser. Additionally, the Distributor retained a total of $104,877 from investors representing commissions (sales charges and underwriting fees) on sales and redemptions of Fund shares.
During the fiscal year ended September 30, 2022, the Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. The amount of such expenses paid through this directed brokerage arrangement during this period was $4,725.
The cost of calculating the Fund’s NAV per share is a Fund expense pursuant to the Advisory Agreement. During the fiscal year ended September 30, 2022, the Fund accrued $45,000 in connection with the cost of computing the Fund's NAV.
The Corporation pays retainer and per meeting fees to Directors not affiliated with the Adviser, plus specified amounts to the Lead Director and Audit Committee Chairman. Directors are also reimbursed for out of pocket expenses incurred in attending meetings. Directors who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Corporation.
7. Line of Credit. The Fund participates in an unsecured line of credit, which expires on March 1, 2023 and may be renewed annually, of up to $75,000,000 under which it may borrow up to 10% of its net assets from the bank for temporary borrowing purposes. Borrowings under this arrangement bear interest at a floating rate equal to the higher of the Overnight Federal Funds Rate plus 135 basis points or the Overnight Bank Funding
The Gabelli Equity Income Fund
Notes to Financial Statements (Continued)
Rate plus 135 basis points in effect on that day. This amount, if any, would be included in “Interest expense” in the Statement of Operations. At September 30, 2022, there was $5,258,000 outstanding under the line of credit.
The average daily amount of borrowings outstanding under the line of credit during the fiscal year ended September 30, 2022 was $1,819,827 with a weighted average interest rate of 1.70%. The maximum amount borrowed at any time during the fiscal year ended September 30, 2022 was $12,402,000.
8. Capital Stock. The Fund offers three classes of shares – Class AAA Shares, Class A Shares, and Class I Shares. Effective January 3, 2022, the Fund’s Class C Shares were “closed to all purchases.” “Closed to all purchases” means neither new investors nor existing shareholders may purchase any additional Class C Shares after the Effective Date. These changes will have no effect on existing shareholders’ ability to redeem shares of the Fund as described in the Fund’s Prospectus. Class AAA and Class I Shares are offered without a sales charge. Class A Shares are subject to a maximum front-end sales charge of 5.75%. Class C Shares are subject to a 1.00% contingent deferred sales charge for one year after purchase.
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 as an increase in paid-in capital. The redemption fees retained by the Fund during the fiscal years ended September 30, 2022 and 2021, if any, can be found in the Statement of Changes in Net Assets under Redemption Fees.
The Gabelli Equity Income Fund
Notes to Financial Statements (Continued)
Transactions in shares of capital stock were as follows:
| | | Year Ended
September 30, 2022 | | | Year Ended
September 30, 2021 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Class AAA | | | | | | | | | | | | | | |
| Shares sold | | 645,461 | | | $ | 6,748,143 | | | 719,191 | | | $ | 8,391,443 | |
| Shares issued upon reinvestment of distributions | | 4,931,483 | | | | 46,611,265 | | | 4,944,370 | | | | 55,696,708 | |
| Shares redeemed | | (4,439,438 | ) | | | (46,505,508 | ) | | (5,455,710 | ) | | | (63,040,433 | ) |
| Net increase | | 1,137,506 | | | $ | 6,853,900 | | | 207,851 | | | $ | 1,047,718 | |
| Class A | | | | | | | | | | | | | | |
| Shares sold | | 3,034,549 | | | $ | 31,417,004 | | | 3,025,728 | | | $ | 34,701,143 | |
| Shares issued upon reinvestment of distributions | | 1,968,136 | | | | 18,209,199 | | | 1,538,993 | | | | 17,114,296 | |
| Shares redeemed | | (2,267,796 | ) | | | (23,150,012 | ) | | (2,318,146 | ) | | | (26,421,505 | ) |
| Net increase | | 2,734,889 | | | $ | 26,476,191 | | | 2,246,575 | | | $ | 25,393,934 | |
| Class C | | | | | | | | | | | | | | |
| Shares sold | | 1,055,129 | | | $ | 5,423,547 | | | 1,812,023 | | | $ | 11,756,248 | |
| Shares issued upon reinvestment of distributions | | 2,813,019 | | | | 12,443,798 | | | 3,201,433 | | | | 18,582,717 | |
| Shares redeemed | | (4,363,620 | ) | | | (20,960,897 | ) | | (4,487,597 | ) | | | (28,636,523 | ) |
| Net increase/(decrease) | | (495,472 | ) | | $ | (3,093,552 | ) | | 525,859 | | | $ | 1,702,442 | |
| Class I | | | | | | | | | | | | | | |
| Shares sold | | 3,822,498 | | | $ | 42,274,555 | | | 1,707,653 | | | $ | 22,716,891 | |
| Shares issued upon reinvestment of distributions | | 1,978,810 | | | | 21,251,482 | | | 1,824,386 | | | | 23,208,214 | |
| Shares redeemed | | (2,943,248 | ) | | | (34,927,815 | ) | | (4,414,403 | ) | | | (57,061,682 | ) |
| Net increase/(decrease) | | 2,858,060 | | | $ | 28,598,222 | | | (882,364 | ) | | $ | (11,136,577 | ) |
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. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
10. Subsequent Events. Management has evaluated the impact on the Fund of all subsequent events occurring through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
The Gabelli Equity Income Fund
Report of Independent Registered Public Accounting Firm
To the Shareholders of The Gabelli Equity Income Fund
and the Board of Directors of Gabelli Equity Series Funds, Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of The Gabelli Equity Income Fund (the “Fund”) (one of the funds constituting Gabelli Equity Series Funds, Inc. (the “Corporation”)), including the schedule of investments, as of September 30, 2022, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting Gabelli Equity Series Funds, Inc.) at September 30, 2022, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of the Corporation’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2022, by correspondence with the custodian, brokers and others; when replies were not received from brokers and others, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Gabelli Funds investment companies since 1992.
New York, New York
November 29, 2022
The Gabelli Equity Income Fund
Liquidity Risk Management Program (Unaudited)
In accordance with Rule 22e-4 under the 1940 Act, the Fund has established a liquidity risk management program (the LRM Program) to govern its approach to managing liquidity risk. The LRM Program is administered by the Liquidity Committee (the Committee), which is comprised of members of Gabelli Funds, LLC management. The Board has designated the Committee to administer the LRM Program.
The LRM Program’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. The LRM Program also includes elements that support the management and assessment of liquidity risk, including an annual assessment of factors that influence the Fund’s liquidity and the monthly classification and re-classification of certain investments that reflect the Committee’s assessment of their relative liquidity under current market conditions.
At a meeting of the Board held on August 16, 2022, the Board received a written report from the Committee regarding the design and operational effectiveness of the LRM Program. The Committee determined, and reported to the Board, that the LRM Program is reasonably designed to assess and manage the Fund’s liquidity risk and has operated adequately and effectively since its implementation. The Committee reported that there were no liquidity events that impacted the Fund or its ability to timely meet redemptions without dilution to existing shareholders. The Committee noted that the Fund is primarily invested in highly liquid securities and, accordingly, continues to be exempt from the requirement to determine a “highly liquid investment minimum” as defined in the Rule 22e-4. Because of that continued qualification for the exemption, the Fund has not adopted a “highly liquid investment minimum” amount. The Committee further noted that while changes to the LRM Program were made during the Review Period and reported to the Board, no material changes were made to the LRM Program as a result of the Committee’s annual review.
There can be no assurance that the LRM Program will achieve its objectives in the future. Please refer to the Fund’s Prospectus for more information regarding its exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.
The Gabelli Equity Income Fund
Additional Fund Information (Unaudited)
The business and affairs of the Corporation are managed under the direction of the Corporation’s Board of Directors. Information pertaining to the Directors and Officers of the Corporation is set forth below. The Corporation’s Statement of Additional Information includes additional information about the Corporation’s Directors and is available without charge, upon request, by calling 800-GABELLI (800-422-3554) or by writing to The Gabelli Equity Income Fund at One Corporate Center, Rye, NY 10580-1422.
Name, Position(s)
Address1
and Age | | Term of Office
and
Length of
Time Served2 | | Number of
Funds
in Fund
Complex
Overseen
by Director | | Principal Occupation(s)
During Past Five Years | | Other Directorships
Held by Director3 |
| | | | | | | | | |
| INTERESTED DIRECTORS4: | | | | | | |
| | | | | | | |
Mario J. Gabelli, CFA
Director and Chief Investment Officer
Age: 80 | | Since 1991 | | 31 | | Chairman, Chief Executive Officer, and Chief Investment Officer - Value Portfolios of GAMCO Investors, Inc. and Chief Investment Officer - Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management, Inc.; Director/Trustee or Chief Investment Officer of other registered investment companies within the Gabelli Fund Complex; Chief Executive Officer of GGCP, Inc.; Executive Chairman of Associated Capital Group, Inc. | | Director of Morgan Group Holding, Co. (holding company) (2001-2019); Chairman of the Board and Chief Executive Officer of LICT Corp. (multimedia and communication services company); Director of CIBL, Inc. (broadcasting and wireless communications); Director of ICTC Group Inc. (communications) (2013-2018) |
| | | | | | | | | |
John D. Gabelli
Director
Age: 78 | | Since 1991 | | 12 | | Former Senior Vice President of G.research, LLC (and its predecessor) (1991-2019) | | — |
| | | | | | | | | |
| INDEPENDENT DIRECTORS5: | | | | | | |
| | | | | | | |
Elizabeth C. Bogan
Director
Age: 78 | | Since 2019 | | 12 | | Senior Lecturer in Economics at Princeton University | | — |
| | | | | | | | | |
Anthony J. Colavita6
Director
Age: 86 | | Since 1991 | | 18 | | President of the law firm of Anthony J. Colavita, P.C. | | — |
| | | | | | | | | |
Vincent D. Enright
Director
Age: 78 | | Since 1991 | | 17 | | Former Senior Vice President and Chief Financial Officer of KeySpan Corp. (public utility) (1994-1998) | | Director of Echo Therapeutics, Inc. (therapeutics and diagnostics) (2008-2014); Director of The LGL Group, Inc. (diversified manufacturing) (2011-2014) |
| | | | | | | | | |
Robert J. Morrissey
Director
Age: 83 | | Since 1991 | | 7 | | Partner in the law firm of Morrissey, Hawkins & Lynch | | Chairman of the Board of Directors, Belmont Savings Bank |
The Gabelli Equity Income Fund
Additional Fund Information (Unaudited) (Continued)
Name, Position(s)
Address1
and Age | | Term of Office
and
Length of
Time Served2 | | Number of
Funds
in Fund
Complex
Overseen
by Director | | Principal Occupation(s)
During Past Five Years | | Other Directorships
Held by Director3 |
| | | | | | | | | |
Kuni Nakamura
Director
Age: 54 | | Since 2009 | | 36 | | President of Advanced Polymer, Inc. (chemical manufacturing company); President of KEN Enterprises, Inc. (real estate); Trustee on Long Island University Board of Trustees; Trustee on Fordham Preparatory School Board of Trustees | | — |
| | | | | | | | | |
Anthonie C. van Ekris6
Director
Age: 88 | | Since 1991 | | 23 | | Chairman and Chief Executive Officer of BALMAC International, Inc.(global import/export company) | | — |
| | | | | | | | | |
Salvatore J. Zizza7
Director
Age: 76 | | Since 2001 | | 34 | | President of Zizza & Associates Corp. (private holding company); Chairman of Bergen Cove Realty Inc. (residential real estate) | | Director and Chairman of Trans-Lux Corporation (business services); Director and Chairman of Harbor Diversified Inc. (pharmaceuticals) (2009-2018); Retired Chairman of BAM (semiconductor and aerospace manufacturing) |
The Gabelli Equity Income Fund
Additional Fund Information (Unaudited) (Continued)
Name, Position(s)
Address1
and Age | | Term of Office
and Length of
Time Served2 | | Principal Occupation(s)
During Past Five Years |
| | | | | |
| OFFICERS: | | | | |
| | | | | |
John C. Ball
President and Treasurer
Age: 46 | | Since 2017 | | Officer of registered investment companies within the Gabelli Fund Complex since 2017; Vice President and Assistant Treasurer of AMG Funds, 2014-2017; Chief Executive Officer, G.distributors, LLC since December 2020 |
| | | | | |
Peter Goldstein
Secretary and Vice President
Age: 69 | | Since 2020 | | General Counsel, GAMCO Investors, Inc. and Chief Legal Officer, Associated Capital Group, Inc. since 2021; General Counsel and Chief Compliance Officer, Buckingham Capital Management, Inc. (2012-2020); Chief Legal Officer and Chief Compliance Officer, The Buckingham Research Group, Inc. (2012-2020) |
| | | | | |
Richard J. Walz
Chief Compliance Officer
Age: 63 | | Since 2013 | | Chief Compliance Officer of registered investment companies within the Gabelli Fund Complex since 2013 |
| 1 | Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. |
| 2 | Each Director will hold office for an indefinite term until the earliest of (i) the next meeting of shareholders, if any, called for the purpose of considering the election or re-election of such Director and until the election and qualification of his or her successor, if any, elected at such meeting, or (ii) the date a Director resigns or retires, or a Director is removed by the Board of Directors or shareholders, in accordance with the Fund’s By-Laws and Articles of Incorporation. For officers, includes time served in prior officer positions with the Fund. Each officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected and qualified. |
| 3 | This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934, as amended, i.e., public companies, or other investment companies registered under the 1940 Act. |
| 4 | “Interested person” of the Fund as defined in the 1940 Act. Messrs. Gabelli are each considered an “interested person” because of their affiliation with Gabelli Funds, LLC which acts as the Fund’s investment adviser. Mario J. Gabelli and John D. Gabelli are brothers. |
| 5 | Directors who are not interested persons are considered “Independent” Directors. |
| 6 | Mr. Colavita’s son, Anthony S. Colavita, serves as a director of other funds in the Gabelli Fund Complex. Mr. van Ekris is an independent director of Gabelli International Ltd., Gabelli Fund, LDC, GAMA Capital Opportunities Master, Ltd., and GAMCO International SICAV, which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. |
| 7 | Mr. Zizza is an independent director of Gabelli International Ltd., which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. On September 9, 2015, Mr. Zizza entered into a settlement with the SEC to resolve an inquiry relating to an alleged violation regarding the making of false statements or omissions to the accountants of a company concerning a related party transaction. The company in question is not an affiliate of, nor has any connection to, the Fund. Under the terms of the settlement, Mr. Zizza, without admitting or denying the SEC’s findings and allegation, paid $150,000 and agreed to cease and desist committing or causing any future violations of Rule 13b2-2 of the Securities Exchange Act of 1934, as amended. The Board has discussed this matter and has determined that it does not disqualify Mr. Zizza from serving as an Independent Director. |
Gabelli Funds and Your Personal Privacy
Who are we?
The Gabelli Funds are investment companies registered with the Securities and Exchange Commission under the Investment Company Act of 1940. We are managed by Gabelli Funds, LLC, which is affiliated with GAMCO Investors, Inc., a publicly held company with subsidiaries and affiliates that provide investment advisory services for a variety of clients.
What kind of non-public information do we collect about you if you become a fund shareholder?
If you apply to open an account directly with us, you will be giving us some non-public information about yourself. The non-public information we collect about you is:
| ● | Information you give us on your application form. This could include your name, address, telephone number, social security number, bank account number, and other information. |
| ● | Information about your transactions with us, any transactions with our affiliates, and transactions with the entities we hire to provide services to you. This would include information about the shares that you buy or redeem. If we hire someone else to provide services — like a transfer agent — we will also have information about the transactions that you conduct through them. |
What information do we disclose and to whom do we disclose it?
We do not disclose any non-public personal information about our customers or former customers to anyone other than our affiliates, our service providers who need to know such information, and as otherwise permitted by law. If you want to find out what the law permits, you can read the privacy rules adopted by the Securities and Exchange Commission. They are in volume 17 of the Code of Federal Regulations, Part 248. The Commission often posts information about its regulations on its website, www.sec.gov.
What do we do to protect your personal information?
We restrict access to non-public personal information about you to the people who need to know that information in order to provide services to you or the fund and to ensure that we are complying with the laws governing the securities business. We maintain physical, electronic, and procedural safeguards to keep your personal information.
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THE GABELLI EQUITY INCOME FUND
2022 TAX NOTICE TO SHAREHOLDERS (Unaudited)
During the fiscal year ended September 30, 2022, the Fund paid to shareholders ordinary income distributions totaling $0.0585, $0.0589, $0.0370, and $0.0848 for each of Class AAA, Class A, Class C, and Class I, respectively, and long term capital gains totaling $44,793,364, or the maximum allowable. The distribution of long term capital gains has been designated as a capital gain dividend by the Fund’s Board of Directors. For the fiscal year ended September 30, 2022, 100% of the ordinary income distribution qualifies for the dividends received deduction available to corporations. The Fund designates 100% of the ordinary income distribution as qualified dividend income pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund designates 0.04% of the ordinary income distribution as qualified interest income pursuant to the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010.
U.S. Government Income:
The percentage of the ordinary income distribution paid by the Fund during the fiscal year ended September 30, 2022 which was derived from U.S. Treasury securities was 0.04%. Such income is exempt from state and local tax in all states. However, many states, including New York and California, allow a tax exemption for a portion of the income earned only if a mutual fund has invested at least 50% of its assets at the end of each quarter of the Fund’s fiscal year in U.S. Government securities. The Gabelli Equity Income Fund did not meet this strict requirement in 2022. The percentage of U.S. Government securities held as of September 30, 2022 was 0.00%. Due to the diversity in state and local tax law, it is recommended that you consult your personal tax adviser as to the applicability of the information provided to your specific situation.
___________
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
THE GABELLI EQUITY INCOME FUND
One Corporate Center
Rye, NY 10580-1422
Portfolio Manager’s Biography
Mario J. Gabelli, CFA, is Chairman, Chief Executive Officer, and Chief Investment Officer - Value Portfolios of GAMCO Investors, Inc. that he founded in 1977, and Chief Investment Officer - Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. He is also Executive Chairman of Associated Capital Group, Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School and Honorary Doctorates from Fordham University and Roger Williams University.
The Gabelli Small Cap Growth Fund
Annual Report — September 30, 2022
(Y)our Portfolio Management Team
| |  | |  | |
| | Mario J. Gabelli, CFA | | Gordon Grender | |
| | Chief Investment Officer | | Portfolio Manager | |
To Our Shareholders,
For the fiscal year ended September 30, 2022, the net asset value (NAV) total return per Class AAA Share of The Gabelli Small Cap Growth Fund was (17.1)% compared with a total return of (18.8)% for the Standard & Poor's (S&P) SmallCap 600 Index. Other classes of shares are available. See page 4 for performance information for all classes.
Enclosed are the financial statements, including the summary schedule of investments, as of September 30, 2022.
Investment Objective and Strategy (Unaudited)
Our stock selection process is based on the investment principles of Graham and Dodd, the first investors to articulate the fundamentals of value investing. Their work provided the framework for value investing, and we contributed to this framework with the discipline of Private Market Value with a Catalyst™. This proprietary research and valuation method identifies companies whose shares are selling at a discount to intrinsic value, with an identifiable path to realizing, or surfacing, that private market value. We define private market value as the price an informed acquirer would pay for an entire enterprise. The catalyst comprises identifiable events or circumstances that might reasonably result in the narrowing of the difference between the public market price of the stock and our estimate of the private market value. This realization of value can take place gradually or suddenly, with company specific changes such as management changes or restructurings, sale of assets or of the business as a whole, or industry changes such as changes in regulation or changes in competition.
The Fund invests primarily in small cap companies, that through bottom-up fundamental research, the portfolio manager believes are attractively priced relative to their earnings growth potential or private market value. The Fund characterizes small capitalization companies as those companies with a market capitalization of $3 billion or less at the time of the Fund's initial investment.
Performance Discussion (Unaudited)
During the fourth quarter of 2021 stock market volatility intensified and supply chain, labor, and raw material headwinds challenged operations for many companies, increasing inflation and the fear of higher interest rates. Despite this, consumer demand remained strong and in December the national unemployment level approached pre-pandemic levels when it declined to 3.9%. While the Omicron variant presented challenges, households and corporations were able to continue to operate with little restriction.
Markets declined in the first quarter of 2022 with the S&P 500 Index falling 4.6%. Two years of a macro environment underpinned by economic reopening and expansion was finally replaced by one with significantly elevated inflation, rising interest rates, and the first major war in Europe in over 70 years. At its March meeting, the Fed raised interest rates by a quarter percentage point and signaled hikes at all six remaining meetings this year, launching a campaign to tackle rampant inflation as risks to economic growth continued to mount.
In the second quarter of 2022, large and small capitalization stocks both declined, high grade bonds were down 7%, and gold retraced 3%. April and June brought some of biggest market declines in years as the reality of higher interest rates and the increasing prospect of a global slowdown took hold. While the rotation to Value that began in late 2021 continued into this year, by the end of Q2 there was no place to hide as energy stocks and other statistically cheap securities succumbed to the selling.
The third quarter of 2022 was the third straight quarter of the S&P 500 being down. Although the U.S. economy drew closer to normal after over two years of global pandemic shutdowns, and supply chain disruptions, the main concern investors faced was inflation. After keeping the Federal Funds rate near zero since just after the start of the COVID-19 pandemic, the Fed has been in catch-up mode and raising rates aggressively this year, including two 75 bps increases in the third quarter. Amid this tightening, signs of economic weakness are emerging, most notably in the housing market. Soaring mortgage rates sent home prices down 6% in August from their June peak, the biggest two month drop in nearly a decade. This weakness threatens to spill over to other areas of the economy imminently.
| As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund's annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund's website (www.gabelli.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. To elect to receive all future reports on paper free of charge, please contact your financial intermediary, or, if you invest directly with the Fund, you may call 800-422-3554 or send an email request to info@gabelli.com. |
Among our better performing stocks for the fiscal year were Mueller Industries, Inc. (2.6% of net assets as of September 30, 2022), a global industrial corporation whose holdings include manufacturers and distributors of technical and essential products, serving industries including plumbing, heating, HVACR, and industrial manufacturing. Mueller's second quarter net sales increased 13.6%, while operating income increased by 70%. The company also ended the quarter with no net debt; another top performer was Griffon Corp. (2.5%), a provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles in its Consumer and Profession Products segment, and residential and commercial sectional garage doors in its Home and Building Products segment. Griffon rebounded in its third fiscal quarter with a 31% increase in revenues and income from continuing operations that more than doubled.
A few of our weaker performers in the fiscal year included Dana Inc. (0.9%), a leading supplier of drivetrain and electric propulsion systems for passenger vehicles. Dana faces pressure from supply chain problems and growing inflation and, despite continued top line growth, has seen share prices decline. Another detractor was The Gorman-Rupp Co. (1.3%), a pump manufacturer offering more than 5,000 models of pumps and pumping systems for fluid-handling applications. Second quarter net sales increased by 28%, but gross margins were negatively impacted by the company's last in, first out (LIFO) accounting policy and acquired customer backlog amortization from its acquisition of Fill-Rite.
We appreciate your confidence and trust.
| The views expressed reflect the opinions of the Fund's portfolio managers and Gabelli Funds, LLC, the Adviser, as of the date of this report and are subject to change without notice based on changes in market, economic, or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results. |
Comparative Results
Average Annual Returns through September 30, 2022 (a)(b) (Unaudited)
Total returns and average annual returns reflect changes in share price, reinvestment of distributions, and are net of expenses.
| | | | | | | | | | | | | | | Since |
| | | | | | | | | | | | | | | Inception |
| | | | 1 Year | | | 5 Year | | | 10 Year | | | 15 Year | | (10/22/91) |
| Class AAA (GABSX) | | | (17.07 | )% | | | 3.13 | % | | | 8.33 | % | | | 6.79 | % | | | 11.16 | % |
| S&P SmallCap 600 Index (c) | | | (18.83 | ) | | | 4.84 | | | | 10.09 | | | | 7.77 | | | | N/A | |
| Lipper Small-Cap Core Funds Average (c) | | | (18.03 | ) | | | 4.44 | | | | 8.83 | | | | 6.65 | | | | N/A | |
| Class A (GCASX) (d) | | | (17.08 | ) | | | 3.13 | | | | 8.32 | | | | 6.78 | | | | 11.16 | |
| With sales charge (e) | | | (21.85 | ) | | | 1.92 | | | | 7.68 | | | | 6.36 | | | | 10.95 | |
| Class C (GCCSX) (d) | | | (17.69 | ) | | | 2.36 | | | | 7.51 | | | | 5.99 | | | | 10.66 | |
| With contingent deferred sales charge (f) | | | (18.52 | ) | | | 2.36 | | | | 7.51 | | | | 5.99 | | | | 10.66 | |
| Class I (GACIX) (d) | | | (16.88 | ) | | | 3.39 | | | | 8.59 | | | | 7.05 | | | | 11.30 | |
| (a) | The Fund's fiscal year ends September 30. |
| (b) | Returns would have been lower had the Adviser not reimbursed certain expenses of the Fund. The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days of purchase. |
| (c) | The S&P SmallCap 600 Index is an unmanaged indicator which measures the performance of the small-cap segment of the U.S. equity market. The inception date of the index is December 31, 1994. The Lipper Small-Cap Core Funds Average reflects the average performance of mutual funds classified in this particular category. The inception date of the index is December 31, 1991. Dividends are considered reinvested. You cannot invest directly in an index. |
| (d) | The Class AAA Share NAVs are used to calculate performance for the periods prior to the issuance of Class A Shares and Class C Shares on December 31, 2003, and Class I Shares on January 11, 2008. The actual performance of the Class A Shares and Class C Shares would have been lower due to the additional fees and expenses associated with these classes of shares. The actual performance of the Class I Shares would have been higher due to lower expenses related to this class of shares. |
| (e) | Performance results include the effect of the maximum 5.75% sales charge at the beginning of the period. |
| (f) | Assuming payment of the 1% maximum contingent deferred sales charge imposed on redemptions made within one year of purchase. |
In the current prospectuses dated January 28, 2022, the expense ratios for Class AAA, A, C, and I Shares are 1.38%, 1.38%, 2.13%, and 1.13%, respectively. See page 13 for the expense ratios for the year ended September 30, 2022. Class AAA and Class I Shares have no sales charge. The maximum sales charge for Class A Shares and Class C Shares is 5.75% and 1.00% respectively.
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. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at www.gabelli.com.
Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. 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.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI SMALL CAP GROWTH FUND CLASS AAA AND S&P SMALL CAP 600 INDEX (Unaudited)
| Average Annual Total Returns* |
| | 1 Year | 5 Year | 10 Year |
| Class AAA | (17.07)% | 3.13% | 8.33% |
* Past performance is not predictive of future results. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
| The Gabelli Small Cap Growth Fund | |
| Disclosure of Fund Expenses (Unaudited) | |
| For the Six Month Period from April 1, 2022 through September 30, 2022 | Expense Table |
We believe it is important for you to understand the impact of fees and expenses regarding your investment. All mutual funds have operating expenses. As a shareholder of a fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund's gross income, directly reduce the investment return of a fund. When a fund's expenses are expressed as a percentage of its average net assets, this figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The Expense Table below illustrates your Fund's costs in two ways:
Actual Fund Return: This section provides information about actual account values and actual expenses. You may use this section to help you to estimate the actual expenses that you paid over the period after any fee waivers and expense reimbursements. The “Ending Account Value” shown is derived from the Fund’s actual return during the past six months, and the “Expenses Paid During Period” shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading “Expenses Paid During Period” to estimate the expenses you paid during this period.
Hypothetical 5% Return: This section provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio. It assumes a hypothetical annualized return of 5% before expenses during the period shown. In this case – because the hypothetical return used is not the Fund’s actual return – the results do not apply to your investment and you cannot use the hypothetical account value and expense to estimate the actual ending account balance or expenses you
paid for the period. This example is useful in making comparisons of the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees, if any, which are described in the Prospectus. If these costs were applied to your account, your costs would be higher. Therefore, the 5% hypothetical return is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The "Annualized Expense Ratio" represents the actual expenses for the last six months and may be different from the expense ratio in the Financial Highlights which is for the fiscal year ended September 30, 2022.
| | | Beginning
Account Value
04/01/22 | | Ending
Account Value
09/30/22 | | Annualized
Expense
Ratio | | Expenses
Paid During
Period * |
| The Gabelli Small Cap Growth Fund | | | | |
| Actual Fund Return | | | | | | |
| Class AAA | | $1,000.00 | | $815.90 | | 1.40% | | $ | 6.37 |
| Class A | | $1,000.00 | | $815.70 | | 1.40% | | $ | 6.37 |
| Class C | | $1,000.00 | | $812.60 | | 2.15% | | $ | 9.77 |
| Class I | | $1,000.00 | | $816.60 | | 1.15% | | $ | 5.24 |
| Hypothetical 5% Return | | | | | | | | |
| Class AAA | | $1,000.00 | | $1,018.05 | | 1.40% | | $ | 7.08 |
| Class A | | $1,000.00 | | $1,018.05 | | 1.40% | | $ | 7.08 |
| Class C | | $1,000.00 | | $1,014.29 | | 2.15% | | $ | 10.86 |
| Class I | | $1,000.00 | | $1,019.30 | | 1.15% | | $ | 5.82 |
| * | 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 (183 days), then divided by 365. |
Summary of Portfolio Holdings (Unaudited)
The following table presents portfolio holdings as a percent of net assets as of September 30, 2022:
The Gabelli Small Cap Growth Fund
| Equipment and Supplies | | 16.8 | % | | Manufactured Housing and Recreational | | | |
| Diversified Industrial | | 12.5 | % | | Vehicles | | 1.6 | % |
| Food and Beverage | | 6.8 | % | | Entertainment | | 1.5 | % |
| Building and Construction | | 6.0 | % | | Consumer Services | | 1.1 | % |
| Retail | | 5.9 | % | | Aerospace | | 0.8 | % |
| Health Care | | 5.0 | % | | Publishing | | 0.8 | % |
| Financial Services | | 4.9 | % | | Telecommunications | | 0.8 | % |
| Hotels and Gaming | | 4.4 | % | | Environmental Services | | 0.6 | % |
| Automotive: Parts and Accessories | | 3.5 | % | | Cable | | 0.5 | % |
| Energy and Utilities | | 3.0 | % | | Miscellaneous Investments | | 0.5 | % |
| Electronics | | 3.0 | % | | Home Furnishings | | 0.3 | % |
| Real Estate | | 2.7 | % | | Automotive | | 0.2 | % |
| Business Services | | 2.5 | % | | Closed-End Funds | | 0.1 | % |
| Machinery | | 2.4 | % | | Communications Equipment | | 0.1 | % |
| Transportation | | 2.3 | % | | Agriculture | | 0.1 | % |
| Aviation: Parts and Services | | 2.2 | % | | Wireless Communications | | 0.1 | % |
| Specialty Chemicals | | 2.0 | % | | Metals and Mining | | 0.0 | %* |
| Broadcasting | | 2.0 | % | | Other Assets and Liabilities (Net) | | (0.7 | )% |
| Consumer Products | | 1.9 | % | | | | 100.0 | % |
| Computer Software and Services | | 1.8 | % | | | | | |
| | | | | | * Amount represents less than 0.05%. | | | |
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-PORT. 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-PORT 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 800-SEC-0330.
Proxy Voting
The Fund files Form N-PX with its complete proxy voting record for the twelve months ended June 30, no later than August 31 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.
The Gabelli Small Cap Growth Fund
Summary Schedule of Investments — September 30, 2022
| Shares | | | | | Cost | | | Market
Value | |
| | | | | COMMON STOCKS* — 100.0% | | | | | | | | |
| | | | | Aerospace — 0.8% | | | | | | | | |
| | 250,000 | | | Aerojet Rocketdyne Holdings Inc.† | | $ | 1,025,125 | | | $ | 9,997,500 | |
| | 76,200 | | | Various Securities | | | 910,752 | | | | 1,276,022 | |
| | | | | | | | 1,935,877 | | | | 11,273,522 | |
| | | | | Agriculture — 0.1% | | | | | | | | |
| | 62,000 | | | Various Securities | | | 950,733 | | | | 704,360 | |
| | | | | | | | | | | | | |
| | | | | Automotive — 0.2% | | | | | | | | |
| | 489,000 | | | Various Securities | | | 1,841,282 | | | | 3,414,264 | |
| | | | | | | | | | | | | |
| | | | | Automotive: Parts and Accessories — 3.4% | | | | | |
| | 1,110,000 | | | Dana Inc. | | | 9,031,850 | | | | 12,687,300 | |
| | 245,660 | | | Strattec Security Corp.†(a) | | | 4,740,228 | | | | 5,109,728 | |
| | 1,918,522 | | | Various Securities | | | 9,752,571 | | | | 30,636,997 | |
| | | | | | | | 23,524,649 | | | | 48,434,025 | |
| | | | | Aviation: Parts and Services — 2.2% | | | | | | | | |
| | 670,000 | | | Kaman Corp. | | | 9,964,092 | | | | 18,713,100 | |
| | 229,200 | | | Various Securities | | | 3,127,208 | | | | 12,145,322 | |
| | | | | | | | 13,091,300 | | | | 30,858,422 | |
| | | | | Broadcasting — 2.0% | | | | | | | | |
| | 1,871,042 | | | Various Securities | | | 13,743,063 | | | | 28,276,334 | |
| | | | | | | | | | | | | |
| | | | | Building and Construction — 6.0% | | | | | | | | |
| | 237,500 | | | Herc Holdings Inc. | | | 7,774,176 | | | | 24,671,500 | |
| | 374,000 | | | Lennar Corp., Cl. B | | | 8,997,736 | | | | 22,256,740 | |
| | 2,000 | | | NVR Inc.† | | | 1,386,843 | | | | 7,974,160 | |
| | 942,000 | | | Various Securities | | | 9,762,102 | | | | 29,986,765 | |
| | | | | | | | 27,920,857 | | | | 84,889,165 | |
| | | | | Business Services — 2.5% | | | | | | | | |
| | 338,000 | | | The Interpublic Group of Companies Inc. | | | 1,425,712 | | | | 8,652,800 | |
| | 1,602,400 | | | Trans-Lux Corp.†(a) | | | 1,577,444 | | | | 640,960 | |
| | 34,000 | | | United Rentals Inc.† | | | 209,146 | | | | 9,184,080 | |
| | 1,223,200 | | | Various Securities | | | 6,841,249 | | | | 16,251,045 | |
| | | | | | | | 10,053,551 | | | | 34,728,885 | |
| | | | | Cable — 0.5% | | | | | | | | |
| | 468,500 | | | Various Securities | | | 7,222,453 | | | | 7,333,910 | |
| | | | | | | | | | | | | |
| | | | | Communications Equipment — 0.1% | | | | | | | | |
| | 85,000 | | | Various Securities | | | 1,252,811 | | | | 663,850 | |
| | | | | | | | | | | | | |
| | | | | Computer Software and Services — 1.8% | | | | | | | | |
| | 31,600 | | | Tyler Technologies Inc.† | | | 62,905 | | | | 10,981,000 | |
| | 500,917 | | | Various Securities | | | 3,390,046 | | | | 13,733,970 | |
| | | | | | | | 3,452,951 | | | | 24,714,970 | |
| | | | | Consumer Products — 1.9% | | | | | | | | |
| | 1,174,000 | | | Various Securities | | | 9,566,030 | | | | 27,326,682 | |
| Shares | | | | | Cost | | | Market
Value | |
| | | | | Consumer Services — 1.1% | | | | | | | | |
| | 343,000 | | | Rollins Inc. | | $ | 325,525 | | | $ | 11,895,240 | |
| | 254,400 | | | Various Securities | | | 1,531,484 | | | | 3,023,901 | |
| | | | | | | | 1,857,009 | | | | 14,919,141 | |
| | | | | Diversified Industrial — 12.5% | | | | | | | | |
| | 357,500 | | | Crane Holdings Co. | | | 7,663,159 | | | | 31,295,550 | |
| | 100,000 | | | EnPro Industries Inc. | | | 5,227,056 | | | | 8,498,000 | |
| | 1,175,000 | | | Griffon Corp. | | | 11,846,530 | | | | 34,686,000 | |
| | 920,000 | | | Myers Industries Inc. | | | 12,634,530 | | | | 15,152,400 | |
| | 339,000 | | | Textron Inc. | | | 2,053,938 | | | | 19,750,140 | |
| | 2,443,932 | | | Various Securities | | | 33,892,614 | | | | 66,401,760 | |
| | | | | | | | 73,317,827 | | | | 175,783,850 | |
| | | | | Electronics — 3.0% | | | | | | | | |
| | 132,500 | | | Badger Meter Inc. | | | 1,673,949 | | | | 12,241,675 | |
| | 211,500 | | | Bel Fuse Inc., Cl. A(a) | | | 3,977,515 | | | | 5,911,425 | |
| | 457,500 | | | CTS Corp. | | | 3,894,763 | | | | 19,054,875 | |
| | 268,000 | | | Various Securities | | | 2,244,090 | | | | 4,555,054 | |
| | | | | | | | 11,790,317 | | | | 41,763,029 | |
| | | | | Energy and Utilities — 3.0% | | | | | | | | |
| | 1,790,000 | | | RPC Inc. | | | 770,420 | | | | 12,404,700 | |
| | 656,656 | | | Various Securities | | | 13,021,210 | | | | 30,205,577 | |
| | | | | | | | 13,791,630 | | | | 42,610,277 | |
| | | | | Entertainment — 1.5% | | | | | | | | |
| | 634,800 | | | Various Securities | | | 9,228,329 | | | | 21,662,544 | |
| | | | | | | | | | | | | |
| | | | | Environmental Services — 0.6% | | | | | | | | |
| | 66,000 | | | Republic Services Inc. | | | 596,200 | | | | 8,978,640 | |
| | | | | | | | | | | | | |
| | | | | Equipment and Supplies — 16.8% | | | | | | | | |
| | 398,200 | | | AMETEK Inc. | | | 677,573 | | | | 45,159,862 | |
| | 102,000 | | | Crown Holdings Inc. | | | 411,160 | | | | 8,265,060 | |
| | 215,500 | | | Federal Signal Corp. | | | 1,141,928 | | | | 8,042,460 | |
| | 158,000 | | | Franklin Electric Co. Inc. | | | 616,384 | | | | 12,910,180 | |
| | 438,000 | | | Graco Inc. | | | 2,435,487 | | | | 26,258,100 | |
| | 613,000 | | | Mueller Industries Inc. | | | 15,754,320 | | | | 36,436,720 | |
| | 169,500 | | | Tennant Co. | | | 2,846,578 | | | | 9,586,920 | |
| | 744,000 | | | The Gorman-Rupp Co. | | | 11,389,014 | | | | 17,699,760 | |
| | 2,085,503 | | | Various Securities | | | 20,249,367 | | | | 71,688,530 | |
| | | | | | | | 55,521,811 | | | | 236,047,592 | |
| | | | | Financial Services — 4.9% | | | | | | | | |
| | 678,000 | | | KKR & Co. Inc. | | | 2,749,449 | | | | 29,154,000 | |
| | 10,000 | | | Waterloo Investment | | | | | | | | |
| | | | | Holdings Ltd.†(b) | | | 1,373 | | | | 5,000 | |
| | 2,536,848 | | | Various Securities | | | 26,110,541 | | | | 39,992,875 | |
| | | | | | | | 28,861,363 | | | | 69,151,875 | |
| | | | | Food and Beverage — 6.8% | | | | | | | | |
| | 195,000 | | | Chr. Hansen Holding A/S | | | 8,106,517 | | | | 9,633,691 | |
| | 410,000 | | | Flowers Foods Inc. | | | 974,474 | | | | 10,122,900 | |
See accompanying notes to financial statements.
The Gabelli Small Cap Growth Fund
Summary Schedule of Investments (Continued) — September 30, 2022
| Shares | | | | | Cost | | | Market
Value | |
| | | | | COMMON STOCKS* (Continued) | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | Food and Beverage (Continued) | | | | | | | | |
| | 240,000 | | | Kikkoman Corp. | | $ | 1,630,295 | | | $ | 13,597,734 | |
| | 665,000 | | | Maple Leaf Foods Inc. | | | 11,568,939 | | | | 9,936,367 | |
| | 57,000 | | | The J.M. Smucker Co. | | | 1,318,101 | | | | 7,832,370 | |
| | 5,163,100 | | | Various Securities | | | 23,097,687 | | | | 44,729,127 | |
| | | | | | | | 46,696,013 | | | | 95,852,189 | |
| | | | | Health Care — 5.0% | | | | | | | | |
| | 400,000 | | | Cutera Inc.† | | | 4,959,093 | | | | 18,240,000 | |
| | 150,000 | | | Globus Medical Inc., Cl. A† | | | 3,358,348 | | | | 8,935,500 | |
| | 1,028,800 | | | Various Securities | | | 14,964,267 | | | | 43,588,625 | |
| | | | | | | | 23,281,708 | | | | 70,764,125 | |
| | | | | Home Furnishings — 0.3% | | | | | | | | |
| | 236,500 | | | Various Securities | | | 2,785,404 | | | | 4,217,920 | |
| | | | | | | | | | | | | |
| | | | | Hotels and Gaming — 4.4% | | | | | | | | |
| | 98,000 | | | Churchill Downs Inc. | | | 864,402 | | | | 18,046,700 | |
| | 252,000 | | | Ryman Hospitality Properties | | | | | | | | |
| | | | | Inc., REIT | | | 4,066,941 | | | | 18,544,680 | |
| | 6,932,548 | | | Various Securities | | | 13,517,974 | | | | 25,935,351 | |
| | | | | | | | 18,449,317 | | | | 62,526,731 | |
| | | | | | | | | | | | | |
| | | | | Machinery — 2.4% | | | | | | | | |
| | 336,000 | | | Astec Industries Inc. | | | 11,735,785 | | | | 10,479,840 | |
| | 1,420,000 | | | CNH Industrial NV | | | 3,654,806 | | | | 15,861,400 | |
| | 363,057 | | | Various Securities | | | 6,107,550 | | | | 6,974,514 | |
| | | | | | | | 21,498,141 | | | | 33,315,754 | |
| | | | | Manufactured Housing and Recreational Vehicles — 1.6% | | | | | | | | |
| | 69,500 | | | Cavco Industries Inc.† | | | 1,374,753 | | | | 14,300,320 | |
| | 204,000 | | | Various Securities | | | 1,859,236 | | | | 8,770,970 | |
| | | | | | | | 3,233,989 | | | | 23,071,290 | |
| | | | | Metals and Mining — 0.0% | | | | | | | | |
| | 140,000 | | | Various Securities | | | 529,906 | | | | 646,808 | |
| | | | | | | | | | | | | |
| | | | | Publishing — 0.8% | | | | | | | | |
| | 775,000 | | | The E.W. Scripps Co., Cl. A† | | | 4,022,887 | | | | 8,734,250 | |
| | 41,500 | | | Various Securities | | | 1,231,080 | | | | 2,047,740 | |
| | | | | | | | 5,253,967 | | | | 10,781,990 | |
| | | | | Real Estate — 2.7% | | | | | | | | |
| | 249,000 | | | Indus Realty Trust Inc., REIT | | | 4,282,484 | | | | 13,040,130 | |
| | 387,500 | | | The St. Joe Co. | | | 5,949,955 | | | | 12,411,625 | |
| | 472,467 | | | Various Securities | | | 6,297,650 | | | | 11,965,391 | |
| | | | | | | | 16,530,089 | | | | 37,417,146 | |
| | | | | Retail — 5.9% | | | | | | | | |
| | 121,000 | | | AutoNation Inc.† | | | 1,947,298 | | | | 12,326,270 | |
| | 84,000 | | | Copart Inc.† | | | 707,140 | | | | 8,937,600 | |
| | 222,500 | | | Ingles Markets Inc., Cl. A | | | 2,886,793 | | | | 17,624,225 | |
| | 157,000 | | | Nathan’s Famous Inc. | | | 264,162 | | | | 9,996,190 | |
| | 336,500 | | | Rush Enterprises Inc., Cl. B | | | 2,398,027 | | | | 16,121,715 | |
| Shares | | | | | Cost | | | Market
Value | |
| | 391,623 | | | Various Securities | | $ | 5,297,624 | | | $ | 17,441,588 | |
| | | | | | | | 13,501,044 | | | | 82,447,588 | |
| | | | | Specialty Chemicals — 2.0% | | | | | | | | |
| | 248,000 | | | H.B. Fuller Co. | | | 2,785,028 | | | | 14,904,800 | |
| | 91,200 | | | The General Chemical Group Inc.†(b) | | | 1,185 | | | | 0 | |
| | 255,200 | | | Various Securities | | | 2,766,793 | | | | 13,636,856 | |
| | | | | | | | 5,553,006 | | | | 28,541,656 | |
| | | | | Telecommunications — 0.8% | | | | | | | | |
| | 1,264,000 | | | Various Securities | | | 4,245,790 | | | | 10,523,615 | |
| | | | | | | | | | | | | |
| | | | | Transportation — 2.3% | | | | | | | | |
| | 362,700 | | | GATX Corp. | | | 10,296,282 | | | | 30,883,905 | |
| | 143,653 | | | Various Securities | | | 1,214,387 | | | | 1,502,038 | |
| | | | | | | | 11,510,669 | | | | 32,385,943 | |
| | | | | Wireless Communications — 0.1% | | | | | | | | |
| | 25,000 | | | Various Securities | | | 876,740 | | | | 650,750 | |
| | | | | | | | | | | | | |
| | | | | TOTAL COMMON STOCKS | | | 483,465,826 | | | | 1,406,678,842 | |
| | | | | | | | | | | | | |
| | | | | CLOSED-END FUNDS* — 0.1% | | | | | | | | |
| | 202,129 | | | Various Securities | | | 2,997,772 | | | | 1,362,674 | |
| | | | | | | | | | | | | |
| | | | | PREFERRED STOCKS* — 0.1% | | | | | | | | |
| | | | | Automotive: Parts and Accessories — 0.1% | | | | | |
| | 87,000 | | | Various Securities | | | 594,435 | | | | 1,782,025 | |
| | | | | | | | | | | | | |
| | | | | RIGHTS* — 0.0% | | | | | | | | |
| | | | | Communications Equipment — 0.0% | | | | | | | | |
| | 60,500 | | | Various Securities | | | 0 | | | | 213,565 | |
| | | | | | | | | | | | | |
| | | | | WARRANTS* — 0.0% | | | | | | | | |
| | | | | Business Services — 0.0% | | | | | | | | |
| | 1 | | | Internap Corp., | | | | | | | | |
| | | | | expire 05/08/24†(b) | | | 0 | | | | 652 | |
| | | | | | | | | | | | | |
| | | | | Diversified Industrial — 0.0% | | | | | | | | |
| | 140,000 | | | Various Securities | | | 95,648 | | | | 37,772 | |
| | | | | | | | | | | | | |
| | | | | TOTAL WARRANTS | | | 95,648 | | | | 38,424 | |
| | | | | | | | | | | | | |
| | | | | TOTAL MISCELLANEOUS INVESTMENTS — 0.5%(c) | | | 1,890,321 | | | | 6,759,340 | |
| | | | | | | | | | | | | |
| | | | | TOTAL INVESTMENTS — 100.7% | | $ | 489,044,002 | | | | 1,416,834,870 | |
| | | | | Other Assets and Liabilities (Net) — (0.7)% | | | | | | | (9,860,735 | ) |
| | | | | NET ASSETS — 100.0% | | | | | | $ | 1,406,974,135 | |
See accompanying notes to financial statements.
The Gabelli Small Cap Growth Fund
Summary Schedule of Investments (Continued) — September 30, 2022
This Summary Schedule of Investments does not reflect the complete portfolio holdings of the Fund. It includes the Fund’s 50 largest holdings, each investment of any issuer that exceeds 1% of the Fund’s net assets, or affiliated or Level 3 securities, if any.
| * | “Various Securities” consist of issuers not identified as a top 50 holding, issues or issuers not exceeding 1% of net assets individually or in the aggregate, any issuers that are not affiliated or Level 3 securities, if any, as of September 30, 2022. The complete Schedule of Investments is available (i) without charge, upon request, by calling 800-GABELLI (800-422-3554); and (ii) on the SEC’S website at http://www.sec.gov. |
| (a) | Security considered an affiliated holding because the Fund owns at least 5% of its outstanding shares. |
| (b) | Security is valued using significant unobservable inputs and is classified as Level 3 in the fair value hierarchy. |
| (c) | Represents undisclosed, unrestricted securities which the Fund has held for less than one year. |
| † | Non-income producing security. |
| REIT | Real Estate Investment Trust |
See accompanying notes to financial statements.
The Gabelli Small Cap Growth Fund
Statement of Assets and Liabilities
September 30, 2022
| Assets: | | | |
| Investments, at value (cost $478,748,815) | | $ | 1,405,172,757 | |
| Investments in affiliates, at value (cost $10,295,187) | | | 11,662,113 | |
| Cash | | | 826 | |
| Foreign currency, at value (cost $98,295) | | | 97,384 | |
| Receivable for Fund shares sold | | | 499,668 | |
| Dividends receivable | | | 1,362,894 | |
| Prepaid expenses | | | 39,384 | |
| Total Assets | | | 1,418,835,026 | |
| Liabilities: | | | | |
| Line of credit payable | | | 9,021,000 | |
| Payable for Fund shares redeemed | | | 829,215 | |
| Payable for investment advisory fees | | | 1,240,365 | |
| Payable for distribution fees | | | 231,451 | |
| Payable for accounting fees | | | 7,500 | |
| Other accrued expenses | | | 531,360 | |
| Total Liabilities | | | 11,860,891 | |
| Net Assets | | | | |
| (applicable to 38,727,686 shares outstanding) | | $ | 1,406,974,135 | |
| Net Assets Consist of: | | | | |
| Paid-in capital | | $ | 379,570,265 | |
| Total distributable earnings | | | 1,027,403,870 | |
| Net Assets | | $ | 1,406,974,135 | |
| | | | | |
| Shares of Capital Stock, each at $0.001 par value: | | | | |
| Class AAA: | | | | |
| Net Asset Value, offering, and redemption price per share ($798,836,384 ÷ 22,124,688 shares outstanding; 150,000,000 shares authorized) | | $ | 36.11 | |
| Class A: | | | | |
| Net Asset Value and redemption price per share ($104,316,780 ÷ 2,892,672 shares outstanding; 50,000,000 shares authorized) | | $ | 36.06 | |
| Maximum offering price per share (NAV ÷ 0.9425, based on maximum sales charge of 5.75% of the offering price) | | $ | 38.26 | |
| Class C: | | | | |
| Net Asset Value and offering price per share ($35,068,111 ÷ 1,297,909 shares outstanding; 50,000,000 shares authorized) | | $ | 27.02 | (a) |
| Class I: | | | | |
| Net Asset Value, offering, and redemption price per share ($468,752,860 ÷ 12,412,417 shares outstanding; 50,000,000 shares authorized) | | $ | 37.76 | |
Statement of Operations
For the Year Ended September 30, 2022
| Investment Income: | | | |
| Dividends - unaffiliated (net of foreign withholding taxes of $314,201) | | $ | 25,172,827 | |
| Dividends - affiliated | | | 51,246 | |
| Interest | | | 20,221 | |
| Total Investment Income | | | 25,244,294 | |
| Expenses: | | | | |
| Investment advisory fees | | | 17,638,189 | |
| Distribution fees - Class AAA | | | 2,476,035 | |
| Distribution fees - Class A | | | 327,747 | |
| Distribution fees - Class C | | | 514,749 | |
| Shareholder services fees | | | 1,396,705 | |
| Shareholder communications expenses | | | 422,088 | |
| Custodian fees | | | 188,138 | |
| Directors’ fees | | | 142,833 | |
| Registration expenses | | | 81,275 | |
| Legal and audit fees | | | 77,881 | |
| Accounting fees | | | 45,000 | |
| Interest expense | | | 31,243 | |
| Miscellaneous expenses | | | 146,079 | |
| Total Expenses | | | 23,487,962 | |
| Less: | | | | |
| Advisory fee reduction on unsupervised assets (See Note 3) | | | (95,359 | ) |
| Expenses paid indirectly by broker (See Note 6) | | | (29,993 | ) |
| Total Reductions | | | (125,352 | ) |
| Net Expenses | | | 23,362,610 | |
| Net Investment Income | | | 1,881,684 | |
| Net Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency: | | | | |
| Net realized gain on investments - unaffiliated | | | 154,395,244 | |
| Net realized loss on investments - affiliated | | | (17,308 | ) |
| Net realized loss on foreign currency transactions | | | (60,924 | ) |
| Net realized gain on investments and foreign currency transactions | | | 154,317,012 | |
| Net change in unrealized appreciation/depreciation: | | | | |
| on investments - unaffiliated | | | (446,548,609 | ) |
| on investments - affiliated | | | (1,560,842 | ) |
| on foreign currency translations | | | (56,350 | ) |
| Net change in unrealized appreciation/depreciation on investments and foreign currency translations | | | (448,165,801 | ) |
| Net Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency | | | (293,848,789 | ) |
| Net Decrease in Net Assets Resulting from Operations | | $ | (291,967,105 | ) |
(a) Redemption price varies based on the length of time held.
See accompanying notes to financial statements.
The Gabelli Small Cap Growth Fund
Statement of Changes in Net Assets
| | | Year Ended
September 30, 2022 | | | Year Ended
September 30, 2021 | |
| | | | | | | |
| Operations: | | | | | | | | |
| Net investment income | | $ | 1,881,684 | | | $ | 2,755,107 | |
| Net realized gain on investments and foreign currency transactions | | | 154,317,012 | | | | 259,697,102 | |
| Net change in unrealized appreciation/depreciation on investments and foreign currency translations | | | (448,165,801 | ) | | | 378,606,406 | |
| Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (291,967,105 | ) | | | 641,058,615 | |
| | | | | | | | | |
| Distributions to Shareholders: | | | | | | | | |
| Accumulated earnings | | | | | | | | |
| Class AAA | | | (133,745,388 | ) | | | (191,595,179 | ) |
| Class A | | | (17,235,275 | ) | | | (22,004,092 | ) |
| Class C | | | (10,378,509 | ) | | | (18,595,632 | ) |
| Class I | | | (79,705,424 | ) | | | (114,398,478 | ) |
| Total Distributions to Shareholders | | | (241,064,596 | ) | | | (346,593,381 | ) |
| | | | | | | | | |
| Capital Share Transactions: | | | | | | | | |
| Class AAA | | | 44,158,782 | | | | 9,809,347 | |
| Class A | | | 9,841,866 | | | | 2,604,293 | |
| Class C | | | (13,302,976 | ) | | | (17,810,664 | ) |
| Class I | | | (123,739 | ) | | | (28,524,077 | ) |
| Net Increase/(Decrease) in Net Assets from Capital Share Transactions | | | 40,573,933 | | | | (33,921,101 | ) |
| | | | | | | | | |
| Redemption Fees | | | 390 | | | | 1,871 | |
| | | | | | | | | |
| Net Increase/(Decrease) in Net Assets | | | (492,457,378 | ) | | | 260,546,004 | |
| Net Assets: | | | | | | | | |
| Beginning of year | | | 1,899,431,513 | | | | 1,638,885,509 | |
| End of year | | $ | 1,406,974,135 | | | $ | 1,899,431,513 | |
See accompanying notes to financial statements.
The Gabelli Small Cap Growth Fund
Financial Highlights
Selected data for a share of capital stock outstanding throughout each year:
| | | | | | Income (Loss) from Investment
Operations | | Distributions | | | | | | | | | | | Ratios to Average Net Assets/Supplemental Data |
Year Ended
September 30 | | Net Asset Value,
Beginning of Year | | Net Investment
Income (Loss)(a)(b) | | Net Realized
and Unrealized
Gain (Loss) on
Investments | | Total from
Investment
Operations | | Net Investment
Income | | Net Realized
Gain on Investments | | Total
Distributions | | Redemption
Fees(a)(c) | | Net Asset Value,
End of Year | | Total Return† | | Net Assets, End of
Year (in 000’s) | | Net Investment
Income (Loss)(b) | | Operating Expenses(d)(e) | | Portfolio
Turnover
Rate |
| Class AAA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 49.61 | | | $ | 0.02 | | | $ | (7.13 | ) | | $ | (7.11 | ) | | $ | (0.05 | ) | | $ | (6.34 | ) | | $ | (6.39 | ) | | $ | 0.00 | | | $ | 36.11 | | | | (17.07 | )% | | $ | 798,836 | | | | 0.05 | % | | | 1.39 | %(f) | | | 1 | % |
| 2021 | | | 43.30 | | | | 0.04 | | | | 15.83 | | | | 15.87 | | | | — | | | | (9.56 | ) | | | (9.56 | ) | | | 0.00 | | | | 49.61 | | | | 42.16 | | | | 1,054,894 | | | | 0.09 | | | | 1.38 | (f) | | | 1 | |
| 2020 | | | 53.92 | | | | 0.04 | | | | (0.63 | ) | | | (0.59 | ) | | | (0.07 | ) | | | (9.96 | ) | | | (10.03 | ) | | | 0.00 | | | | 43.30 | | | | (2.08 | ) | | | 884,341 | | | | 0.08 | | | | 1.41 | (f) | | | 0 | (g) |
| 2019 | | | 59.61 | | | | 0.03 | | | | (3.50 | ) | | | (3.47 | ) | | | (0.09 | ) | | | (2.13 | ) | | | (2.22 | ) | | | 0.00 | | | | 53.92 | | | | (5.72 | ) | | | 1,243,608 | | | | 0.06 | | | | 1.39 | (f) | | | 1 | |
| 2018 | | | 58.63 | | | | 0.09 | | | | 4.01 | | | | 4.10 | | | | — | | | | (3.12 | ) | | | (3.12 | ) | | | 0.00 | | | | 59.61 | | | | 7.21 | | | | 1,711,850 | | | | 0.16 | | | | 1.36 | | | | 3 | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 49.56 | | | $ | 0.02 | | | $ | (7.13 | ) | | $ | (7.11 | ) | | $ | (0.05 | ) | | $ | (6.34 | ) | | $ | (6.39 | ) | | $ | 0.00 | | | $ | 36.06 | | | | (17.08 | )% | | $ | 104,317 | | | | 0.04 | % | | | 1.39 | %(f) | | | 1 | % |
| 2021 | | | 43.26 | | | | 0.04 | | | | 15.82 | | | | 15.86 | | | | — | | | | (9.56 | ) | | | (9.56 | ) | | | 0.00 | | | | 49.56 | | | | 42.17 | | | | 134,005 | | | | 0.08 | | | | 1.38 | (f) | | | 1 | |
| 2020 | | | 53.89 | | | | 0.05 | | | | (0.64 | ) | | | (0.59 | ) | | | (0.08 | ) | | | (9.96 | ) | | | (10.04 | ) | | | 0.00 | | | | 43.26 | | | | (2.08 | ) | | | 110,975 | | | | 0.11 | | | | 1.41 | (f) | | | 0 | (g) |
| 2019 | | | 59.58 | | | | 0.03 | | | | (3.50 | ) | | | (3.47 | ) | | | (0.09 | ) | | | (2.13 | ) | | | (2.22 | ) | | | 0.00 | | | | 53.89 | | | | (5.73 | ) | | | 170,189 | | | | 0.06 | | | | 1.39 | (f) | | | 1 | |
| 2018 | | | 58.60 | | | | 0.09 | | | | 4.01 | | | | 4.10 | | | | — | | | | (3.12 | ) | | | (3.12 | ) | | | 0.00 | | | | 59.58 | | | | 7.21 | | | | 208,947 | | | | 0.16 | | | | 1.36 | | | | 3 | |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 38.86 | | | $ | (0.24 | ) | | $ | (5.26 | ) | | $ | (5.50 | ) | | $ | — | | | $ | (6.34 | ) | | $ | (6.34 | ) | | $ | 0.00 | | | $ | 27.02 | | | | (17.69 | )% | | $ | 35,068 | | | | (0.72 | )% | | | 2.14 | %(f) | | | 1 | % |
| 2021 | | | 35.95 | | | | (0.24 | ) | | | 12.71 | | | | 12.47 | | | | — | | | | (9.56 | ) | | | (9.56 | ) | | | 0.00 | | | | 38.86 | | | | 41.10 | | | | 66,467 | | | | (0.64 | ) | | | 2.13 | (f) | | | 1 | |
| 2020 | | | 46.63 | | | | (0.24 | ) | | | (0.48 | ) | | | (0.72 | ) | | | — | | | | (9.96 | ) | | | (9.96 | ) | | | 0.00 | | | | 35.95 | | | | (2.80 | ) | | | 75,505 | | | | (0.65 | ) | | | 2.16 | (f) | | | 0 | (g) |
| 2019 | | | 52.16 | | | | (0.32 | ) | | | (3.08 | ) | | | (3.40 | ) | | | — | | | | (2.13 | ) | | | (2.13 | ) | | | 0.00 | | | | 46.63 | | | | (6.44 | ) | | | 141,522 | | | | (0.69 | ) | | | 2.14 | (f) | | | 1 | |
| 2018 | | | 52.05 | | | | (0.30 | ) | | | 3.53 | | | | 3.23 | | | | — | | | | (3.12 | ) | | | (3.12 | ) | | | 0.00 | | | | 52.16 | | | | 6.41 | | | | 215,939 | | | | (0.59 | ) | | | 2.11 | | | | 3 | |
| Class I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 51.62 | | | $ | 0.13 | | | $ | (7.47 | ) | | $ | (7.34 | ) | | $ | (0.18 | ) | | $ | (6.34 | ) | | $ | (6.52 | ) | | $ | 0.00 | | | $ | 37.76 | | | | (16.88 | )% | | $ | 468,753 | | | | 0.29 | % | | | 1.14 | %(f) | | | 1 | % |
| 2021 | | | 44.62 | | | | 0.17 | | | | 16.39 | | | | 16.56 | | | | — | | | | (9.56 | ) | | | (9.56 | ) | | | 0.00 | | | | 51.62 | | | | 42.51 | | | | 644,066 | | | | 0.34 | | | | 1.13 | (f) | | | 1 | |
| 2020 | | | 55.29 | | | | 0.15 | | | | (0.64 | ) | | | (0.49 | ) | | | (0.22 | ) | | | (9.96 | ) | | | (10.18 | ) | | | 0.00 | | | | 44.62 | | | | (1.83 | ) | | | 568,065 | | | | 0.34 | | | | 1.16 | (f) | | | 0 | (g) |
| 2019 | | | 61.09 | | | | 0.17 | | | | (3.59 | ) | | | (3.42 | ) | | | (0.25 | ) | | | (2.13 | ) | | | (2.38 | ) | | | 0.00 | | | | 55.29 | | | | (5.50 | ) | | | 890,889 | | | | 0.32 | | | | 1.14 | (f) | | | 1 | |
| 2018 | | | 59.86 | | | | 0.25 | | | | 4.10 | | | | 4.35 | | | | — | | | | (3.12 | ) | | | (3.12 | ) | | | 0.00 | | | | 61.09 | | | | 7.49 | | | | 1,624,806 | | | | 0.43 | | | | 1.11 | | | | 3 | |
| † | Total return represents aggregate total return of a hypothetical investment at the beginning of the year and sold at the end of the year including reinvestment of distributions and does not reflect the applicable sales charges. |
| (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/(loss) per share and the ratio to average net assets are not necessarily correlated among the different classes of shares. |
| (c) | Amount represents less than $0.005 per share. |
| (d) | The Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. For all years presented, there was no impact on the expense ratios. |
| (e) | Ratio of operating expenses includes advisory fee reduction on unsupervised assets totaling 0.01% of net assets for the fiscal year ended September 30, 2020. For the years ended September 30, 2022, 2021, 2019, and 2018, there was no impact on the expense ratios. |
| (f) | The Fund incurred interest expense during the fiscal years ended September 30, 2022, 2021, 2020, and 2019. If interest expense had not been incurred, the ratios of operating expenses to average net assets would have been 1.38%, 1.37%, 1.39%, and 1.38% (Class AAA and Class A), 2.13%, 2.12%, 2.14%, and 2.13% (Class C), and 1.13%, 1.12%, 1.14%, and 1.13% (Class I). For the year ended September 30, 2018, the effect of interest expense was minimal. |
| (g) | Amount represents less than 0.5%. |
See accompanying notes to financial statements.
The Gabelli Small Cap Growth Fund
Notes to Financial Statements
1. Organization. The Gabelli Small Cap Growth Fund, a series of the Gabelli Equity Series Funds, Inc. (the Corporation), was incorporated on July 25, 1991 in Maryland. The Fund is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), and is one of four separately managed portfolios (collectively, the Portfolios) of the Corporation. The Fund seeks to provide a high level of capital appreciation. The Fund commenced investment operations on October 22, 1991. The Adviser currently characterizes small capitalization companies for the Fund as those with total common stock market values of $3 billion or less at the time of investment.
2. Significant Accounting Policies. As an investment company, the Fund follows the investment company accounting and reporting guidance, which is part of U.S. generally accepted accounting principles (GAAP) that may require the use of management estimates and assumptions in the preparation of its 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.
The global outbreak of the novel coronavirus disease, known as COVID-19, has caused adverse effects on many companies, sectors, nations, regions, and the markets in general, and may continue for an unpredictable duration. The effects of this pandemic may materially impact the value and performance of the Fund, its ability to buy and sell fund investments at appropriate valuations, and its ability to achieve its investment objectives.
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 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 obligations 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, 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. Certain securities are valued principally using dealer quotations. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. OTC futures and options on futures for which market quotations are readily available will be valued by quotations received from a pricing service or, if no quotations are available from a pricing service, by quotations obtained from one of more dealers in the instrument in question by the Adviser.
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 with the valuation and
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
changes in valuation of similar securities, including a comparison of foreign securities with the equivalent U.S. dollar value American Depositary Receipt 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.
The inputs and valuation techniques used to measure fair value of the Fund’s investments are summarized into three levels as described in the hierarchy below:
| ● | Level 1 — quoted prices in active markets for identical securities; |
| ● | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.); and |
| ● | Level 3 — significant unobservable inputs (including the Board’s determinations as to the fair value of investments). |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in the aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of the Fund’s investments in securities by inputs used to value the Fund’s investments as of September 30, 2022 is as follows:
| | | Valuation Inputs | | | |
| | | Level 1
Quoted Prices | | Level 2 Other
Significant
Observable Inputs | | Level 3 Significant
Unobservable
Inputs (a) | | Total Market Value
at 09/30/22 |
| INVESTMENTS IN SECURITIES: | | | | | | | | | | | | |
| ASSETS (Market Value): | | | | | | | | | | | | |
| Common Stocks: | | | | | | | | | | | | | | | | |
| Automotive: Parts and Accessories | | $ | 48,434,021 | | | $ | 4 | | | | — | | | $ | 48,434,025 | |
| Aviation: Parts and Services | | | 29,394,590 | | | | 1,463,832 | | | | — | | | | 30,858,422 | |
| Building and Construction | | | 84,883,925 | | | | 5,240 | | | | — | | | | 84,889,165 | |
| Consumer Services | | | 14,647,516 | | | | 271,625 | | | | — | | | | 14,919,141 | |
| Diversified Industrial | | | 174,928,107 | | | | 855,743 | | | | — | | | | 175,783,850 | |
| Equipment and Supplies | | | 234,017,220 | | | | 2,030,372 | | | | — | | | | 236,047,592 | |
| Financial Services | | | 67,465,625 | | | | 2,159,250 | | | $ | 5,000 | | | | 69,629,875 | |
| Publishing | | | 10,592,940 | | | | 189,050 | | | | — | | | | 10,781,990 | |
| Real Estate | | | 36,518,321 | | | | 898,825 | | | | — | | | | 37,417,146 | |
| Retail | | | 81,909,193 | | | | 538,395 | | | | — | | | | 82,447,588 | |
| Specialty Chemicals | | | 28,541,656 | | | | — | | | | 0 | | | | 28,541,656 | |
| Other Industries (b) | | | 593,687,732 | | | | — | | | | — | | | | 593,687,732 | |
| Total Common Stocks | | | 1,405,020,846 | | | | 8,412,336 | | | | 5,000 | | | | 1,413,438,182 | |
| Closed-End Funds | | | 1,362,674 | | | | — | | | | — | | | | 1,362,674 | |
| Preferred Stocks (b) | | | 1,782,025 | | | | — | | | | — | | | | 1,782,025 | |
| Rights (b) | | | — | | | | 213,565 | | | | — | | | | 213,565 | |
| Warrants (b) | | | 37,772 | | | | — | | | | 652 | | | | 38,424 | |
| TOTAL INVESTMENTS IN SECURITIES – ASSETS | | $ | 1,408,203,317 | | | $ | 8,625,901 | | | $ | 5,652 | | | $ | 1,416,834,870 | |
| (a) | The inputs for these securities are not readily available and are derived based on the judgment of the Adviser according to procedures approved by the Board. |
| (b) | Please refer to the Schedule of Investments for the industry classifications of these portfolio holdings. |
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
During the fiscal year ended September 30, 2022, the Fund did not have material transfers into or out of Level 3.
Additional Information to Evaluate Qualitative Information.
General. The Fund uses recognized industry pricing services– approved by the Board and unaffiliated with the Adviser – to value most of its securities, and uses broker quotes provided by market makers of securities not valued by these and other recognized pricing sources. Several different pricing feeds are received to value domestic equity securities, international equity securities, preferred equity securities, and fixed income securities. The data within these feeds are ultimately sourced from major stock exchanges and trading systems where these securities trade. The prices supplied by external sources are checked by obtaining quotations or actual transaction prices from market participants. If a price obtained from the pricing source is deemed unreliable, prices will be sought from another pricing service or from a broker/dealer that trades that security or similar securities.
Fair Valuation. Fair valued securities may be common or preferred equities, warrants, options, rights, or fixed income obligations. Where appropriate, Level 3 securities are those for which market quotations are not available, such as securities not traded for several days, or for which current bids are not available, or which are restricted as to transfer. When fair valuing a security, factors to consider include recent prices of comparable securities that are publicly traded, reliable prices of securities not publicly traded, the use of valuation models, current analyst reports, valuing the income or cash flow of the issuer, or cost if the preceding factors do not apply. A significant change in the unobservable inputs could result in a lower or higher value in Level 3 securities. The circumstances of Level 3 securities are frequently monitored to determine if fair valuation measures continue to apply.
The Adviser reports quarterly to the Board the results of the application of fair valuation policies and procedures. These may include backtesting the prices realized in subsequent trades of these fair valued securities to fair values previously recognized.
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 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 purchase 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 inability 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 securities of comparable U.S. issuers.
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
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 Securities. The Fund may invest up to 15% of its net assets in securities for which the markets are restricted. Restricted securities include securities whose disposition is subject to substantial legal or contractual restrictions. The sale of restricted securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than 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. At September 30, 2022, the Fund did not hold any restricted securities.
Investments in Other Investment Companies. The Fund may invest, from time to time, in shares of other investment companies (or entities that would be considered investment companies but are excluded from the definition pursuant to certain exceptions under the 1940 Act) (the Acquired Funds) in accordance with the 1940 Act and related rules. Shareholders in the Fund would bear the pro rata portion of the periodic expenses of the Acquired Funds in addition to the Fund’s expenses. For the fiscal year ended September 30, 2022, the Fund’s pro rata portion of the periodic expenses charged by the Acquired Funds was less than one basis point.
Securities Transactions and Investment Income. Securities transactions are accounted for on the trade date with realized gain/(loss) on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded on an accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method or amortized to earliest call date, if applicable. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities that are recorded as soon after the ex-dividend date as the Fund becomes aware of such dividends.
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.
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 GAAP. These differences are primarily due to differing treatments of income and gains as determined under the GAAP. Distributions from net investment income for federal income tax purposes 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
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
permanent, adjustments are made to the appropriate capital accounts in the period when the differences arise. Permanent differences were primarily due to the tax treatment of currency gains, reversal of prior year’s Real Estate Investment Trust adjustments and losses and utilization of tax equalization. These reclassifications have no impact on the NAV of the Fund. For the fiscal year ended September 30, 2022, reclassifications were made to increase paid-in capital by $8,602,817, with an offsetting adjustment to total distributable earnings.
The tax character of distributions paid during the fiscal years ended September 30, 2022 and 2021 was as follows:
| | | Year Ended
September 30, 2022* | | Year Ended
September 30, 2021* |
| Distributions paid from: | | | | | | | | |
| Ordinary income (inclusive of short term capital gains) | | | $ | 3,571,562 | | | | $ | 373,251 | |
| Net long term capital gains | | | | 246,311,919 | | | | | 368,128,057 | |
| Total distributions paid | | | $ | 249,883,481 | | | | $ | 368,501,308 | |
| * | Total distributions paid differs from the Statement of Changes in Net Assets due to the utilization of equalization. |
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.
At September 30, 2022, the components of accumulated earnings/losses on a tax basis were as follows:
| Undistributed ordinary income | | $ | 1,912,787 | |
| Undistributed long term capital gains | | | 118,314,734 | |
| Net unrealized appreciation on investments and foreign currency translations | | | 907,176,349 | |
| Total | | $ | 1,027,403,870 | |
At September 30, 2022, the temporary difference between book basis and tax basis net unrealized appreciation on investments was due to deferral of losses from wash sales for tax purposes, mark-to-market adjustments on investments considered passive foreign investment companies, tax basis adjustments on investments in partnerships, and tax basis adjustments on investments in real estate investment trusts.
The following summarizes the tax cost of investments and the related net unrealized appreciation at September 30, 2022:
| | | Cost | | Gross
Unrealized
Appreciation | | Gross
Unrealized
Depreciation | | Net Unrealized
Appreciation |
| Investments | | $509,607,277 | | $962,626,098 | | $(55,398,505) | | $907,227,593 |
The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the Statement of Operations if the tax positions were deemed not to meet the more-likely-than-not
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
threshold. During the fiscal year ended September 30, 2022, the Fund did not incur any income tax, interest, or penalties. As of September 30, 2022, the Adviser has reviewed all open tax years and concluded that there was no impact to the Fund’s net assets or results of operations. The Fund’s federal and state tax returns for the prior three fiscal years remain open, subject to examination. On an ongoing basis, the Adviser will monitor the Fund’s tax positions to determine if adjustments to this conclusion are necessary.
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.
There was a reduction in the advisory fee paid to the Adviser relating to certain portfolio holdings, i.e., unsupervised assets, of the Fund with respect to which the Adviser transferred dispositive and voting control to the Fund’s Proxy Voting Committee. During the fiscal year ended September 30, 2022, the Fund’s Proxy Voting Committee exercised control and discretion over all rights to vote or consent with respect to such securities, and the Adviser reduced its fee with respect to such securities by $95,359.
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. Under the Class AAA, Class A, and Class C Share Plans, payments are authorized to G.distributors, LLC (the Distributor), an affiliate of the Adviser, at annual rates of 0.25%, 0.25%, 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 sales of securities during the fiscal year ended September 30, 2022, other than short term securities and U.S. Government obligations, aggregated $21,618,979 and $208,141,740, respectively.
6. Transactions with Affiliates and Other Arrangements. During the fiscal year ended September 30, 2022, the Fund paid $18,213 in brokerage commissions on security trades to G.research, LLC, an affiliate of the Adviser. Additionally, the Distributor retained a total of $11,015 from investors representing commissions (sales charges and underwriting fees) on sales and redemptions of Fund shares.
During the fiscal year ended September 30, 2022, the Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. The amount of such expenses paid through this directed brokerage arrangement during this period was $29,993.
The cost of calculating the Fund’s NAV per share is a Fund expense pursuant to the Advisory Agreement. During the fiscal year ended September 30, 2022, the Fund accrued $45,000 in connection with the cost of computing the Fund's NAV.
The Corporation pays retainer and per meeting fees to Directors not affiliated with the Adviser, plus specified amounts to the Lead Director and Audit Committee Chairman. Directors are also reimbursed for out of pocket expenses incurred in attending meetings. Directors who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Corporation.
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
7. Line of Credit. The Fund participates in an unsecured line of credit, which expires on March 1, 2023 and may be renewed annually, of up to $75,000,000 under which it may borrow up to 10% of its net assets from the bank for temporary borrowing purposes. Borrowings under this arrangement bear interest at a floating rate equal to the higher of the Overnight Federal Funds Rate plus 135 basis points or the Overnight Bank Funding Rate plus 135 basis points in effect on that day. This amount, if any, would be included in “Interest expense” in the Statement of Operations. At September 30, 2022, there was $9,021,000 outstanding under the line of credit.
The average daily amount of borrowings outstanding under the line of credit during the fiscal year ended September 30, 2022 was $3,425,346 with a weighted average interest rate of 2.69%. The maximum amount borrowed at any time during the fiscal year ended September 30, 2022 was $14,505,000.
8. Capital Stock. The Fund offers four classes of shares – Class AAA Shares, Class A Shares, Class C Shares, and Class I Shares. Class AAA and Class I Shares are offered without a sales charge. Class A Shares are subject to a maximum front-end sales charge of 5.75%. Class C Shares are subject to a 1.00% contingent deferred sales charge for one year after purchase.
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 as an increase in paid-in capital. The redemption fees retained by the Fund during the fiscal years ended September 30, 2022 and 2021, if any, can be found in the Statement of Changes in Net Assets under Redemption Fees.
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
Transactions in shares of capital stock were as follows:
| | | Year Ended
September 30, 2022 | | | Year Ended
September 30, 2021 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Class AAA | | | | | | | | | | | | | | | | |
| Shares sold | | | 1,183,539 | | | $ | 52,061,933 | | | | 580,407 | | | $ | 27,170,660 | |
| Shares issued upon reinvestment of distributions | | | 2,817,801 | | | | 129,196,144 | | | | 4,663,083 | | | | 185,171,154 | |
| Shares redeemed | | | (3,140,556 | ) | | | (137,099,295 | ) | | | (4,404,600 | ) | | | (202,532,467 | ) |
| Net increase | | | 860,784 | | | $ | 44,158,782 | | | | 838,890 | | | $ | 9,809,347 | |
| Class A | | | | | | | | | | | | | | | | |
| Shares sold | | | 412,514 | | | $ | 18,248,925 | | | | 596,881 | | | $ | 27,627,213 | |
| Shares issued upon reinvestment of distributions | | | 353,484 | | | | 16,189,558 | | | | 509,988 | | | | 20,231,248 | |
| Shares redeemed | | | (577,265 | ) | | | (24,596,617 | ) | | | (968,174 | ) | | | (45,254,168 | ) |
| Net increase | | | 188,733 | | | $ | 9,841,866 | | | | 138,695 | | | $ | 2,604,293 | |
| Class C | | | | | | | | | | | | | | | | |
| Shares sold | | | 58,394 | | | $ | 1,979,388 | | | | 113,421 | | | $ | 4,140,636 | |
| Shares issued upon reinvestment of distributions | | | 298,257 | | | | 10,298,825 | | | | 588,946 | | | | 18,439,890 | |
| Shares redeemed | | | (769,124 | ) | | | (25,581,189 | ) | | | (1,092,311 | ) | | | (40,391,190 | ) |
| Net decrease | | | (412,473 | ) | | $ | (13,302,976 | ) | | | (389,944 | ) | | $ | (17,810,664 | ) |
| Class I | | | | | | | | | | | | | | | | |
| Shares sold | | | 1,392,147 | | | $ | 62,940,445 | | | | 1,947,762 | | | $ | 95,525,742 | |
| Shares issued upon reinvestment of distributions | | | 1,620,237 | | | | 77,544,528 | | | | 2,640,278 | | | | 108,858,645 | |
| Shares redeemed | | | (3,077,613 | ) | | | (140,608,712 | ) | | | (4,842,756 | ) | | | (232,908,464 | ) |
| Net decrease | | | (65,229 | ) | | $ | (123,739 | ) | | | (254,716 | ) | | $ | (28,524,077 | ) |
9. Transactions in Securities of Affiliated Issuers. The 1940 Act defines affiliated issuers as those in which the Fund’s holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund’s transactions in the securities of these issuers during the fiscal year ended September 30, 2022 is set forth below:
| | | Market
Value at
September 30,
2021 | | | Purchases | | | Sales
Proceeds | | | Realized
Loss | | | Change In
Unrealized
Appreciation/
(Depreciation) | | | Market Value at September 30, 2022 | | | Dividend
Income | | | Percent
Owned of
Shares | |
| Bel Fuse Inc., Cl. A | | $ | 3,072,306 | | | | — | | | $ | 61,337 | | | $ | (9,135 | ) | | $ | 2,909,591 | | | $ | 5,911,425 | | | $ | 51,246 | | | | 9.88 | % |
| Strattec Security Corp.† | | | 9,491,600 | | | $ | 62,290 | | | | — | | | | — | | | | (4,444,162 | ) | | | 5,109,728 | | | | — | | | | 6.12 | % |
| Trans-Lux Corp.† | | | 677,331 | | | | — | | | | 1,927 | | | | (8,173 | ) | | | (26,271 | ) | | | 640,960 | | | | — | | | | 11.92 | % |
| Total | | | | | | | | | | | | | | $ | (17,308 | ) | | $ | (1,560,842 | ) | | $ | 11,662,113 | | | $ | 51,246 | | | | | |
| † | Non-income producing security. |
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. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
11. Subsequent Events. Management has evaluated the impact on the Fund of all subsequent events occurring through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
The Gabelli Small Cap Growth Fund
Report of Independent Registered Public Accounting Firm
To the Shareholders of The Gabelli Small Cap Growth Fund
and the Board of Directors of Gabelli Equity Series Funds, Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of The Gabelli Small Cap Growth Fund (the “Fund”) (one of the funds constituting Gabelli Equity Series Funds, Inc. (the “Corporation”)), including the summary schedule of investments, as of September 30, 2022, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting Gabelli Equity Series Funds, Inc.) at September 30, 2022, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of the Corporation’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2022, by correspondence with the custodian, brokers and others; when replies were not received from brokers and others, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Gabelli Funds investment companies since 1992.
New York, New York
November 29, 2022
The Gabelli Small Cap Growth Fund
Liquidity Risk Management Program (Unaudited)
In accordance with Rule 22e-4 under the 1940 Act, the Fund has established a liquidity risk management program (the LRM Program) to govern its approach to managing liquidity risk. The LRM Program is administered by the Liquidity Committee (the Committee), which is comprised of members of Gabelli Funds, LLC management. The Board has designated the Committee to administer the LRM Program.
The LRM Program’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. The LRM Program also includes elements that support the management and assessment of liquidity risk, including an annual assessment of factors that influence the Fund’s liquidity and the monthly classification and re-classification of certain investments that reflect the Committee’s assessment of their relative liquidity under current market conditions.
At a meeting of the Board held on August 16, 2022, the Board received a written report from the Committee regarding the design and operational effectiveness of the LRM Program. The Committee determined, and reported to the Board, that the LRM Program is reasonably designed to assess and manage the Fund’s liquidity risk and has operated adequately and effectively since its implementation. The Committee reported that there were no liquidity events that impacted the Fund or its ability to timely meet redemptions without dilution to existing shareholders. The Committee noted that the Fund is primarily invested in highly liquid securities and, accordingly, continues to be exempt from the requirement to determine a “highly liquid investment minimum” as defined in the Rule 22e-4. Because of that continued qualification for the exemption, the Fund has not adopted a “highly liquid investment minimum” amount. The Committee further noted that while changes to the LRM Program were made during the Review Period and reported to the Board, no material changes were made to the LRM Program as a result of the Committee’s annual review.
There can be no assurance that the LRM Program will achieve its objectives in the future. Please refer to the Fund’s Prospectus for more information regarding its exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.
The Gabelli Small Cap Growth Fund
Additional Fund Information (Unaudited)
The business and affairs of the Corporation are managed under the direction of the Corporation’s Board of Directors. Information pertaining to the Directors and officers of the Corporation is set forth below. The Corporation’s Statement of Additional Information includes additional information about the Corporation’s Directors and is available without charge, upon request, by calling 800-GABELLI (800-422-3554) or by writing to The Gabelli Small Cap Growth Fund at One Corporate Center, Rye, NY 10580-1422.
Name, Position(s)
Address1
and Age | | Term of Office
and
Length of
Time Served2 | | Number of
Funds
in Fund
Complex
Overseen
by Director | | Principal Occupation(s)
During Past Five Years | | Other Directorships
Held by Director3 |
| |
| INTERESTED DIRECTORS4: |
| | | | | | | | | |
Mario J. Gabelli, CFA
Director and Chief
Investment Officer
Age: 80 | | Since 1991 | | 31 | | Chairman, Chief Executive Officer, and Chief Investment Officer- Value Portfolios of GAMCO Investors, Inc. and Chief Investment Officer – Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management, Inc.; Director/Trustee or Chief Investment Officer of other registered investment companies within the Gabelli Fund Complex; Chief Executive Officer of GGCP, Inc.; Executive Chairman of Associated Capital Group, Inc. | | Director of Morgan Group Holding, Co. (holding company) (2001-2019); Chairman of the Board and Chief Executive Officer of LICT Corp. (multimedia and communication services company); Director of CIBL, Inc. (broadcasting and wireless communications); Director of ICTC Group Inc. (communications) (2013-2018) |
| | | | | | | | | |
John D. Gabelli
Director
Age: 78 | | Since 1991 | | 12 | | Former Senior Vice President of G.research, LLC (and its predecessor) (1991-2019) | | — |
| | | | | | | |
| INDEPENDENT DIRECTORS5: |
| | | | | | | | | |
Elizabeth C. Bogan
Director
Age: 78 | | Since 2019 | | 12 | | Senior Lecturer in Economics at Princeton University | | — |
| | | | | | | | | |
Anthony J. Colavita6
Director
Age: 86 | | Since 1991 | | 18 | | President of the law firm of Anthony J. Colavita, P.C. | | — |
| | | | | | | | | |
Vincent D. Enright
Director
Age: 78 | | Since 1991 | | 17 | | Former Senior Vice President and Chief Financial Officer of KeySpan Corp. (public utility) (1994-1998) | | Director of Echo Therapeutics, Inc. (therapeutics and diagnostics) (2008-2014); Director of The LGL Group, Inc. (diversified manufacturing) (2011-2014) |
| | | | | | | | | |
Robert J. Morrissey
Director
Age: 83 | | Since 1991 | | 7 | | Partner in the law firm of Morrissey, Hawkins & Lynch | | Chairman of the Board of Directors, Belmont Savings Bank |
The Gabelli Small Cap Growth Fund
Additional Fund Information (Unaudited) (Continued)
Name, Position(s)
Address1
and Age | | Term of Office
and
Length of
Time Served2 | | Number of
Funds in
Fund
Complex
Overseen
by Director | | Principal Occupation(s)
During Past Five Years | | Other Directorships
Held by Director3 |
| | | | | | | | | |
Kuni Nakamura
Director
Age: 54 | | Since 2009 | | 36 | | President of Advanced Polymer, Inc. (chemical manufacturing company); President of KEN Enterprises, Inc. (real estate); Trustee on Long Island University Board of Trustees; Trustee on Fordham Preparatory School Board of Trustees | | — |
| | | | | | | | | |
Anthonie C. van Ekris6
Director
Age: 88 | | Since 1991 | | 23 | | Chairman and Chief Executive Officer of BALMAC International, Inc.(global import/ export company) | | — |
| | | | | | | | | |
Salvatore J. Zizza7
Director
Age: 76 | | Since 2001 | | 34 | | President of Zizza & Associates Corp. (private holding company); Chairman of Bergen Cove Realty Inc. (residential real estate) | | Director and Chairman of Trans-Lux Corporation (business services); Director and Chairman of Harbor Diversified Inc. (pharmaceuticals) (2009-2018); Retired Chairman of BAM (semiconductor and aerospace manufacturing) |
The Gabelli Small Cap Growth Fund
Additional Fund Information (Unaudited) (Continued)
Name, Position(s)
Address1
and Age | | Term of Office
and Length of
Time Served2 | | Principal Occupation(s)
During Past Five Years |
| OFFICERS: | | | | |
John C. Ball
President and Treasurer
Age: 46 | | Since 2017 | | Officer of registered investment companies within the Gabelli Fund Complex since 2017; Vice President and Assistant Treasurer of AMG Funds, 2014-2017; Chief Executive Officer, G.distributors, LLC since December 2020 |
| | | | | |
Peter Goldstein
Secretary and Vice President
Age: 69 | | Since 2020 | | General Counsel, GAMCO Investors, Inc. and Chief Legal Officer, Associated Capital Group, Inc. since 2021; General Counsel and Chief Compliance Officer, Buckingham Capital Management, Inc. (2012-2020); Chief Legal Officer and Chief Compliance Officer, The Buckingham Research Group, Inc. (2012-2020) |
| | | | | |
Richard J. Walz
Chief Compliance
Officer
Age: 63 | | Since 2013 | | Chief Compliance Officer of registered investment companies within the Gabelli Fund Complex since 2013 |
| 1 | Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. |
| 2 | Each Director will hold office for an indefinite term until the earliest of (i) the next meeting of shareholders, if any, called for the purpose of considering the election or re-election of such Director and until the election and qualification of his or her successor, if any, elected at such meeting, or (ii) the date a Director resigns or retires, or a Director is removed by the Board of Directors or shareholders, in accordance with the Fund’s By-Laws and Articles of Incorporation. For officers, includes time served in prior officer positions with the Fund. Each officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected and qualified. |
| 3 | This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934, as amended, i.e., public companies, or other investment companies registered under the 1940 Act. |
| 4 | “Interested person” of the Fund as defined in the 1940 Act. Messrs. Gabelli are each considered an “interested person” because of their affiliation with Gabelli Funds, LLC which acts as the Fund’s investment adviser. Mario J. Gabelli and John D. Gabelli are brothers. |
| 5 | Directors who are not interested persons are considered “Independent” Directors. |
| 6 | Mr. Colavita’s son, Anthony S. Colavita, serves as a director of other funds in the Gabelli/GAMCO Fund Complex. Mr. van Ekris is an independent director of Gabelli International Ltd., Gabelli Fund, LDC, GAMA Capital Opportunities Master, Ltd., and GAMCO International SICAV, which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. |
| 7 | Mr. Zizza is an independent director of Gabelli International Ltd., which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. On September 9, 2015, Mr. Zizza entered into a settlement with the SEC to resolve an inquiry relating to an alleged violation regarding the making of false statements or omissions to the accountants of a company concerning a related party transaction. The company in question is not an affiliate of, nor has any connection to, the Fund. Under the terms of the settlement, Mr. Zizza, without admitting or denying the SEC’s findings and allegation, paid $150,000 and agreed to cease and desist committing or causing any future violations of Rule 13b2-2 of the Securities Exchange Act of 1934, as amended. The Board has discussed this matter and has determined that it does not disqualify Mr. Zizza from serving as an Independent Director. |
THE GABELLI SMALL CAP GROWTH FUND
2022 TAX NOTICE TO SHAREHOLDERS (Unaudited)
During the fiscal year ended September 30, 2022, the Fund paid to shareholders ordinary income distributions (comprised of net investment income and short term capital gains) totaling $0.0525, $ 0.0554, $0.0043, and $ 0.1895 for each of Class AAA, Class A, Class C, and Class I, respectively, and long term capital gains totaling $246,311,919, or the maximum allowable. The distribution of long term capital gains has been designated as a capital gain dividend by the Fund’s Board of Directors. For the fiscal year ended September 30, 2022, 100% of the ordinary income distribution qualifies for the dividends received deduction available to corporations. The Fund designates 100% of the ordinary income distribution as qualified dividend income pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund designates 0.02% of the ordinary income distribution as qualified interest income pursuant to the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010. The Fund designates 100% of the ordinary income distribution as qualified short term capital gain pursuant to the American Jobs Creation Act of 2004.
U.S. Government Income:
The percentage of the ordinary income distribution paid by the Fund during the fiscal year ended September 30, 2022 which was derived from U.S. Treasury securities was 0.02%. Such income is exempt from state and local tax in all states. However, many states, including New York and California, allow a tax exemption for a portion of the income earned only if a mutual fund has invested at least 50% of its assets at the end of each quarter of the Fund’s fiscal year in U.S. Government securities. The Gabelli Small Cap Growth Fund did not meet this strict requirement in 2022. The percentage of U.S. Government securities held as of September 30, 2022 was 0.0%. Due to the diversity in state and local tax law, it is recommended that you consult your personal tax adviser as to the applicability of the information provided to your specific situation.
___________
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
Gabelli Funds and Your Personal Privacy
Who are we?
The Gabelli Funds are investment companies registered with the Securities and Exchange Commission under the Investment Company Act of 1940. We are managed by Gabelli Funds, LLC, which is affiliated with GAMCO Investors, Inc., a publicly held company with subsidiaries and affiliates that provide investment advisory services for a variety of clients.
What kind of non-public information do we collect about you if you become a fund shareholder?
If you apply to open an account directly with us, you will be giving us some non-public information about yourself. The non-public information we collect about you is:
| ● | Information you give us on your application form. This could include your name, address, telephone number, social security number, bank account number, and other information. |
| ● | Information about your transactions with us, any transactions with our affiliates, and transactions with the entities we hire to provide services to you. This would include information about the shares that you buy or redeem. If we hire someone else to provide services — like a transfer agent — we will also have information about the transactions that you conduct through them. |
What information do we disclose and to whom do we disclose it?
We do not disclose any non-public personal information about our customers or former customers to anyone other than our affiliates, our service providers who need to know such information, and as otherwise permitted by law. If you want to find out what the law permits, you can read the privacy rules adopted by the Securities and Exchange Commission. They are in volume 17 of the Code of Federal Regulations, Part 248. The Commission often posts information about its regulations on its website, www. sec.gov.
What do we do to protect your personal information?
We restrict access to non-public personal information about you to the people who need to know that information in order to provide services to you or the fund and to ensure that we are complying with the laws governing the securities business. We maintain physical, electronic, and procedural safeguards to keep your personal information confidential.
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THE GABELLI SMALL CAP GROWTH FUND
One Corporate Center
Rye, NY 10580-1422
Portfolio Management Team Biographies
Mario J. Gabelli, CFA, is Chairman, Chief Executive Officer, and Chief Investment Officer - Value Portfolios of GAMCO Investors, Inc. that he founded in 1977, and Chief Investment Officer - Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. He is also Executive Chairman of Associated Capital Group, Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School and Honorary Doctorates from Fordham University and Roger Williams University.
Gordon Grender joined GAMCO UK in 2020 as a portfolio manager. Prior to joining the Firm, Mr. Grender served as the portfolio manager for a U.S. equity fund at GAM International Ltd.
The Gabelli Focused Growth and
Income Fund
Annual Report — September 30, 2022
 |
Daniel M. Miller Portfolio Manager GAMCO Investors BS, University of Miami |
To Our Shareholders,
For the fiscal year ended September 30, 2022, the net asset value (NAV) total return per Class I Share of The Gabelli Focused Growth and Income Fund was (11.1)% compared with a total return of (8.2)% for the Lipper Equity Income Fund Average. Other classes of shares are available. See page 3 for performance information for all classes.
Enclosed are the financial statements, including the schedule of investments, as of September 30, 2022.
Investment Objective and Strategy (Unaudited)
The Gabelli Focused Growth and Income Fund is a concentrated, actively managed strategy. The Fund invests in a global portfolio of common and preferred equities, REITs, bonds, and other securities that have the potential for capital appreciation while emphasizing a high level of current net investment income. The Fund has a managed monthly distribution, currently set at $0.06 per share.
Performance Discussion (Unaudited)
As a Fund with a concentrated portfolio of holdings, stock selection is an important element of performance as the Fund is driven more by the results of the companies selected rather than the movement of the overall market.
| As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.gabelli.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. To elect to receive all future reports on paper free of charge, please contact your financial intermediary, or, if you invest directly with the Fund, you may call 800-422-3554 or send an email request to info@gabelli.com. |
During the fourth quarter of 2021 stock market volatility intensified and supply chain, labor, and raw material headwinds challenged operations for many companies, increasing inflation and the fear of higher interest rates. Despite this, consumer demand remained strong and in December the national unemployment level approached pre-pandemic levels when it declined to 3.9%. While the Omicron variant presented challenges, households and corporations were able to continue to operate with little restriction. In the first fiscal quarter of 2022, investors continued to digest an increasingly complex economic outlook. Markets declined, with the S&P 500 Index falling 4.6%. Two years of a macro environment underpinned by economic reopening and expansion was finally replaced by one with significantly elevated inflation, rising interest rates, and the first major war in Europe in over 70 years. At its March meeting, the Fed raised interest rates by a quarter percentage point and signaled hikes at all six remaining meetings for the year.
The second quarter of 2022 saw the S&P 500 record the worst first half since 1970, down 20% YTD through June 30th. April and June brought some of biggest market declines in years as the reality of higher interest rates and the increasing prospect of a global slowdown took hold. As investors continued to contemplate the economic environment, the Fund continued to look to high quality income producing securities to provide attractive risk adjusted returns. Historically, high dividend yield/dividend growth stocks outperform during periods of high inflation.
In the third fiscal quarter of 2022, as investors balanced concerns of a potential recession, a hawkish fed, and continuing geopolitical conflicts throughout much of the world, we maintain the notion that high quality dividend paying securities should provide attractive risk adjusted returns. Historically, dividend-paying stocks have outperformed in defensive periods, while also providing a cushion in steep market declines. Since 1996, dividends account for nearly 20% of the total return of the S&P 500. Nevertheless, rapid fire increases in interest rates over the last several months have created significant consternation for investors in fixed income securities. Outflows in bond, municipal, and preferred ETFs have led to significant dislocations in the prices of certain issues.
Some of the better performing investments during the fiscal year were: Energy Transfer LP (common shares) (4.2% of net assets as of September 30, 2022), which continued to benefit from the company’s high quality assets and exposure to the North American energy market; and AbbVie Inc. (2.0%), the pharmaceutical research and development company that has continued to show strong performance and rising revenues from their immunology portfolio.
A few of our weaker performers included media conglomerate Qurate Retail Inc., 8.000%, 3/15/31 (5.1%), which continues to navigate a challenging operating environment marked by disruptions in the supply chain and a challenged consumer. Following a fire in one of its largest locations, the company has so far received $250 million in insurance reimbursements through August 5, 2022, and has announced a strategic plan to improve profit margins. Another detractor was automotive technology supplier Aptiv plc (1.4%), which saw a second quarter year over year EPS drop of 69% as fallout from increased supply chain and labor headwinds. The company stands to benefit from their unique next gen advanced driver assistance system platform that leverages Aptiv’s industry leading full stack capabilities in perception systems, software and computer platforms, and connectivity.
We appreciate your confidence and trust.
| The views expressed reflect the opinions of the Fund’s portfolio manager and Gabelli Funds, LLC, the Adviser, as of the date of this report and are subject to change without notice based on changes in market, economic, or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results. |
Comparative Results
Average Annual Returns through September 30, 2022 (a)(b) (Unaudited)
Total return and average annual returns reflect changes in share price, reinvestment of distributions, and are net of expenses.
| | | 1 Year | | 3 Year | | 5 Year | | 10 Year | | Since
Inception
(12/31/02) |
| Class I (GWSIX) (c) | | (11.07 | )% | | 7.99 | % | | 2.42 | % | | 5.62 | % | | 6.77 | % |
| Class AAA (GWSVX) | | (11.85 | ) | | 7.19 | | | 1.86 | | | 5.21 | | | 6.49 | |
| S&P MidCap 400 Index (d) | | (15.25 | ) | | 6.01 | | | 5.82 | | | 10.04 | | | 10.22 | |
| Lipper Equity Income Fund Average (d) | | (8.18 | ) | | 5.29 | | | 6.42 | | | 9.13 | | | 8.09 | |
| Class A (GWSAX) | | (11.88 | ) | | 7.24 | | | 1.88 | | | 5.22 | | | 6.52 | |
| With sales charge (e) | | (16.95 | ) | | 5.14 | | | 0.68 | | | 4.60 | | | 6.19 | |
| Class C (GWSCX) (f) | | (12.54 | ) | | 6.42 | | | 1.12 | | | 4.43 | | | 5.73 | |
| With contingent deferred sales charge (g) | | (13.41 | ) | | 6.42 | | | 1.12 | | | 4.43 | | | 5.73 | |
| (a) | The Fund’s fiscal year ends September 30. |
| (b) | Returns would have been lower had the Adviser not reimbursed certain expenses of the Fund. The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days of purchase. |
| (c) | The Class AAA Share NAVs 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. |
| (d) | The S&P Midcap 400 Index is an index comprised of U.S. stocks in the middle capitalization range, which is generally considered to be between $200 million and $5 billion in market value. The Lipper Equity Income Fund Average includes the 30 largest equity funds in this category tracked by Lipper, Inc. Dividends are considered reinvested. You cannot invest directly in an index. |
| (e) | Performance results include the effect of the maximum 5.75% sales charge at the beginning of the period. |
| (f) | Effective January 3, 2022, the Focused Growth and Income Fund's Class C Shares were "closed to all purchases." "Closed to all purchases" means neither new investors nor existing shareholders may purchase any additional Class C Shares after the Effective Date. These changes have no effect on existing shareholders' ability to redeem Class C Shares of the Fund as described herein. |
| (g) | Assuming payment of the 1% maximum contingent deferred sales charge imposed on redemptions made within one year of purchase. |
In the current prospectuses dated August 17, 2022, the expense ratios for Class AAA, A, and I Shares are 1.96%, 1.96%, and 1.71%, respectively, and the net expense ratios for these share classes after contractual reimbursements by Gabelli Funds, LLC (the Adviser) are 1.96%, 1.25%, and 0.80%, respectively. See page 11 for the expense ratios for the year ended September 30, 2022. Class AAA and Class I Shares have no sales charge. The maximum sales charge for Class A Shares is 5.75%.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at www.gabelli.com.
Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. 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.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI FOCUSED GROWTH AND INCOME FUND (CLASS AAA SHARES)
AND S&P MIDCAP 400 INDEX (Unaudited)
| Average Annual Total Returns* |
| | 1 Year | 5 Year | 10 Year |
| Class AAA | (11.85)% | 1.86% | 5.21% |
* Past performance is not predictive of future results. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
| The Gabelli Focused Growth and Income Fund | |
| Disclosure of Fund Expenses (Unaudited) | |
| For the Six Month Period from April 1, 2022 through September 30, 2022 | Expense Table |
We believe it is important for you to understand the impact of fees and expenses regarding your investment. All mutual funds have operating expenses. As a shareholder of a fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of a fund. When a fund’s expenses are expressed as a percentage of its average net assets, this figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The Expense Table below illustrates your Fund’s costs in two ways:
Actual Fund Return: This section provides information about actual account values and actual expenses. You may use this section to help you to estimate the actual expenses that you paid over the period after any fee waivers and expense reimbursements. The “Ending Account Value” shown is derived from the Fund’s actual return during the past six months, and the “Expenses Paid During Period” shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading “Expenses Paid During Period” to estimate the expenses you paid during this period.
Hypothetical 5% Return: This section provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio. It assumes a hypothetical annualized return of 5% before expenses during the period shown. In this case - because the hypothetical return used is not the Fund’s actual return - the results do not apply to your investment and you cannot use the hypothetical account value and expense to estimate the actual ending account balance or expenses you
paid for the period. This example is useful in making comparisons of the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees, if any, which are described in the Prospectus. If these costs were applied to your account, your costs would be higher. Therefore, the 5% hypothetical return is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The "Annualized Expense Ratio" represents the actual expenses for the last six months and may be different from the expense ratio in the Financial Highlights which is for the fiscal year ended September 30, 2022.
| | | Beginning
Account Value
04/01/22 | | Ending
Account Value
09/30/22 | | Annualized
Expense
Ratio | | Expenses
Paid During
Period * |
| The Gabelli Focused Growth and Income Fund | | |
| Actual Fund Return | | | | | | |
| Class AAA | | $1,000.00 | | $836.70 | | 1.62% | | $ | 7.46 |
| Class A | | $1,000.00 | | $836.50 | | 1.59% | | $ | 7.32 |
| Class C | | $1,000.00 | | $833.00 | | 2.36% | | $ | 10.84 |
| Class I | | $1,000.00 | | $840.00 | | 0.80% | | $ | 3.69 |
| Hypothetical 5% Return | | | | | | | | |
| Class AAA | | $1,000.00 | | $1,016.95 | | 1.62% | | $ | 8.19 |
| Class A | | $1,000.00 | | $1,017.10 | | 1.59% | | $ | 8.04 |
| Class C | | $1,000.00 | | $1,013.24 | | 2.36% | | $ | 11.91 |
| Class I | | $1,000.00 | | $1,021.06 | | 0.80% | | $ | 4.05 |
| * | 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 (183 days), then divided by 365. |
Summary of Portfolio Holdings (Unaudited)
The following table presents portfolio holdings as a percent of net assets as of September 30, 2022:
The Gabelli Focused Growth and Income Fund
| Energy and Utilities | | 24.7 | % | | Entertainment | | 2.8 | % |
| Real Estate Investment Trusts | | 18.4 | % | | Building and Construction | | 2.0 | % |
| Financial Services | | 11.5 | % | | Computer Software and Services | | 2.0 | % |
| U.S. Government Obligations | | 10.6 | % | | Metals and Mining | | 1.6 | % |
| Food and Beverage | | 6.2 | % | | Automotive: Parts and Accessories | | 1.4 | % |
| Retail | | 5.1 | % | | Cable and Satellite | | 0.9 | % |
| Health Care | | 4.9 | % | | Transportation | | 0.9 | % |
| Telecommunications | | 4.7 | % | | Other Assets and Liabilities (Net) | | (1.4 | )% |
| Diversified Industrial | | 3.7 | % | | | | 100.0 | % |
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (the SEC) for the first and third quarters of each fiscal year on Form N-PORT. 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-PORT 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 800-SEC-0330.
Proxy Voting
The Fund files Form N-PX with its complete proxy voting record for the twelve months ended June 30, no later than August 31 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.
The Gabelli Focused Growth and Income Fund
Schedule of Investments — September 30, 2022
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | | | COMMON STOCKS — 73.1% | | | | | | |
| | | | | Automotive: Parts and Accessories — 1.4% |
| | 7,000 | | | Aptiv plc† | | $ | 365,597 | | | $ | 547,470 | |
| | | | | | | | | | | | | |
| | | | | Building and Construction — 2.0% |
| | 7,750 | | | Herc Holdings Inc. | | | 149,020 | | | | 805,070 | |
| | | | | | | | | | | | | |
| | | | | Cable and Satellite — 0.9% | | | | | | | | |
| | 7,000 | | | Liberty Media Corp. - Liberty Formula One, Cl. A† | | | 197,542 | | | | 367,640 | |
| | | | | | | | | | | | | |
| | | | | Computer Software and Services — 2.0% |
| | 8,300 | | | Alphabet Inc., Cl. C† | | | 246,177 | | | | 798,045 | |
| | | | | | | | | | | | | |
| | | | | Diversified Industrial — 0.7% | | | | | | | | |
| | 775 | | | Roper Technologies Inc. | | | 222,013 | | | | 278,721 | |
| | | | | | | | | | | | | |
| | | | | Energy and Utilities — 20.3% | | | | | | | | |
| | 148,819 | | | Energy Transfer LP | | | 1,053,642 | | | | 1,641,473 | |
| | 105,401 | | | Enterprise Products Partners LP | | | 1,885,580 | | | | 2,506,436 | |
| | 101,000 | | | Kinder Morgan Inc. | | | 1,208,800 | | | | 1,680,640 | |
| | 30,000 | | | NextEra Energy Partners LP | | | 1,265,517 | | | | 2,169,300 | |
| | | | | | | | 5,413,539 | | | | 7,997,849 | |
| | | | | Entertainment — 1.0% | | | | | | | | |
| | 70,000 | | | Sirius XM Holdings Inc. | | | 201,906 | | | | 399,700 | |
| | | | | | | | | | | | | |
| | | | | Financial Services — 9.0% | | | | | | | | |
| | 39,000 | | | Apollo Global Management Inc. | | | 1,350,798 | | | | 1,813,500 | |
| | 12,500 | | | Morgan Stanley | | | 525,580 | | | | 987,625 | |
| | 87,500 | | | New York Community Bancorp Inc. | | | 743,181 | | | | 746,375 | |
| | | | | | | | 2,619,559 | | | | 3,547,500 | |
| | | | | Food and Beverage — 6.2% | | | | | | | | |
| | 86,500 | | | Maple Leaf Foods Inc. | | | 1,415,707 | | | | 1,292,475 | |
| | 12,500 | | | Mondelēz International Inc., Cl. A | | | 511,477 | | | | 685,375 | |
| | 5,500 | | | Post Holdings Inc.† | | | 123,539 | | | | 450,505 | |
| | | | | | | | 2,050,723 | | | | 2,428,355 | |
| | | | | Health Care — 4.9% | | | | | | | | |
| | 6,000 | | | AbbVie Inc. | | | 636,524 | | | | 805,260 | |
| | 35,000 | | | Option Care Health Inc.† | | | 191,324 | | | | 1,101,450 | |
| | | | | | | | 827,848 | | | | 1,906,710 | |
| | | | | Metals and Mining — 1.6% | | | | | | | | |
| | 15,000 | | | Newmont Corp. | | | 627,538 | | | | 630,450 | |
| | | | | | | | | | | | | |
| | | | | Real Estate Investment Trusts — 18.4% |
| | 142,500 | | | Blackstone Mortgage Trust Inc., Cl. A | | | 3,807,316 | | | | 3,325,950 | |
| | | | | | | | | Market | |
| Shares | | | | | Cost | | | Value | |
| | 130,574 | | | VICI Properties Inc. | | $ | 2,370,892 | | | $ | 3,897,634 | |
| | | | | | | | 6,178,208 | | | | 7,223,584 | |
| | | | | Telecommunications — 4.7% | | | | | | | | |
| | 80,000 | | | AT&T Inc. | | | 1,267,502 | | | | 1,227,200 | |
| | 4,500 | | | T-Mobile US Inc.† | | | 328,888 | | | | 603,765 | |
| | | | | | | | 1,596,390 | | | | 1,830,965 | |
| | | | | | | | | | | | | |
| | | | | TOTAL COMMON STOCKS | | | 20,696,060 | | | | 28,762,059 | |
| | | | | | | | | | | | | |
| | | | | PREFERRED STOCKS — 15.9% | | | | | | | | |
| | | | | Diversified Industrial — 3.0% | | | | | | | | |
| | 3,909 | | | Babcock & Wilcox Enterprises Inc., 8.125%, 02/28/26 | | | 97,725 | | | | 97,725 | |
| | 46,977 | | | Steel Partners Holdings LP, Ser. A, 6.000%, 02/07/26 | | | 976,496 | | | | 1,093,625 | |
| | | | | | | | 1,074,221 | | | | 1,191,350 | |
| | | | | Energy and Utilities — 4.4% | | | | | | | | |
| | 75,023 | | | Energy Transfer LP, Ser. D, 7.625% | | | 1,449,772 | | | | 1,715,776 | |
| | | | | | | | | | | | | |
| | | | | Financial Services — 2.5% | | | | | | | | |
| | 22,762 | | | Argo Blockchain plc, Ser. A, 8.750%, 11/30/26 | | | 541,411 | | | | 361,688 | |
| | 49,287 | | | Greenidge Generation Holdings Inc., 8.500%, 10/31/26 | | | 1,022,797 | | | | 601,302 | |
| | | | | | | | 1,564,208 | | | | 962,990 | |
| | | | | Retail — 5.1% | | | | | | | | |
| | 44,004 | | | Qurate Retail Inc., 8.000%, 03/15/31 | | | 3,331,235 | | | | 2,003,942 | |
| | | | | | | | | | | | | |
| | | | | Transportation — 0.9% | | | | | | | | |
| | 19,304 | | | Fortress Transportation and Infrastructure Investors LLC, Ser. A, 8.250% | | | 402,539 | | | | 353,456 | |
| | | | | | | | | | | | | |
| | | | | TOTAL PREFERRED STOCKS | | | 7,821,975 | | | | 6,227,514 | |
| | | | | | | | | | | | | |
| | | | | MANDATORY CONVERTIBLE SECURITIES(a) — 1.8% |
| | | | | Entertainment — 1.8% | | | | | | | | |
| | 23,075 | | | Paramount Global, Ser. A, 5.750%, 04/01/24 | | | 974,818 | | | | 713,017 | |
See accompanying notes to financial statements.
The Gabelli Focused Growth and Income Fund
Schedule of Investments (Continued) — September 30, 2022
| Principal | | | | | | | | Market | |
| Amount | | | | | Cost | | | Value | |
| | | | | U.S. GOVERNMENT OBLIGATIONS — 10.6% |
| $ | 4,190,000 | | | U.S. Treasury Bills, 2.636% to 3.242%††, 11/10/22 to 12/29/22 | | $ | 4,169,871 | | | $ | 4,170,310 | |
| | | | | | | | | | | | | |
| | | | | TOTAL INVESTMENTS — 101.4% | | $ | 33,662,724 | | | | 39,872,900 | |
| | | | | | | | | | | | | |
| | | | | Other Assets and Liabilities (Net) — (1.4)% | | | | (545,234 | ) |
| | | | | | | | | | | | | |
| | | | | NET ASSETS — 100.0% | | | | | | $ | 39,327,666 | |
| (a) | Mandatory convertible securities are required to be converted on the dates listed; they generally may be converted prior to these dates at the option of the holder. |
| † | Non-income producing security. |
| †† | Represents annualized yields at dates of purchase. |
See accompanying notes to financial statements.
The Gabelli Focused Growth and Income Fund
Statement of Assets and Liabilities
September 30, 2022
| Assets: | | | |
| Investments, at value (cost $33,662,724) | | $ | 39,872,900 | |
| Cash | | | 5,543 | |
| Foreign currency, at value (cost $10,745) | | | 10,645 | |
| Receivable for investments sold | | | 143,432 | |
| Receivable for Fund shares sold | | | 3,250 | |
| Receivable from Adviser | | | 8,292 | |
| Dividends receivable | | | 184,536 | |
| Prepaid expenses | | | 17,950 | |
| Total Assets | | | 40,246,548 | |
| Liabilities: | | | | |
| Payable for investments purchased | | | 829,789 | |
| Payable for Fund shares redeemed | | | 1,309 | |
| Payable for investment advisory fees | | | 34,998 | |
| Payable for distribution fees | | | 7,476 | |
| Other accrued expenses | | | 45,310 | |
| Total Liabilities | | | 918,882 | |
| Net Assets | | | | |
| (applicable to 2,638,009 shares outstanding) | | $ | 39,327,666 | |
| Net Assets Consist of: | | | | |
| Paid-in capital | | $ | 33,149,971 | |
| Total distributable earnings | | | 6,177,695 | |
| Net Assets | | $ | 39,327,666 | |
| | | | | |
| Shares of Capital Stock, each at $0.001 par value: | | | | |
| Class AAA: | | | | |
| Net Asset Value, offering, and redemption price per share ($5,133,698 ÷ 347,163 shares outstanding; 100,000,000 shares authorized) | | $ | 14.79 | |
| Class A: | | | | |
| Net Asset Value and redemption price per share ($10,809,746 ÷ 721,986 shares outstanding; 50,000,000 shares authorized) | | $ | 14.97 | |
| Maximum offering price per share (NAV ÷ 0.9425, based on maximum sales charge of 5.75% of the offering price) | | $ | 15.88 | |
| Class C: | | | | |
| Net Asset Value and redemption price per share ($4,357,248 ÷ 355,573 shares outstanding; 50,000,000 shares authorized) | | $ | 12.25 | (a) |
| Class I: | | | | |
| Net Asset Value, offering, and redemption price per share ($19,026,974 ÷ 1,213,287 shares outstanding; 50,000,000 shares authorized) | | $ | 15.68 | |
Statement of Operations
For the Year Ended September 30, 2022
| Investment Income: | | | |
| Dividends (net of foreign withholding taxes of $11,501) | | $ | 1,483,647 | |
| Interest | | | 17,896 | |
| Total Investment Income | | | 1,501,543 | |
| Expenses: | | | | |
| Investment advisory fees | | | 411,185 | |
| Distribution fees - Class AAA | | | 15,841 | |
| Distribution fees - Class A | | | 27,980 | |
| Distribution fees - Class C | | | 63,197 | |
| Registration expenses | | | 56,282 | |
| Legal and audit fees | | | 55,418 | |
| Shareholder communications expenses | | | 39,064 | |
| Shareholder services fees | | | 21,818 | |
| Custodian fees | | | 5,559 | |
| Directors’ fees | | | 3,242 | |
| Interest expense | | | 611 | |
| Miscellaneous expenses | | | 12,708 | |
| Total Expenses | | | 712,905 | |
| Less: | | | | |
| Expense reimbursements (See Note 3) | | | (119,130 | ) |
| Net Expenses | | | 593,775 | |
| Net Investment Income | | | 907,768 | |
| Net Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency: | | | | |
| Net realized gain on investments | | | 1,696,620 | |
| Net realized gain on foreign currency transactions | | | 285 | |
| Net realized gain on investments and foreign currency transactions | | | 1,696,905 | |
| Net change in unrealized appreciation/depreciation: | | | | |
| on investments | | | (7,868,129 | ) |
| on foreign currency translations | | | (126 | ) |
| Net change in unrealized appreciation/depreciation on investments and foreign currency translations | | | (7,868,255 | ) |
| Net Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency | | | (6,171,350 | ) |
| Net Decrease in Net Assets Resulting from Operations | | $ | (5,263,582 | ) |
| (a) | Redemption price varies based on the length of time held. |
See accompanying notes to financial statements.
The Gabelli Focused Growth and Income Fund
Statement of Changes in Net Assets
| | Year Ended
September 30, 2022 | | Year Ended
September 30, 2021 |
| | | | | | | | |
| Operations: | | | | | | | | | |
| Net investment income | | $ | 907,768 | | | | $ | 763,540 | |
| Net realized gain on investments and foreign currency transactions | | | 1,696,905 | | | | | 6,177,026 | |
| Net change in unrealized appreciation/depreciation on investments and foreign currency translations | | | (7,868,255 | ) | | | | 6,127,552 | |
| Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (5,263,582 | ) | | | | 13,068,118 | |
| | | | | | | | | | |
| Distributions to Shareholders: | | | | | | | | | |
| Class AAA | | | (261,923 | ) | | | | (246,442 | ) |
| Class A | | | (463,689 | ) | | | | (274,575 | ) |
| Class C | | | (309,413 | ) | | | | (301,224 | ) |
| Class I | | | (694,230 | ) | | | | (435,658 | ) |
| Total Distributions to Shareholders | | | (1,729,255 | ) | | | | (1,257,899 | ) |
| | | | | | | | | | |
| Capital Share Transactions: | | | | | | | | | |
| Class AAA | | | (871,432 | ) | | | | (4,833,791 | ) |
| Class A | | | 3,794,627 | | | | | (298,998 | ) |
| Class C | | | (2,842,573 | ) | | | | (1,224,967 | ) |
| Class I | | | 5,996,510 | | | | | 4,175,125 | |
| Net Increase/(Decrease) in Net Assets from Capital Share Transactions | | | 6,077,132 | | | | | (2,182,631 | ) |
| | | | | | | | | | |
| Net Increase/(Decrease) in Net Assets | | | (915,705 | ) | | | | 9,627,588 | |
| Net Assets: | | | | | | | | | |
| Beginning of year | | | 40,243,371 | | | | | 30,615,783 | |
| End of year | | $ | 39,327,666 | | | | $ | 40,243,371 | |
See accompanying notes to financial statements.
The Gabelli Focused Growth and Income Fund
Financial Highlights
Selected data for a share of capital stock outstanding throughout each year:
| | | | | Income (Loss) from Investment Operations | | | Distributions | | | | | | | | | | | Ratios to Average Net Assets/Supplemental Data |
Year Ended
September 30 | | Net Asset Value, Beginning of Year | | Net
Investment
Income
(Loss)(a)(b) | | | Net Realized and Unrealized Gain (Loss) on Investments | | | Total from Investment Operations | | | Net Investment Income | | | Net Realized Gain on Investments | | | Total Distributions | | | Redemption Fees(a) | | Net Asset Value, End of Year | | Total Return† | | Net Assets, End of Year (in 000’s) | | Net Investment Income (Loss)(b) | | | Operating Expenses Before Reimbursement | | | Operating
Expenses Net of Reimbursement(c) | | Portfolio Turnover Rate |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class AAA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 17.50 | | $ | 0.32 | | | $ | (2.31 | ) | | $ | (1.99 | ) | | $ | (0.66 | ) | | $ | (0.06 | ) | | $ | (0.72 | ) | | $ | — | | | $ | 14.79 | | | (11.85 | )% | | $ | 5,134 | | | 1.85 | % | | | 1.72 | % | | | 1.72 | % | | | 46 | % |
| 2021 | | | 12.48 | | | 0.34 | | | | 5.22 | | | | 5.56 | | | | (0.54 | ) | | | — | | | | (0.54 | ) | | | — | | | | 17.50 | | | 44.76 | | | | 6,927 | | | 2.15 | | | | 1.96 | | | | 1.96 | | | | 54 | |
| 2020 | | | 12.93 | | | (0.03 | ) | | | (0.42 | ) | | | (0.45 | ) | | | — | | | | — | | | | — | | | | 0.00 | (d) | | | 12.48 | | | (3.48 | ) | | | 8,713 | | | (0.24 | ) | | | 1.71 | | | | 1.71 | | | | 59 | |
| 2019 | | | 13.84 | | | (0.07 | ) | | | (0.83 | ) | | | (0.90 | ) | | | — | | | | (0.01 | ) | | | (0.01 | ) | | | — | | | | 12.93 | | | (6.50 | ) | | | 12,189 | | | (0.56 | ) | | | 1.64 | | | | 1.64 | (e) | | | 67 | |
| 2018 | | | 14.61 | | | (0.09 | ) | | | (0.61 | ) | | | (0.70 | ) | | | — | | | | (0.07 | ) | | | (0.07 | ) | | | 0.00 | (d) | | | 13.84 | | | (4.78 | ) | | | 16,630 | | | (0.63 | ) | | | 1.53 | | | | 1.53 | | | | 105 | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 17.71 | | $ | 0.34 | | | $ | (2.36 | ) | | $ | (2.02 | ) | | $ | (0.66 | ) | | $ | (0.06 | ) | | $ | (0.72 | ) | | $ | — | | | $ | 14.97 | | | (11.88 | )% | | $ | 10,810 | | | 1.94 | % | | | 1.72 | % | | | 1.70 | %(f) | | | 46 | % |
| 2021 | | | 12.62 | | | 0.30 | | | | 5.33 | | | | 5.63 | | | | (0.54 | ) | | | — | | | | (0.54 | ) | | | — | | | | 17.71 | | | 44.82 | | | | 8,958 | | | 1.83 | | | | 1.96 | | | | 1.96 | | | | 54 | |
| 2020 | | | 13.06 | | | (0.03 | ) | | | (0.41 | ) | | | (0.44 | ) | | | — | | | | — | | | | — | | | | 0.00 | (d) | | | 12.62 | | | (3.37 | ) | | | 6,644 | | | (0.24 | ) | | | 1.71 | | | | 1.71 | | | | 59 | |
| 2019 | | | 13.98 | | | (0.07 | ) | | | (0.84 | ) | | | (0.91 | ) | | | — | | | | (0.01 | ) | | | (0.01 | ) | | | — | | | | 13.06 | | | (6.51 | ) | | | 9,013 | | | (0.57 | ) | | | 1.64 | | | | 1.64 | (e) | | | 67 | |
| 2018 | | | 14.76 | | | (0.09 | ) | | | (0.62 | ) | | | (0.71 | ) | | | — | | | | (0.07 | ) | | | (0.07 | ) | | | 0.00 | (d) | | | 13.98 | | | (4.80 | ) | | | 15,137 | | | (0.65 | ) | | | 1.53 | | | | 1.53 | | | | 105 | |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 14.73 | | $ | 0.15 | | | $ | (1.91 | ) | | $ | (1.76 | ) | | $ | (0.66 | ) | | $ | (0.06 | ) | | $ | (0.72 | ) | | $ | — | | | $ | 12.25 | | | (12.54 | )% | | $ | 4,357 | | | 1.02 | % | | | 2.47 | % | | | 2.47 | % | | | 46 | % |
| 2021 | | | 10.64 | | | 0.15 | | | | 4.48 | | | | 4.63 | | | | (0.54 | ) | | | — | | | | (0.54 | ) | | | — | | | | 14.73 | | | 43.75 | | | | 8,143 | | | 1.13 | | | | 2.71 | | | | 2.71 | | | | 54 | |
| 2020 | | | 11.10 | | | (0.11 | ) | | | (0.35 | ) | | | (0.46 | ) | | | — | | | | — | | | | — | | | | 0.00 | (d) | | | 10.64 | | | (4.14 | ) | | | 6,926 | | | (1.00 | ) | | | 2.46 | | | | 2.46 | | | | 59 | |
| 2019 | | | 11.97 | | | (0.14 | ) | | | (0.72 | ) | | | (0.86 | ) | | | — | | | | (0.01 | ) | | | (0.01 | ) | | | — | | | | 11.10 | | | (7.18 | ) | | | 13,807 | | | (1.33 | ) | | | 2.39 | | | | 2.39 | (e) | | | 67 | |
| 2018 | | | 12.74 | | | (0.17 | ) | | | (0.53 | ) | | | (0.70 | ) | | | — | | | | (0.07 | ) | | | (0.07 | ) | | | 0.00 | (d) | | | 11.97 | | | (5.48 | ) | | | 24,992 | | | (1.38 | ) | | | 2.28 | | | | 2.28 | | | | 105 | |
| Class I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 18.35 | | $ | 0.54 | | | $ | (2.49 | ) | | $ | (1.95 | ) | | $ | (0.66 | ) | | $ | (0.06 | ) | | $ | (0.72 | ) | | $ | — | | | $ | 15.68 | | | (11.07 | )% | | $ | 19,027 | | | 2.94 | % | | | 1.47 | % | | | 0.80 | %(f) | | | 46 | % |
| 2021 | | | 12.94 | | | 0.46 | | | | 5.49 | | | | 5.95 | | | | (0.54 | ) | | | — | | | | (0.54 | ) | | | — | | | | 18.35 | | | 46.21 | | | | 16,215 | | | 2.70 | | | | 1.71 | | | | 0.95 | (f) | | | 54 | |
| 2020 | | | 13.36 | | | 0.00 | (d) | | | (0.42 | ) | | | (0.42 | ) | | | — | | | | — | | | | — | | | | 0.00 | (d) | | | 12.94 | | | (3.14 | ) | | | 8,333 | | | 0.01 | | | | 1.46 | | | | 1.46 | | | | 59 | |
| 2019 | | | 14.27 | | | (0.05 | ) | | | (0.85 | ) | | | (0.90 | ) | | | — | | | | (0.01 | ) | | | (0.01 | ) | | | — | | | | 13.36 | | | (6.30 | ) | | | 15,555 | | | (0.36 | ) | | | 1.39 | | | | 1.39 | (e) | | | 67 | |
| 2018 | | | 15.02 | | | (0.06 | ) | | | (0.62 | ) | | | (0.68 | ) | | | — | | | | (0.07 | ) | | | (0.07 | ) | | | 0.00 | (d) | | | 14.27 | | | (4.50 | ) | | | 34,947 | | | (0.39 | ) | | | 1.28 | | | | 1.28 | | | | 105 | |
| † | Total return represents aggregate total return of a hypothetical investment at the beginning of the year and sold at the end of the year including reinvestment of distributions and does not reflect the applicable sales charges. |
| (a) | Per share amounts have been calculated using the average shares outstanding method. |
| (b) | Due to capital share activity, net investment income/(loss) 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. For the fiscal years ended September 30, 2022 and 2020, if interest expense had not been incurred, the ratios of operating expenses to average net assets would have been 1.72% and 1.70% (Class AAA), 1.69% and 1.70% (Class A), 2.47% and 2.45% (Class C), and 0.80% and 1.45% (Class I), respectively. For the fiscal years ended September 30, 2021, 2019, and 2018, the effect of interest expense was minimal. |
| (d) | Amount represents less than $0.005 per share. |
| (e) | The Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. If such credits had not been received the ratios of operating expenses to average net assets would have been 1.64% (Class AAA and Class A), 2.39% (Class C), and 1.40% (Class I) for the fiscal year ended September 30, 2019. |
| (f) | Under an expense reimbursement agreement with the Adviser, the Adviser reimbursed expenses of $119,130 and $97,862 for the fiscal years ended September 30, 2022 and 2021, respectively. |
See accompanying notes to financial statements.
The Gabelli Focused Growth and Income Fund
Notes to Financial Statements
1. Organization. The Gabelli Focused Growth and Income Fund, a series of the Gabelli Equity Series Funds, Inc. (the Corporation), was incorporated on July 25, 1991 in Maryland. The Fund is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), and is one of four separately managed portfolios (collectively, the Portfolios) of the Corporation. The Fund seeks to provide a high level of capital appreciation. The Fund commenced investment operations on December 31, 2002. Effective January 14, 2021, The Gabelli Focus Five Fund changed its name to Gabelli Focused Growth and Income Fund with a corresponding change in the name of each of its Classes of Shares.
2. Significant Accounting Policies. As an investment company, the Fund follows the investment company accounting and reporting guidance, which is part of U.S. generally accepted accounting principles (GAAP) that may require the use of management estimates and assumptions in the preparation of its 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.
The global outbreak of the novel coronavirus disease, known as COVID-19, has caused adverse effects on many companies, sectors, nations, regions, and the markets in general, and may continue for an unpredictable duration. The effects of this pandemic may materially impact the value and performance of the Fund, its ability to buy and sell fund investments at appropriate valuations, and its ability to achieve its investment objectives.
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 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 obligations 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, 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. Certain securities are valued principally using dealer quotations. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. OTC futures and options on futures for which market quotations are readily available will be valued by quotations received from a pricing service or, if no quotations are available from a pricing service, by quotations obtained from one of more dealers in the instrument in question by the Adviser.
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 with the valuation and
The Gabelli Focused Growth and Income Fund
Notes to Financial Statements (Continued)
changes in valuation of similar securities, including a comparison of foreign securities with the equivalent U.S. dollar value American Depositary Receipt 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.
The inputs and valuation techniques used to measure fair value of the Fund’s investments are summarized into three levels as described in the hierarchy below:
| ● | Level 1 — quoted prices in active markets for identical securities; |
| ● | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.); and |
| ● | Level 3 — significant unobservable inputs (including the Board’s determinations as to the fair value of investments). |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in the aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of the Fund’s investments in securities by inputs used to value the Fund’s investments as of September 30, 2022 is as follows:
| | | Valuation Inputs | | | | |
| | | Level 1
Quoted Prices | | | Level 2 Other
Significant
Observable Inputs | | | Total Market Value
at 09/30/22 | |
| INVESTMENTS IN SECURITIES: | | | | | | | | | |
| ASSETS (Market Value): | | | | | | | | | |
| Common Stocks (a) | | $ | 28,762,059 | | | | — | | | $ | 28,762,059 | |
| Preferred Stocks (a) | | | 6,227,514 | | | | — | | | | 6,227,514 | |
| Mandatory Convertible Securities (a) | | | 713,017 | | | | — | | | | 713,017 | |
| U.S. Government Obligations | | | — | | | $ | 4,170,310 | | | | 4,170,310 | |
| TOTAL INVESTMENTS IN SECURITIES – ASSETS | | $ | 35,702,590 | | | $ | 4,170,310 | | | $ | 39,872,900 | |
| (a) | Please refer to the Schedule of Investments for the industry classifications of these portfolio holdings. |
The Fund held no Level 3 investments at September 30, 2022 or September 30, 2021.
Additional Information to Evaluate Qualitative Information.
General. The Fund uses recognized industry pricing services approved by the Board and unaffiliated with the Adviser – to value most of its securities, and uses broker quotes provided by market makers of securities not valued by these and other recognized pricing sources. Several different pricing feeds are received to value domestic equity securities, international equity securities, preferred equity securities, and fixed income securities. The data within these feeds are ultimately sourced from major stock exchanges and trading systems where these securities trade. The prices supplied by external sources are checked by obtaining quotations or actual transaction prices from market participants. If a price obtained from the pricing source is deemed unreliable, prices will be sought from another pricing service or from a broker/dealer that trades that security or similar securities.
Fair Valuation. Fair valued securities may be common or preferred equities, warrants, options, rights, or fixed income obligations. Where appropriate, Level 3 securities are those for which market quotations are not
The Gabelli Focused Growth and Income Fund
Notes to Financial Statements (Continued)
available, such as securities not traded for several days, or for which current bids are not available, or which are restricted as to transfer. When fair valuing a security, factors to consider include recent prices of comparable securities that are publicly traded, reliable prices of securities not publicly traded, the use of valuation models, current analyst reports, valuing the income or cash flow of the issuer, or cost if the preceding factors do not apply. A significant change in the unobservable inputs could result in a lower or higher value in Level 3 securities. The circumstances of Level 3 securities are frequently monitored to determine if fair valuation measures continue to apply.
The Adviser reports quarterly to the Board the results of the application of fair valuation policies and procedures. These may include backtesting the prices realized in subsequent trades of these fair valued securities to fair values previously recognized.
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 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 purchase 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 inability 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 securities of comparable U.S. issuers.
Foreign Taxes. The Fund may be subject to foreign taxes on income, gains on investments, or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
Securities Transactions and Investment Income. Securities transactions are accounted for on the trade date with realized gain/(loss) on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded on an accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method or amortized to earliest call date, if applicable. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities that are recorded as soon after the ex-dividend date as the Fund becomes aware of such dividends.
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
The Gabelli Focused Growth and Income Fund
Notes to Financial Statements (Continued)
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.
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 GAAP. 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. 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. Permanent differences were primarily due to distribution in excess of income and prior year post financial statement adjustments. These reclassifications have no impact on the NAV of the Fund. For the fiscal year ended September 30, 2022, reclassifications were made to decrease paid-in capital by $601,468, with an offsetting adjustment to total distributable earnings.
The Fund has a fixed distribution policy. Under the policy, the Fund declares and pays monthly distributions from net investment income, capital gains, and paid-in capital. The actual source of the distribution is determined after the end of the calendar year. Pursuant to this policy, distributions during the calendar year are made in excess of required distributions. To the extent such distributions are made from current earnings and profits, they are considered ordinary income or long term capital gains. Distributions sourced from paid-in capital should not be considered as dividend yield or the total return from an investment in the Fund. The Board 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 tax character of distributions paid during the fiscal years ended September 30, 2022 and 2021 was as follows:
| | | Year Ended
September 30, 2022 | | | Year Ended
September 30, 2021 | |
| Distributions paid from: | | | | | | | | |
| Ordinary income | | $ | 1,570,423 | | | $ | 1,257,899 | |
| Net long term capital gains | | | 158,832 | | | | — | |
| Total distributions paid | | $ | 1,729,255 | | | $ | 1,257,899 | |
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 Gabelli Focused Growth and Income Fund
Notes to Financial Statements (Continued)
At September 30, 2022, the components of accumulated earnings/losses on a tax basis were as follows:
| Net unrealized appreciation on investments and foreign currency translations | | $ | 6,177,695 | |
| Total | | $ | 6,177,695 | |
The Fund is permitted to carry capital losses forward for an unlimited period. Capital losses that are carried forward will retain their character as either short term or long term capital losses. The Fund utilized $1,371,433 of the capital loss carryovers for the fiscal year ended September 30, 2022.
At September 30, 2022, the temporary difference between book basis and tax basis net unrealized appreciation on investments was due to tax basis adjustments on investments in partnerships, tax basis adjustments on investments in real estate investment trusts, and deferral of losses from wash sales for tax purposes.
The following summarizes the tax cost of investments and the related net unrealized appreciation at September 30, 2022:
| | | Cost | | Gross
Unrealized
Appreciation | | Gross
Unrealized
Depreciation | | Net Unrealized
Appreciation |
| Investments | | $33,695,105 | | $9,141,859 | | $(2,964,064) | | $6,177,795 |
The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the Statement of Operations if the tax positions were deemed not to meet the more-likely-than-not threshold. During the fiscal year ended September 30, 2022, the Fund did not incur any income tax, interest, or penalties. As of September 30, 2022, the Adviser has reviewed all open tax years and concluded that there was no impact to the Fund’s net assets or results of operations. The Fund’s federal and state tax returns for the prior three fiscal years remain open, subject to examination. On an ongoing basis, the Adviser will monitor the Fund’s tax positions to determine if adjustments to this conclusion are necessary.
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.
Effective August 17, 2022, the Adviser has agreed to add the Fund’s Class A shares to the classes of shares of the Fund for which the Adviser has contractually agreed to waive its investment advisory fees and/or to reimburse expenses of the Fund to the extent necessary to maintain the annualized total operating expenses of Class I and Class A (excluding brokerage costs, acquired fund fees and expenses, interest, taxes, and extraordinary expenses) at no more than an annual rate of 0.80% and 1.25% of the value of that class’s average daily net assets. This agreement is in effect through January 31, 2023 for Class I and through January 31, 2024 for Class A, and may be terminated only by the Board before such time. During the fiscal year ended September
The Gabelli Focused Growth and Income Fund
Notes to Financial Statements (Continued)
30, 2022, the Adviser reimbursed expenses in the amount of $119,130 for Class I and Class A. In addition, the Fund has agreed, during the two year period following any waiver or reimbursement by the Adviser, to repay such amount to the extent, that after giving effect to the repayment, such adjusted annualized total operating expenses of the Class I Shares would not exceed 0.80% of the value of the Class I average daily net assets and of the Class A Shares would not exceed 1.25% of the value of the Class A average daily net assets. At September 30, 2022, the cumulative amount which the Fund may repay the Adviser, subject to the terms above, is $216,992.
| For the fiscal year ended September 30, 2021, expiring September 30, 2023 | | | $ | 97,862 | |
| For the fiscal year ended September 30, 2022, expiring September 30, 2024 | | | | 119,130 | |
| | | | $ | 216,992 | |
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. Under the Class AAA, Class A, and Class C Share Plans, payments are authorized to G.distributors, LLC (the Distributor), an affiliate of the Adviser, at annual rates of 0.25%, 0.25%, 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 sales of securities during the fiscal year ended September 30, 2022, other than short term securities and U.S. Government obligations, aggregated $21,644,386 and $18,421,491, respectively.
6. Transactions with Affiliates and Other Arrangements. During the fiscal year ended September 30, 2022, the Fund paid $225 in brokerage commissions on security trades to G.research, LLC, an affiliate of the Adviser. Additionally, the Distributor retained a total of $13,836 from investors representing commissions (sales charges and underwriting fees) on sales and redemptions of Fund shares.
The Corporation pays retainer and per meeting fees to Directors not affiliated with the Adviser, plus specified amounts to the Lead Director and Audit Committee Chairman. Directors are also reimbursed for out of pocket expenses incurred in attending meetings. Directors who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Corporation.
7. Line of Credit. The Fund participates in an unsecured line of credit, which expires on March 1, 2023 and may be renewed annually, of up to $75,000,000 under which it may borrow up to 10% of its net assets from the bank for temporary borrowing purposes. Borrowings under this arrangement bear interest at a floating rate equal to the higher of the Overnight Federal Funds Rate plus 135 basis points or the Overnight Bank Funding Rate plus 135 basis points in effect on that day. This amount, if any, would be included in “Interest expense” in the Statement of Operations. At September 30, 2022, there were no borrowings under the line of credit.
The average daily amount of borrowings outstanding under the line of credit for the eighteen days of borrowing during the fiscal year ended September 30, 2022 was $358,889 with a weighted average interest rate of 2.32%. The maximum amount borrowed at any time during the fiscal year ended September 30, 2022 was $550,000.
8. Capital Stock. The Fund offers three classes of shares – Class AAA Shares, Class A Shares, and Class I Shares. Effective January 3, 2022, (the Effective Date) the Fund’s Class C Shares were “closed to all purchases.”
The Gabelli Focused Growth and Income Fund
Notes to Financial Statements (Continued)
“Closed to all purchases” means neither new investors nor existing shareholders may purchase any additional Class C Shares after the Effective Date. These changes will have no effect on existing shareholders’ ability to redeem shares of the Fund as described in the Fund’s Prospectus. Class AAA and Class I Shares are offered without a sales charge. Class A Shares are subject to a maximum front-end sales charge of 5.75%. Class C Shares are subject to a 1.00% contingent deferred sales charge for one year after purchase.
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 as an increase in paid-in capital. The redemption fees retained by the Fund during the fiscal years ended September 30, 2022 and 2021, if any, can be found in the Statement of Changes in Net Assets under Redemption Fees.
Transactions in shares of capital stock were as follows:
| | | Year Ended
September 30, 2022 | | | Year Ended
September 30, 2021 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Class AAA | | | | | | | | | | | | | | | | |
| Shares sold | | | 13,659 | | | $ | 238,395 | | | | 12,780 | | | $ | 207,769 | |
| Shares issued upon reinvestment of distributions | | | 15,178 | | | | 259,825 | | | | 14,570 | | | | 244,259 | |
| Shares redeemed | | | (77,549 | ) | | | (1,369,652 | ) | | | (329,648 | ) | | | (5,285,819 | ) |
| Net decrease | | | (48,712 | ) | | $ | (871,432 | ) | | | (302,298 | ) | | $ | (4,833,791 | ) |
| Class A | | | | | | | | | | | | | | | | |
| Shares sold | | | 296,096 | | | $ | 5,199,572 | | | | 97,320 | | | $ | 1,561,225 | |
| Shares issued upon reinvestment of distributions | | | 24,683 | | | | 424,570 | | | | 14,276 | | | | 244,498 | |
| Shares redeemed | | | (104,658 | ) | | | (1,829,515 | ) | | | (132,380 | ) | | | (2,104,721 | ) |
| Net increase/(decrease) | | | 216,121 | | | $ | 3,794,627 | | | | (20,784 | ) | | $ | (298,998 | ) |
| Class C | | | | | | | | | | | | | | | | |
| Shares sold | | | 25,571 | | | $ | 379,123 | | | | 63,456 | | | $ | 902,093 | |
| Shares issued upon reinvestment of distributions | | | 21,458 | | | | 307,817 | | | | 20,969 | | | | 300,090 | |
| Shares redeemed | | | (244,093 | ) | | | (3,529,513 | ) | | | (182,584 | ) | | | (2,427,150 | ) |
| Net decrease | | | (197,064 | ) | | $ | (2,842,573 | ) | | | (98,159 | ) | | $ | (1,224,967 | ) |
| Class I | | | | | | | | | | | | | | | | |
| Shares sold | | | 442,419 | | | $ | 8,052,682 | | | | 345,547 | | | $ | 5,842,285 | |
| Shares issued upon reinvestment of distributions | | | 36,466 | | | | 654,993 | | | | 23,078 | | | | 409,395 | |
| Shares redeemed | | | (149,221 | ) | | | (2,711,165 | ) | | | (129,025 | ) | | | (2,076,555 | ) |
| Net increase | | | 329,664 | | | $ | 5,996,510 | | | | 239,600 | | | $ | 4,175,125 | |
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. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
10. Subsequent Events. Management has evaluated the impact on the Fund of all subsequent events occurring through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
The Gabelli Focused Growth and Income Fund
Report of Independent Registered Public Accounting Firm
To the Shareholders of The Gabelli Focused Growth and Income Fund
and the Board of Directors of Gabelli Equity Series Funds, Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of The Gabelli Focused Growth and Income Fund (the “Fund”) (one of the funds constituting Gabelli Equity Series Funds, Inc. (the “Corporation”)), including the schedule of investments, as of September 30, 2022, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting Gabelli Equity Series Funds, Inc.) at September 30, 2022, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of the Corporation’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2022, by correspondence with the custodian, brokers and others; when replies were not received from brokers and others, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Gabelli Funds investment companies since 1992.
New York, New York
November 29, 2022
The Gabelli Focused Growth and Income Fund
Liquidity Risk Management Program (Unaudited)
In accordance with Rule 22e-4 under the 1940 Act, the Fund has established a liquidity risk management program (the LRM Program) to govern its approach to managing liquidity risk. The LRM Program is administered by the Liquidity Committee (the Committee), which is comprised of members of Gabelli Funds, LLC management. The Board has designated the Committee to administer the LRM Program.
The LRM Program’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. The LRM Program also includes elements that support the management and assessment of liquidity risk, including an annual assessment of factors that influence the Fund’s liquidity and the monthly classification and re-classification of certain investments that reflect the Committee’s assessment of their relative liquidity under current market conditions.
At a meeting of the Board held on August 16, 2022, the Board received a written report from the Committee regarding the design and operational effectiveness of the LRM Program. The Committee determined, and reported to the Board, that the LRM Program is reasonably designed to assess and manage the Fund’s liquidity risk and has operated adequately and effectively since its implementation. The Committee reported that there were no liquidity events that impacted the Fund or its ability to timely meet redemptions without dilution to existing shareholders. The Committee noted that the Fund is primarily invested in highly liquid securities and, accordingly, continues to be exempt from the requirement to determine a “highly liquid investment minimum” as defined in the Rule 22e-4. Because of that continued qualification for the exemption, the Fund has not adopted a “highly liquid investment minimum” amount. The Committee further noted that while changes to the LRM Program were made during the Review Period and reported to the Board, no material changes were made to the LRM Program as a result of the Committee’s annual review.
There can be no assurance that the LRM Program will achieve its objectives in the future. Please refer to the Fund’s Prospectus for more information regarding its exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.
The Gabelli Focused Growth and Income Fund
Additional Fund Information (Unaudited)
The business and affairs of the Corporation are managed under the direction of the Corporation’s Board of Directors. Information pertaining to the Directors and Officers of the Corporation is set forth below. The Corporation’s Statement of Additional Information includes additional information about the Corporation’s Directors and is available without charge, upon request, by calling 800-GABELLI (800-422-3554) or by writing to The Gabelli Focused Growth and Income Fund at One Corporate Center, Rye, NY 10580-1422.
Name, Position(s)
Address1
and Age | | Term of Office
and
Length of
Time Served2 | | Number of
Funds
in Fund
Complex
Overseen
by Director | | Principal Occupation(s)
During Past Five Years | | Other Directorships
Held by Director3 |
| | | | | | | |
| INTERESTED DIRECTORS4: |
| |
Mario J. Gabelli, CFA
Director and Chief
Investment Officer
Age: 80 | | Since 1991 | | 31 | | Chairman, Chief Executive Officer, and Chief Investment Officer- Value Portfolios of GAMCO Investors, Inc. and Chief Investment Officer - Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management, Inc.; Director/Trustee or Chief Investment Officer of other registered investment companies within the Gabelli Fund Complex; Chief Executive Officer of GGCP, Inc.; Executive Chairman of Associated Capital Group, Inc. | | Director of Morgan Group Holding, Co. (holding company) (2001-2019); Chairman of the Board and Chief Executive Officer of LICT Corp. (multimedia and communication services company); Director of CIBL, Inc. (broadcasting and wireless communications); Director of ICTC Group Inc. (communications) (2013-2018) |
| | | | | | | | | |
John D. Gabelli
Director
Age: 78 | | Since 1991 | | 12 | | Former Senior Vice President of G.research, LLC (and its predecessor) (1991-2019) | | — |
| |
| INDEPENDENT DIRECTORS5: |
| | | | | | | | | |
Elizabeth C. Bogan
Director
Age: 78 | | Since 2019 | | 12 | | Senior Lecturer in Economics at Princeton University | | — |
| | | | | | | | | |
Anthony J. Colavita6
Director
Age: 86 | | Since 1991 | | 18 | | President of the law firm of Anthony J. Colavita, P.C. | | — |
| | | | | | | | | |
Vincent D. Enright
Director
Age: 78 | | Since 1991 | | 17 | | Former Senior Vice President and Chief Financial Officer of KeySpan Corp. (public utility) (1994-1998) | | Director of Echo Therapeutics, Inc. (therapeutics and diagnostics) (2008-2014); Director of The LGL Group, Inc. (diversified manufacturing) (2011-2014) |
| | | | | | | | | |
Robert J. Morrissey
Director
Age: 83 | | Since 1991 | | 7 | | Partner in the law firm of Morrissey, Hawkins & Lynch | | Chairman of the Board of Directors, Belmont Savings Bank |
The Gabelli Focused Growth and Income Fund
Additional Fund Information (Unaudited) (Continued)
Name, Position(s)
Address1
and Age | | Term of Office
and Length of
Time Served2 | | Number of
Funds in
Fund
Complex
Overseen
by Director | | Principal Occupation(s)
During Past Five Years | | Other Directorships
Held by Director3 |
Kuni Nakamura
Director
Age: 54 | | Since 2009 | | 36 | | President of Advanced Polymer, Inc. (chemical manufacturing company); President of KEN Enterprises, Inc. (real estate); Trustee on Long Island University Board of Trustees; Trustee on Fordham Preparatory School Board of Trustees | | — |
| | | | | | | | | |
Anthonie C. van Ekris6
Director
Age: 88 | | Since 1991 | | 23 | | Chairman and Chief Executive Officer of BALMAC International, Inc.(global import/ export company) | | — |
| | | | | | | | | |
Salvatore J. Zizza7
Director
Age: 76 | | Since 2001 | | 34 | | President of Zizza & Associates Corp. (private holding company); Chairman of Bergen Cove Realty Inc. (residential real estate) | | Director and Chairman of Trans-Lux Corporation (business services); Director and Chairman of Harbor Diversified Inc. (pharmaceuticals) (2009-2018); Retired Chairman of BAM (semiconductor and aerospace manufacturing) |
The Gabelli Focused Growth and Income Fund
Additional Fund Information (Unaudited) (Continued)
Name, Position(s)
Address1
and Age | | Term of Office
and Length of
Time Served2 | | Principal Occupation(s)
During Past Five Years |
| | | | | |
| OFFICERS: |
| | | | | |
John C. Ball
President and Treasurer
Age: 46 | | Since 2017 | | Officer of registered investment companies within the Gabelli Fund Complex since 2017; Vice President and Assistant Treasurer of AMG Funds, 2014-2017; Chief Executive Officer, G.distributors, LLC since December 2020 |
| | | | | |
Peter Goldstein
Secretary and Vice President
Age: 69 | | Since 2020 | | General Counsel, GAMCO Investors, Inc. and Chief Legal Officer, Associated Capital Group, Inc. since 2021; General Counsel and Chief Compliance Officer, Buckingham Capital Management, Inc. (2012-2020); Chief Legal Officer and Chief Compliance Officer, The Buckingham Research Group, Inc. (2012-2020) |
| | | | | |
Richard J. Walz
Chief Compliance Officer
Age: 63 | | Since 2013 | | Chief Compliance Officer of registered investment companies within the Gabelli Fund Complex since 2013 |
| 1 | Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. |
| 2 | Each Director will hold office for an indefinite term until the earliest of (i) the next meeting of shareholders, if any, called for the purpose of considering the election or re-election of such Director and until the election and qualification of his or her successor, if any, elected at such meeting, or (ii) the date a Director resigns or retires, or a Director is removed by the Board of Directors or shareholders, in accordance with the Fund’s By-Laws and Articles of Incorporation. For officers, includes time served in prior officer positions with the Fund. Each officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected and qualified. |
| 3 | This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934, as amended, i.e., public companies, or other investment companies registered under the 1940 Act. |
| 4 | “Interested person” of the Fund as defined in the 1940 Act. Messrs. Gabelli are each considered an “interested person” because of their affiliation with Gabelli Funds, LLC which acts as the Fund’s investment adviser. Mario J. Gabelli and John D. Gabelli are brothers. |
| 5 | Directors who are not interested persons are considered “Independent” Directors. |
| 6 | Mr. Colavita’s son, Anthony S. Colavita, serves as a director of other funds in the Gabelli Fund Complex. Mr. van Ekris is an independent director of Gabelli International Ltd., Gabelli Fund, LDC, GAMA Capital Opportunities Master, Ltd., and GAMCO International SICAV, which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. |
| 7 | Mr. Zizza is an independent director of Gabelli International Ltd., which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. On September 9, 2015, Mr. Zizza entered into a settlement with the SEC to resolve an inquiry relating to an alleged violation regarding the making of false statements or omissions to the accountants of a company concerning a related party transaction. The company in question is not an affiliate of, nor has any connection to, the Fund. Under the terms of the settlement, Mr. Zizza, without admitting or denying the SEC’s findings and allegation, paid $150,000 and agreed to cease and desist committing or causing any future violations of Rule 13b2-2 of the Securities Exchange Act of 1934, as amended. The Board has discussed this matter and has determined that it does not disqualify Mr. Zizza from serving as an Independent Director. |
Gabelli Funds and Your Personal Privacy
Who are we?
The Gabelli Funds are investment companies registered with the Securities and Exchange Commission under the Investment Company Act of 1940. We are managed by Gabelli Funds, LLC, which is affiliated with GAMCO Investors, Inc., a publicly held company with subsidiaries and affiliates that provide investment advisory services for a variety of clients.
What kind of non-public information do we collect about you if you become a fund shareholder?
If you apply to open an account directly with us, you will be giving us some non-public information about yourself. The non-public information we collect about you is:
| ● | Information you give us on your application form. This could include your name, address, telephone number, social security number, bank account number, and other information. |
| ● | Information about your transactions with us, any transactions with our affiliates, and transactions with the entities we hire to provide services to you. This would include information about the shares that you buy or redeem. If we hire someone else to provide services — like a transfer agent — we will also have information about the transactions that you conduct through them. |
What information do we disclose and to whom do we disclose it?
We do not disclose any non-public personal information about our customers or former customers to anyone other than our affiliates, our service providers who need to know such information, and as otherwise permitted by law. If you want to find out what the law permits, you can read the privacy rules adopted by the Securities and Exchange Commission. They are in volume 17 of the Code of Federal Regulations, Part 248. The Commission often posts information about its regulations on its website, www. sec.gov.
What do we do to protect your personal information?
We restrict access to non-public personal information about you to the people who need to know that information in order to provide services to you or the fund and to ensure that we are complying with the laws governing the securities business. We maintain physical, electronic, and procedural safeguards to keep your personal information confidential.
THE GABELLI FOCUSED GROWTH AND INCOME FUND
2022 TAX NOTICE TO SHAREHOLDERS (Unaudited)
During the fiscal year ended September 30, 2022, the Fund paid to shareholders ordinary income distributions totaling $0.6600 for each Class, and long term capital gains totaling $158,832, or the maximum allowable. For the fiscal year ended September 30, 2022, 69.26% of the ordinary income distribution qualifies for the dividends received deduction available to corporations. The Fund designates 74.54% of the ordinary income distribution as qualified dividend income pursuant to the Jobs and Growth Tax Relied Reconciliation Act of 2003. The Fund designates 0.95% of the ordinary income distribution as qualified interest income pursuant to the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010.
U.S. Government Income:
The percentage of the ordinary income distribution paid by the Fund during the fiscal year ended September 30, 2022 which was derived from U.S. Treasury securities was 0.95%. Such income is exempt from state and local tax in all states. However, many states, including New York and California, allow a tax exemption for a portion of the income earned only if a mutual fund has invested at least 50% of its assets at the end of each quarter of the Fund’s fiscal year in U.S. Government securities. The Gabelli Focused Growth and Income Fund did not meet this strict requirement in 2022. The percentage of U.S. Government securities held as of September 30, 2022 was 10.60%. Due to the diversity in state and local tax law, it is recommended that you consult your personal tax adviser as to the applicability of the information provided to your specific situation.
___________
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
THE GABELLI FOCUSED GROWTH AND INCOME FUND
One Corporate Center
Rye, NY 10580-1422
Portfolio Manager’s Biography
Daniel M. Miller currently serves as a portfolio manager of Gabelli Funds, LLC and is also a Managing Director of GAMCO Investors, Inc. Mr. Miller joined the Firm in 2002 and graduated magna cum laude with a degree in Finance from the University of Miami in Coral Gables, Florida.
The Gabelli Global Financial
Services Fund
Annual Report — September 30, 2022
 |
Ian Lapey Portfolio Manager BA, Williams College MS, Northeastern University MBA, New York University |
To Our Shareholders,
For the fiscal year ended September 30, 2022, the net asset value (NAV) total return per Class AAA Share of The Gabelli Global Financial Services Fund was (19.8)% compared with a total return of (19.0)% for the Morgan Stanley Capital International (MSCI) World Financials Index. Other classes of shares are available. See page 5 for performance information for all classes.
Enclosed are the financial statements, including the schedule of investments, as of September 30, 2022.
Performance Discussion (Unaudited)
The goal of the Fund is to generate long term capital appreciation, and under normal market conditions, the Fund will invest at least 80% of the value of its net assets in the securities of companies principally engaged in the group of industries comprising the financial services sector. The Fund considers a company to be engaged in financial services if it devotes a significant portion of its assets to or derives a significant portion of its revenues from providing financial services. The Adviser’s investment philosophy with respect to buying and selling equity securities is to identify assets that are selling in the public market at a discount to their private market value (PMV). The Adviser defines PMV as the value informed purchasers are willing to pay to acquire assets with similar characteristics.
During the fiscal year ended September 30, 2022, the common stocks of most global financial services companies declined owing primarily to macroeconomic concerns about the ongoing war in Ukraine, inflation, lower stock and bond prices and lingering effects from the COVID-19 pandemic. Despite these significant challenges, the businesses and financial positions of the vast majority of the Fund’s holdings have been resilient. While the near term earnings outlook continues to be uncertain, the medium to long term outlook seems to be promising, particularly for banks and insurance companies that should benefit from the recent increase in interest rates.
| As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.gabelli.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. To elect to receive all future reports on paper free of charge, please contact your financial intermediary, or, if you invest directly with the Fund, you may call 800-422-3554 or send an email request to info@gabelli.com. |
The largest negative contributor during the fiscal year was the common stock of Westwood Holdings Group (2.5% of the portfolio as of September 30, 2022; down 47% for the fiscal year), a Dallas based asset management firm. In June 2021, Westwood rejected an unsolicited proposal to acquire the company for $25 per share in cash, and the stock closed the fiscal year at $9.63. Like other asset managers, Westwood’s financial results have been negatively impacted by the weak equity markets. In May 2022, Westwood announced the acquisition of Salient Partners, a Houston based asset management firm with about $4 billion in Assets Under Management (“AUM”). This transaction, which is expected to close by year end, would be funded with Westwood’s existing cash. The acquisition was projected to increase Westwood’s AUM by about 30% and be significantly accretive to earnings.
The next largest negative contributors were the common stocks of Capital One Financial (3.7%; -42%), Ally Financial (2.3%; -44%) and Citigroup (3.7%; -38%). As the table below shows, the businesses of each of these companies performed very well with robust profits and returns on tangible common equity. Each company paid healthy dividends to shareholders and repurchased a significant percentage of their outstanding shares.
| | | 12 months ended 6/30/22 $ in billions |
| Company | | Net Income | | Earnings
Per Share | | ROTC (1) | | Dividends
Per Share | | Change in O/S Shares |
| Ally Financial | | 2,388 | | $6.94 | | 16.1% | | $1.10 | | -13.7% |
| Capital One Financial | | 9,550 | | $22.77 | | 22.0% | | $3.00 | | -14.0% |
| Citigroup | | 18,316 | | $7.82 | | 11.8% | | $2.04 | | -4.4% |
(1) Return on Tangible Common Equity
Nevertheless, the common stocks of each of these companies performed very poorly owing primarily to concerns about an economic slowdown and rising credit costs. However, as indicated below, these companies have significantly larger reserves for loan losses than they did before the COVID-19 pandemic as actual loan losses during the pandemic were minimal and a new accounting regulation adopted in 2020 requires banks to hold more reserves for potential loan losses. The extremely depressed valuations of the common stocks at roughly 50-100% of tangible book value and 4-5 times earnings appear to provide a large margin of safety.
| | | | ACL (3) / Loans |
| Company | | Stock Return (2) | | 12/31/2019 | | 6/30/2022 | | Price to TBV (4) | | Price to LTM Earnings (5) |
| Ally Financial | | -43.3% | | 1.0% | | 2.7% | | 81% | | 4.0 |
| Capital One Financial | | -41.2% | | 2.7% | | 3.9% | | 105% | | 4.0 |
| Citigroup | | -37.7% | | 1.8% | | 2.4% | | 52% | | 5.3 |
(2) Including dividends
(3) Allowance for Credit Losses.
(4) Tangible Book Value (adjusted for dividends)
(5) Based on earnings for the 12 months ended 6/30/22.
Sources: Company reports, GAMCO Investors.
The strength of the US dollar also negatively impacted performance. Most notably, the Japanese Yen, British Pound and Euro fell 23%, 17% and 15%, respectively, during the fiscal year. The Fund had 7%, 6% and 20% of its net assets invested in the common stocks of companies based in Japan, the U.K and Europe, respectively, as of September 30, 2022. For several of these companies, there is at least a partial natural hedge as they have significant operations in the US. Weaker home currencies can enhance global competitiveness and also increase the value of international earnings. For example, Toyota Motor (3.1%; -26%), Daimler Truck (2.8%; -32%), Aegon (2.7%; -19%), Mercedez-Benz Group (1.9%; -26%) and Barclays (1.3%; -35%) all have significant US operations that should benefit from the strong US dollar.
The common stock of Pzena Investment Management, Inc. (3.4%; +9%) was the largest positive contributor. In July, the company announced a management led buyout at a 49% premium to the previous day’s close and a 46% premium to the 90 calendar day volume weighted average price. The Fund sold nearly half its position after the transaction was announced at prices close to the $9.60 per share offer price to add to other positions that appeared to offer more attractive return potential. Another positive contributor was Standard Chartered (2.6%; +10%), a UK based banking group focused on emerging markets in Asia, the Middle East and Africa. Despite economic weakness associated with the Covid-19 pandemic in many of its markets, the company has generated solid financial results in 2022 with 8% growth in pre-tax earnings and maintained a strong financial position with a 13.9% Tier One Common Equity (“CET1”) ratio. The common stock still trades at only about 50% of tangible book value and 8 times earnings.
The Fund’s aggregate valuation metrics are extremely attractive at about 65% of book value, 75% of tangible book value and 8.5 times 2022 projected earnings. As the table below shows, many of the Fund’s holdings have continued their multi-year share repurchase programs. Additionally, several European banks, which previously strongly favored dividends for capital returns, have launched significant share repurchase programs over the last year. It is noteworthy that the European Central Bank, which halted dividends (and share repurchases) during the COVID-19 pandemic, has approved share repurchases and dividends by European banks this year despite the war in Ukraine. I believe these share repurchases have been prudent because the companies have strong financial positions, and their common stocks are undervalued. I have also been adding to my significant personal position in the Fund.
| | | Position | | Share count % change (1) |
| Company | | Size | | YTD | | 3 yr. | | 7 yr. |
| Ally Financial Inc. | | 2.3% | | -7.4% | | -20.4% | | -35.1% |
| Barclays PLC | | 1.3% | | -1.4% | | -4.1% | | -1.4% |
| BBVA | | 1.8% | | -8.0% | | -9.7% | | -4.5% |
| BNY Mellon | | 3.8% | | 0.5% | | -14.3% | | -27.0% |
| Capital One Financial | | 3.7% | | -7.3% | | -18.4% | | -29.3% |
| Citigroup | | 3.7% | | -2.4% | | -14.3% | | -35.7% |
| Daiwa Securities Group | | 2.2% | | 0.1% | | -5.3% | | -13.2% |
| Diamond Hill Investment Group | | 2.1% | | -1.5% | | -9.3% | | -7.1% |
| First American Financial | | 3.1% | | -4.3% | | -6.4% | | -3.3% |
| Franklin Resources | | 0.8% | | -0.7% | | -1.1% | | -18.9% |
| ING Group | | 1.4% | | -0.9% | | -3.9% | | -3.2% |
| Jefferies Financial Group | | 3.8% | | -6.0% | | -23.7% | | -36.8% |
| NatWest Group PLC | | 2.1% | | -7.4% | | -13.7% | | -9.8% |
| NN Group | | 3.1% | | -2.2% | | -10.7% | | -11.7% |
| Standard Chartered | | 2.6% | | -2.9% | | -8.9% | | 16.5% |
| State Street Corporation | | 2.4% | | 0.4% | | -1.3% | | -9.9% |
| Toyota Motor | | 3.1% | | -0.3% | | -2.4% | | -11.5% |
(1) As of 6/30/22 except for Jefferies (8/31/22).
Thank you for your continued interest and trust.
| The views expressed reflect the opinions of the Fund's portfolio manager and Gabelli Funds, LLC, the Adviser, as of the date of this report and are subject to change without notice based on changes in market, economic, or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results. |
Comparative Results
Average Annual Returns through September 30, 2022 (a)(b) (Unaudited)
Average annual returns reflect changes in share price, reinvestment of distributions, and are net of expenses.
| | | | | | | Since |
| | | | | | | Inception |
| | | 1 Year | | 3 Year | | (10/1/18) |
| Class AAA (GAFSX) | | (19.79 | )% | | 2.61 | % | | (0.36 | )% |
| MSCI World Financials Index (c) | | (18.99 | ) | | 2.23 | | | 1.70 | |
| Class A (GGFSX) | | (19.75 | ) | | 2.67 | | | (0.31 | ) |
| With sales charge (d) | | (24.36 | ) | | 0.66 | | | (1.77 | ) |
| Class C (GCFSX) | | (20.35 | ) | | 1.80 | | | (1.12 | ) |
| With contingent deferred sales charge (e) | | (21.15 | ) | | 1.80 | | | (1.12 | ) |
| Class I (GFSIX) | | (19.57 | ) | | 2.85 | | | (0.12 | ) |
| (a) | The Fund’s fiscal year ends September 30. |
| (b) | Returns would have been lower had the Adviser not reimbursed certain expenses of the Fund. The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days of purchase. |
| (c) | The MSCI World Financials Index captures large and mid cap securities in the Financials sector across Developed Markets countries. Dividends are considered reinvested. You cannot invest directly in an index. |
| (d) | Performance results include the effect of the maximum 5.75% sales charge at the beginning of the period. |
| (e) | Assuming payment of the 1% maximum contingent deferred sales charge imposed on redemptions made within one year of purchase. |
In the current prospectuses dated January 28, 2022, the gross expense ratios for Class AAA, A, C, and I Shares are 2.04%, 2.04%, 2.79%, and 1.79%, respectively, and the net expense ratios for these share classes after contractual reimbursements by Gabelli Funds, LLC, (the Adviser) are 1.25%, 1.25%, 2.00%, and 1.00%, respectively. See page 12 for the expense ratios for the year ended September 30, 2022. The contractual reimbursements are in effect through January 31, 2023. Class AAA and Class I Shares do not have a sales charge. The maximum sales charge for Class A Shares and Class C Shares is 5.75% and 1.00%, respectively.
Investing in foreign securities involves risks not ordinarily associated with investments in domestic issues, including currency fluctuation, economic, and political risks. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at www.gabelli.com.
Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. 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.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI GLOBAL FINANCIAL SERVICES FUND (CLASS AAA SHARES) AND MSCI WORLD
FINANCIALS INDEX (Unaudited)
| Average Annual Total Returns* |
| | 1 Year | 3 Year | Since Inception |
| Class AAA | (19.79)% | 2.61% | (0.36)% |
* Past performance is not predictive of future results. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
| The Gabelli Global Financial Services Fund | |
| Disclosure of Fund Expenses (Unaudited) | |
| For the Six Month Period from April 1, 2022 through September 30, 2022 | Expense Table |
We believe it is important for you to understand the impact of fees and expenses regarding your investment. All mutual funds have operating expenses. As a shareholder of a fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of a fund. When a fund’s expenses are expressed as a percentage of its average net assets, this figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The Expense Table below illustrates your Fund’s costs in two ways:
Actual Fund Return: This section provides information about actual account values and actual expenses. You may use this section to help you to estimate the actual expenses that you paid over the period after any fee waivers and expense reimbursements. The “Ending Account Value” shown is derived from the Fund’s actual return during the past six months, and the “Expenses Paid During Period” shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading “Expenses Paid During Period” to estimate the expenses you paid during this period.
Hypothetical 5% Return: This section provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio. It assumes a hypothetical annualized return of 5% before expenses during the period shown. In this case - because the hypothetical return used is not the Fund’s actual return - the results do not apply to your investment and you cannot use the hypothetical account value and expense to estimate the actual ending account balance or expenses you
paid for the period. This example is useful in making comparisons of the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees, if any, which are described in the Prospectus. If these costs were applied to your account, your costs would be higher. Therefore, the 5% hypothetical return is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The "Annualized Expense Ratio" represents the actual expenses for the last six months and may be different from the expense ratio in the Financial Highlights which is for the fiscal year ended September 30, 2022.
| | | Beginning Account Value 04/01/22 | | Ending Account Value 09/30/22 | | Annualized Expense Ratio | | Expenses Paid During Period * |
| The Gabelli Global Financial Services Fund | | |
| Actual Fund Return | | | | | | |
| Class AAA | | $1,000.00 | | $837.50 | | 1.24% | | $ | 5.71 |
| Class A | | $1,000.00 | | $837.70 | | 1.24% | | $ | 5.71 |
| Class C | | $1,000.00 | | $833.90 | | 2.00% | | $ | 9.19 |
| Class I | | $1,000.00 | | $838.40 | | 1.00% | | $ | 4.61 |
| Hypothetical 5% Return | | | |
| Class AAA | | $1,000.00 | | $1,018.85 | | 1.24% | | $ | 6.28 |
| Class A | | $1,000.00 | | $1,018.85 | | 1.24% | | $ | 6.28 |
| Class C | | $1,000.00 | | $1,015.04 | | 2.00% | | $ | 10.10 |
| Class I | | $1,000.00 | | $1,020.05 | | 1.00% | | $ | 5.06 |
| * | Expenses are equal to the Fund’s annualized expense ratio for the last six months multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183 days), then divided by 365. |
Summary of Portfolio Holdings (Unaudited)
The following table presents portfolio holdings as a percent of net assets as of September 30, 2022:
The Gabelli Global Financial Services Fund
| Banks | | 25.1 | % | | Institutional Brokerage | | 6.0 | % |
| Diversified Banks | | 14.4 | % | | Consumer Finance | | 6.0 | % |
| Insurance | | 13.4 | % | | Reinsurance | | 4.0 | % |
| Investment Management | | 10.1 | % | | Other Assets and Liabilities (Net) | | (0.0 | )%* |
| Automobiles | | 7.9 | % | | | | 100.0 | % |
| Homebuilders | | 6.9 | % | | ____________________ | | | |
| Institutional Trust, Fiduciary, and Custody | | 6.2 | % | | * Amount represents less than 0.05%. | | | |
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-PORT. 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-PORT 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 800-SEC-0330.
Proxy Voting
The Fund files Form N-PX with its complete proxy voting record for the twelve months ended June 30, no later than August 31 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.
| The Gabelli Global Financial Services Fund |
| Schedule of Investments — September 30, 2022 |
| Shares | | | | | Cost | | | Market
Value | |
| | | | | COMMON STOCKS — 100.0% | | | | | | | | |
| | | | | Automobiles — 7.9% | | | | | | | | |
| | 26,150 | | | Daimler Truck Holding AG† | | $ | 788,401 | | | $ | 598,421 | |
| | 8,200 | | | Mercedes-Benz Group AG | | | 455,002 | | | | 420,706 | |
| | 5,200 | | | Toyota Motor Corp., ADR | | | 698,831 | | | | 677,508 | |
| | | | | | | | 1,942,234 | | | | 1,696,635 | |
| | | | | Banks — 25.1% | | | | | | | | |
| | 84,000 | | | Banco Bilbao Vizcaya Argentaria SA | | | 444,904 | | | | 380,379 | |
| | 88,000 | | | Commerzbank AG† | | | 521,361 | | | | 633,206 | |
| | 395,200 | | | Dah Sing Banking Group Ltd. | | | 399,382 | | | | 261,800 | |
| | 201,500 | | | Dah Sing Financial Holdings Ltd. | | | 811,167 | | | | 458,979 | |
| | 1,356 | | | First Citizens BancShares Inc., Cl. A | | | 452,580 | | | | 1,081,315 | |
| | 33,600 | | | ING Groep NV | | | 275,432 | | | | 291,691 | |
| | 58,800 | | | Japan Post Bank Co. Ltd. | | | 557,914 | | | | 409,930 | |
| | 20,100 | | | Shinhan Financial Group Co. Ltd., ADR | | | 631,017 | | | | 462,300 | |
| | 33,297 | | | TrustCo Bank Corp. NY | | | 1,088,527 | | | | 1,046,192 | |
| | 7,950 | | | Webster Financial Corp. | | | 243,975 | | | | 359,340 | |
| | | | | | | | 5,426,259 | | | | 5,385,132 | |
| | | | | Consumer Finance — 6.0% | | | | | | | | |
| | 17,680 | | | Ally Financial Inc. | | | 430,620 | | | | 492,034 | |
| | 8,610 | | | Capital One Financial Corp. | | | 826,394 | | | | 793,584 | |
| | | | | | | | 1,257,014 | | | | 1,285,618 | |
| | | | | Diversified Banks — 14.4% | | | | | | | | |
| | 173,000 | | | Barclays plc | | | 342,582 | | | | 278,735 | |
| | 18,900 | | | Citigroup Inc. | | | 1,076,704 | | | | 787,563 | |
| | 54,420 | | | Credit Agricole SA | | | 625,216 | | | | 446,088 | |
| | 19,000 | | | Credit Suisse Group AG | | | 104,562 | | | | 76,562 | |
| | 12,045 | | | Hana Financial Group Inc. | | | 343,779 | | | | 298,452 | |
| | 176,285 | | | NatWest Group plc | | | 445,964 | | | | 444,641 | |
| | 10,010 | | | Societe Generale SA | | | 216,210 | | | | 200,277 | |
| | 87,100 | | | Standard Chartered plc | | | 545,608 | | | | 551,222 | |
| | | | | | | | 3,700,625 | | | | 3,083,540 | |
| | | | | Homebuilders — 6.9% | | | | | | | | |
| | 4,230 | | | Cavco Industries Inc.† | | | 683,258 | | | | 870,365 | |
| | 35,913 | | | Legacy Housing Corp.† | | | 455,207 | | | | 615,908 | |
| | | | | | | | 1,138,465 | | | | 1,486,273 | |
| | | | | Institutional Brokerage — 6.0% | | | | | | | | |
| | 121,000 | | | Daiwa Securities Group Inc. | | | 637,647 | | | | 473,533 | |
| | 28,010 | | | Jefferies Financial Group Inc. | | | 554,383 | | | | 826,295 | |
| | | | | | | | 1,192,030 | | | | 1,299,828 | |
| | | | | Institutional Trust, Fiduciary, and Custody — 6.2% | | |
| | 8,550 | | | State Street Corp. | | | 450,942 | | | | 519,925 | |
| Shares | | | | | Cost | | | Market
Value | |
| | 21,100 | | | The Bank of New York Mellon Corp. | | $ | 921,568 | | | $ | 812,772 | |
| | | | | | | | 1,372,510 | | | | 1,332,697 | |
| | | | | Insurance — 13.4% | | | | | | | | |
| | 144,118 | | | Aegon NV | | | 557,354 | | | | 579,378 | |
| | 1,007 | | | E-L Financial Corp. Ltd. | | | 729,877 | | | | 624,022 | |
| | 14,350 | | | First American Financial Corp. | | | 829,916 | | | | 661,535 | |
| | 42,868 | | | HG Holdings Inc.† | | | 381,956 | | | | 332,227 | |
| | 17,179 | | | NN Group NV | | | 689,193 | | | | 672,946 | |
| | | | | | | | 3,188,296 | | | | 2,870,108 | |
| | | | | Investment Management — 10.1% | | | | | | | | |
| | 2,770 | | | Diamond Hill Investment Group Inc. | | | 481,829 | | | | 457,050 | |
| | 7,700 | | | Franklin Resources Inc. | | | 159,316 | | | | 165,704 | |
| | 76,687 | | | Pzena Investment Management Inc., Cl. A | | | 569,310 | | | | 726,993 | |
| | 152,400 | | | The Westaim Corp.† | | | 303,067 | | | | 287,953 | |
| | 55,209 | | | Westwood Holdings Group Inc. | | | 748,438 | | | | 531,663 | |
| | | | | | | | 2,261,960 | | | | 2,169,363 | |
| | | | | Reinsurance — 4.0% | | | | | | | | |
| | 17,650 | | | Axis Capital Holdings Ltd. | | | 889,520 | | | | 867,497 | |
| | | | | | | | | | | | | |
| | | | | TOTAL COMMON STOCKS | | | 22,368,913 | | | | 21,476,691 | |
| | | | | | | | | | | | | |
| | | | | TOTAL INVESTMENTS — 100.0% | | $ | 22,368,913 | | | | 21,476,691 | |
| | | | | Other Assets and Liabilities (Net) — (0.0)% | | | | 6,456 | |
| | | | | NET ASSETS — 100.0% | | | | | | $ | 21,483,147 | |
| † | Non-income producing security. |
| ADR | American Depositary Receipt |
See accompanying notes to financial statements.
The Gabelli Global Financial Services Fund
| Statement of Assets and Liabilities | | | |
| September 30, 2022 | | | |
| Assets: | | | |
| Investments, at value (cost $22,368,913) | | $ | 21,476,691 | |
| Cash | | | 24,706 | |
| Foreign currency, at value (cost $3,587) | | | 3,630 | |
| Receivable for investments sold | | | 59,379 | |
| Receivable from Adviser | | | 13,243 | |
| Dividends and interest receivable | | | 66,579 | |
| Prepaid expenses | | | 9,150 | |
| Total Assets | | | 21,653,378 | |
| Liabilities: | | | | |
| Payable for investments purchased | | | 114,603 | |
| Payable for investment advisory fees | | | 18,987 | |
| Payable for distribution fees | | | 79 | |
| Payable for legal and audit fees | | | 21,851 | |
| Payable for shareholder communications | | | 9,022 | |
| Other accrued expenses | | | 5,689 | |
| Total Liabilities | | | 170,231 | |
| Net Assets | | | | |
| (applicable to 2,312,252 shares outstanding) | | $ | 21,483,147 | |
| Net Assets Consist of: | | | | |
| Paid-in capital | | $ | 22,457,294 | |
| Total accumulated loss | | | (974,147 | ) |
| Net Assets | | $ | 21,483,147 | |
| | | | | |
| Shares of Capital Stock, each at $0.001 par value: | | | | |
| Class AAA: | | | | |
| Net Asset Value, offering, and redemption price per share ($339,367 ÷ 36,555 shares outstanding; 120,000,000 shares authorized) | | $ | 9.28 | |
| Class A: | | | | |
| Net Asset Value and redemption price per share ($14,943 ÷ 1,600 shares outstanding; 60,000,000 shares authorized) | | $ | 9.34 | |
| Maximum offering price per share (NAV ÷ 0.9425, based on maximum sales charge of 5.75% of the offering price) | | $ | 9.91 | |
| Class C: | | | | |
| Net Asset Value and offering price per share ($956 ÷ 104 shares outstanding; 20,000,000 shares authorized) | | $ | 9.19 | (a) |
| Class I: | | | | |
| Net Asset Value, offering, and redemption price per share ($21,127,881 ÷ 2,273,993 shares outstanding; 150,000,000 shares authorized) | | $ | 9.29 | |
| (a) | Redemption price varies based on the length of time held. |
| Statement of Operations | | | |
| For the Year Ended September 30, 2022 | | | |
| Investment Income: | | | | |
| Dividends (net of foreign withholding | | | | |
| taxes of $67,450) | | $ | 808,325 | |
| Non-cash dividends | | | 125,028 | |
| Interest | | | 3,022 | |
| Total Investment Income | | | 936,375 | |
| Expenses: | | | | |
| Investment advisory fees | | | 248,187 | |
| Distribution fees - Class AAA | | | 1,313 | |
| Distribution fees - Class A | | | 55 | |
| Distribution fees - Class C | | | 12 | |
| Registration expenses | | | 50,352 | |
| Legal and audit fees | | | 44,305 | |
| Shareholder communications expenses | | | 19,478 | |
| Shareholder services fees | | | 12,406 | |
| Custodian fees | | | 9,908 | |
| Tax expense | | | 4,565 | |
| Directors’ fees | | | 1,986 | |
| Miscellaneous expenses | | | 12,978 | |
| Total Expenses | | | 405,545 | |
| Less: | | | | |
| Expense reimbursements (See Note 3) | | | (149,730 | ) |
| Expenses paid indirectly by broker (See Note 6) | | | (1,684 | ) |
| Total Credits and Reimbursements | | | (151,414 | ) |
| Net Expenses | | | 254,131 | |
| Net Investment Income | | | 682,244 | |
| Net Realized and Unrealized Gain/(Loss) on Investments, Forward Foreign Exchange Contracts, and Foreign Currency: | | | | |
| Net realized gain on investments | | | 322,209 | |
| Net realized gain on forward foreign exchange contracts | | | 70 | |
| Net realized loss on foreign currency transactions | | | (6,911 | ) |
| Net realized gain on investments, forward foreign exchange contracts, and foreign currency transactions | | | 315,368 | |
| Net change in unrealized appreciation/depreciation: | | | | |
| on investments | | | (6,205,980 | ) |
| on foreign currency translations | | | (2,527 | ) |
| Net change in unrealized appreciation/depreciation on investments, and foreign currency translations | | | (6,208,507 | ) |
| Net Realized and Unrealized Gain/(Loss) on Investments, Forward Foreign Exchange Contracts, and Foreign Currency | | | (5,893,139 | ) |
| Net Decrease in Net Assets Resulting from Operations | | $ | (5,210,895 | ) |
See accompanying notes to financial statements.
The Gabelli Global Financial Services Fund |
| Statement of Changes in Net Assets |
| | | | | | | |
| | | Year Ended | | Year Ended |
| | | September 30, 2022 | | September 30, 2021 |
| | | | | | | |
| Operations: | | | | | | | | | | |
| Net investment income | | | $ | 682,244 | | | | $ | 588,897 | |
| Net realized gain on investments, forward foreign exchange contracts, and foreign currency transactions | | | | 315,368 | | | | | 141,531 | |
| Net change in unrealized appreciation/depreciation on investments, and foreign currency translations | | | | (6,208,507 | ) | | | | 8,856,888 | |
| Net Increase/(Decrease) in Net Assets Resulting from Operations | | | | (5,210,895 | ) | | | | 9,587,316 | |
| | | | | | | | | | | |
| Distributions to Shareholders: | | | | | | | | | | |
| Accumulated earnings | | | | | | | | | | |
| Class AAA | | | | (11,914 | ) | | | | (858 | ) |
| Class A | | | | (541 | ) | | | | (92 | ) |
| Class C | | | | (15 | ) | | | | (8 | ) |
| Class I | | | | (520,749 | ) | | | | (285,578 | ) |
| Total Distributions to Shareholders | | | | (533,219 | ) | | | | (286,536 | ) |
| | | | | | | | | | | |
| Capital Share Transactions: | | | | | | | | | | |
| Class AAA | | | | (111,295 | ) | | | | 453,786 | |
| Class A | | | | (15,451 | ) | | | | 18,752 | |
| Class C | | | | 15 | | | | | 8 | |
| Class I | | | | 2,534,641 | | | | | 1,544,852 | |
| Net Increase in Net Assets from Capital Share Transactions | | | | 2,407,910 | | | | | 2,017,398 | |
| | | | | | | | | | | |
| Net Increase/(Decrease) in Net Assets | | | | (3,336,204 | ) | | | | 11,318,178 | |
| Net Assets: | | | | | | | | | | |
| Beginning of year | | | | 24,819,351 | | | | | 13,501,173 | |
| End of year | | | $ | 21,483,147 | | | | $ | 24,819,351 | |
See accompanying notes to financial statements.
| The Gabelli Global Financial Services Fund |
| Financial Highlights |
| Selected data for a share of capital stock outstanding throughout each year: |
| | | | | Income (Loss) from Investment
Operations | | Distributions | | | | | | | | | | Ratios to Average Net Assets/Supplemental Data |
Year Ended
September 30 | | Net Asset Value,
Beginning of
Period | | Net Investment
Income(a) | | | Net Realized
and Unrealized
Gain (Loss) on
Investments | | | Total from
Investment
Operations | | Net Investment
Income | | Total
Distributions | | Redemption
Fees(a) | | | Net Asset Value,
End of Period | | Total Return† | | Net Assets, End
of Period (in
000’s) | | Net Investment
Income | | Operating
Expenses Before
Reimbursement | | Operating
Expenses Net of
Reimbursement(b) | | Portfolio
Turnover
Rate |
| Class AAA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 11.80 | | $ | 0.27 | (c) | | $ | (2.56 | ) | | $ | (2.29 | ) | $ | (0.23 | ) | $ | (0.23 | ) | $ | — | | | $ | 9.28 | | (19.79 | )% | | $ | 339 | | 2.39 | %(c) | | 1.88 | % | 1.27 | %(d)(e) | | 26 | % |
| 2021 | | | 7.08 | | | 0.33 | | | | 4.52 | | | | 4.85 | | | (0.13 | ) | | (0.13 | ) | | — | | | | 11.80 | | 69.04 | | | | 564 | | 2.99 | | | 2.04 | | 1.25 | (d) | | 19 | |
| 2020 | | | 9.09 | | | 0.11 | | | | (1.90 | ) | | | (1.79 | ) | | (0.22 | ) | | (0.22 | ) | | 0.00 | (f) | | | 7.08 | | (20.33 | ) | | | 47 | | 1.34 | | | 2.51 | | 1.25 | (d) | | 18 | |
| 2019(g) | | | 10.00 | | | 0.27 | | | | (1.15 | ) | | | (0.88 | ) | | (0.03 | ) | | (0.03 | ) | | — | | | | 9.09 | | (8.76 | ) | | | 134 | | 3.01 | | | 2.32 | | 1.25 | | | 14 | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 11.86 | | $ | 0.27 | (c) | | $ | (2.57 | ) | | $ | (2.30 | ) | $ | (0.22 | ) | $ | (0.22 | ) | $ | — | | | $ | 9.34 | | (19.75 | )% | | $ | 15 | | 2.34 | %(c) | | 1.88 | % | 1.27 | %(d)(e) | | 26 | % |
| 2021 | | | 7.08 | | | 0.32 | | | | 4.54 | | | | 4.86 | | | (0.08 | ) | | (0.08 | ) | | — | | | | 11.86 | | 69.07 | | | | 33 | | 2.94 | | | 2.04 | | 1.25 | (d) | | 19 | |
| 2020 | | | 9.10 | | | 0.16 | | | | (1.94 | ) | | | (1.78 | ) | | (0.24 | ) | | (0.24 | ) | | 0.00 | (f) | | | 7.08 | | (20.24 | ) | | | 8 | | 2.12 | | | 2.51 | | 1.25 | (d) | | 18 | |
| 2019(g) | | | 10.00 | | | 0.35 | | | | (1.22 | ) | | | (0.87 | ) | | (0.03 | ) | | (0.03 | ) | | — | | | | 9.10 | | (8.71 | ) | | | 10 | | 3.77 | | | 2.32 | | 1.25 | | | 14 | |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 11.68 | | $ | 0.29 | (c) | | $ | (2.64 | ) | | $ | (2.35 | ) | $ | (0.14 | ) | $ | (0.14 | ) | $ | — | | | $ | 9.19 | | (20.35 | )% | | $ | 1 | | 2.62 | %(c) | | 2.63 | % | 2.02 | %(d)(e) | | 26 | % |
| 2021 | | | 7.03 | | | 0.18 | | | | 4.55 | | | | 4.73 | | | (0.08 | ) | | (0.08 | ) | | — | | | | 11.68 | | 67.59 | | | | 1 | | 1.77 | | | 2.79 | | 2.00 | (d) | | 19 | |
| 2020 | | | 9.05 | | | 0.06 | | | | (1.91 | ) | | | (1.85 | ) | | (0.17 | ) | | (0.17 | ) | | 0.00 | (f) | | | 7.03 | | (20.97 | ) | | | 1 | | 0.76 | | | 3.26 | | 2.00 | (d) | | 18 | |
| 2019(g) | | | 10.00 | | | 0.17 | | | | (1.11 | ) | | | (0.94 | ) | | (0.01 | ) | | (0.01 | ) | | — | | | | 9.05 | | (9.39 | ) | | | 1 | | 1.85 | | | 3.08 | | 2.00 | | | 14 | |
| Class I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | $ | 11.80 | | $ | 0.31 | (c) | | $ | (2.57 | ) | | $ | (2.26 | ) | $ | (0.25 | ) | $ | (0.25 | ) | $ | — | | | $ | 9.29 | | (19.57 | )% | | $ | 21,128 | | 2.76 | %(c) | | 1.63 | % | 1.02 | %(d)(e) | | 26 | % |
| 2021 | | | 7.08 | | | 0.29 | | | | 4.58 | | | | 4.87 | | | (0.15 | ) | | (0.15 | ) | | — | | | | 11.80 | | 69.45 | | | | 24,221 | | 2.79 | | | 1.79 | | 1.00 | (d) | | 19 | |
| 2020 | | | 9.11 | | | 0.14 | | | | (1.91 | ) | | | (1.77 | ) | | (0.26 | ) | | (0.26 | ) | | 0.00 | (f) | | | 7.08 | | (20.17 | ) | | | 13,445 | | 1.84 | | | 2.26 | | 1.00 | (d) | | 18 | |
| 2019(g) | | | 10.00 | | | 0.28 | | | | (1.13 | ) | | | (0.85 | ) | | (0.04 | ) | | (0.04 | ) | | — | | | | 9.11 | | (8.51 | ) | | | 13,093 | | 3.05 | | | 2.07 | | 1.00 | | | 14 | |
| † | Total return represents aggregate total return of a hypothetical investment at the beginning of the period and sold at the end of the period. Total return for a period of less than one year is not annualized. |
| (a) | Per share amounts have been calculated using the average shares outstanding method. |
| (b) | Under an expense reimbursement agreement with the Adviser, the Adviser reimbursed expenses of $149,730, $165,217, $174,126, and $124,154 for the fiscal years ended September 30, 2022, 2021, 2020, and 2019, respectively. |
| (c) | Includes income resulting from special dividends. Without these dividends, the per share income amounts would have been $0.21 (Class AAA and Class A), $0.23 (Class C), and $0.25 (Class I), and the net investment income ratios would have been 1.88% (Class AAA), 1.84% (Class A), 2.12% (Class C), and 2.25% (Class I) for the fiscal year ended September 30, 2022. |
| (d) | The Fund received credits from a designated broker who agreed to pay certain Fund expenses. For the fiscal years ended September 30, 2022, 2021, and 2020, if credits had not been received, the expense ratios would have been 1.28%, 1.26%, and 1.26% (Class AAA and Class A), 2.02%, 2.01%, and 2.01% (Class C), and 1.03%, 1.01%, and 1.01% (Class I), respectively. |
| (e) | The Fund incurred tax expense for the fiscal year ended September 30, 2022. If tax expense had not been incurred, the ratios of operating expenses to average net assets would have been 1.25% (Class AAA and Class A), 2.00% (Class C), and 1.00% (Class I). |
| (f) | Amount represents less than $0.005 per share. |
| (g) | The Fund commenced investment operations on October 1, 2018. |
See accompanying notes to financial statements.
The Gabelli Global Financial Services Fund
Notes to Financial Statements
1. Organization. The Gabelli Global Financial Services Fund, a series of the Gabelli Equity Series Funds, Inc. (the Corporation), was incorporated on July 25, 1991 in Maryland. 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 is one of four separately managed portfolios (collectively, the Portfolios) of the Corporation. The Fund seeks to provide capital appreciation. The Fund commenced investment operations on October 1, 2018.
2. Significant Accounting Policies. As an investment company, the Fund follows the investment company accounting and reporting guidance, which is part of U.S. generally accepted accounting principles (GAAP) that may require the use of management estimates and assumptions in the preparation of its 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.
The global outbreak of the novel coronavirus disease, known as COVID-19, has caused adverse effects on many companies, sectors, nations, regions, and the markets in general, and may continue for an unpredictable duration. The effects of this pandemic may materially impact the value and performance of the Fund, its ability to buy and sell fund investments at appropriate valuations, and its ability to achieve its investment objectives.
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 obligations 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, 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. Certain securities are valued principally using dealer quotations. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. OTC futures and options on futures for which market quotations are readily available will be valued by quotations received from a pricing service or, if no quotations are available from a pricing service, by quotations obtained from one of more dealers in the instrument in question by the Adviser.
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 with the valuation and changes in valuation of similar securities, including a comparison of foreign securities with the equivalent U.S.
The Gabelli Global Financial Services Fund
Notes to Financial Statements (Continued)
dollar value American Depositary Receipt 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.
The inputs and valuation techniques used to measure fair value of the Fund’s investments are summarized into three levels as described in the hierarchy below:
| ● | Level 1 — quoted prices in active markets for identical securities; |
| ● | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.); and |
| ● | Level 3 — significant unobservable inputs (including the Board’s determinations as to the fair value of investments). |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in the aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of the Fund’s investments in securities by inputs used to value the Fund’s investments as of September 30, 2022 is as follows:
| | | | Valuation Inputs | | | | | |
| | | | | | | | Level 2 Other | | | | | |
| | | | Level 1 | | | | Significant | | | | Total Market Value | |
| | | | Quoted Prices | | | | Observable Inputs | | | | at 09/30/22 | |
| INVESTMENTS IN SECURITIES: | | | | | | | | | | | | |
| ASSETS (Market Value): | | | | | | | | | | | | |
| Common Stocks | | | | | | | | | | | | |
| Insurance | | $ | 2,246,086 | | | $ | 624,022 | | | $ | 2,870,108 | |
| Other Industries (a) | | | 18,606,583 | | | | — | | | | 18,606,583 | |
| TOTAL INVESTMENTS IN SECURITIES – ASSETS | | $ | 20,852,669 | | | $ | 624,022 | | | $ | 21,476,691 | |
| (a) | Please refer to the Schedule of Investments for the industry classifications of these portfolio holdings. |
The Fund held no Level 3 investments at September 30, 2022 or September 30, 2021.
Additional Information to Evaluate Qualitative Information.
General. The Fund uses recognized industry pricing services – approved by the Board and unaffiliated with the Adviser – to value most of its securities, and uses broker quotes provided by market makers of securities not valued by these and other recognized pricing sources. Several different pricing feeds are received to value domestic equity securities, international equity securities, preferred equity securities, and fixed income securities. The data within these feeds are ultimately sourced from major stock exchanges and trading systems where these securities trade. The prices supplied by external sources are checked by obtaining quotations or actual transaction prices from market participants. If a price obtained from the pricing source is deemed unreliable, prices will be sought from another pricing service or from a broker/dealer that trades that security or similar securities.
Fair Valuation. Fair valued securities may be common or preferred equities, warrants, options, rights, or fixed income obligations. Where appropriate, Level 3 securities are those for which market quotations are not
The Gabelli Global Financial Services Fund
Notes to Financial Statements (Continued)
available, such as securities not traded for several days, or for which current bids are not available, or which are restricted as to transfer. When fair valuing a security, factors to consider include recent prices of comparable securities that are publicly traded, reliable prices of securities not publicly traded, the use of valuation models, current analyst reports, valuing the income or cash flow of the issuer, or cost if the preceding factors do not apply. A significant change in the unobservable inputs could result in a lower or higher value in Level 3 securities. The circumstances of Level 3 securities are frequently monitored to determine if fair valuation measures continue to apply.
The Adviser reports quarterly to the Board the results of the application of fair valuation policies and procedures. These may include backtesting the prices realized in subsequent trades of these fair valued securities to fair values previously recognized.
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 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 purchase 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 inability 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 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 Securities. The Fund may invest up to 15% of its net assets in securities for which the markets are restricted. Restricted securities include securities whose disposition is subject to substantial legal or contractual restrictions. The sale of restricted securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than 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. At September 30, 2022, the Fund did not hold any restricted securities.
The Gabelli Global Financial Services Fund
Notes to Financial Statements (Continued)
Securities Transactions and Investment Income. Securities transactions are accounted for on the trade date with realized gain/(loss) on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded on an accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method or amortized to earliest call date, if applicable. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities that are recorded as soon after the ex-dividend date as the Fund becomes aware of such dividends.
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.
Distributions to Shareholders. Distributions to shareholders are recorded on the ex-dividend date. The characterization of distributions to shareholders is 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 GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions, timing differences, and differing characterizations of distributions made by the Fund. Distributions from net investment income for federal income tax purposes 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. Permanent differences were primarily due to the tax treatment of currency gains and losses and disallowed expenses. These reclassifications have no impact on the NAV of the Fund. For the fiscal year ended September 30, 2022, reclassifications were made to decrease paid-in capital by $4,565, with an offsetting adjustment to total accumulated loss.
The tax character of distributions paid during the fiscal years ended September 30, 2022 and 2021 was as follows:
| | | Year Ended
September 30, 2022 | | Year Ended
September 30, 2021 |
| Distributions paid from: | | | | | | | | |
| Ordinary income (a) | | $ | 533,219 | | | $ | 286,536 | |
| Total distributions paid | | $ | 533,219 | | | $ | 286,536 | |
| (a) | The Fund designates 100% of the ordinary income distribution as qualified dividend income pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003. See page 26 for additional information. |
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
The Gabelli Global Financial Services Fund
Notes to Financial Statements (Continued)
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.
At September 30, 2022, the components of accumulated earnings/losses on a tax basis were as follows:
| Undistributed ordinary income | | $ | 634,950 | |
| Accumulated capital loss carryforwards | | | (690,741 | ) |
| Net unrealized depreciation on investments and foreign currency translations | | | (918,356 | ) |
| Total | | $ | (974,147 | ) |
The Fund is permitted to carry capital losses forward for an unlimited period. Capital losses that are carried forward will retain their character as either short term or long term capital losses. The Fund has a short term capital loss carryforward with no expiration of $471,608 and a long term capital loss carryforward with no expiration of $219,133.
The Fund utilized $379,643 of the capital losses carryover for the fiscal year ended September 30, 2022.
At September 30, 2022, the temporary difference between book basis and tax basis net unrealized appreciation on investments was due to the deferral of losses from wash sales for tax purposes.
The following summarizes the tax cost of investments and the related net unrealized depreciation at September 30, 2022:
| | | Cost | | Gross
Unrealized
Appreciation | | Gross
Unrealized
Depreciation | | Net Unrealized
Depreciation |
| Investments | | $22,392,901 | | $2,249,690 | | $(3,165,900) | | $(916,210) |
The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the Statement of Operations if the tax positions were deemed not to meet the more-likely-than-not threshold. During the fiscal year ended September 30, 2022, the Fund incurred an excise tax expense of $4,565. As of September 30, 2022, the Adviser has reviewed all open tax years and concluded that there was no impact to the Fund’s net assets or results of operations. The Fund’s federal and state tax returns for the prior three fiscal years remain open, subject to examination. On an ongoing basis, the Adviser will monitor the Fund’s tax positions to determine if adjustments to this conclusion are necessary.
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 investment advisory fees and/or to reimburse expenses of the Fund to the extent necessary to maintain the annualized total operating expenses of the Fund (excluding
The Gabelli Global Financial Services Fund
Notes to Financial Statements (Continued)
brokerage costs, acquired fund fees and expenses, interest, taxes, and extraordinary expenses) at no more than an annual rate of 1.25%, 1.25%, 2.00%, and 1.00% for Class AAA, Class A, Class C, and Class I shares, respectively. This arrangement is in effect through January 31, 2023. For the fiscal year ended September 30, 2022, the Adviser reimbursed the Fund in the amount of $149,730. In addition, the Fund has also agreed, during the two year period following any waiver or reimbursement by the Adviser, to repay such amount to the extent, that after giving effect to the repayments, such adjusted annualized total operating expenses of the Fund would not exceed the foregoing expense limitations of the value of the Fund’s average daily net assets for Class AAA, Class A, Class C, and Class I Shares. At September 30, 2022, the cumulative amount which the Fund may repay the Adviser, subject to the terms above, is $314,947:
| For the fiscal year ended September 30, 2021, expiring September 30, 2023 | | | $ | 165,217 | |
| For the fiscal year ended September 30, 2022, expiring September 30, 2024 | | | | 149,730 | |
| | | | $ | 314,947 | |
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. Under the Class AAA, Class A, and Class C Share Plans, payments are authorized to G.distributors, LLC (the Distributor), an affiliate of the Adviser, at annual rates of 0.25%, 0.25%, 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 sales of securities during the fiscal year ended September 30, 2022, other than short term securities and U.S. Government obligations, aggregated $9,936,018 and $6,102,974, respectively.
6. Transactions with Affiliates and Other Arrangements. During the fiscal year ended September 30, 2022, the Fund paid $4,751 in brokerage commissions on security trades to G.research, LLC, an affiliate of the Adviser.
During the fiscal year ended September 30, 2022, the Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. The amount of such expenses paid through this directed brokerage arrangement during this period was $1,684.
The cost of calculating the Fund’s NAV per share is a Fund expense pursuant to the Advisory Agreement. The Adviser did not seek a reimbursement during the fiscal year ended September 30, 2022.
The Corporation pays retainer and per meeting fees to Directors not affiliated with the Adviser, plus specified amounts to the Lead Director and Audit Committee Chairman. Directors are also reimbursed for out of pocket expenses incurred in attending meetings. Directors who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Corporation.
7. Line of Credit. The Fund participates in an unsecured line of credit, which expires on March 1, 2023 and may be renewed annually, of up to $75,000,000 under which it may borrow up to 10% of its net assets from the bank for temporary borrowing purposes. Borrowings under this arrangement bear interest at a floating rate equal to the higher of the Overnight Federal Funds Rate plus 135 basis points or the Overnight Bank Funding Rate plus 135 basis points in effect on that day. This amount, if any, would be included in “Interest expense” in the Statement of Operations. During the fiscal year ended September 30, 2022, there were no borrowings under the line of credit.
The Gabelli Global Financial Services Fund
Notes to Financial Statements (Continued)
8. Capital Stock. The Fund offers four classes of shares - Class AAA Shares, Class A Shares, Class C Shares, and Class I Shares. Class AAA and Class I Shares are offered without a sales charge. Class A Shares are subject to a maximum front-end sales charge of 5.75%. Class C Shares are subject to a 1.00% contingent deferred sales charge for one year after purchase.
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 as an increase in paid-in capital. The redemption fees retained by the Fund during the fiscal years ended September 30, 2022 and 2021, if any, can be found in the Statement of Changes in Net Assets under Redemption Fees.
Transactions in shares of capital stock were as follows:
| | | Year Ended
September 30, 2022 | | Year Ended
September 30, 2021 | |
| | | Shares | | Amount | | Shares | | Amount |
| Class AAA | | | | | | | | | | | | | | | | |
| Shares sold | | | 62,953 | | | $ | 768,998 | | | | 43,802 | | | $ | 484,049 | |
| Shares issued upon reinvestment of distributions | | | 992 | | | | 11,563 | | | | 96 | | | | 858 | |
| Shares redeemed | | | (75,197 | ) | | | (891,856 | ) | | | (2,821 | ) | | | (31,121 | ) |
| Net increase/(decrease) | | | (11,252 | ) | | $ | (111,295 | ) | | | 41,077 | | | $ | 453,786 | |
| Class A | | | | | | | | | | | | | | | | |
| Shares sold | | | 187 | | | $ | 2,125 | | | | 1,707 | | | $ | 18,743 | |
| Shares issued upon reinvestment of distributions | | | 46 | | | | 541 | | | | 10 | | | | 92 | |
| Shares redeemed | | | (1,438 | ) | | | (18,117 | ) | | | (10 | ) | | | (83 | ) |
| Net increase/(decrease) | | | (1,205 | ) | | $ | (15,451 | ) | | | 1,707 | | | $ | 18,752 | |
| Class C | | | | | | | | | | | | | | | | |
| Shares issued upon reinvestment of distributions | | | 1 | | | $ | 15 | | | | 1 | | | $ | 8 | |
| Net increase | | | 1 | | | $ | 15 | | | | 1 | | | $ | 8 | |
| Class I | | | | | | | | | | | | | | | | |
| Shares sold | | | 199,044 | | | $ | 2,246,322 | | | | 130,600 | | | $ | 1,318,396 | |
| Shares issued upon reinvestment of distributions | | | 44,460 | | | | 517,966 | | | | 31,795 | | | | 305,172 | |
| Shares redeemed | | | (22,453 | ) | | | (229,647 | ) | | | (7,406 | ) | | | (78,716 | ) |
| Net increase | | | 221,051 | | | $ | 2,534,641 | | | | 154,989 | | | $ | 1,544,852 | |
9. Significant Shareholder. As of September 30, 2022, approximately 96.35% of the Fund was beneficially owned by the Adviser and its affiliates, including managed accounts for which the Adviser and affiliates have voting control but disclaim pecuniary interest.
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. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
The Gabelli Global Financial Services Fund
Notes to Financial Statements (Continued)
11. Subsequent Events. Management has evaluated the impact on the Fund of all subsequent events occurring through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
The Gabelli Global Financial Services Fund
Report of Independent Registered Public Accounting Firm
To the Shareholders of The Gabelli Global Financial Services Fund
and the Board of Directors of Gabelli Equity Series Funds, Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of The Gabelli Global Financial Services Fund (the “Fund”) (one of the funds constituting Gabelli Equity Series Funds, Inc. (the “Corporation”)), including the schedule of investments, as of September 30, 2022, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the four years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting Gabelli Equity Series Funds, Inc.) at September 30, 2022, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of the Corporation’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2022, by correspondence with the custodian, brokers and others; when replies were not received from brokers and others, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Gabelli Funds investment companies since 1992.
New York, New York
November 29, 2022
The Gabelli Global Financial Services Fund
Liquidity Risk Managment Program (Unaudited)
In accordance with Rule 22e-4 under the 1940 Act, the Fund has established a liquidity risk management program (the LRM Program) to govern its approach to managing liquidity risk. The LRM Program is administered by the Liquidity Committee (the Committee), which is comprised of members of Gabelli Funds, LLC management. The Board has designated the Committee to administer the LRM Program.
The LRM Program’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. The LRM Program also includes elements that support the management and assessment of liquidity risk, including an annual assessment of factors that influence the Fund’s liquidity and the monthly classification and re-classification of certain investments that reflect the Committee’s assessment of their relative liquidity under current market conditions.
At a meeting of the Board held on August 16, 2022, the Board received a written report from the Committee regarding the design and operational effectiveness of the LRM Program. The Committee determined, and reported to the Board, that the LRM Program is reasonably designed to assess and manage the Fund’s liquidity risk and has operated adequately and effectively since its implementation. The Committee reported that there were no liquidity events that impacted the Fund or its ability to timely meet redemptions without dilution to existing shareholders. The Committee noted that the Fund is primarily invested in highly liquid securities and, accordingly, continues to be exempt from the requirement to determine a “highly liquid investment minimum” as defined in the Rule 22e-4. Because of that continued qualification for the exemption, the Fund has not adopted a “highly liquid investment minimum” amount. The Committee further noted that while changes to the LRM Program were made during the Review Period and reported to the Board, no material changes were made to the LRM Program as a result of the Committee’s annual review.
There can be no assurance that the LRM Program will achieve its objectives in the future. Please refer to the Fund’s Prospectus for more information regarding its exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.
The Gabelli Global Financial Services Fund
Additional Fund Information (Unaudited)
The business and affairs of the Corporation are managed under the direction of the Corporation’s Board of Directors. Information pertaining to the Directors and Officers of the Corporation is set forth below. The Corporation’s Statement of Additional Information includes additional information about the Corporation’s Directors and is available without charge, upon request, by calling 800-GABELLI (800-422-3554) or by writing to The Gabelli Global Financial Services Fund at One Corporate Center, Rye, NY 10580-1422.
Name, Position(s) Address1 and Age | | Term of Office
and
Length of
Time Served2 | | Number of
Funds
in Fund
Complex
Overseen
by Director | | Principal Occupation(s)
During Past Five Years | | Other Directorships Held by Director3 |
| | | | | | | | | |
| INTERESTED DIRECTORS4: | | |
| | | | | |
Mario J. Gabelli, CFA Director and Chief Investment Officer Age: 80 | | Since 1991 | | 31 | | Chairman, Chief Executive Officer, and Chief Investment Officer – Value Portfolios of GAMCO Investors, Inc. and Chief Investment Officer – Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management, Inc.; Director/Trustee or Chief Investment Officer of other registered investment companies within the Gabelli Fund Complex; Chief Executive Officer of GGCP, Inc.; Executive Chairman of Associated Capital Group, Inc. | | Director of Morgan Group Holding, Co. (holding company) (2001-2019); Chairman of the Board and Chief Executive Officer of LICT Corp. (multimedia and communication services company); Director of CIBL, Inc. (broadcasting and wireless communications); Director of ICTC Group Inc. (communications) (2013-2018) |
| | | | | | | | | |
John D. Gabelli Director Age: 78 | | Since 1991 | | 12 | | Former Senior Vice President of G.research, LLC (and its predecessor) (1991-2019) | | — |
| | | | | | | | | |
| INDEPENDENT DIRECTORS5: | | |
| | | | | |
Elizabeth C. Bogan Director Age: 78 | | Since 2019 | | 12 | | Senior Lecturer in Economics at Princeton University | | — |
| | | | | | | | | |
Anthony J. Colavita6 Director Age: 86 | | Since 1991 | | 18 | | President of the law firm of Anthony J. Colavita, P.C. | | — |
| | | | | | | | | |
Vincent D. Enright Director Age: 78 | | Since 1991 | | 17 | | Former Senior Vice President and Chief Financial Officer of KeySpan Corp. (public utility) (1994-1998) | | Director of Echo Therapeutics, Inc. (therapeutics and diagnostics) (2008-2014); Director of The LGL Group, Inc. (diversified manufacturing) (2011-2014) |
| | | | | | | | | |
Robert J. Morrissey Director Age: 83 | | Since 1991 | | 7 | | Partner in the law firm of Morrissey, Hawkins & Lynch | | Chairman of the Board of Directors, Belmont Savings Bank |
The Gabelli Global Financial Services Fund
Additional Fund Information (Unaudited) (Continued)
Name, Position(s) Address1
and Age | | Term of Office
and
Length of
Time Served2 | | Number of
Funds
in Fund
Complex
Overseen
by Director | | Principal Occupation(s)
During Past Five Years | | Other Directorships Held by Director3 |
Kuni Nakamura Director Age: 54 | | Since 2009 | | 36 | | President of Advanced Polymer, Inc. (chemical manufacturing company); President of KEN Enterprises, Inc. (real estate); Trustee on Long Island University Board of Trustees; Trustee on Fordham Preparatory School Board of Trustees | | — |
| | | | | | | | | |
Anthonie C. van Ekris6 Director Age: 88 | | Since 1991 | | 23 | | Chairman and Chief Executive Officer of BALMAC International, Inc.(global import/ export company) | | — |
| | | | | | | | | |
Salvatore J. Zizza7 Director Age: 76 | | Since 2001 | | 34 | | President of Zizza & Associates Corp. (private holding company); Chairman of Bergen Cove Realty Inc. (residential real estate) | | Director and Chairman of Trans-Lux Corporation (business services); Director and Chairman of Harbor Diversified Inc. (pharmaceuticals) (2009-2018); Retired Chairman of BAM (semiconductor and aerospace manufacturing) |
The Gabelli Global Financial Services Fund
Additional Fund Information (Unaudited) (Continued)
Name, Position(s)
Address1 and Age | | Term of Office and Length of Time Served2 | | Principal Occupation(s) During Past Five Years |
| | | | | |
| OFFICERS: | | | | |
| | | | | |
John C. Ball President and Treasurer Age: 46 | | Since 2017 | | Officer of registered investment companies within the Gabelli Fund Complex since 2017; Vice President and Assistant Treasurer of AMG Funds, 2014-2017; Chief Executive Officer, G.distributors, LLC since December 2020 |
| | | | | |
Peter Goldstein Secretary and Vice President Age: 69 | | Since 2020 | | General Counsel, GAMCO Investors, Inc. and Chief Legal Officer, Associated Capital Group, Inc. since 2021; General Counsel and Chief Compliance Officer, Buckingham Capital Management, Inc. (2012-2020); Chief Legal Officer and Chief Compliance Officer, The Buckingham Research Group, Inc. (2012-2020) |
| | | | | |
Richard J. Walz Chief Compliance Officer Age: 63 | | Since 2013 | | Chief Compliance Officer of registered investment companies within the Gabelli Fund Complex since 2013 |
| 1 | Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. |
| 2 | Each Director will hold office for an indefinite term until the earliest of (i) the next meeting of shareholders, if any, called for the purpose of considering the election or re-election of such Director and until the election and qualification of his or her successor, if any, elected at such meeting, or (ii) the date a Director resigns or retires, or a Director is removed by the Board of Directors or shareholders, in accordance with the Fund’s By-Laws and Articles of Incorporation. For officers, includes time served in prior officer positions with the Fund. Each officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected and qualified. |
| 3 | This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934, as amended, i.e., public companies, or other investment companies registered under the 1940 Act. |
| 4 | “Interested person” of the Fund as defined in the 1940 Act. Messrs. Gabelli are each considered an “interested person” because of their affiliation with Gabelli Funds, LLC which acts as the Fund’s investment adviser. Mario J. Gabelli and John D. Gabelli are brothers. |
| 5 | Directors who are not interested persons are considered “Independent” Directors. |
| 6 | Mr. Colavita’s son, Anthony S. Colavita, serves as a director of other funds in the Gabelli Fund Complex. Mr. van Ekris is an independent director of Gabelli International Ltd., Gabelli Fund, LDC, GAMA Capital Opportunities Master, Ltd., and GAMCO International SICAV, which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. |
| 7 | Mr. Zizza is an independent director of Gabelli International Ltd., which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. On September 9, 2015, Mr. Zizza entered into a settlement with the SEC to resolve an inquiry relating to an alleged violation regarding the making of false statements or omissions to the accountants of a company concerning a related party transaction. The company in question is not an affiliate of, nor has any connection to, the Fund. Under the terms of the settlement, Mr. Zizza, without admitting or denying the SEC’s findings and allegation, paid $150,000 and agreed to cease and desist committing or causing any future violations of Rule 13b2-2 of the Securities Exchange Act of 1934, as amended. The Board has discussed this matter and has determined that it does not disqualify Mr. Zizza from serving as an Independent Director. |
The Gabelli Global Financial Services Fund
2022 TAX NOTICE TO SHAREHOLDERS (Unaudited)
During the fiscal year ended September 30, 2022, the Fund paid to shareholders ordinary income distributions totaling $0.2321, $0.2233, $0.1427, and $0.2516 per share for each of Class AAA, Class A, Class C, and Class I, respectively. For the fiscal year ended September 30, 2022, 65.86% of the ordinary income distribution qualifies for the dividends received deduction available to corporations. The Fund designates 100% of the ordinary income distribution as qualified dividend income pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund designates 0.06% of the ordinary income distribution as qualified interest income pursuant to the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010.
U.S. Government Income:
The percentage of the ordinary income distribution paid by the Fund during the fiscal year ended September 30, 2022 which was derived from U.S. Treasury securities was 0.04%. Such income is exempt from state and local tax in all states. However, many states, including New York and California, allow a tax exemption for a portion of the income earned only if a mutual fund has invested at least 50% of its assets at the end of each quarter of the Fund’s fiscal year in U.S. Government securities. The Gabelli Global Financial Services Fund did not meet this strict requirement in 2022. The percentage of U.S. Government securities held as of September 30, 2022 was none. Due to the diversity in state and local tax law, it is recommended that you consult your personal tax adviser as to the applicability of the information provided to your specific situation.
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
THE GABELLI GLOBAL FINANCIAL SERVICES FUND
One Corporate Center
Rye, NY 10580-1422
Portfolio Manager’s Biography
Ian Lapey joined Gabelli in October 2018 as a portfolio manager. Prior to joining Gabelli, Mr. Lapey was a research analyst and partner at Moerus Capital Management LLC. Prior to joining Moerus, he was a partner, research analyst, and a portfolio manager at Third Avenue Management. Mr. Lapey holds an MBA degree in Finance and Statistics from the Stern School of Business at New York University. He also holds a Master’s degree in Accounting from Northeastern University and a BA in Economics from Williams College.
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 contents of the portfolio manager’s commentary are unrestricted. Both the commentary and the financial statements, including the portfolios of investments, will be available on our website at www.gabelli.com.
Item 2. Code of Ethics.
| (a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
| (d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the registrant’s board of directors has determined that Vincent D. Enright is qualified to serve as an audit committee financial expert serving on its audit committee and that he is “independent,” as defined in Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Audit Fees
| (a) | The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $109,000 in 2021 and $113,400 in 2022. |
Audit-Related Fees
| (b) | The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item are $0 in 2021 and $0 in 2022. |
Tax Fees
| (c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $15,200 in 2021 and $15,200 in 2022. Tax fees represent tax compliance services provided in connection with the review of the Registrant’s tax returns. |
