[DESCRIPTION] Third Quarter Report
Third Quarter Report
THE GABELLI [Logo]
EQUITY TRUST INC.
September 30, 1996
<PAGE>
THE GABELLI [Logo]
EQUITY TRUST INC.
Our cover icon represents the underpinnings of Gabelli. The Teton
mountains in Wyoming represent what we believe in in America -- that
creativity, ingenuity, hard work and a global uniqueness provide
enduring values. They also stand out in an increasingly complex,
interconnected and interdependent economic world.
Investment Objective:
The Gabelli Equity Trust Inc. is a closed-end,
non-diversified management investment company whose primary
objective is long-term growth of capital, with income as a
secondary objective.
This report is printed on recycled paper.
<PAGE>
[Photo of Mario
J. Gabelli]
THE GABELLI [Logo]
EQUITY TRUST INC.
To Our Shareholders
After a sharp correction in July, the Dow Jones Industrial Average (DJIA)
and the Standard & Poor's 500 surged in September, closing the quarter at record
levels. Broader market indices such as the Value Line Composite and smaller cap
indices like the Russell 2000 rebounded as well, but lagged the large cap
indices by considerable margins.
During the third quarter ended September 30, 1996, the Gabelli Equity
Trust Inc.'s ("Equity Trust") net asset value per share decreased 1.2% to $9.72,
after adjusting for the $0.25 distribution on September 23, 1996. This compares
to the 3.1% return in the unmanaged Standard & Poor's 500 Composite Stock Price
Index ("S&P 500") for the quarter. Year-to-date, the net asset value has
increased 5.6% versus the S&P 500's 13.5% increase. For the twelve months ended
September 30, 1996, the Equity Trust's net asset value increased 7.6% after
adjusting for all distributions. The S&P 500 was up 20.3% for the same period.
Since inception on August 21, 1986 through September 30, 1996, the Equity
Trust's net asset value has achieved a 246.6% total return, which equates to a
13.1% average annual return. The five- and ten-year average annual returns were
13.4% and 13.2%, respectively.
The Equity Trust's common shares ended the quarter at $9.25 per share on
the New York Stock Exchange, off 1.4% for the quarter but up 6.5% for the nine
months ended September 30, 1996, after adjusting for all distributions. For the
trailing twelve months, the common shares are up 11.7%, after adjusting for all
distributions and the rights offering.
What We Do
We do what is described as bottom-up research: we read annual reports; we
visit the competition; we talk to customers; we go belly to belly with
management. We structure our portfolio by picking stocks.
In past reports, we have tried to articulate our investment philosophy and
methodology. The following graphic further illustrates the interplay among the
four components of our valuation approach.
[Graphic Depicting Investment Stategy]
Our focus is on free cash flow; earnings before interest, taxes,
depreciation and amortization (EBITDA) minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value (PMV) estimates.
Finally, we look for a catalyst; something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing worldwide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
<PAGE>
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as increased focus on productivity
enhancing goods and services.
COMMENTARY
The Economy and the Stock Market
Robust second quarter GDP growth of 4.8%, higher energy and agricultural
commodities prices, and strong employment numbers rekindled inflationary fears
sparking a 7% market correction in July. In September, more encouraging economic
data, most notably modest increases in the Producer and Consumer Price Indices,
eased inflationary concerns. Fueled by strong cash flow into equity mutual
funds, the DJIA and S&P 500 moved back into record territory.
For the present, inflation appears to be in check. However, we don't think
it's been checkmated quite yet. The world-wide demand for agricultural and
selected industrial commodities is growing. Oil remains a wild card. Eventually,
higher prices will be passed along to the consumer. With outsourcing,
downsizing, globalization of labor, technology oriented productivity gains
decelerating, and unemployment at historically low levels, we still anticipate
upward pressure on wages. On the surface, the United Auto Workers recent labor
contract with Ford (F - $31.25 -NYSE) looks good. With just a 3% annual wage
hike over three years, Ford appears to have avoided inflationary wage increases.
However, by agreeing to limit outsourcing and, in effect, guaranteeing UAW
workers lifetime tenure, future productivity may be diminished. We have seen the
long-term implications of such labor rigidity in Europe. We fear Ford may have
just won a psychological victory. More importantly, if President Clinton wins in
a landslide, market observers will ask: What payback will he give to his
supporters? What will this mean for labor costs, productivity gains, inflation,
corporate earnings and the market?
Based largely on better than expected news on the inflation front, our
short-term posture toward the broad market has changed slightly from cautious to
cautiously optimistic. Corporate earnings should finish the year up around 10%.
Valuations are above the historic norm, but not yet at troublesome levels. If
inflation remains subdued (we're still not convinced it isn't peeking around the
corner), long interest rates stabilize at current levels, and mutual fund cash
inflows remain strong, 1996 equities returns may well exceed our expectations
after the Presidential Election.
Whatever the market has in store for us over the next several quarters,
there are attractive long-term opportunities in a variety of industries. World
class industrial companies will get a boost from recovering economies in Europe
and the Pacific Rim. Aerospace component suppliers will continue to benefit from
the strong world-wide demand for new aircraft. Selected telecommunications
stocks will prosper as the sweeping deregulation of the industry is implemented
in the U.S. and emerging nations invest heavily in building modern systems.
Entertainment software stocks should also do well as distribution networks here
and abroad continue to expand. AND DEALS WILL BE DONE. The record levels of
mergers and acquisitions experienced in 1995-1996 may well be exceeded. The
benefits of strategic combinations in a broad spectrum of industries will keep
investment bankers busy and value investors happy in the year ahead.
2
<PAGE>
General Motors: It's More Than Just A Car Company
In previous reports, we've talked about "Humpty Dumpty" conglomerates
surfacing value through the sale or spin-off of divisions. The good folks at
General Motors Corporation (GM - $48.00 - NYSE) may soon be adding their name to
a list that includes American Express Company (AXP - $46.25 - NYSE), American
Brands, Inc. (AMB - $42.25 - NYSE), ITT Corporation (ITT - $43.625 - NYSE), and
AT&T Corp. (T - $52.25 - NYSE) to name just a few. Encouraged by the successful
spin-off of Electronic Data Systems Corp. (EDS - $61.375 - NYSE), GM management
is now focusing on another GM tracking stock, GM Hughes (GMH - $57.75 NYSE). GMH
has three businesses: auto electronics, aerospace, and a satellite
telecommunications division that includes the rapidly growing DirecTV and a
satellite video distribution business that will be strengthened with the
acquisition of PanAmSat Corporation (SPOT - $27.8125 - NASDAQ). GM has several
alternatives that would benefit GMH shareholders, the largest of which is GM
itself. One scenario would be to spin off DirecTV directly to GMH shareholders,
fold the auto electronics business back into the parent company, and sell the
aerospace business. GMH is currently valued at about 9 times 1996 cash flow.
With the potential for rapid cash flow and eventual earnings growth, DirecTV
will receive a much higher multiple as a stand alone company.
At its current price, marked to market, GMH represents about $23 of value
per GM share. Marked to our Private Market Value model for GMH, it represents
$30 of value. Should GM restructure GMH in the aforementioned manner, GM's auto
business would be trading at about half the cash flow multiples enjoyed by Ford
and Chrysler Corp. (C - $28.625 - NYSE). Ford and Chrysler do have cost
advantages relative to GM and the impending settlement with the UAW may hamper
GM's cost cutting progress. However, that is too deep a discount for an American
auto manufacturer with excellent long-term prospects.
One Hurdle Left
The Federal Trade Commission's recent approval of the Time Warner Inc.
(TWX - $38.625 - NYSE)/Turner Broadcasting (TBS'A - $28.50 - ASE) merger
eliminates one of the hurdles facing TWX management. The Turner acquisition is
hardly a steal for Time Warner, but it does position them as an unparalleled
global powerhouse in the entertainment software and cable network businesses.
Now, Gerald Levin and company can focus on settling its differences with US West
Media Group (UMG - $16.875 - NYSE), its disgruntled partner in the cable
television and entertainment software businesses. This may entail buying US West
Media out of Warner Brothers and HBO by giving them a bigger stake in Time
Warner Cable Television or outright ownership of selected cable systems. US West
Media appears committed to the cable industry. At this stage, a deal hinges on
price (how many cable subscribers TWX will give up for exclusive ownership of
filmed entertainment assets). With TWX stock languishing, Mr. Levin will be
under increasing pressure from shareholders like Ted Turner and
Tele-Communications Inc.'s (TCOMA - $14.9375 - NASDAQ) John Malone to get
something done. We believe a compromise that will enhance US West Media's
cable/telephony franchise and turn Time Warner into a purer entertainment/news
software play will be reached. TWX can then sell additional non-core assets
and/or spin off its share of the cable operations to shareholders. The end
result would be a much better looking balance sheet, a more focused company and,
we believe, a stock price in the mid $50s.
The Consolidators - The 1990s Game
The 1960s was the decade of the conglomerates. Individuals like Harold
Geneen at ITT, Charlie Bluhdorn at Gulf & Western, and Royal Little at Textron
championed corporate growth and stability by bundling non-related businesses.
Wall Street was in love with the conglomerates. And why not? They were using
their shares trading at 12 times earnings to buy smaller less visible companies
at eight times earnings. Earnings marched steadily upward as did conglomerate
stock prices.
3
<PAGE>
Times change. Wall Street now shuns conglomerates. They are difficult for
analysts to understand and many are saddled with mature low-growth companies
that restrain, rather than contribute to, earnings growth. Corporate managers
are realizing that by shedding non-related divisions through direct sale or
spin-off to shareholders, they are getting much better valuations for their core
businesses. In short, investors are willing to pay more for the sum of the parts
than for the whole. Corporate chieftains like Harvey Golub of American Express,
Tom Hays at American Brands and Rand Araskog at ITT have already demonstrated
the positive impact that consolidation has on stock prices. Westinghouse
Electric Corp.'s (WX - $18.625 - NYSE) Michael Jordan appears to be following
their lead with the acquisition of Infinity Broadcasting Corp. (INF - $31.50 -
NYSE) to complement the CBS radio network and the revelation that he is
considering spinning off or selling the company's industrial businesses.
There is another type of consolidation creating enthusiasm on Wall Street.
Consolidators are buying competitors, lowering expenses through enlarged buying
power, eliminating corporate overhead and driving growth rates in the process.
Consolidators are looking for fragmented industries where this strategy is most
effective. A prominent consolidator is Wayne Huzienga, who made his first
fortune consolidating the trash hauling industry with Waste Management
International Inc. (WME - $9.00 - NYSE). He repeated the pattern in the video
rental business via Blockbuster Entertainment. Now, under the corporate banner
of Republic Industries, Inc. (RWIN - $29.00 - NASDAQ), he is consolidating the
used car and electronic security businesses. We believe that by buying smaller
competitors, consolidating operations, and creating a national brand name
franchise, Mr. Huzienga will once again make a lot of money for himself and
Republic Industries shareholders. Other industries where this is occurring are
broadcasters, banks, brokers, health care and even public utilities.
Farmer Kravis
Henry Kravis, one of the principals of Kravis, Kohlberg, & Roberts (KKR),
has been harvesting seeds planted by the firm during the heyday of leveraged
buyouts in the 1980s. The recent sale of Duracell International Inc. (DUR -
$64.047 - NYSE) (34% owned by KKR) to Gillette Co. (G - $72.125 - NYSE) follows
on the heels of the sale of KKR-controlled Red Lion Hotels Inc. (RL - $29.625 -
NYSE) to Doubletree Corp. (TREE - $39.875 - NASDAQ), Stop & Shop Companies Inc.
to Royal Ahold N.V., and American Re Corp. (ARN - $63.50 - NYSE) to Munich
Reinsurance Company. Farmer Kravis is unloading this bumper crop of fine
companies. Indeed, he is in the process of raising $5 billion in seed money for
planting new crops.
Why are we interested in what Farmer Kravis is doing? For a variety of
reasons, not the least of which is that with the exception of a failed tobacco
crop (KKR's ill-fated LBO of RJR), he's been a very profitable farmer. We like
to watch what Henry is buying - KKR's recent purchase of Bruno's reaffirms our
notion of value in food retailers like Delchamps Inc. (DLCH - $20.00 NASDAQ) and
Giant Food Inc. (GFS'A - $34.00 - ASE). We also monitor values surfaced by his
selling. The 13-14 times cash flow paid by Gillette for Duracell has very
positive implications for Ralston Purina Group (RAL - $68.50 - NYSE), whose
Eveready Battery business is a strong number two in the market to Duracell.
Finally, we are encouraged that Farmer Kravis is in the process of raising a big
pile of money to buy the kind of undervalued companies available in our Fund's
portfolio.
Let's Talk Stocks
The following are stock specifics on selected holdings of the Equity
Trust's investments. Favorable EBITDA prospects do not necessarily translate
into higher stock prices, but they do express a positive trend which we believe
will develop over time.
American Express Company (AXP - $46.25 - NYSE), founded in 1850, is a
diversified travel and financial services company operating in 160 countries
around the world. The company is best known for its American Express
4
<PAGE>
charge card and travel-related services. Another important operation is
Minneapolis-based American Express Financial Advisors, Inc. (formerly IDS
Financial Services) which sells financial products ranging from mutual funds to
annuities. Harvey Golub, Chairman and CEO, has refocused AXP on its core "green"
charge card and investment management businesses. The company has significantly
expanded the range of merchants who welcome its cards. Management's objective is
virtual parity with bankcard networks. In July, the company joined forces with
Microsoft to start their own on-line corporate travel service. Additionally, the
company has launched Financial Direct, a financial services operation that
provides self-directed on-line trading. We believe that American Express has
been repositioned to enjoy double-digit earnings growth over the balance of this
decade.
Chris-Craft Industries, Inc. (CCN - $41.75 - NYSE), through its 74% ownership of
BHC Communications, Inc. is primarily a television broadcaster. BHC owns and
operates UPN-affiliated TV stations in New York (WWOR), Los Angeles (KCOP) and
Portland (KPTV). BHC also controls over 57% of United Television, Inc., which
operates an NBC affiliate, an ABC affiliate and three UPN affiliates. BHC also
currently owns 100% of United Paramount Network (UPN), but Viacom has an option
to purchase 50% of UPN by January 1997. CCN, with about $1.5 billion in cash and
marketable securities, is strongly positioned to expand its operations. CCN is
the eighth-largest TVstation group owner in the U.S. and covers almost 20% of TV
households.
----------------------
Chris-Craft Industries
----------------------
74% |
----------------------
BHC Communications
----------------------
57% |
----------------------
United Television
----------------------
Deere & Company (DE - $42.00 - NYSE) is the largest manufacturer of farm
equipment in the world. The company's products include tractors and planting,
harvesting and crop handling equipment. With bountiful harvests and strong
prices for corn, soybeans and wheat, farm incomes in 1996 and 1997 should show
substantial increases. Overseas demand for U.S. wheat and other crops should
further boost farm income. With raw material costs under control, Deere's
near-term earnings should be impressive. Long-term prospects for farm equipment
manufacturers like Deere are enhanced as incomes, diets and standards of living
improve overseas. Furthermore, the U.S. government no longer restricts
plantings, so additional land is likely to be cultivated.
GTE Corporation (GTE - $38.50 - NYSE) is the fourth-largest publicly-owned
telecommunications company in the world. The company owns the largest non-Bell
telecommunications system, serving 19 million access lines in 30 states. GTE is
the nation's second-largest provider of cellular services, with a controlling
interest in metropolitan and rural service areas covering more than 50 million
people. Roughly 25% of earnings are derived from non-telephone businesses
growing at more than 20% per year. Chairman Charles Lee is structuring the
company for accelerated growth.
Pittway Corporation (PRY - $42.875 - ASE; PRY'A - $44.625 - ASE) has undergone
significant changes over the past few years, selling or spinning off businesses
representing half its sales volume and over 60% of its income. The company has
two remaining core businesses: manufacturing and distributing professional
burglar and fire alarm equipment and publishing trade magazines and directories.
Its Ademco Security Group, approximately 75% of revenues, is growing rapidly.
Penton Publishing is emerging from years of difficult operating conditions and
operating margins are showing improvement. Pittway is also involved in real
estate and other promising ventures, including a 37% interest in Cylink (Pittway
owns 8.9 million shares), a leading manufacturer of encryption equipment, and a
4.5% equity interest in U.S. Satellite Broadcasting (USSB - $23.25 - NASDAQ)
(Pittway owns 4.2 million shares), a direct-to-the-home (DTH) satellite
broadcast company. PRY has applied for listing of its securities on the New York
Stock Exchange.
Sprint Corporation (FON - $38.875 - NYSE) is the third largest long-distance
carrier and the second largest independent local telephone company in the U.S.
The company completed the spin-off of its cellular unit, 360(degree)
5
<PAGE>
Communications Company (XO - $23.50 NYSE), in March 1996. Sprint has positioned
itself on a global basis through a joint venture with France Telecom/Deutsche
Telekom, which purchased a 20% stake in Sprint (excluding the cellular unit) in
January for $3.5 billion. Our interest in Sprint stems from its promising
national PCS/wireless joint venture with three major cable operators:
Tele-Communications, Inc., Comcast Corporation and Cox Communications, Inc. We
consider FON an interesting value, with the risks from prospective new entrants
in its long distance business being offset by the PCS venture and its own
pursuit of the $100 billion local telephone market.
Telecomunicacoes Brasileiras SA (Telebras) (TBR - $78.50 - NYSE) is the
Brazilian government-controlled monopoly telecommunications holding company
consisting of 28 subsidiaries serving 13.9 million telephone lines and 2.1
million cellular customers in a country with a population of 160 million. The
penetration rate is less than 9% for telephone and 1% for cellular. The stock is
attractively valued at less than four times our estimate of 1996 cash flow.
Future opportunities include the prospects of privatization, strong line growth
and improvements in efficiency. The company is benefiting from an improved rate
structure which allows it to recoup inflation-related cost increases on a more
consistent basis.
Time Warner Inc. (TWX - $37.25 - NYSE), having completed its acquisition of
Turner Broadcasting, is the world's largest diversified media and publishing
company. The combined companies will have more than $21 billion in revenues and
control a host of powerful media brands, such as CNN, Warner Brothers film, HBO,
and Time magazine. Under the leadership of chairman Gerald Levin and
vice-chairman Ted Turner, Time Warner is now focused on reducing debt and
simplifying its capital structure. Achievement of both goals would be greatly
aided by a successful restructuring of the Time Warner Entertainment partnership
with US West Media Group. Further, Time Warner's upcoming holiday film, Space
Jam, starring Michael Jordan and Bugs Bunny, has the potential to be a
blockbuster hit.
United Television, Inc. (UTVI - $96.25 - NASDAQ) is a television broadcasting
company which owns and operates five television stations: one ABC, one NBC and
three UPN affiliates. Its stations cover approximately 6% of the U.S.
population. UTVI is a 57%-owned subsidiary of BHC Communications. Strong
advertising demand, prospects for favorable regulatory changes in the industry
and corporate cost controls will magnify EBITDA growth going forward. Our 1996
PMV is estimated at $120 per share, $23 of which is cash. UTVI's PMV is expected
to approach $200 by the year 2000.
Viacom Inc. (VIA - $35.25 - ASE; VIA'B - $35.50 - ASE), long a major provider of
entertainment "content", has evolved into one of the world's dominant media
companies. Following its acquisitions of Paramount Communications and
Blockbuster Entertainment, the company is now divesting non-core assets to
reduce debt and is focusing on the global expansion of its media franchises. The
company has divested its cable systems subsidiary in a transaction with
Tele-Communications Inc. which has reduced Viacom's debt by $1.7 billion and the
number of common shares outstanding by about 4%. Viacom is well-positioned in
music (notably MTV) and cable networks such as Nickelodeon, USA (50% interest)
and the Sci-Fi Channel.
10% Distribution Policy
The Equity Trust continues to maintain its 10% distribution policy.
Pursuant to this policy, the Equity Trust distributed $0.25 per share on
September 23, 1996. The next payment is scheduled for December. We would now
like to review questions that have been raised by our shareholders.
6
<PAGE>
Dividend Policy - Recast Again in a Q & A Format
HISTORY
Q. Why does the Gabelli Equity Trust pay dividends?
A mutual fund pays dividends to satisfy one of the requirements to qualify
as a Regulated Investment Company. To avoid paying income tax at the corporate
level, a mutual fund, whether open-end or closed-end like the Gabelli Equity
Trust, must distribute at least 90% of its ordinary income and realized capital
gains but will generally distribute all of its income for the year and thereby
act as a conduit. As a Regulated Investment Company, the tax benefits of net
long-term capital gains can be passed through to shareholders.
Q. What is the history of the Equity Trust's dividends?
The Fund paid out only its income and capital gains through 1988. In
August of 1988, in response to the discount which persisted early in the Equity
Trust's life, we instituted our 10% Distribution Policy. Since then, the Equity
Trust has paid distributions equivalent to 10% of its average net assets every
year. The following charts summarize the total distributions made or declared by
the Equity Trust on an aggregate basis and each year since inception. Stated
another way, our Fund has paid out $820.6 million or $11.02 per share from
inception -- an exceptional run considering we started with $374 million on
August 21, 1986.
[The following table was represented by a line graph in the printed material.]
Cumulative Distributions
December 31, 1986 through September 30, 1996
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991(a) 1992(b) 1993(c) 1994(d) 1995(e) 1996(f)
---- ---- ---- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1.082 $1.632 $2.942 $4.122 $5.212 $6.272 $7.382 $9.272 $10.272 $11.02(g)
</TABLE>
Distributions by Year
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991(a) 1992(b) 1993(c) 1994(d) 1995(e) 1996(f)
---- ---- ---- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1.082 $0.55 $1.31 $1.18 $1.09 $1.06 $1.11 $1.89 $1.00 $0.75
</TABLE>
(a) On October 21, 1991, the Fund distributed Rights equivalent to $0.42 per
share upon full subscription of all issued shares.
(b) On September 28, 1992, the Fund distributed Rights equivalent to $0.36 per
share upon full subscription of all issued shares.
(c) On July 14, 1993, the Fund distributed Rights equivalent to $0.50 per
share upon full subscription of all issued shares.
(d) On November 15, 1994, the Fund distributed shares of the Gabelli Global
Multimedia Trust Inc. valued at $0.80625 per GAB share.
(e) On October 19, 1995, the Fund distributed Rights equivalent to $0.37 per
share upon full subscription of all issued shares.
(f) Through September 30, 1996.
(g) Does not include value of rights distributed.
7
<PAGE>
10% DISTRIBUTION POLICY
Q. What are the details of the 10% payout policy?
The Equity Trust currently pays out 10% of its average net asset value per
share. The Fund's normal policy is to make quarterly distributions of $0.25 per
share at the end of each of the first three calendar quarters of each year. The
Fund's distribution in December for each calendar year is an adjusting
distribution. The amount is equal to the greater of 10% of the average of the
net asset value per share of the Fund as of the last day of the four preceding
calendar quarters or the taxable income requirements of the Internal Revenue
Code.
Q. Why did the Fund pay a $0.50 per share distribution in December of 1995?
In 1995 we combined the third and fourth quarter distributions because of
the requirement by the Investment Company Act of 1940 that long-term capital
gains be distributed only once a year. Typically, the Equity Trust has used the
fourth quarter distribution to pay out its realized capital gains. Last year,
however, the fourth quarter dividend amount required to meet the 10% payout
policy would not have been sufficient to include all of the Trust's realized
capital gains, many of which were the result of corporate takeovers. Since the
Fund could not allocate capital gains among its prior quarterly distributions
and to assure that shareholders receive the full tax benefit of all the
long-term capital gains, the Board of Directors voted to combine the September
and year-end distributions.
CAPITAL GAINS AND NON-TAXABLE DISTRIBUTIONS
Q. How will the long-term capital gains be distributed this year and going
forward?
After the 1995 dynamics, your Board of Directors authorized the Fund to
file an exemptive request with the Securities and Exchange Commission to allow
the Fund to distribute long-term capital gains more frequently than once per
year. This exemption was granted on October 15, 1996, and now the Fund can
distribute capital gains up to four times per year. This allows the Directors to
maintain the Fund's regular quarterly distribution schedule and allocate capital
gains to prior quarterly distributions. From a "tax" point of view, the dividend
paid in December may be allocated to prior quarterly distributions within the
year, if necessary.
Q. What did the Fund do with capital gains prior to 1990?
In 1988 and 1989, the Fund elected to retain net realized long-term
capital gains and pay the appropriate taxes thereon. However, we found the
bookkeeping under this procedure cumbersome and in response to our shareholders'
comments, eliminated this practice.
Q. Why are a portion of the distributions sometimes classified as non-taxable
distributions?
In the event the Fund distributes cash over and above net investment
income and realized capital gains for any year, the cash we shareholders receive
may be viewed as a tax-free return of capital. In this instance, shareholders
pay no tax and reduce their cost basis by the amount of the distribution equal
to the return of capital.
8
<PAGE>
DIVIDEND REINVESTMENT
Q. How do I reinvest my dividends?
All directly registered shareholders are eligible to participate in the
Fund's Automatic Dividend Reinvestment Plan which gives the shareholder the
option of having all distributions reinvested. Distributions will be reinvested
automatically unless the shareholder elects to receive cash. Distributions to
shareholders who hold their shares in "street name" with a broker are reinvested
by the broker in additional shares under the plan, unless the election is made
to receive distributions in cash.
Other Q & A
We are not able to cover all questions on dividends in this report, but
you may:
o Call us at (914) 921-5070
o Fax us at (914) 921-5118
o e-mail us at [email protected]
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Mutual Funds, quarterly reports, closing prices, IRAs, 401(k)s and other
current news. You can also send us e-mail at [email protected].
In Conclusion
For the time being, equities investors are basking in the glow of low
inflation, relatively low interest rates, and good, if not great corporate
profits. We remain concerned that inflation will once again rear its ugly head,
making bonds and stocks vulnerable at current levels.
Our opinions on the market remain largely immaterial to the Fund's
investment posture. Cash balances in the portfolio are a function of the
availability of stocks representing good fundamental value. Our level of cash
reserves reflects our belief that there are still numerous value oriented
opportunities of which we will continue to take advantage.
We thank you for your confidence in our investing abilities and wish you a
productive and financially rewarding 1997.
Sincerely,
/s/ Mario J. Gabelli
Mario J. Gabelli
President and Chief Investment Officer
November 1, 1996
Note: The views expressed in this report reflect those of the portfolio manager,
only thorugh the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
9
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
Quarter Ended September 30, 1996
(Unaudited)
Ownership at
September 30,
Shares 1996
-------- -------------
NET PURCHASES
Common Stocks
AirTouch Communications Inc. .................... 5,000 250,000
Aliant Communications Inc. (n)................... 40,000 40,000
American Re Corp. ............................... 20,000 20,000
Archer-Daniels-Midland Co. (a)................... 35,000 165,000
AT&T Corp. ...................................... 20,000 85,000
BBN Corporation ................................. 20,000 100,000
Berliner Bank Aktiengesellschaft (b)............. 270,000 300,000
Cablevision Systems Corporation,
Class A ........................................ 3,000 113,000
Carter-Wallace, Inc. ............................ 9,500 500,000
Coltec Industries Inc. .......................... 48,700 370,000
CUC International Inc. (c)....................... 18,375 18,375
Culbro Corporation .............................. 2,900 30,000
Earl Scheib, Inc. ............................... 2,500 67,500
EG&G Inc. ....................................... 17,500 17,500
EMI Group plc, Sponsored ADR (o)................. 120,000 120,000
Ferro Corporation ............................... 8,000 115,000
Franklin Electric Company........................ 5,000 10,000
GATX Corporation ................................ 5,000 45,000
GenCorp Inc. .................................... 12,000 115,000
General Motors Corporation,
Class H ........................................ 29,000 29,000
Gerber Scientific, Inc. ......................... 20,000 80,000
Giant Food Inc., Class A ........................ 40,000 60,000
Goulds Pumps, Incorporated ...................... 83,000 130,000
Grupo Televisa S.A., GDR......................... 30,000 330,000
Hilton Hotels Corporation (d).................... 300,000 400,000
H&R Block Inc. .................................. 40,000 80,000
Imation Corporation (e).......................... 8,500 8,500
Independent Newspapers plc
ORD (f)......................................... 14,888 99,999
International Family
Entertainment, Inc., Class B.................... 12,000 265,795
ITT Corporation, New ............................ 148,000 250,000
Kaneb Services, Inc. ............................ 30,000 120,000
Liberty Corporation ............................. 3,000 53,000
Loral Space & Communications Ltd. ............... 50,000 120,000
LucasVarity plc (g).............................. 200,000 200,000
Manitowoc Company, Inc. (h)...................... 15,000 55,000
Mirage Resorts, Incorporated (i)................. 50,000 100,000
National Presto Industries, Inc. ................ 1,000 10,000
Navistar International Corporation .............. 100,000 500,000
New World Communications
Group, Inc. .................................... 30,000 30,000
Paxson Communications
Corporation, Class A ........................... 20,000 45,000
Pegasus Gold Inc. ............................... 10,000 80,000
Quaker Oats Company ............................. 17,500 180,000
Sequa Corporation, Class A ...................... 9,500 59,500
Sequa Corporation, Class B ...................... 2,000 50,000
Telecom Argentina Stet-France
Telecom S.A., Sponsored ADR .................... 1,000 5,000
Tele-Communications, Inc., Class A .............. 10,000 472,125
Tele-Communications, Inc./Liberty
Media Group, Class A ........................... 10,000 360,000
Tele-Communications
International, Inc., Class A ................... 15,000 40,000
Thomas Industries Inc. .......................... 7,000 50,000
THORN plc (j).................................... 30,000 30,000
Time Warner Inc. ................................ 10,000 300,000
Tootsie Roll Industries, Inc. ................... 6,000 30,660
Westinghouse Electric Corp. ..................... 20,000 100,000
Common Stock Warrants and Rights
Oriental Press Group,
Warrants, expires 10/02/1998 (k)................ 29,900 29,900
NET SALES
Common Stocks
American Brands, Inc. ........................... 13,000 237,000
Brau und Brunnen ................................ 1,540 10,000
Burlington Resources Inc. ....................... 3,000 110,000
Cincinnati Bell Inc. ............................ 2,000 33,000
Community Health Systems, Inc. (l)............... 191,675 --
Dole Food Company, Inc. ......................... 10,000 30,000
Electronic Data Systems Corp. ................... 25,585 80,000
Golden Books Family
Entertainment, Inc. ............................ 5,000 225,000
IDEX Corporation ................................ 3,200 330,000
International Business Machines
Corporation .................................... 5,000 120,000
Johnson Controls, Inc. .......................... 5,000 100,000
Johnson & Johnson ............................... 5,000 135,000
Lehman Brothers Holdings Inc. ................... 10,000 130,000
Lincoln Telecommunications
Company (n)..................................... 40,000 --
Minnesota Mining and Manufacturing Company....... 15,000 85,000
New York Times Company, Class A ................. 20,000 160,002
Philips Electronics N.V., New York .............. 15,000 30,000
Pittway Corporation, Class A .................... 1,750 462,000
Republic Automotive Parts, Inc. ................. 5,000 20,000
Revco D.S. Inc., New............................. 100,000 --
10
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
Quarter Ended September 30, 1996
(Unaudited)
Ownership at
September 30,
Shares 1996
-------- -------------
NET SALES (Continued)
Common Stocks (Continued)
SBC Communications Inc. ......................... 5,000 170,000
Sierra On-Line, Inc. (c)......................... 15,000 --
Sprint Corporation............................... 15,000 405,000
Stop & Shop Companies, Inc. (m).................. 475,000 --
Tenneco Inc. .................................... 10,000 90,000
THORN EMI plc, Sponsored
ADR (o)......................................... 120,000 --
360(degree)Communications Company ............... 10,000 150,000
Varity Corporation, New (g)...................... 160,000 --
Shares/
Principal
Amount
---------
Corporate Bond
Nortek, Inc., Sr. Sub. Note,
9.875% due 03/01/2004 .......................... $200,000 2,500,000
Common Stock Warrants and Rights
Independent Newspapers plc,
Rights, expires 07/12/1996 (f).................. 17,022 --
- ----------
(a) Stock dividend.
(b) 10 for 1 stock split.
(c) Merger - 1.225 shares of CUC International Inc. for each share of Sierra
On-Line, Inc.
(d) 4 for 1 stock split.
(e) Spinoff - 0.1 shares of Imation Corporation for each share of Minnesota
Mining and Manufacturing Company.
(f) Rights excercised - 0.874632 shares of Independent Newspapers plc ORD for
each Right of Independent Newspapers plc.
(g) Merger - 1.38 shares of LucasVarity plc for each share of Varity
Corporation, New.
(h) 3 for 1 stock split.
(i) 2 for 1 stock split.
(j) Spinoff - 0.25 shares of THORN plc for each share of EMI Group, plc.
(k) Bonus issue - 1 warrant for every 10 shares of Oriental Press Group ORD.
(l) Tendered all shares at $52.00 per share.
(m) Tendered all shares at $33.50 per share.
(n) Name change from Lincoln Telecommunications Company to Aliant Communications
Inc.
(o) Name change from THORN EMI plc, Sponsored ADR to EMI Group plc, Sponsored
ADR.
- --------------------------------
Top Ten Holdings
September 30, 1996
------------------
Chris-Craft Industries, Inc.
United Television, Inc.
American Express Company
Pittway Corporation
Time Warner Inc.
Telecomunicacoes Brasileiras SA
GTE Corporation
Viacom Inc.
Sprint Corporation
Deere & Company
- --------------------------------
11
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS
September 30, 1996 (Unaudited)
Market
Shares Value
------ ------
COMMON STOCKS -- 86.1%
Industrial Equipment And Supplies -- 11.8%
220,000 AMETEK, Inc. ..................................... $ 4,152,500
180,000 Ampco-Pittsburgh Corporation ..................... 2,137,500
30,900 AptarGroup, Inc. ................................. 992,663
7,000 Caterpillar Inc. ................................. 527,625
66,000 CLARCOR Inc. ..................................... 1,443,750
20,000 Cooper Industries, Inc. .......................... 865,000
71,925 Crane Co. ........................................ 3,191,672
75,000 CTS Corporation ................................. 3,159,375
370,000 Deere & Company .................................. 15,540,000
225,000 Donaldson Company, Inc. .......................... 6,215,625
19,125 Duriron Company, Inc. ............................ 506,813
17,500 EG&G Inc. ........................................ 312,813
10,000 Franklin Electric Company ........................ 337,500
29,000 General Motors Corporation, Class H .............. 1,674,750
80,000 Gerber Scientific, Inc. .......................... 1,140,000
130,000 Goulds Pumps, Incorporated + ..................... 2,892,500
240,000 Greif Bros. Corporation, Class A ................. 7,140,000
3,400 Greif Bros. Corporation, Class B (a).............. 101,150
330,000 IDEX Corporation ................................. 10,972,500
35,000 Keystone International, Inc. ..................... 686,875
50,000 Lufkin Industries, Inc. .......................... 1,037,500
55,000 Manitowoc Company, Inc. .......................... 1,766,875
178,500 Mark IV Industries, Inc. ........................ 3,882,375
15,000 Martin Marietta Materials, Inc. .................. 320,625
500,000 Navistar International Corporation + ............. 4,250,000
130,000 Nortek, Inc. + ................................... 1,787,500
5,000 Nortek, Inc., Special Common + (a) ............... 55,000
10,000 PACCAR Inc. ...................................... 547,500
67,500 Pittway Corporation .............................. 2,894,063
462,000 Pittway Corporation, Class A ..................... 20,616,750
20,000 Scientific-Atlanta, Inc. ......................... 317,500
59,500 Sequa Corporation, Class A + ..................... 2,655,187
50,000 Sequa Corporation, Class B + ..................... 2,662,500
84,000 SPS Technologies, Inc. + ......................... 5,313,000
95,000 St. Joe Corp. .................................... 6,056,250
111,250 TransPro Inc. .................................... 890,000
20,000 Watts Industries, Inc., Class A .................. 392,500
--------------
119,435,736
--------------
Telecommunications - 10.8%
40,000 Aliant Communications Inc. ....................... 630,000
85,000 AT&T Corp. ....................................... 4,441,250
100,000 BC TELECOM Inc. .................................. 2,000,661
260,000 BCE Inc. ......................................... 11,115,000
11 BHI Corporation .................................. 206
7,000 British Telecommunications plc,
Sponsored ADR ................................... 391,125
70,000 Cable & Wireless plc, Sponsored ADR .............. 1,461,250
33,000 Cincinnati Bell Inc. ............................. 1,749,000
10,000 Compania de Telecomunicaciones de Chile SA,
Sponsored ADR ................................... 966,250
130,500 C-TEC Corporation + .............................. 3,393,000
30,000 C-TEC Corporation, Class B + ..................... 765,000
425,000 GTE Corporation .................................. 16,362,500
40,000 Hong Kong Telecommunications Ltd., Sponsored ADR 720,000
1,020,000 Jamaica Telephone Ltd. ORD ....................... 95,880
10,000 Maritime Telegraph and Telephone Company, Limited 163,356
12,000 Motorola, Inc. ................................... 619,500
45,000 NYNEX Corporation ................................ 1,957,500
170,000 SBC Communications Inc. .......................... 8,181,250
10,000 Singapore Telecommunications Limited ORD ......... 23,008
405,000 Sprint Corporation ............................... 15,744,375
246,000 STET-Societa Finanziaria Telefonica SpA,
Sponsored ADR ................................... 8,517,750
5,000 Telecom Argentina Stet-France Telecom S.A.,
Sponsored ADR ................................... 201,875
2,500,000 Telecom Italia SpA, ORD .......................... 5,555,555
244,073 Telecomunicacoes Brasileiras SA (Telebras),
Sponsored ADR .................................. 19,159,730
5,927 Telecomunicacoes Brasileiras SA (Telebras),
Sponsored ADR, 144A (c) ........................ 465,270
91,314 Telecomunicacoes de Sao Paulo SA (Telesp) + ...... 15,472
10,000 Telefonica de Argentina S.A., ADR, Class B ....... 248,750
55,000 Telefonica de Espana, Sponsored ADR .............. 3,059,375
20,000 Telefonos de Mexico SA, Class L, ADR ............. 642,500
--------------
108,646,388
--------------
Broadcasting -- 9.0%
8,300 Ackerley Communications, Inc. .................... 277,012
55,000 BHC Communications, Inc., Class A ................ 5,376,250
325,802 Chris-Craft Industries, Inc. ..................... 13,602,234
526,791 Chris-Craft Industries, Inc., Class B (a)......... 21,993,524
330,000 Grupo Televisa S.A., GDR + ....................... 9,528,750
125,000 Havas, Sponsored ADR ............................. 2,012,207
53,000 Liberty Corporation .............................. 1,861,625
7,000 LIN Television Corporation + ..................... 287,000
30,000 New World Communications Group, Inc. ............. 693,750
45,000 Paxson Communications Corporation, Class A + ..... 506,250
100,000 Television Broadcasting Ltd. ORD ................. 371,783
340,000 United Television, Inc. .......................... 32,725,000
100,000 Westinghouse Electric Corp. ...................... 1,862,500
--------------
91,097,885
--------------
12
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
September 30, 1996 (Unaudited)
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Financial Services -- 6.2%
550,000 American Express Company ......................... $ 25,437,500
20,000 American Re Corp. ................................ 1,270,000
24,000 Banco Santander SA, ADR .......................... 1,257,000
260 Berkshire Hathaway Inc., Class A + ............... 8,359,000
300,000 Berliner Bank Aktiengesellschaft ................. 5,992,534
18,000 Commerzbank AG, Sponsored ADR .................... 821,692
150,000 Deutsche Bank AG, Sponsored ADR .................. 7,012,500
13,432 Financial Security Assurance Holdings Ltd. ....... 396,244
25,000 Hibernia Corporation ............................. 284,375
80,000 H&R Block Inc. ................................... 2,380,000
130,000 Lehman Brothers Holdings Inc. .................... 3,315,000
36,300 Midland Company .................................. 1,361,250
12,000 Morgan (J.P.) & Co. Incorporated ................. 1,066,500
60,000 Riggs National Corporation ....................... 997,500
20,000 SunTrust Banks, Inc. ............................. 820,000
45,000 Unitrin, Inc. .................................... 2,216,250
--------------
62,987,345
--------------
Wireless Communications -- 5.0%
250,000 AirTouch Communications Inc. + ................... 6,906,250
100,000 Allen Group Inc. ................................. 1,850,000
67,500 Associated Group, Inc., Class A + ................ 2,143,125
67,500 Associated Group, Inc., Class B + ................ 2,117,813
15,000 BCE Mobile Communications Inc. + ................. 490,070
20,000 Centennial Cellular Corp., Class A + ............. 272,500
175,000 Century Telephone Enterprises, Inc. .............. 6,015,625
110,000 COMSAT Corporation, Series 1 ..................... 2,488,750
120,000 Loral Space & Communications Ltd. + .............. 1,890,000
30,000 NEXTEL Communications, Inc., Class A + ........... 555,000
290,491 Securicor Group plc ORD .......................... 1,232,252
3,500,000 Telecom Italia Mobile SpA ........................ 7,766,289
322,000 Telephone and Data Systems, Inc. ................. 12,960,500
150,000 360(degree)Communications Company + .............. 3,525,000
--------------
50,213,174
--------------
Consumer Products -- 4.4%
237,000 American Brands, Inc. ............................ 10,013,250
500,000 Carter-Wallace, Inc. ............................. 6,187,500
75,000 Church & Dwight Co., Inc. ........................ 1,528,125
18,375 CUC International Inc. ........................... 732,703
30,000 Culbro Corporation + ............................. 1,665,000
10,000 Duracell International Inc. ...................... 641,250
30,000 Eastman Kodak Company ............................ 2,355,000
60,000 First Brands Corporation ......................... 1,567,500
24,000 Gillette Company ................................. 1,731,000
10,000 National Presto Industries, Inc. ................. 376,250
26,715 Park-Ohio Industries, Inc.+ ...................... 387,368
170,000 Ralston Purina Group ............................. 11,645,000
50,000 Scotts Company, Class A + ........................ 962,500
50,000 Tambrands Inc. ................................... 2,106,250
100,000 Whitman Corporation .............................. 2,312,500
--------------
44,211,196
--------------
Entertainment -- 4.2%
25,000 Ascent Entertainment Group Inc. + ................ 593,750
29,000 Bay Meadows Operating Company .................... 576,375
157,500 Gaylord Entertainment Company, Class A ........... 3,563,438
50,000 GC Companies, Inc. + ............................. 1,800,000
10,000 GTECH Holdings Corporation + ..................... 321,250
120,000 EMI Group plc, Sponsored ADR ..................... 2,480,400
12,000 PolyGram NV ...................................... 669,000
300,000 Time Warner Inc. ................................. 11,587,500
67,179 Todd-AO Corporation, Class A ..................... 873,327
30,000 THORN ............................................ 678,750
310,000 Viacom Inc., Class A + ........................... 10,927,500
110,000 Viacom Inc., Class B + ........................... 3,905,000
73,452 Walt Disney Company .............................. 4,655,020
--------------
42,631,310
--------------
Automotive: Parts And Accessories -- 4.1%
34,000 APS Holding Corporation, Class A + ............... 990,250
85,000 Echlin Inc. ...................................... 2,666,875
115,000 GenCorp Inc. ..................................... 1,624,375
110,000 Genuine Parts Company ............................ 4,812,500
225,000 Handy & Harman ................................... 4,021,875
100,000 Johnson Controls, Inc. ........................... 7,500,000
200,000 LucasVarity plc .................................. 7,875,000
320,000 Modine Manufacturing Company ..................... 8,400,000
12,000 Quaker State Corporation ......................... 207,000
20,000 Republic Automotive Parts, Inc. + ................ 350,000
40,000 SPX Corporation .................................. 1,195,000
120,000 Standard Motor Products, Inc. .................... 1,710,000
10,000 Wynn's International, Inc. ....................... 282,500
--------------
41,635,375
--------------
Food And Beverage -- 4.1%
10,000 Brau und Brunnen ................................. 771,498
30,000 Campbell Soup Company ............................ 2,340,000
30,000 Dole Food Company, Inc. .......................... 1,260,000
200,000 Fomento Economico Mexicano SA, ADR ............... 614,000
34,000 General Mills, Inc. .............................. 2,052,750
20,000 Guinness plc, Sponsored ADR ...................... 724,400
45,000 Kellogg Company .................................. 3,099,375
11,000 LVHM Moet Hennessy Louis Vuitton, Sponsored ADR .. 477,812
13
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
September 30, 1996 (Unaudited)
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Food And Beverage (Continued)
400,000 PepsiCo, Inc. .................................... $ 11,300,000
180,000 Quaker Oats Company .............................. 6,592,500
40,000 Ralcorp Holdings, Inc. + ......................... 830,000
100,000 Seagram Company Ltd. ............................. 3,737,500
30,660 Tootsie Roll Industries, Inc. .................... 1,084,598
100,000 Wrigley (Wm.) Jr. Company ........................ 6,025,000
--------------
40,909,433
--------------
Cable -- 3.4%
113,000 Cablevision Systems Corporation, Class A + ....... 4,915,500
40,000 CANAL +, Sponsored ADR............................ 1,967,086
65,000 Comcast Corporation, Class A ..................... 999,375
68,125 Comcast Corporation, Class A Special ............. 1,047,422
30,000 General Instrument Corporation + ................. 742,500
265,795 International Family Entertainment, Inc.,
Class B+ ....................................... 4,352,393
50,000 Shaw Communications Inc., Class B, Conv. ......... 324,878
472,125 Tele-Communications, Inc., Class A + ............. 7,052,367
360,000 Tele-Communications, Inc./Liberty Media Group,
Class A + ...................................... 10,305,000
40,000 Tele-Communications International, Inc., Class A + 605,000
85,000 US WEST Media Group + ............................ 1,434,375
--------------
33,745,896
--------------
Publishing -- 3.0%
225,000 Golden Books Family Entertainment, Inc. + ........ 2,615,625
99,999 Independent Newspapers plc ORD ................... 504,806
24,000 McGraw-Hill Companies, Inc. ...................... 1,023,000
470,000 Media General, Inc., Class A ..................... 14,805,000
80,000 Meredith Corporation ............................. 3,950,000
160,002 New York Times Company, Class A .................. 5,400,068
5,000 News Corporation Limited, ADS .................... 104,375
299,000 Oriental Press Group ORD ......................... 144,995
46,000 Reader's Digest Association, Inc., Class B ....... 1,730,750
200,000 South China Morning Post Holdings ORD ............ 148,713
--------------
30,427,332
--------------
Diversified Industrial -- 2.8%
45,000 GATX Corporation ................................. 2,103,750
150,000 ITT Industries Inc. ............................. 3,618,750
400,000 Lamson & Sessions Co. + .......................... 3,550,000
60,000 Lawter International, Inc. ....................... 682,500
85,000 Minnesota Mining and Manufacturing Company ....... 5,939,375
105,000 National Service Industries, Inc. ................ 3,675,000
90,000 Tenneco Inc. ..................................... 4,511,250
50,000 Thomas Industries Inc. ........................... 968,750
100,000 Trinity Industries, Inc. ......................... 3,337,500
100,000 Tyler Corporation + .............................. 150,000
--------------
28,536,875
--------------
Hotels/Casinos -- 2.8%
400,000 Hilton Hotels Corporation ........................ 11,350,000
250,000 ITT Corporation, New + ........................... 10,906,250
1,000,000 Ladbroke Group plc ............................... 3,279,304
100,000 Mirage Resorts, Incorporated + ................... 2,562,500
--------------
28,098,054
--------------
Business Services -- 2.5%
100,000 BBN Corporation + ................................ 1,712,500
80,000 Electronic Data Systems Corp. .................... 4,910,000
20,000 Honeywell, Inc. .................................. 1,262,500
120,000 International Business Machines Corporation ...... 14,940,000
125,000 Landauer, Inc. ................................... 2,484,375
--------------
25,309,375
--------------
Energy -- 2.0%
34,000 Apache Corporation ............................... 1,011,500
40,000 Atlantic Richfield Company ....................... 5,100,000
52,500 British Petroleum Company plc, ADR ............... 6,562,500
110,000 Burlington Resources Inc. ........................ 4,881,250
10,000 Chevron Corporation .............................. 626,250
25,000 Halliburton Company .............................. 1,290,625
120,000 Kaneb Services, Inc. + ........................... 390,000
50,000 Santa Fe Energy Resources, Inc. + ................ 712,500
--------------
20,574,625
--------------
Aviation: Parts And Services -- 1.8%
70,000 Boeing Co. ...................................... 6,615,000
370,000 Coltec Industries Inc. + ......................... 5,920,000
50,000 Curtiss-Wright Corporation ....................... 2,725,000
145,000 Hi-Shear Industries Inc. + ....................... 362,500
2,500 Moog, Inc., Class A + ............................ 56,250
31,500 Precision Castparts Corp. ........................ 1,527,750
14,000 Rohr Inc. + ...................................... 274,750
--------------
17,481,250
--------------
Retail -- 1.6%
25,000 Crown Books Corporation + ........................ 246,875
67,500 Earl Scheib, Inc. + .............................. 556,875
1,000 Fred Meyer Inc. + ............................... 33,125
90,980 General Host Corporation ........................ 250,195
40,000 Lillian Vernon Corporation ....................... 500,000
420,000 Neiman Marcus Group, Inc. + ...................... 14,805,000
--------------
16,392,070
--------------
14
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
September 30, 1996 (Unaudited)
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Automotive -- 1.5%
285,000 General Motors Corporation ....................... $ 13,680,000
30,000 Harley Davidson, Inc. ............................ 1,290,000
--------------
14,970,000
--------------
Health Care -- 1.4%
18,000 Amgen Inc. + ..................................... 1,136,250
6,500 Biogen, Inc. + ................................... 494,000
135,000 Johnson & Johnson ................................ 6,918,750
24,000 Mallinckrodt Group, Inc. ......................... 999,000
20,000 Pfizer Inc. ...................................... 1,582,500
54,000 Sandoz Ltd., Sponsored ADR ....................... 3,206,250
--------------
14,336,750
--------------
Consumer Services -- 0.9%
450,000 Rollins, Inc. .................................... 9,056,250
--------------
Specialty Chemical -- 0.6%
39,000 E.I. du Pont de Nemours and Company .............. 3,441,750
115,000 Ferro Corporation ................................ 3,105,000
--------------
6,546,750
--------------
Airlines -- 0.6%
82,000 AMR Corporation + ................................ 6,529,250
--------------
Country/Closed-End Funds -- 0.4%
60,263 Central European Equity Fund Inc. ................ 1,167,596
70,000 Emerging Germany Fund Inc. + ..................... 560,000
25,000 France Growth Fund, Inc. ......................... 259,375
34,250 Italy Fund, Inc. ................................. 303,969
72,229 New Germany Fund ................................. 993,149
43,600 Royce Value Trust, Inc. .......................... 550,450
--------------
3,834,539
--------------
Agriculture -- 0.3%
165,000 Archer-Daniels-Midland Co. ....................... 3,176,250
--------------
Electronics -- 0.3%
2,000 Hitachi, Ltd., ADR ............................... 192,750
8,500 Imation Corporation .............................. 208,250
1,500 Matsushita Electric Industrial Co. Ltd., ADR ..... 254,250
1,500 NEC Corp., ADR ................................... 87,563
30,000 Philips Electronics N.V., New York ............... 1,076,250
20,000 Sony Corporation, ADR ............................ 1,272,500
--------------
3,091,563
--------------
Metals And Mining -- 0.2%
15,000 Barrick Gold Corporation ......................... 376,875
20,000 Newmont Gold Company ............................. 947,500
80,000 Pegasus Gold Inc. + .............................. 810,000
10,000 Placer Dome Inc. ................................. 236,250
--------------
2,370,625
--------------
Retail Food And Drug -- 0.2%
60,000 Giant Food Inc., Class A ......................... 2,040,000
--------------
Transportation -- 0.1%
11,000 Florida East Coast Industries, Inc. .............. 907,500
--------------
Real Estate -- 0.1%
74,500 Catellus Development Corporation + ............... 735,688
--------------
TOTAL COMMON STOCKS ............................................. 869,928,484
--------------
PREFERRED STOCKS -- 0.2%
Consumer Products -- 0.1%
34,000 Fieldcrest Cannon, Inc., Series A, 6.000%, Conv.
Pfd., 144A (c) ................................. 1,338,750
--------------
Telecommunications -- 0.1%
15,000 Sprint Corporation, 8.250%, Conv. Pfd. ........... 525,000
2,130,723 Telecomunicacoes de Sao Paulo SA (Telesp),
Pfd., Registered ............................... 409,012
--------------
934,012
--------------
Cable -- 0.0%
8,000 Tele-Communications, Inc., Class B, 6.000%,
Ex. Jr. Pfd. ................................... 485,000
--------------
Diversified Industrial -- 0.0%
3,500 GATX Corporation, 3.875%, Conv. Pfd. ............. 199,500
--------------
TOTAL PREFERRED STOCKS .......................................... 2,957,262
--------------
COMMON STOCK WARRANTS AND RIGHTS -- 0.0%
29,900 Oriental Press Group, Warrants,
expires 10/02/1998+ ............................ 0
--------------
Principal
Amount
---------
CORPORATE BONDS -- 1.4%
Entertainment -- 0.9%
$2,400,000 Time Warner Inc., Deb.,
8.110% due 08/15/2006 .......................... 2,421,000
15
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
September 30, 1996 (Unaudited)
Principal Market
Amount Value
--------- ------
CORPORATE BONDS (Continued)
Entertainment (Continued)
$2,400,000 Time Warner Inc., Deb., 8.180% due 08/15/2007 .... $ 2,427,000
2,000,000 Time Warner Inc., Floating Rate Note,
7.975% due 08/15/2000 .......................... 2,010,000
1,200,000 Time Warner Inc., Note, 7.975% due 08/15/2004 .... 1,206,000
1,575,000 Viacom Inc., Sub. Deb., 8.000% due 07/07/2006 .... 1,472,625
--------------
9,536,625
--------------
Industrial Equipment And Supplies -- 0.3%
2,500,000 Nortek, Inc., Sr. Sub. Note,
9.875% due 03/01/2004 .......................... 2,443,750
--------------
Publishing -- 0.1%
200,000 News American Holdings Incorporated, Gtd. Ex. Sub.
Note, Zero Coupon due 03/31/2002 ............... 176,750
1,000,000 Thomas Nelson Inc., Conv. Sub. Note,
5.750% due 11/30/1999 .......................... 925,000
--------------
1,101,750
--------------
Automotive: Parts And Accessories -- 0.1%
500,000 GenCorp Inc., Conv. Sub. Deb.,
8.000% due 08/01/2002 .......................... 521,875
--------------
Retail -- 0.0%
50,000 General Host Corporation, Class D, Conv. Sub. Note,
8.000% due 02/15/2002 .......................... 39,000
--------------
Broadcasting -- 0.0%
FRF 125,000 Havas, Conv. Bonds, Payment-in-kind,
3.000% due 12/31/1997 .......................... 30,781
--------------
TOTAL CORPORATE BONDS ........................................... 13,673,781
--------------
U.S. TREASURY BILLS -- 11.9%
$21,000,000 4.910% to 5.060%++
due 10/17/1996 - 12/12/1996 (d) ................ 120,683,028
--------------
REPURCHASE AGREEMENT -- 0.8%
$7,662,000 Agreement with Salomon Inc., 5.700%
dated 09/30/1996, to be repurchased at
$7,663,213 on 10/01/1996, collateralized
by $4,966,000 U.S. Treasury Note,
13.250% due 05/15/2014
(value $8,063,997) .............................$ 7,662,000
--------------
TOTAL INVESTMENTS
(Cost $671,125,474)(b)................................ 100.4% $1,014,904,555
OTHER ASSETS AND
LIABILITIES (Net)..................................... (0.4) (4,286,594)
----- --------------
NET ASSETS 100.0% $1,010,617,961
===== ==============
NET ASSET VALUE ($1,010,617,961
/ 103,919,670 shares outstanding) $ 9.72
======
- ----------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Aggregate cost for Federal tax purposes was $671,137,705. Net unrealized
appreciation for Federal tax purposes was $343,766,850 (gross unrealized
appreciation was $360,172,280, gross unrealized depreciation was
$16,405,430)
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
(d) Securities pledged as collateral for futures contracts.
+ Non-income producing security
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt, ADS - American Depositary Share, FRF - French
Franc, GDR - Global Depositary Receipt, ORD - Ordinary Share
FUTURES CONTRACTS - SHORT POSITION
Number of Unrealized
Contracts Depreciation
- --------- --------------
380 S&P 500 Index Futures, December 1996 $ 3,590,250
==============
16
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
Enrollment in the Plan
It is the policy of The Gabelli Equity Trust Inc. ("Equity Trust") to
automatically reinvest dividends. As a "registered" shareholder you
automatically become a participant in the Equity Trust's Automatic Dividend
Reinvestment Plan (the "Plan"). The Plan authorizes the Equity Trust to issue
shares to participants upon an income dividend or a capital gains distribution
regardless of whether the shares are trading at a discount or a premium to net
asset value. All distributions to shareholders whose shares are registered in
their own names will be automatically reinvested pursuant to the Plan in
additional shares of the Equity Trust. Plan participants may send their stock
certificates to State Street Bank and Trust Company ("State Street") to be held
in their dividend reinvestment account. Registered shareholders wishing to
receive their distribution in cash must submit this request in writing to:
The Gabelli Equity Trust Inc.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan may contact State Street at 1 (800)
336-6983.
Shareholders wishing to liquidate reinvested shares held at State Street
Bank must do so in writing or by telephone. Please submit your request to the
above mentioned address or telephone number. Include in your request your name,
address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such transactions.
If your shares are held in the name of a broker, bank or nominee, you
should contact such institution. If such institution is not participating in the
Plan, your account will be credited with a cash dividend. In order to
participate in the Plan through such institution, it may be necessary for you to
have your shares taken out of "street name" and re-registered in your own name.
Once registered in your own name your dividends will be automatically
reinvested. Certain brokers participate in the Plan. Shareholders holding shares
in "street name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of cash dividends is determined in the following manner. Under the
Plan, whenever the market price of the Equity Trust's Common Stock is equal to
or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividends or capital
gains distribution, participants are issued shares of Common Stock valued at the
greater of (i) the net asset value as most recently determined or (ii) 95% of
the then current
17
<PAGE>
market price of the Equity Trust's Common Stock. The valuation date is the
dividend or distribution payment date or, if that date is not a New York Stock
Exchange trading day, the next trading day. If the net asset value of the Common
Stock at the time of valuation exceeds the market price of the Common Stock,
participants will receive shares from the Equity Trust valued at market price.
If the Equity Trust should declare a dividend or capital gains distribution
payable only in cash, State Street will buy Common Stock in the open market, or
on the New York Stock Exchange or elsewhere, for the participants' accounts,
except that State Street will endeavor to terminate purchases in the open market
and cause the Equity Trust to issue shares at net asset value if, following the
commencement of such purchases, the market value of the Common Stock exceeds the
then current net asset value.
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Equity Trust reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of the Plan
at least 90 days before the record date for such dividend or distribution. The
Plan also may be amended or terminated by State Street on at least 90 days'
written notice to participants in the Plan.
Voluntary Cash Purchase Plan
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Equity Trust. In order to
participate in the Voluntary Cash Purchase Plan, shareholders must have their
shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street for investments in the Equity Trust's
shares at the then current market price. Shareholders may send an amount from
$250 to $10,000. State Street will use these funds to purchase shares in the
open market on or about the 15th of each month. State Street will charge each
shareholder who participates $0.75, plus a pro rata share of the brokerage
commissions. Brokerage charges for such purchases are expected to be less than
the usual brokerage charge for such transactions. It is suggested that any
voluntary cash payments be sent to State Street Bank and Trust Company, P.O. Box
8200, Boston, MA 02266-8200 such that State Street receives such payments
approximately 10 days before the 15th of the month. Funds not received at least
five days before the investment date shall be held for investment in the
following month. A payment may be withdrawn without charge if notice is received
by State Street at least 48 hours before such payment is to be invested.
For more information regarding the Dividend Reinvestment Plan and
Voluntary Cash Purchase Plan, brochures are available by calling (914) 921-5070
or by writing directly to the Equity Trust.
18
<PAGE>
[This page intentionally left blank]
<PAGE>
[This page intentionally left blank]
<PAGE>
DIRECTORS AND OFFICERS
THE GABELLI EQUITY TRUST INC.
One Corporate Center, Rye, NY 10580-1434
Directors
Mario J. Gabelli, CFA
Chairman
Dr. Thomas E. Bratter
President, John Dewey Academy
Bill Callaghan
President, Bill Callaghan Associates
Felix J. Christiana
Former Senior Vice President
Dollar Dry Dock Savings Bank
James P. Conn
Managing Director/Chief Investment Officer,
Financial Security Assurance Holdings Ltd.
Karl Otto Pohl
Former President, Deutsche Bundesbank
Anthony R. Pustorino
Certified Public Accountant
Professor, Pace University
Salvatore J. Zizza
Chairman & Chief Executive Officer,
The Lehigh Group, Inc.
Officers
Mario J. Gabelli, CFA
President & Chief Investment Officer
Bruce N. Alpert
Vice President & Treasurer
Marc S. Diagonale
Vice President
James E. McKee
Secretary
Investment Advisor
Gabelli Funds, Inc.
One Corporate Center
Rye, New York 10580-1434
Custodian
Boston Safe Deposit and Trust Company
Counsel
Willkie Farr & Gallagher
Transfer Agent and Registrar
State Street Bank and Trust Company
Stock Exchange Listing
NYSE-Symbol: GAB
Shares Outstanding 103,919,670
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "General Equity Funds," in Saturday's The New York Times and in Monday's
The Wall Street Journal. It is also listed in Barron's Mutual Funds/Closed End
Funds section under the heading "General Equity Funds".
The Net Asset Value may be obtained each day by calling (914) 921-5071.
- ------------------------------------------------
For general information about the Gabelli Funds,
call 1-800-GABELLI (1-800-422-3554), fax us at
914-921-5118, visit Gabelli Funds' Internet
homepage at: http://www.gabelli.com,
or e-mail us at: [email protected]
- ------------------------------------------------
- --------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Equity Trust may from time to time
purchase shares of its capital stock in the open market when the Equity Trust
shares are trading at a discount of 10% or more from the net asset value of the
shares.
- --------------------------------------------------------------------------------
<PAGE>
THE GABELLI EQUITY TRUST INC.
One Corporate Center
Rye, NY 10580-1434
(914) 921-5070
----------------
FIRST CLASS MAIL
U.S. POSTAGE
PAID
RYE, NY
PERMIT No. 109
----------------
Third Quarter Report
September 30, 1996
09/96