The Gabelli Woodland Small Cap Value Fund

Transcription

1 The Gabelli Woodland Small Cap Value Fund Shareholder Commentary December 31, 2008 Elizabeth M. Lilly, CFA To Our Shareholders, The net asset value per share of The Gabelli Woodland Small Cap Value Fund decreased 27.77% for the quarter ending December 31, 2008 versus the Russell 2000, which decreased 26.12%. Comparative Results Average Annual Returns through December 31, 2008 (a)(b) Since Inception Quarter 1 Year 3 Year 5 Year (12/31/02) Gabelli Woodland Small Cap Value Fund Class AAA (27.77)% (34.21)% (8.98)% (0.67)% 2.61% Russell 2000 Index (26.12) (33.79) (8.29) (0.93) 5.84 S&P 500 Index (21.95) (36.99) (8.36) (2.19) 2.38 Value Line Composite Index (26.39) (37.44) (9.84) (1.70) 5.24 In the current prospectus, the gross expense ratio is 2.33%. The net expense ratio is 2.01%, after contractual reimbursements by the Adviser in place through September 30, Class AAA Shares do not have a sales charge. (a) Returns represent past performance and do not guarantee future results. Total returns and average annual returns reflect changes in share price and reinvestment of dividends and are net of expenses. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. Performance returns for periods of less than one year are not annualized. Current performance may be lower or higher than the performance data presented. Visit for performance information as of the most recent month end. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectus contains more information about this and other matters and should be read carefully before investing. See page 7 for performance of other classes of shares. Investing in small capitalization securities involves special challenges because these securities may trade less frequently and experience more abrupt price movements than large capitalization securities. The Russell 2000, the S&P 500, and Value Line Composite Indices are unmanaged indicators of stock market performance. You cannot invest directly in an index. (b) The Fund s fiscal year ends September 30.

2 COMMENTARY In our letters to you over the past several years, we have conveyed our concerns about the weak economic environment and compared the present environment to a game of dominoes. It has been our belief that more trouble was ahead for the stock market and economy and that more dominoes would continue to fall. The one domino we underestimated falling (or even collapsing) was the stock market. And fall it did as evidenced by the performance of your portfolio as well as the market indices this past quarter. So exactly what did happen in October and November 2008 to cause the dramatic dropoff in the market? The massive global credit freeze, which started with the banking industry spread to the hedge fund industry. Banks tightened their standards and hedge funds incurred massive deleveraging and forced liquidations of portfolios. To blame this current crisis on subprime mortgages alone is too simple. The last decade has witnessed an era of leveraging that encompassed many kinds of derivatives. It was excessive in everything from subprime to prime, from credit cards to student loans, from corporate bonds to municipal bonds. These instruments were based on the belief that economic growth would always continue and that asset prices would never go down. When you combine leverage with risky assets, it can be very dangerous. As well known investor Howard Marks wrote: Financial engineers and investment bankers took unreliable collateral and packaged it into leveraged structures supporting debt that was rated high enough to attract financial institutions. What a superb example of the impudent use of leverage. This credit crisis is nothing more than assets being inflated to a level that was not sustainable with leverage and now the asset prices are deflating and the debt is left over. So Where Do We Go From Here? To end the financial crisis, we believe four things need to happen. First, the excess housing inventory needs to be eliminated. Unsold new housing inventory stands at over eleven months supply. Not until it drops below eight months supply will real estate prices stabilize. When housing prices stabilize, the economic downward spiral will stop. Housing prices are a good proxy for economic sentiment, as declining housing prices dent confidence and restrict consumer and industrial spending. Residential real estate is the cornerstone of the collateral in the financial system and the backbone of the household balance sheet. Noted housing economist Gary Shiller s analysis states that the steepness of the price increase earlier in the decade in the housing index will coincide with the price decline over the next few years. U.S. housing prices are expected to bottom out in 2010, resulting in a 43.5% drop from their peak in Second, banks need to lend and create credit. We are in a liquidity trap. In a New York Times editorial published by Peter Bernstein, he wrote, This time around, assets are evidently so rotten in so many places that no financial institution wants to risk doing business with any other financial institution without a government backstop. Such fear recently threw a bucket of sand into the wheels of commerce, because business cannot function without credit and banks cannot function without the ability to draw on one another s resources as needed. The $700 billion Troubled Asset Relief Program (TARP) was initially planned to buy devalued mortgage assets in an attempt to calm the markets and provide liquidity. It now appears that the TARP will be used to strengthen the capital base of the financial system, support the asset backed securitization market, and increase foreclosure mediation efforts. No matter how the relief package is written, liquidity needs to return to the financial system. 2

3 Third, the savings rate for the average U.S. citizen has to go up for a sustainable length of time to regain some semblance of financial stability. The U.S consumer s addiction to debt (and leverage) as a way to finance their lifestyles has been shocking, all at the expense of savings. From 1966 to 1990, the average savings rate for a U.S. citizen was around 9% per year. Then from 1991 to 2000 it declined to 4.7% per year. Since 2001, aided by the housing bubble, consumer debt soared and the average annual savings rate declined to 1.4% and in the last several years almost went to 0%. Fourth, and most importantly, confidence needs to be restored. The lack of confidence is feeding the economic and financial crisis, and the recovery in consumer confidence will be a crucial ingredient to ending the crisis. We are dealing with a psychological phenomenon that will be healed by among other things, faith in our economy, government, and the free market system functioning effectively. At this point, an important question on investor minds is have we hit the bottom? If not, how will we know we have reached the bottom? To answer that question we quote famous investor Dean Witter who in 1932 wrote: Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today s prices will prevail once full confidence has been restored? A timely statement from over 70 years ago that is truly applicable to our environment today. Truthfully, the real bottom will not happen until everyone stops looking for it. Let s Talk Stocks The following are stock specifics on selected holdings of our Fund. Favorable earnings prospects do not necessarily translate into higher stock prices, but they do express a positive trend that we believe will develop over time. Individual securities mentioned are not necessarily representative of the entire portfolio. For the following holdings, the percentage of net assets and their share prices are presented as of December 31, Among the best performing stocks this quarter were Rochester Medical (3.4% of net assets as of December 31, 2008) and LB Foster (2.6%). During the quarter, Rochester Medical (ROCM $15.38 Nasdaq) increased 16%. Rochester Medical develops, manufactures and markets disposable medical catheters and devices for urological and continence care applications. The company s products are targeted toward two primary end markets extended care and acute care (hospitals). Over the last several years, CEO Jim Conway and the management team have repositioned Rochester Medical, made a substantial investment in their sales and marketing infrastructure, and have positioned the company to take advantage of several important new growth opportunities. Most significantly, as of October 2008, Medicare will no longer reimburse hospitals for catheter associated urinary tract infections (CAUTI). CAUTI is the most common infection developed by patients in hospitals as it accounts for over 40% of the cases. Rochester Medical s Release NF Catheter is the only catheter on the market that has been shown to reduce infections. Another growth opportunity pertains to intermittent use of catheters for the patient at home. Up until April 2008, Medicare would only pay for four intermittent catheters per month per patient. Now, the regulation has changed and 200 catheters per month will be reimbursed. These significant industry trends combined with $32 million in cash and no debt and a business plan that supports 15% operating margins (they are at 1% today) has us very excited about Rochester Medical. Furthermore, insiders own 15% of the company and are motivated to create value for stockholders. 3

4 LB Foster (FSTR $31.28 Nasdaq) increased 11% in the quarter. LB Foster is a leading manufacturer, fabricator, and distributor of products and services for the rail, construction, energy, and utility markets. With its established base of railroad, government, and industrial clients, LB Foster is positioned to capitalize on several underlying demand drivers, such as railroads efforts to increase safety and efficiency and the upgrade of the U.S. public infrastructure. During the quarter, LB Foster s stock benefited when President elect Obama unveiled his economic stimulus plan and specifically his administration s focus on rebuilding the infrastructure of the United States. Over 40% of LB Foster s revenue is tied to manufacturing products for public works and construction projects, so they are well positioned to participate in infrastructure spending. Furthermore, LB Foster is a well run company operated by a financially savvy management team. CEO Stan Hasselbusch is focused on free cash flow and improving the company s Return on Invested Capital. With over $11.00 per share in cash and no debt, the company has tremendous financial flexibility to repurchase shares or make a strategic acquisition. Your portfolio was not without its disappointments and one of them was Thermadyne Holdings (1.1%). Thermadyne Holding Corp. (THMD $6.87 Nasdaq) declined 59% in the quarter. Thermadyne manufactures cutting and welding products and accessories that are primarily used in industries such as commercial construction, steel shipbuilding, petrochemical construction, and general manufacturing. After a troubled past in 2002, Thermadyne brought in a new management team led by CEO Paul Melnuk to focus on improving the company s performance. Melnuk has eliminated underperforming businesses, reduced operating costs, and significantly improved Thermadyne s inventory and receivables. Over the last several years, they have delevered the balance sheet, restructured the operations, implemented Lean/Six Sigma, and tied executive compensation to specific operating margin targets and Return on Invested Capital goals. In the short term, the market is focused on Thermadyne s exposure to the industrial economy and that is what seemingly caused the significant decline in their stock price during the quarter. Longer term, we believe Thermadyne is taking all the right steps to grow revenues, increase margins, and create value for shareholders. During the quarter the volatile market gave us the opportunity to make a few new investments, which we believe, are below their intrinsic value. Two we would like to highlight are Robbins & Myers 1.1% and Bristow Group (1.3%). Robbins & Myers (RBN $16.17 NYSE) is a world leading supplier of highly engineered equipment and systems for a variety of industrial markets. Their primary end markets are the oil and gas, chemical, and pharmaceutical industries. Robbins & Myers is a company we have followed closely for the last several years and watched as CEO Peter Wallace has transformed it from an undermanaged collection of separate operating businesses into a focused operating organization. In four short years, he has driven operating margins from 4% to 14%, implemented financial discipline, and delevered the balance sheet. For the last several years, Robbins & Myers stock price seemed to reflect tremendous enthusiasm for what Wallace and his team were doing and was too expensive by our calculations. This past quarter, Robbins & Myers stock declined by over 50% on economic fears as well as general market turbulence. We used the market correction to initiate a position in Robbins & Myers. We believe Wallace and his strong management team are capable of achieving 17 18% operating margins over the next several years as they continue to wring more efficiencies out of the company s cost structure and introduce new higher margin products. 4

5 Bristow Group (BRS $26.79 NYSE) is the leading provider of helicopter transportation services to the worldwide offshore energy industry. They provide services to offshore drilling rigs, platforms, and other installations operated by national and international energy companies. Bristow s stock declined significantly over the last several months due to concerns over the decline in the price of oil and the negative impact it would have on Bristow s business. A majority of Bristow s revenues are generated by multiyear contracts with customers. In addition, capacity constraint is a significant issue as demand for helicopter services exceeds supply. Furthermore, supply will be constrained for the next several years, as helicopter manufacturers are fully booked. The blue book value of the company s helicopter fleet alone is worth twice the current market value. CEO William Chiles is a veteran of the oil and gas industry and understands capital allocation and the importance of accelerating a company s Return on Invested Capital. Conclusion The portfolio continues to be constructed with a fundamental bottom up investment approach. Therefore, we do not have a Fund that will mirror the performance of the Russell What we do own is a collection of good businesses that generate free cash flow that we believe are operated by honest and talented management teams and are disciplined in their capital allocation decisions. We appreciate your loyalty and support during these challenging times and look forward to communicating with you next quarter. Sincerely, January 16, 2009 Elizabeth M. Lilly, CFA Portfolio Manager Note: The views expressed in this Shareholder Commentary reflect those of the Portfolio Manager only through the end of the period stated in this Shareholder Commentary. The Portfolio Manager s views are subject to change at any time based on market and other conditions. The information in this Portfolio Manager s Shareholder Commentary represents the opinions of the individual Portfolio Manager and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Views expressed are those of the Portfolio Manager and may differ from those of other portfolio managers or of the Firm as a whole. This Shareholder Commentary does not constitute an offer of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this Shareholder Commentary has been obtained from sources we believe to be reliable, but cannot be guaranteed. 5

6 Minimum Initial Investment $1,000 The Fund s minimum initial investment for regular accounts is $1,000. There are no subsequent investment minimums. No initial minimum is required for those establishing an Automatic Investment Plan. Additionally, the Fund and other Gabelli/GAMCO Funds are available through the notransaction fee programs at many major brokerage firms. The Fund imposes a 2% redemption fee on shares sold in seven calendar days or less of a purchase. See the prospectus for more details. Please visit us on the Internet. Our homepage at contains information about GAMCO Investors, Inc., the Gabelli/GAMCO Mutual Funds, IRAs, 401(k)s, current and historical quarterly reports, closing prices, and other current news. We welcome your comments and questions via at info@gabelli.com. You may sign up for our alerts at and receive early notice of quarterly report availability, news events, media sightings, and mutual fund prices and performance. edelivery We are pleased to offer electronic delivery of Gabelli Funds documents. Direct shareholders of our open end mutual funds can now elect to receive their Annual, Semiannual, and Quarterly Fund Reports, Manager Commentaries, and Prospectuses via edelivery. For more information or to sign up for edelivery, please visit our website at Top Ten Holdings (Percent of Net Assets) December 31, 2008 Powell Industries Inc. 3.6% Rochester Medical Corp. 3.4% AlbertoCulver Co. 3.2% Tier Technologies Inc., Cl. B 3.0% Valmont Industries Inc. 3.0% Hawk Corp., Cl. A 3.0% NewAlliance Bancshares Inc. 2.8% OSI Systems Inc. 2.7% LB Foster Co., Cl. A 2.6% MTS Systems Corp. 2.6% 6

7 MultiClass Shares The Gabelli Woodland Small Cap Value Fund Class AAA Shares are noload shares offered directly by selected broker/dealers. Class A and Class C Shares are targeted to the needs of investors who seek advice through financial consultants. Class I Shares are available solely to certain institutions which invest directly with the Fund. The minimum initial investment amount for Class I Shares is $500,000. The Board of Directors determined that expanding the types of Fund shares available through various distribution options will enhance the ability of the Fund to attract additional investors. Gabelli Woodland Small Cap Value Fund Average Annual Returns December 31, 2008 Class AAA Shares Class A Shares Class B Shares Class C Shares Class I Shares One Year (34.21)% (34.24)% (34.80)% (34.73)% (34.11)% (38.12)(a) (38.06)(c) (35.38)(d) Three Year (8.98) (8.93) (9.85) (9.63) (8.94) (10.75)(a) (10.76(c) (9.63) Five Year (0.67) (0.61) (1.09) (1.37) (0.64) (1.81)(a) (1.49)(c) (1.37) Since Inception (b) (a) 2.13(c) 1.92 Gross Expense Ratio Current Expense Ratio after Adviser Reimbursements Maximum Sales Charge.. None None Past performance does not guarantee future results. Total returns reflect changes in share price and reinvestment of distributions and are net of expenses. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. The Adviser reimbursed expenses to limit the expense ratio. Had such limitation not been in place, returns would have been lower. Current performance may be lower or higher than the performance data presented. Visit to obtain performance information as of the most recent month end. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectus contains more information about this and other matters and should be read carefully before investing. Investing in small capitalization securities involves special challenges because these securities may trade less frequently and experience more abrupt price movements than large capitalization securities. The Class AAA Share net asset values ( NAV ) per share are used to calculate performance for the periods prior to the issuance of Class I Shares on January 11, The actual performance of the Class I Shares would have been higher due to lower expenses related to Class I Shares. Expenses are limited by contract through September 30, (a) Includes the effect of the maximum 5.75% sales charge at the beginning of the period. (b) Performance is calculated since inception on December 31, (c) Performance results include the deferred sales charges for the Class B Shares upon redemption at the end of the one year, three year, five year, and since inception periods of 5%, 3%, 2%, and 1%, respectively, of the Fund s NAV at the time of purchase or sale, whichever is lower. (d) Performance results include the deferred sales charge for the Class C Shares upon redemption at the end of the one year period of 1% of the Fund s NAV at the time of purchase or sale, whichever is lower. We have separated the portfolio manager s commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the SarbanesOxley Act of We have done this to ensure that the content of the portfolio manager s commentary is unrestricted. The financial statements and investment portfolio are mailed separately from the commentary. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at 7

8 Gabelli Equity Series Funds, Inc. The Gabelli Woodland Small Cap Value Fund One Corporate Center Rye, New York GABELLI fax: website: Net Asset Value per share available daily by calling 800GABELLI after 6:00 P.M. Board of Directors Mario J. Gabelli, CFA Robert J. Morrissey Chairman and Chief AttorneyatLaw Executive Officer Morrissey, Hawkins & Lynch GAMCO Investors, Inc. Anthony J. Colavita AttorneyatLaw Anthony J. Colavita, P.C. Vincent D. Enright Former Senior Vice President and Chief Financial Officer KeySpan Corp. John D. Gabelli Senior Vice President Gabelli & Company, Inc. Anthony R. Pustorino Certified Public Accountant, Professor Emeritus Pace University Anthonie C. van Ekris Chairman BALMAC International, Inc. Salvatore J. Zizza Chairman Zizza & Co., Ltd. Officers and Portfolio Manager Elizabeth M. Lilly, CFA Bruce N. Alpert Portfolio Manager President and Secretary Peter D. Goldstein Agnes Mullady Chief Compliance Officer Treasurer Distributor Gabelli & Company, Inc. Custodian, Transfer Agent, and Dividend Agent State Street Bank and Trust Company The E M P PS V MANAGEMENT CASH FLOW R E S E A R C H Gabelli Woodland Small Cap Value Fund Legal Counsel Skadden, Arps, Slate, Meagher & Flom LLP This report is submitted for the general information of the shareholders of The Gabelli Woodland Small Cap Value Fund. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. GAB840Q408SC SHAREHOLDER COMMENTARY DECEMBER 31, 2008

9 The Gabelli Woodland Small Cap Value Fund First Quarter Report (a) December 31, 2008 To Our Shareholders, During the quarter ended December 31, 2008, The Gabelli Woodland Small Cap Value Fund (the Fund ) declined 27.77% while the Russell 2000 Index declined 26.12%. Enclosed is the investment portfolio as of December 31, Comparative Results Average Annual Returns through December 31, 2008 (a)(b) Since Six Inception Quarter Months 1 Year 3 Year 5 Year (12/31/02) Gabelli Woodland Small Cap Value Fund Class AAA (27.77)% (28.39)% (34.21)% (8.98)% (0.67)% 2.61% Russell 2000 Index (26.12) (26.94) (33.79) (8.29) (0.93) 5.84 S&P 500 Index (21.95) (28.48) (36.99) (8.36) (2.19) 2.38 Value Line Composite Index (26.39) (29.57) (37.44) (9.84) (1.70) 5.24 Class A (27.78) (28.39) (34.24) (8.93) (0.61) 2.65 (32.04)(c) (32.62)(c) (38.12)(c) (10.75)(c) (1.81)(c) 1.62(c) Class B (27.86) (28.71) (34.80) (9.85) (1.09) 2.28 (31.47)(d) (32.28)(d) (38.06)(d) (10.76)(d) (1.49)(d) 2.13 Class C (27.86) (28.67) (34.73) (9.63) (1.37) 1.92 (28.58)(e) (29.38)(e) (35.38)(e) (9.63) (1.37) 1.92 Class I (27.74) (28.36) (34.11) (8.94) (0.64) 2.63 In the current prospectus, the gross expense ratios for Class AAA, A, B, C, and I Shares are 2.33%, 2.33%, 3.08%, 3.08%, and 2.08%, respectively. The net expense ratios after contractual reimbursements by the Adviser in place through September 30, 2009 are 2.00%, 2.00%, 2.75%, 2.75%, and 1.75% respectively. Class AAA and I Shares do not have a sales charge. The maximum sales charge for Class A, B, and C Shares is 5.75%, 5.00%, and 1.00%, respectively. (a) The Fund s fiscal year ends September 30. (b) Returns represent past performance and do not guarantee future results. Total returns and average annual returns reflect changes in share price and reinvestment of distributions and are net of expenses. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. Performance returns for periods of less than one year are not annualized. Current performance may be lower or higher than the performance data presented. Visit for performance information as of the most recent month end. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectus contains more information about this and other matters and should be read carefully before investing. The Class AAA Shares net asset values ( NAVs ) per share are used to calculate performance for the periods prior to the issuance of Class I Shares on January 11, The actual performance of Class I Shares would have been higher due to lower expenses associated with this class of shares. Investing in small capitalization securities involves special challenges because these securities may trade less frequently and experience more abrupt price movements than large capitalization securities. The Russell 2000 Index of small U.S. companies, the S&P 500 Index of the largest U.S. companies, and the Value Line Composite Index (comprised of equally weighted positions in every stock covered in the Value Line Investment Survey) are unmanaged indicators of stock market performance. Dividends are considered reinvested. You cannot invest directly in an index. (c) Includes the effect of the maximum 5.75% sales charge at the beginning of the period. (d) Performance results include the deferred sales charges for the Class B Shares upon redemption at the end of the quarter, six months, one year, three year, five year and since inception periods of 5%, 5%, 5%, 3%, 2%, and 1%, respectively, of the Fund s NAV per share at the time of purchase or sale, whichever is lower. Class B Shares are not available for new purchases. (e) Performance results include the deferred sales charges for the Class C Shares upon redemption at the end of the quarter, six months, and one year periods of 1% of the Fund s NAV per share at the time of purchase or sale, whichever is lower. We have separated the portfolio manager s commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the SarbanesOxley Act of We have done this to ensure that the content of the portfolio manager s commentary is unrestricted. The financial statements and investment portfolio are mailed separately from the commentary. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at

10 The Gabelli Woodland Small Cap Value Fund Schedule of Investments December 31, 2008 (Unaudited) Shares Market Value Shares Market Value COMMON STOCKS 100.0% Aerospace 4.5% 8,600 Herley Industries Inc $ 105,608 5,020 Kaman Corp , ,621 Automotive: Parts and Accessories 1.6% 6,490 Midas Inc ,080 Business Services 7.6% 358 Ascent Media Corp., Cl. A ,819 6,890 Deluxe Corp ,074 8,150 Edgewater Technology Inc ,108 7,350 Intermec Inc ,608 3,820 The Brink s Co , ,291 Computer Software and Services 11.9% 7,000 Dynamics Research Corp ,000 16,500 Furmanite Corp ,935 18,410 Lawson Software Inc ,263 4,340 MTS Systems Corp ,618 25,000 Tier Technologies Inc., Cl. B ,000 7,800 TransAct Technologies Inc , ,618 Consumer Products 5.8% 5,770 AlbertoCulver Co ,423 1,085 Church & Dwight Co. Inc ,890 5,840 Kimball International Inc., Cl. B , ,595 Consumer Services 1.9% 3,820 Brink s Home Security Holdings Inc ,734 Diversified Industrial 13.7% 6,050 Columbus McKinnon Corp , Griffon Corp ,100 Hawk Corp., Cl. A ,460 3,800 L.B. Foster Co., Cl. A ,864 9,920 LeCroy Corp ,256 8,800 OSI Systems Inc ,880 3,190 Texas Industries Inc , ,630 Energy and Utilities 2.8% 3,740 Mariner Energy Inc ,148 3,170 PICO Holdings Inc , ,407 Entertainment 2.3% 3,585 Discovery Communications Inc., Cl. A ,764 3,585 Discovery Communications Inc., Cl. C ,003 98,767 Equipment and Supplies 14.8% 13,600 C&D Technologies Inc ,568 22,000 Gerber Scientific Inc ,420 5,530 Powell Industries Inc $ 160,481 3,000 Robbins & Myers Inc ,510 3,150 The Toro Co ,950 7,000 Thermadyne Holdings Corp ,090 2,200 Valmont Industries Inc , ,011 Financial Services 3.7% 1,430 HMN Financial Inc ,977 9,700 NewAlliance Bancshares Inc ,749 1,204 Willis Group Holdings Ltd , ,681 Food and Beverage 1.8% 3,900 PepsiAmericas Inc ,404 Health Care 9.8% 17,500 Home Diagnostics Inc ,975 9,940 Rochester Medical Corp ,877 3,116 SurModics Inc ,741 2,880 West Pharmaceutical Services Inc , ,371 Hotels and Gaming 3.4% 5,370 Gaylord Entertainment Co ,211 11,900 Pinnacle Entertainment Inc , ,603 Machinery 2.6% 5,964 Key Technology Inc ,660 Retail 2.6% 3,500 J. Crew Group Inc ,700 10,000 Shutterfly Inc , ,600 Specialty Chemicals 6.0% 2,000 Arch Chemicals Inc ,140 1,260 FMC Corp ,360 2,000 NewMarket Corp ,820 8,200 Penford Corp , ,304 Telecommunications 1.9% 15,400 HickoryTech Corp ,776 Transportation 1.3% 2,200 Bristow Group Inc ,938 TOTAL COMMON STOCKS ,372,091 TOTAL INVESTMENTS 100.0% (Cost $5,467,744) $ 4,372,091 Aggregate book cost $ 5,467,744 Gross unrealized appreciation $ 220,778 Gross unrealized depreciation (1,316,431) Net unrealized appreciation/depreciation.. $(1,095,653) Nonincome producing security. See accompanying notes to schedule of investments. 2

11 The Gabelli Woodland Small Cap Value Fund Notes to Schedule of Investments (Unaudited) Security Valuation. Portfolio securities listed or traded on a nationally recognized securities exchange or traded in the U.S. overthecounter market for which market quotations are readily available are valued at the last quoted sale price or a market s official closing price as of the close of business on the day the securities are being valued. If there were no sales that day, the security is valued at the average of the closing bid and asked prices or, if there were no asked prices quoted on that day, then the security is valued at the closing bid price on that day. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Directors (the Board ) so determines, by such other method as the Board shall determine in good faith to reflect its fair market value. Portfolio securities traded on more than one national securities exchange or market are valued according to the broadest and most representative market, as determined by Gabelli Funds, LLC (the Adviser ). Portfolio securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly after the close of the foreign market but prior to the close of business on the day the securities are being valued. Debt instruments with remaining maturities of 60 days or less that are not credit impaired are valued at amortized cost, unless the Board determines such amount does not reflect the securities fair value, in which case these securities will be fair valued as determined by the Board. Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing bid price. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. Securities and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of available financial and nonfinancial 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. dollar value ADR securities at the close of the U.S. exchange; and evaluation of any other information that could be indicative of the value of the security. On October 1, 2008, the Fund adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurements ( SFAS 157 ) that clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value, and requires additional disclosures about the use of fair value measurements. The three levels of the fair value hierarchy under SFAS 157 are described 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 Fund s determinations as to the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in securities. There was no summary of the Fund s investments, by inputs used to value the Fund s investments as of December 31, Investments in Securities (Market Value) Valuation Inputs Assets Level 1 Quoted Prices $4,372,091 There were no Level 3 investments at September 30, 2008 or December 31, In March 2008, the Financial Accounting Standards Board (the FASB ) issued Statement of Financial Accounting Standard No. 161, Disclosures about Derivative Instruments and Hedging Activities ( SFAS 161 ) that is effective for fiscal years beginning after November 15, SFAS 161 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity s results of operations and financial position. Management is currently evaluating the implications of SFAS 161 on the Fund s disclosures. 3

12 Gabelli Equity Series Funds, Inc. The Gabelli Woodland Small Cap Value Fund One Corporate Center Rye, New York GABELLI fax: website: Net Asset Value per share available daily by calling 800GABELLI after 6:00 P.M. Board of Directors Mario J. Gabelli, CFA Robert J. Morrissey Chairman and Chief AttorneyatLaw Executive Officer Morrissey, Hawkins & Lynch GAMCO Investors, Inc. Anthony J. Colavita AttorneyatLaw Anthony J. Colavita, P.C. Vincent D. Enright Former Senior Vice President and Chief Financial Officer KeySpan Corp. John D. Gabelli Senior Vice President Gabelli & Company, Inc. Anthony R. Pustorino Certified Public Accountant, Professor Emeritus Pace University Anthonie C. van Ekris Chairman BALMAC International, Inc. Salvatore J. Zizza Chairman Zizza & Co., Ltd. Officers and Portfolio Manager Elizabeth M. Lilly, CFA Bruce N. Alpert Portfolio Manager President and Secretary Peter D. Goldstein Agnes Mullady Chief Compliance Officer Treasurer Distributor Gabelli & Company, Inc. Custodian, Transfer Agent, and Dividend Agent State Street Bank and Trust Company The E M P PS V MANAGEMENT CASH FLOW R E S E A R C H Gabelli Woodland Small Cap Value Fund Legal Counsel Skadden, Arps, Slate, Meagher & Flom LLP This report is submitted for the general information of the shareholders of The Gabelli Woodland Small Cap Value Fund. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. GAB840Q408SR FIRST QUARTER REPORT DECEMBER 31, 2008