Third Quarter Report
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THE GABELLI
EQUITY TRUST INC.
September 30, 1997
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[LOGO]
THE GABELLI
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.
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[Photograph]
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THE GABELLI
EQUITY TRUST INC.
To Our Shareholders,
In the third quarter of 1997, buoyed by low inflation, solid corporate
earnings, and ongoing merger and acquisition activity, stocks posted solid
gains. In the process, the market overcame global currency instability and
attendant concerns regarding the earnings prospects for multi-national consumer
staple companies like Coca-Cola, Gillette, and Proctor and Gamble. As
demonstrated by the Fund's outstanding returns, stock pickers like us were more
than adequately rewarded for our efforts.
During the third quarter ended September 30, 1997, the Gabelli Equity
Trust Inc.'s ("Equity Trust") net asset value per share increased 9.5% to
$11.49, after adjusting for the $0.25 distribution on September 26, 1997. This
compares to the 7.5% return in the unmanaged Standard & Poor's 500 Composite
Stock Price Index ("S&P 500") for the quarter. For the nine months ended
September 30, 1997, the Equity Trust's net asset value increased 26.5% after
adjusting for all distributions. The S&P 500 was up 29.6% for the same period.
Since inception on August 21, 1986 through September 30, 1997, the Equity
Trust's net asset value has achieved a 352.5% total return, which equates to a
14.5% average annual return. The five- and ten-year average annual returns were
16.4% and 13.1%, respectively, versus 20.8% and 14.7% for the S&P 500 for the
same periods.
The Equity Trust's common shares ended the quarter at $10.875 per share on
the New York Stock Exchange, an increase of 10.5% for the quarter. For the nine
months ended September 30, 1997, the common shares are up 24.8%, after adjusting
for all distributions.
Our long-term performance goal is to grow our net asset value by a real
rate of return of 10% per year. In addition, our goal is to have the publically
traded market price track the net asset value. We are tracking both goals.
Shareholder Survey
The Board of Directors and the Adviser of the Gabelli Equity Trust are
interested in your opinions and thoughts. We want to know what our shareholders
are thinking about the operations of the Fund. Specifically, we want your
opinions on the following issues:
1. 10% Distribution Policy - The Equity Trust maintains a 10% Annual
Distribution Policy whereby we pay out 10% of the average net assets each
year. Currently we distribute $0.25 per share in each of the first three
quarters of the year. The fourth quarter distribution is an adjusting
distribution to bring the total to a minimum 10% on average net assets as
defined or as a flow through of all income and capital gains for the year.
Should we continue our 10% Distribution Policy?
2. Rights Offerings - The Equity Trust has had four transferable rights
offerings during its lifetime. In each offering, shareholders were given
the opportunity to purchase additional shares at a discount to the market
price and the net asset value, free of brokerage commissions. In 1993
shareholders overwhelmingly supported rights offerings. Should the Equity
Trust continue to have such rights offerings in the future?
3. Use of Leverage - The Equity Trust is considering an offering of preferred
stock. Any return earned on the incremental assets in excess of the stated
preferred dividend rate would directly benefit the Common Shareholders.
Also, under certain circumstances, preferred stock helps our long-term
holders who hold shares in taxable accounts. The opposite is true if the
returns are less than the stated dividend rate. Are you in favor of the
Equity Trust using this type or any other type of leverage?
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4. Stock Repurchase Plan - The Equity Trust traded at a discount to net asset
value early in its life, particularly after the market correction in 1987.
In response, we were the first company on the New York Stock Exchange to
announce a stock repurchase plan which resulted in the purchase of 800,000
shares in the open market from 1987 to 1988. Should the Trust again
actively deploy a stock repurchase plan?
In regard to these issues, we have included in this quarterly report a
shareholder response card. To provide us with your thoughts, please take a few
moments to answer the questions on the card and mail it back to us.
Your response is very important to us and we value any input that you
provide. Thank you in advance for taking the time to participate.
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What We Do
The success of momentum investing in recent years and investors' desire
for instant gratification have combined to make value investing appear dull. At
the risk of being dull, we will once again describe the "boring" value approach
that has seen us through both good and bad markets over the last 11 years at The
Gabelli Equity Trust and for over 20 years at Gabelli Asset Management Company.
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.
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 world-wide 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.
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 the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
COMMENTARY
Deal Activity Surfaces Value
A component of our investment methodology is to identify industry and
sector trends and themes ahead of the curve and position ourselves to benefit
from these developments. Industry consolidation is one such trend. As we
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have discussed in previous letters, the continued strong activity in mergers and
acquisitions is providing a tailwind to the excellent performance of the Fund
this year. The accompanying tables illustrate how deal activity surfaced value
in a small sample of the portfolio holdings.
1997 Completed Deals
Fund Holding 1997 Closing Date 1997 % Return(a)
------------ ----------------- ----------------
International Family
Entertainment Inc. 9/5 125.4%
Goulds Pumps, Inc. 5/22 60.9%
Culbro Corp. 9/2 48.5%
BBN Corp. 6/9 28.3%
Tambrands Inc. 7/22 22.0%
Percentage Changes through 9/30/97 for Announced Deals
Current Fund Holdings Third Quarter Return(b) Year-to-Date Return(b)
--------------------- ----------------------- ----------------------
Ticketmaster Corp. 36.1% 91.8%
ITT Corp. 24.7% 56.2%
Fieldcrest Cannon Inc. 26.4% 47.8%
Gaylord Entertainment Co. 11.9% 12.8%
LIN Television Corp. 19.3% 10.4%
The Economy and the Stock Market: "Bear Watch"
In view of still favorable economic and investment demographic trends, the
Dow Jones Industrial Average is fairly, if not fully, valued at around 8,000. We
do not see many rampant excesses in the current market, but the margin of safety
is razor thin. As the doctors in charge of your financial health, we are always
looking for things that may cause investor indigestion. Accordingly, we are
keeping a close watch on the following developments that may cause us to change
our economic and market diagnoses.
Inflation Watch
In 1981-82, then President Reagan dealt a knockdown blow to labor by
breaking the air traffic controllers strike. The settlement in the recent UPS
strike may indicate labor is finally getting up off the canvas. Labor represents
about two-thirds of U.S. industries' total costs. If labor is making a comeback,
we may see more inflation than the consensus expects.
Profit Taking
Wall Street was soundly in favor of a reduction in the capital gains tax
rate. Long-term, it is a positive for stocks. However, shorter-term, it may
entice investors to take some profits. Increased profit taking could temporarily
alter the very favorable supply/demand profile stocks have enjoyed for the last
several years.
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(a) Represents changes in share price and dividends paid from December 31,
1996 through the closing date.
(b) Represents changes in share price and dividends paid from the beginning of
the period through September 30, 1997.
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Currency Turmoil - Asian Flu
Thus far, the currency crises in Thailand, the Philippines, Malaysia, and
Singapore have not spread to the Hong Kong dollar, which is the most stable and
critical currency in the region. The same is true in Latin America, where the
recent run on the Brazilian real has failed to upset the Mexican peso. If this
currency virus were to spread further, world-wide stock markets would likely
experience some vertigo.
Stormy Weather
On the food front, El Nino, the unusual weather pattern that threatens
warm, wet weather throughout the U.S. may play havoc with commodities prices. A
late planting season in the Midwest could send food prices higher. A warm winter
throughout the Northern states could send fuel prices lower while oil continues
to be in short-term imbalance on the supply side. This could impact earnings
patterns for companies in a range of industry groups.
Having listed some of the things that could disrupt a still favorable
backdrop for the economy and stock market, let us acknowledge the positives.
Inflation remains restrained. With a historically large spread between inflation
and interest rates along the yield curve, rates could trend down from current
levels. Corporate earnings should grow by 8% to 9% in 1998. We do not believe
price/earnings multiples are likely to expand substantially in the year ahead,
but earnings progress could push the stock market higher. Specific to the Equity
Trust, which owns many smaller companies in attractive niche businesses, the
lower capital gains tax rate should help promote even more deal activity in
smaller firms since family managements will be able to keep more of the proceeds
from any such transactions.
Indexing Revisited
In our first quarter 1997 report, we examined the phenomenon of S&P 500
Index fund investing and its impact on the market. In defending active
management in general and our value style in particular, we voiced two concerns
about S&P 500 indexing. First, that valuations do matter and that the valuations
for the mega-cap growth stocks, which have such a disproportionate influence on
the capitalization weighted S&P, were more than a little rich. Second, that what
goes up the most is most vulnerable to any change in investor perception.
Our concerns were validated in August, when Coca-Cola (KO - $60.9375 -
NYSE) and Gillette (G - $86.3125 - NYSE) plummeted following warnings of
modestly slowing growth. They took a few other large-cap market favorites with
them, dragging the S&P 500 down 5.6% for the month. Broader market indices held
relatively steady in August, with the mid-cap S&P 400 down just 0.1% and the
Russell 2000 gaining 2.3%.
Does this mean investors are abandoning blue chips with bloated valuations
and once again focusing on the kind of fundamental values more readily available
elsewhere? It's too early to tell. Coke, Gillette and many other mega-cap
branded consumer goods companies have bounced off their lows, and despite still
fanciful valuations, could regain momentum. Of importance is that, for the first
time in years, investors got a taste of what can happen to the S&P 500 when
something goes wrong for a few of its heavily weighted component stocks. It may
be more than just a coincidence that in the week ending September 24, there was
a net outflow from S&P 500 Index funds for the first time in two years.
We will continue to preach for our own church. Valuations do matter and,
over time, investors who buy good companies at bargain prices will generate very
attractive returns. Value investors may not outperform momentum players in an
euphoric market environment like 1995-96; they should, however, excel in flat
and down markets. The tortoise and the hare analogy is valid. We know who wins
the race in the end.
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Cable Television Networks: Get Them While They're Hot
When we began accumulating cable television network companies, they were
priced like straw hats in winter. Today, they are hot retail items. Within the
last six months, Fox purchased International Family Entertainment, the Johnson
family and Liberty Media (LBTYA - $29.9375 - NASDAQ) agreed to jointly buy BET
Holdings Inc. (BTV - $52.875 - NYSE), Westinghouse (WX - $27.0625 - NYSE)
announced the acquisition of The Nashville Network and the Country Music Channel
from Gaylord Entertainment (GET - $25.8125 - NYSE), and Seagram's (VO - $35.25 -
NYSE) negotiated the purchase of the other 50% of the USA Network from partner
Viacom (VIA - $31.4375 - ASE). All of these deals are being done at cash flow
multiples in the high teens. With the U.S. Supreme Court upholding "must carry"
rules that require cable systems to air local network programming, entrenched
cable networks are of increasing value to entertainment software producers and
distributors, particularly in a "capacity" constrained cable world.
Most of the smaller independent cable network companies are gone or going
from our portfolio at very nice premiums to our purchase prices. MAY THEY REST
IN PEACE. We still own major cable network operators like Liberty Media (with
stakes in The Discovery Channel, Court TV, Black Entertainment Television, QVC,
Home Shopping Network, Liberty Sports Networks and Time Warner, a
"clearinghouse" of cable network properties), Viacom (MTV, VH1 and Nickelodeon),
Time Warner (TWX - $54.1875 - NYSE) (CNN, CNBC, TNT and the new Cartoon
Channel), Seagram's (soon to be 100% owner of the USA Network) and Cablevision
Systems (CVC - $62.75 - ASE) (Rainbow cable network properties). With the
exception of Liberty Media, these are not pure cable network plays. The relative
success of their other businesses will have a material impact on their stock
prices. However, we do not believe the full value of these companies' cable
network operations are reflected in their current stock prices.
Throwing in the Towel
Fieldcrest Cannon (FLD - $34.50 - NYSE; 6.00% Series A Conv. Pfd. -
$60.00), one of our long- term holdings, is the leading manufacturer of towels
in the U.S. Despite its dominant market share in the towel business, the
company's high debt, low margins and unfocused management put Fieldcrest in Wall
Street's discount sales bin. Always looking for a bargain, we snapped it up
thinking either management would finally figure out how to make money in the
business or someone else would come along and take a crack at it. Indeed, we
calculated that declining cotton prices, more efficient processing of imported
cotton, and better productivity alone would generate $2.00 per share to
Fieldcrest's 1997 earnings.
As is our custom, we were patient with our Fieldcrest investment. Finally,
Texas-based Pillowtex (PTX - $28.50 - NYSE), a leading sheet maker whose success
in the bedroom has encouraged it to expand into the bath, decided to take a
chance on turning Fieldcrest around by offering $34 per share in cash and stock
for the company. At this price, we are happy with Fieldcrest Cannon.
The Cars
Everyone knows the bearish view on the domestic auto makers. The economic
expansion is long of tooth, foreshadowing earnings deceleration for cyclical
industries like the autos. The strong dollar versus the Japanese yen is eroding
pricing advantages and shrinking market share. Increased incentives are pinching
profit margins. Finally, there is still excess world-wide capacity in the auto
industry.
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We believe the short-term bad news is offset by much better than expected
long-term prospects. Going forward, we are not likely to experience the kind of
boom and bust cycles that have traditionally punished cyclical companies during
economic downturns. The auto makers are much more efficiently run today. To wit,
a tougher stance with the unions and outsourcing of parts manufacturing has
reduced inventory and assembly costs considerably. The "Big Three" are in the
pink financially, with enormous "war chests" to cushion themselves from an
industry slowdown and allow them to support stock prices through dividend
increases and share repurchase programs. Additionally, they are becoming more
focused by shedding unrelated assets.
We concede that demand, margins and operating earnings may slacken in the
year ahead. Longer-term, however, we believe the auto makers will surprise on
the upside. We believe General Motors (GM - $66.9375 - NYSE) is the best
investment vehicle. GM can make more progress on the cost cutting front than
Ford (F - $45.125 - NYSE) or Chrysler (C - $36.8125 - NYSE). GM recently
introduced a series of new models which should help it preserve if not gain
market share. GM sold EDS to finance under-funded pension liabilities and is in
the process of selling subsidiary Hughes' defense electronics business to
Raytheon (RTN - $59.125 - NYSE). GM will likely spin-off its promising DirecTV
division to shareholders. GM has a big pile of cash it can use to either raise
its dividend or preferably, repurchase shares to leverage earnings. GM stock is
trading at a price/earnings multiple which fully discounts the bad news and does
not reflect the positive changes in the industry and within the company itself.
The Auto After-market: Coming Together
The auto after-market industry has suffered in recent years as it worked
off an extended inventory glut resulting from the elimination of middlemen in
the distribution system. Today, that excess inventory is largely history. Parts
makers like Echlin (ECH - $35.0625 - NYSE), Standard Motor Products (SMP -
$23.375 - NYSE), and Federal Mogul (FMO - $37.125 - NYSE) and parts retailers
like Genuine Parts (GPC - $30.8125 - NYSE), have all restructured operations.
They are entering a period of very easy earnings comparisons. They do relatively
little foreign business, so they are not subject to the vicissitudes of currency
swings. Finally, they are much less cyclical than most industrial companies.
Yet, they trade at big price/earnings and price/cash flow discounts to the
market. Investors have largely overlooked this industry group. If earnings come
in as strong as we anticipate, it should attract investor attention.
Preferred Stock - Q & A
The Board of Directors of The Gabelli Equity Trust Inc. continues to
consider an offering of preferred stock. The actual amount of capital to be
raised, the dividend rate and the timing of the offering have not been
determined and would be announced at a later date. The proceeds raised would be
used for investment purposes and the offering would be made only by means of a
prospectus. We thought we would revisit some questions about preferred stock.
Q: What is Preferred Stock?
Preferred stock is a form of equity investment which has certain rights
that differ from those of common stock. In our case, the Preferred Stock would
typically be issued at $25 per share with a fixed dividend rate. The Trust is
obligated to pay this dividend to the Preferred Shareholders before any
dividends are paid to the common shares. Thereafter, any return earned in excess
of this dividend rate would work to benefit the Common Shareholders.
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Q: How would Preferred Shares benefit Common Shareholders?
Through September 30, 1997, the Equity Trust has earned a 14.5% average
annual return. The only obligation that the Trust would have to the Preferred
Shareholders is to pay the stated dividend rate. Given the current market
environment, we feel that this is an opportunity to take advantage of relatively
low long-term interest rates and to earn an excess return for our Common
Shareholders consistent with our conservative investment approach. We expect
that the Preferred Shares will be issued with a dividend rate which is less than
the Trust's 14.5% average annual return. Any return earned in excess of the
stated dividend rate would directly benefit Common Shareholders; however, any
shortfall from the stated rate would impact the Common Shareholder in the
opposite fashion. Therefore, by taking advantage of the current relatively low
interest rate environment and achieving our investment objectives, a Preferred
Share issuance offers what we believe is a conservative method of adding wealth
for our Common Shareholders.
Furthermore, Common Shareholders stand to receive certain tax benefits as
a result of a Preferred Stock offering. Since taxable income is allocated to the
Preferred Shareholders before Common Shareholders, taxable distributions to
Common Shareholders would not be required to the extent they would be if the
Preferred Shares were not outstanding. Therefore, Common Shareholders would
avoid having to pay taxes on a larger portion of the 10% payout.
Q: How will the issuance of Preferred Shares affect the 10% Distribution
Policy?
Under present conditions, there are no plans to change the 10%
Distribution Policy. If the Equity Trust were to issue Preferred Shares, the
Board of Directors would continue to review the 10% Policy on a regular basis.
Q: Why is the Equity Trust considering Preferred Shares?
Right now, long-term interest rates are at relatively low levels. The
dividend rate that the Equity Trust would be required to pay on the Preferred
Shares is directly related to long-term rates. In this environment, we have a
great opportunity to create value by earning a return in excess of the
Preferred's dividend rate over the long term. Therefore, we believe this
represents an opportunistic time for the Equity Trust to take advantage of these
low rates.
Let's Talk Stocks
The following are stock specifics on selected holdings of the Equity
Trust. 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 Co. (AXP - $81.875 - 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 charge card and its
travel-related services. Minneapolis-based American Express Financial Advisors
(formerly IDS Financial Services) sells financial products ranging from mutual
funds to annuities. Harvey Golub, Chairman and CEO, has refocused AXP on its
core charge card and investment management businesses. The company has
significantly expanded the range of merchants who welcome its cards and is
slowly gaining market share. Management's objective is virtual parity with
bankcard networks. American Express has joined forces with Microsoft to start an
online corporate travel service. As evidenced by a 15% increase in per share
earnings in 1996, we believe that American Express has been repositioned to
enjoy double digit earnings growth over the balance of this decade.
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BCE Inc. (BCE - $29.875 - NYSE), the holding company for Bell Canada, is
Canada's largest telecommunications company. BCE has controlling interests in
Northern Telecom (NT - $103.9375 -NYSE) and BCEMobile Communications (BCX -
$34.6488 - TSE). There are substantial values in BCE. For example, "behind" each
share of BCE there are 0.2 shares of Northern Telecom. This NT interest, marked
to market, is worth over $20 per BCE share. The company is a possible candidate
for break-up. In the interim, The Canadian Radio and Television Commission is
providing a more attractive operating environment in which BCE is becoming more
competitive.
Chris-Craft Industries Inc. (CCN - $52.6875 - NYSE), through its 78% ownership
of BHC Communications (BHC - $129.50 - ASE), 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 owns 59% of United
Television (UTVI - $104.25 - NASDAQ), which operates an NBC affiliate, an ABC
affiliate and three UPN affiliates. United Television has announced plans to
purchase WRBW, a UPN affiliate in Orlando, for approximately $60 million and
WHSW in Baltimore for $80 million. Chris-Craft's television stations constitute
one of the nation's largest television station groups, reaching approximately
22% of U.S. households. The Chris-Craft complex is debt free and strongly
positioned to expand its operations with roughly $1.6 billion in cash and
marketable securities.
Chris-Craft Industries
78%
BHC Communications
59%
United Television
Deere & Co. (DE - $53.75 - NYSE) is the world's largest manufacturer of farm
equipment. The company's products include tractors and planting, harvesting and
crop handling equipment. With the U.S. government no longer restricting
plantings, additional acreage is likely to be cultivated by the nation's
farmers. Weather permitting, bountiful harvests are likely in 1997, so farm
incomes should show substantial increases. Global demand for U.S. wheat and
other crops should further boost farm income. Long term prospects for farm
equipment manufacturers like Deere are enhanced as incomes, diets and standards
of living improve overseas. Deere makes industrial equipment used in the
construction and forestry industries and a range of consumer products, including
lawn and garden tractors and outdoor power equipment. International sales
account for one-quarter of Deere's revenues.
Media General Inc. (MEG'A - $39.625 - ASE) is a Richmond, VA- based
communications company, publishing 20 daily newspapers throughout the Southeast.
Media General operates fourteen network television stations in Southeastern
markets, including Birmingham, Tampa and Jacksonville and two cable television
systems in Virginia. The relaxation of broadcast station ownership restrictions
provided by The Telecommunications Reform Act of 1996 is driving industry
consolidation and is increasing the franchise values of strong, well-positioned
media properties such as those owned by Media General. The company also produces
newsprint from recycled newspapers. Through its hubris and thirst for "size",
management has neglected its shareholders. We encourage management to stop
overpaying for acquisitions and focus cash flow on stock buy backs.
Navistar International Corp. (NAV - $27.625 - NYSE; Cv. Pfd., Series G) is the
leading North American producer of heavy duty trucks, medium duty trucks and
school buses. The company also manufacturers mid-range, 175 to 300 horsepower,
diesel engines. NAV has a leading 35% share of the medium duty truck market and
an 18% share (#3 in that market) of the heavy duty truck market. NAV
participates in cyclical industries. With the truck industry rebounding, the
company should generate substantial cash flow, which would not be taxed due to
its large (nearly
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$2 billion) tax loss carryforwards. Part of the anticipated increase in cash
flow is likely to be directed to a six-year, $650 million capital spending,
development and production program for the company's "next generation" truck.
Rhone-Poulenc Rorer Inc. (RPR - $96.6875 - NYSE) announced that its majority
shareholder, Rhone-Poulenc SA, made a $4.5 billion ($97 per share) bid to
acquire the 31.7% stake of Rhone-Poulenc Rorer that it does not already own.
Rhone-Poulenc also said it will combine its chemicals and fibers and polymers
activities into an independent company that will be floated on the stock market
in 1998. The plan is the latest in a series of restructurings that have
transformed the global chemical and pharmaceutical industries during the decade.
Driven by a desire to break up conglomerates, most large groups that once
included both chemicals and pharmaceutical businesses have opted to focus on one
activity or the other.
Time Warner Inc. (TWX - $54.1875 - NYSE), having completed its acquisition of
Turner Broadcasting in the fourth quarter of 1996, is the world's largest
diversified media and publishing company. The combined companies have more than
$23 billion in revenues and over $4.5 billion in EBITDA. Together they control a
host of powerful media brands, such as CNN, Warner Brothers, HBO, Cinemax and
Time and People magazines. Under the leadership of Chairman Gerald Levin and
Vice Chairman Ted Turner, Time Warner is now focused on reducing its almost $13
billion in debt and simplifying its capital structure. Cash flow in 1997 is
demonstrating a substantial increase as the companies reap the synergies of
their merged activities.
Telecomunicacoes Brasileiras SA (Telebras) (TBR - $128.75 - NYSE) is the
Brazilian, government-controlled, monopoly telecommunications holding company
consisting of 28 subsidiaries serving more than 14 million telephone lines and
two 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 priced at less than six times our estimate of 1997 cash
flow. Future opportunities include the prospects of privatization, strong line
growth and improvements in efficiency. Telebras is benefiting from an improved
rate structure which allows the company to recoup inflation-related cost
increases on a more consistent basis.
United Television Inc. (UTVI - $104.25 - NASDAQ) is a television broadcasting
company which owns and operates five television stations: one ABC, one NBC and
three UPN affiliates. UTVI has announced plans to purchase WRBW, a UPN affiliate
in Orlando, for approximately $60 million and WHSW in Baltimore for $80 million.
Its stations, including announced acquisitions, will cover approximately 8% of
the U.S. population. UTVI is a 59%-owned subsidiary of BHC Communications (BHC -
$129.50 - ASE). Strong advertising demand, prospects for favorable regulatory
changes in the industry and corporate cost controls will magnify EBITDA growth
going forward. Our 1997 PMV is estimated at $123 per share, $29 of which is
cash. UTVI's PMV is expected to reach $165 by the year 2000.
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 use-mail at closed [email protected].
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10% Distribution Policy
The Equity Trust continues to maintain its 10% Distribution Policy whereby
the Trust pays out 10% of its average net assets each year. Pursuant to this
Policy, the Equity Trust distributed $0.25 per share on September 26, 1997. The
next distribution is scheduled for payment in December 1997.
In Conclusion
Little has changed in the favorable economic backdrop for stocks. That
does not necessarily mean there are not potential problems that could upset the
market apple cart. Barring any unexpected economic dilemmas, stocks should
continue to deliver respectable returns. More important, in our view, the market
is broadening and investors once again appear to be focusing on fundamental
value. Already, strong deal activity is gaining momentum. The capital gains tax
cut should encourage smaller niche companies' "urge to merge" in the year ahead.
We close ever mindful of the potholes that will invariably challenge
equities investors, but remain confident the Fund's portfolio is well-positioned
to endure the long investment journey to your financial success.
As always, we thank you for your confidence in our investing abilities and
will work hard to preserve and enhance the assets you have entrusted to us.
Sincerely,
/s/ Mario J. Gabelli
Mario J. Gabelli
President and Chief Investment Officer
October 25, 1997
- --------------------------------------------------------------------------------
Top Ten Holdings
September 30, 1997
Rhone-Poulenc Rorer, Inc. Telecomunicacoes Brasileiras SA (Telebras)
Chris-Craft Industries, Inc. Deere & Co.
United Television Inc. Media General Inc.
Time Warner Inc. BCE Inc.
American Express Co. Navistar International Corp.
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through 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.
10
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
Quarter Ended September 30, 1997 (Unaudited)
Ownership at
September 30,
Shares 1996
-------- ------------
NET PURCHASES
Common Stocks
Alliance et Gestion................... 9,625 9,325
Antofagasta Holdings plc (a).......... 10,909 70,909
Bruno's Inc........................... 45,000 95,000
Catellus Development Corp............. 5,500 80,000
Caterpillar Inc. (b).................. 7,000 14,000
CheckFree Corp........................ 1,000 1,000
Commercial Union plc.................. 7,000 68,342
Commerzbank AG,
Sponsored ADR....................... 10,000 46,000
CommScope Inc. (c).................... 10,000 10,000
Culligan Water Technologies Inc....... 23,100 23,100
Deutsche Bank AG,
Sponsored ADR....................... 13,000 163,000
Earl Scheib Inc....................... 8,000 78,000
EMI Group plc, Sponsored ADR.......... 11,287 131,287
Federal-Mogul Corp.................... 5,000 10,000
Flowserve Corp. (d)................... 15,000 15,000
Frontec AB............................ 25,000 25,000
GATX Corp............................. 5,000 59,022
Gaylord Entertainment Co.,
Class A............................. 73,000 288,000
General Cigar Holdings Inc. (e)....... 110,000 110,000
Giant Food Inc., Class A.............. 500 227,000
Granada Group plc ORD................. 4,000 54,000
Griffin Land & Nurseries Inc. (m)..... 41,000 41,000
Gucci Group........................... 15,000 15,000
Halliburton Co. (b)................... 25,000 5,000
Hanjaya Mandala Sampoerna............. 25,000 125,000
Harley Davidson Inc. (b).............. 27,000 54,000
Hong Kong & China Gas Co. Ltd......... 50,000 300,000
ITT Corp., New........................ 20,000 240,000
Kellogg Co. (b)....................... 45,000 90,000
Krones AG............................. 900 900
Lavipharm S.A. (f).................... 20,000 70,000
Manitowoc Co. Inc. (g)................ 5,000 35,000
Matsushita Electric Industrial Co.
Ltd., ADR........................... 28,000 29,500
Mattel Inc............................ 5,000 5,000
NextLevel Systems Inc. (h)............ 20,000 20,000
Nintendo Co. Ltd...................... 1,000 4,000
Pennzoil Co........................... 25,000 45,000
Pfizer Inc. (b)....................... 15,000 30,000
Pheonix AG............................ 5,000 55,000
Pittway Corp.......................... 5,200 140,200
ProSieben Media AG.................... 3,750 3,750
Rangold and Exploration Co. Ltd....... 40,000 40,000
Renault SA............................ 28,000 28,000
Rhone-Poulenc Rorer Inc............... 480,700 510,700
Rieter Holding AG..................... 750 750
Roche Holding AG...................... 50 50
SAP AG................................ 800 800
SAS Norske ASA........................ 70,000 70,000
Seat SpA.............................. 99,000 1,599,000
Sequa Corp., Class B.................. 2,500 62,500
SPS Technologies Inc. (b)............. 86,000 170,000
Sun Hung Kai Properties Ltd........... 40,000 75,000
TCI Ventures Group (i)................ 170,985 170,985
Tejas Gas Corp........................ 50,000 50,000
Telecom Argentina Stet-France
Telecom S.A., Sponsored ADR (b)..... 5,000 10,000
TI Group plc.......................... 5,000 5,000
Time Warner Inc....................... 40,000 400,000
Tootsie Roll Industries Inc........... 2,000 43,879
Tyco International Ltd. (k)........... 14,617 14,617
US WEST Media Group................... 70,000 300,000
Worms et Compagnie.................... 10,000 10,000
Wynn's International Inc.............. 5,200 36,000
Preferred Stocks
Sprint Corp., 8.250%, Conv. Pfd....... 25,000 40,000
NET SALES
Common Stocks
AirTouch Communications Inc........... 30,000 220,000
APS Holding Corp., Class A............ 17,000 8,000
Associated Group Inc., Class A........ 1,000 66,500
Associated Group Inc., Class B........ 1,000 66,500
AT&T Corp............................. 5,000 75,000
Bank Negara Indonesia................. 500,000 --
Bayerische Vereinsbank AG............. 21,000 --
BC TELECOM Inc........................ 13,000 87,000
BCE Inc............................... 5,000 555,000
Boeing Co............................. 25,000 110,000
British Telecommunications plc,
Sponsored ADR....................... 1,000 --
Bure Forvalting AB.................... 35,000 --
Burlington Resources Inc.............. 5,000 65,000
Century Telephone Enterprises Inc..... 11,000 164,000
Checkpoint Systems Inc................ 5,000 --
Chris-Craft Industries Inc............ 4,000 331,576
Chris-Craft Industries Inc., Class B.. 7 542,588
Comcast Corp., Class A Special........ 10,000 50,000
COMSAT Corp., Series 1................ 10,000 100,000
CTS Corp.............................. 4,000 75,000
Culbro Corp. (e)...................... 26,000 --
Deere & Co............................ 1,000 354,000
Donaldson Co. Inc..................... 12,000 178,000
Durco International Inc. (d).......... 19,125 --
E.I. du Pont de Nemours and Co........ 14,000 30,000
Echlin Inc............................ 3,000 82,000
Electronic Data Systems Corp.......... 40,000 --
Fortune Brands Inc.................... 5,000 190,000
GenCorp Inc........................... 6,123 140,000
11
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES (Continued)
Quarter Ended September 30, 1997 (Unaudited)
Ownership at
September 30,
Shares 1996
-------- ------------
NET SALES (CONTINUED)
Common Stocks (Continued)
General Host Corp..................... 5,529 90,000
General Instrument Corp. (c) (h)...... 40,000 --
General Motors Corp................... 4,000 246,000
Golden Books Family
Entertainment Inc................... 10,000 215,000
Golden Star Resources Ltd............. 10,000 --
Grupo Televisa S.A., GDR.............. 20,000 305,000
GTE Corp.............................. 15,000 320,000
H&R Block Inc......................... 7,000 50,000
Halter Marine Group Inc............... 20,000 --
Havas, Sponsored ADR.................. 5,000 120,000
Hellenic Telecommunications
Organization S.A. OTE.............. 12,000 48,000
Hilton Hotels Corp.................... 50,000 330,000
Holding di Partecipazioni
Industriali SpA (HPI)............... 470,000 --
Hudson's Bay Co....................... 10,000 --
IDEX Corp............................. 22,000 365,000
Independent Newspapers Plc............ 20,000 --
International Business Machines
Corp. .............................. 115,000 --
International Family Entertainment
Inc., Class B....................... 603,000 --
Johnson & Johnson..................... 8,000 92,000
Johnson Controls Inc.................. 8,000 147,000
Keystone International Inc. (k)....... 35,000 --
Kyokuichi Corp........................ 20,000 --
Lai Sun Development Co., Ltd.......... 300,000 --
Landauer Inc.......................... 5,000 120,000
LucasVarity plc....................... 25,000 40,000
Lucent Technologies Inc............... 4,000 18,000
Mallinckrodt Inc...................... 24,000 --
Mark IV Industries Inc................ 23,250 150,000
Media General Inc., Class A........... 14,500 425,500
Mitsubishi Heavy Industries Ltd....... 48,000 --
Mitsui Engineering &
Shipbuilding Co. Ltd. .............. 120,000 --
Navistar International Corp........... 55,000 600,000
New York Times Co., Class A........... 3,000 87,000
NK Cityfastigheter AB................. 50,000 --
Oriental Holdings Berhad.............. 50,000 --
Pandox Hotellfastigheter AB........... 25,000 --
PepsiCo Inc........................... 20,000 350,000
Pittway Corp., Class A................ 28,000 199,000
Precision Castparts Corp.............. 2,000 23,000
PT Ramayana Lestari Sentosa........... 35,000 115,000
Quaker Oats Co........................ 5,000 245,000
Ralston Purina Group.................. 5,000 145,000
Reynolds & Reynolds Co................ 223,000 --
Shares/ Ownership at
Principal September 30,
Amount 1997
-------- ------------
Rollins Inc........................... 10,000 440,000
Salomon SA............................ 8,500 --
SBC Communications Inc................ 6,000 29,000
Scotts Co., Class A................... 40,000 --
Selecta Group......................... 1,000 --
Singapore Telecommunications
Ltd. ORD............................ 10,000 --
St. Joe Corp.......................... 1,200 89,000
STET-Societa Finanziaria
Telefonica SpA, Sponsored
ADR (j)............................. 190,000 --
Sulzer AG............................. 1,100 --
Tambrands Inc. (l).................... 45,000 --
Tele-Communications Inc.,
Class A............................. 170,985 299,015
Telecom Italia Mobile SpA............. 200,000 1,470,000
Telecom Italia SpA ORD (j)............ 171,560 628,440
Telecomunicacoes Brasileiras SA
(Telebras), Sponsored ADR .......... 15,000 175,000
Telefonica de Espana, Sponsored
ADR................................. 2,000 50,000
Telefonica del Peru S.A............... 110,000 110,000
THORN plc, ADR........................ 30,000 --
Ticketmaster Group Inc................ 20,000 60,000
Trinity Industries Inc................ 15,000 80,000
Unitrin Inc........................... 5,000 35,000
Van Der Horst Ltd..................... 40,000 --
Westinghouse Electric Corp............ 50,000 --
Wrigley (Wm.) Jr. Co.................. 5,000 85,000
Corporate Bond
Time Warner Inc., Floating Rate
Note, 7.975% due 08/15/2000 ........ $2,000,000 --
- ----------
(a) Subscription offer - 2 convertible stock units for 11 shares
(b) 2 for 1 stock split
(c) Spinoff - 1 share of CommScope Inc. for 3 shares of General Instrument
Corp.
(d) Name change from Durco International Inc. to Flowserve Corp.
(e) Merger - 4.45 shares of General Cigar Holdings Inc. for 1 share of Culbro
Corp.
(f) Rights offer - 4 shares for 10 rights held
(g) 2 for 3 stock split
(h) Spinoff - 1 share of NextLevel Systems Inc. for 4 shares of General
Instrument Corp.
(i) Spinoff - 36 shares of TCI Ventures Group for 100 shares of
Tele-Communications Inc., Class A
(j) Merger - 1.8 shares of Telcom Italia SpA ORD for 1 share of STET-Societa
Finanziaria Telefonica SpA, Sponsored ADR
(k) Merger - .487 shares of Tyco International Ltd. for 1 share of Keystone
International Inc.
(l) Tender offer - Tender @ $50 per share
(m) Spinoff - 1 share of Griffin Land & Nurseries Inc. for 1 share of Culbro
Corp.
12
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS
September, 1997 (Unaudited)
Market
Shares Value
------ ------
COMMON STOCKS -- 94.6%
Equipment And Supplies -- 11.4%
25,000 Aeroquip-Vickers Inc.......................... $ 1,225,000
220,000 AMETEK Inc.................................... 5,170,000
180,000 Ampco-Pittsburgh Corp......................... 3,375,000
150,000 Amphenol Corp., Class A+...................... 6,468,750
25,000 AptarGroup Inc................................ 1,398,423
14,000 Caterpillar Inc............................... 755,125
70,000 CLARCOR Inc................................... 2,003,750
75,000 CTS Corp...................................... 7,125,000
23,100 Culligan Water Technologies Inc.+............. 1,062,600
354,000 Deere & Co. (d)............................... 19,027,500
178,000 Donaldson Co. Inc............................. 8,544,000
20,000 EG&G Inc...................................... 413,750
15,000 Flowserve Corp................................ 448,125
10,000 Franklin Electric Co.......................... 560,000
100,000 Gerber Scientific Inc......................... 2,418,750
365,000 IDEX Corp..................................... 12,546,875
50,000 Lufkin Industries Inc......................... 1,531,250
35,000 Manitowoc Co. Inc............................. 1,249,063
150,000 Mark IV Industries Inc........................ 4,031,250
600,000 Navistar International Corp.+................. 16,575,000
20,000 PACCAR Inc.................................... 1,120,000
140,200 Pittway Corp.................................. 8,990,325
199,000 Pittway Corp., Class A ....................... 12,922,563
80,000 Sequa Corp., Class A+......................... 4,610,000
62,500 Sequa Corp., Class B+......................... 3,921,875
170,000 SPS Technologies Inc.+........................ 7,990,000
5,000 TI Group plc.................................. 53,599
20,000 Watts Industries Inc., Class A................ 555,000
---------------
136,092,573
---------------
Telecommunications -- 9.5%
40,000 Aliant Communications Inc..................... 970,000
75,000 AT&T Corp..................................... 3,323,438
87,000 BC TELECOM Inc................................ 2,246,989
555,000 BCE Inc....................................... 16,580,625
70,000 Cable & Wireless plc, Sponsored ADR........... 1,811,250
2,000 Cincinnati Bell Inc........................... 56,875
35,000 Compania de Telecomunicaciones de
Chile SA, Sponsored ADR+.................... 1,133,125
130,500 C-TEC Corp.+.................................. 6,525,000
30,000 C-TEC Corp., Class B+......................... 1,475,625
50 DDI Corp...................................... 251,098
20,000 Frontier Corp................................. 460,000
320,000 GTE Corp. (d)................................. 14,520,000
48,000 Hellenic Telecommunications
Organization S.A. OTE....................... 1,202,150
35,000 Hong Kong Telecommunications Ltd.,
Sponsored ADR............................... 783,125
1,020,000 Jamaica Telephone Ltd. ORD.................... 109,140
10,000 Maritime Telegraph and
Telephone Co. Ltd........................... 214,144
10,000 Motorola Inc.................................. 718,750
70 Nippon Telegraph and Telephone Corp........... 643,905
29,000 SBC Communications Inc........................ 1,779,875
275,000 Sprint Corp. (d).............................. 13,750,000
10,000 Telecom Argentina Stet-France
Telecom S.A., Sponsored ADR................. 304,375
628,440 Telecom Italia SpA ORD........................ 15,311,959
175,000 Telecomunicacoes Brasileiras SA
(Telebras), Sponsored ADR................... 22,531,250
10,000 Telefonica de Argentina S.A.,
ADR, Class B................................ 366,250
50,000 Telefonica de Espana, Sponsored ADR........... 4,706,250
110,000 Telefonica del Peru S.A....................... 257,628
20,000 Telefonos De Mexico SA, Class L, ADR.......... 1,035,000
---------------
113,067,826
---------------
Broadcasting -- 8.9%
50,000 Ackerley Group Inc............................ 903,125
51,400 BHC Communications Inc., Class A+............. 6,656,300
331,576 Chris-Craft Industries Inc.................... 17,469,911
542,588 Chris-Craft Industries Inc., Class B (a)...... 28,587,605
20,500 Gray Communications Systems Inc............... 517,625
305,000 Grupo Televisa S.A., GDR+..................... 10,922,813
55,000 Liberty Corp.................................. 2,488,750
7,000 LIN Television Corp.+......................... 326,375
2,000 NRJ SA........................................ 271,380
2,500 Pathe SA+..................................... 505,255
100,000 Paxson Communications Corp., Class A+......... 1,162,500
3,750 ProSieben Media AG............................ 186,593
100,000 Television Broadcasting Ltd. ORD.............. 354,097
341,000 United Television Inc......................... 35,549,250
---------------
105,901,579
---------------
Financial Services -- 7.5%
305,000 American Express Co. (d)...................... 24,971,875
320,000 Banca Commerciale Italiana.................... 919,503
10,500 Banco Pastor SA............................... 749,146
66,000 Banco Santander SA, ADR....................... 2,153,250
80,000 Bank of Ireland............................... 995,899
120,000 Bank of Scotland.............................. 990,413
260 Berkshire Hathaway Inc., Class A+............. 11,648,000
300,000 Berliner Bank Aktiengesellschaft.............. 7,684,470
68,342 Commercial Union plc.......................... 886,297
46,000 Commerzbank AG, Sponsored ADR................. 1,670,375
13
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
September 30, 1997 (Unaudited)
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Financial Services (Continued)
7,200 Corporacion Mapfre............................ $ 404,207
163,000 Deutsche Bank AG, Sponsored ADR............... 11,359,207
25,000 Dundee Bancorp Inc., Class A+................. 735,214
25,000 Hibernia Corp................................. 425,000
50,000 H&R Block Inc................................. 1,931,250
26,695 HSBC Holdings plc............................. 893,513
16,666 Invik & Co. AB, Class B....................... 812,986
87,000 Lehman Brothers Holdings Inc.................. 4,665,375
39,000 Midland Co.................................... 2,242,500
12,000 Morgan (J.P.) & Co. Inc....................... 1,363,500
6,000 ORIX Corp..................................... 456,451
60,000 Riggs National Corp........................... 1,413,750
12,500 Reuters Holdings plc, Class B,
Sponosred ADR............................... 890,625
7,000 Safra Republic Holdings SA.................... 818,650
20,000 SCOR SA....................................... 864,032
26,000 Skandia Forsakrings AB........................ 1,162,046
35,000 Skandinaviska Enskilda Banken................. 424,528
40,000 State Street Corp............................. 2,437,500
20,000 SunTrust Banks Inc............................ 1,358,750
35,000 Unitrin Inc................................... 2,275,000
---------------
89,603,312
---------------
Health Care -- 5.6%
15,000 Amgen Inc.+................................... 719,063
39,666 Astra AB, Class A............................. 732,144
13,000 Biogen Inc.+.................................. 421,688
40,000 Glaxo Wellcome plc ORD........................ 899,174
92,000 Johnson & Johnson............................. 5,301,500
70,000 Lavipharm S.A................................. 564,314
1,150 Novartis AG, Registered+...................... 1,763,270
54,000 Novartis AG, ADR+............................. 4,161,375
30,000 Pfizer Inc.................................... 1,801,875
510,700 Rhone-Poulenc Rorer Inc....................... 49,378,306
50 Roche Holding AG.............................. 443,482
21,000 Zeneca Group plc+ ............................ 684,319
---------------
66,870,510
---------------
Entertainment -- 4.9%
73,768 Ascent Entertainment Group Inc.+.............. 848,332
40,000 CANAL +, Sponsored ADR........................ 1,424,469
131,287 EMI Group plc, Sponsored ADR.................. 2,321,114
288,000 Gaylord Entertainment Co., Class A............ 7,434,000
60,000 GC Companies Inc.+............................ 2,580,000
54,000 Granada Group plc ORD......................... 762,541
120,000 Havas, Sponsored ADR.......................... 1,980,000
12,000 PolyGram NV................................... 689,250
400,000 Time Warner Inc. (d).......................... 21,675,000
65,000 Todd-AO Corp., Class A........................ 723,125
360,000 Viacom Inc., Class A+......................... 11,317,500
110,000 Viacom Inc., Class B+......................... 3,478,750
40,000 Walt Disney Co................................ 3,225,000
---------------
58,459,081
---------------
Food And Beverage -- 4.7%
18,000 Brau and Brunnen+............................. 1,497,835
200,000 Fomento Economico Mexicano SA,
ADR 144A (c)............................... 1,693,000
450,000 Foster's Brewing Group Ltd.................... 950,632
40,520 General Mills Inc............................. 2,793,348
20,000 Guinness plc, Sponsored ADR................... 943,354
7,000 Hartwall Oy AB................................ 622,016
90,000 Kellogg Co.................................... 3,791,250
11,000 LVHM Moet Hennessy Louis Vuitton,
Sponsored ADR............................... 471,625
700 Nestle SA..................................... 975,110
350,000 PepsiCo Inc. (d).............................. 14,196,875
245,000 Quaker Oats Co................................ 12,341,875
40,000 Ralcorp Holdings Inc.+........................ 747,500
100,000 Seagram Co. Ltd............................... 3,525,000
43,879 Tootsie Roll Industries Inc................... 2,226,859
100,000 Whitman Corp.................................. 2,725,000
85,000 Wrigley (Wm.) Jr. Co.......................... 6,401,563
---------------
55,902,842
---------------
Wireless Communications -- 4.6%
220,000 AirTouch Communications Inc.+................. 7,796,250
66,500 Associated Group Inc., Class A+............... 4,688,250
66,500 Associated Group Inc., Class B+............... 4,621,750
83,000 Centennial Cellular Corp., Class A+........... 1,421,375
164,000 Century Telephone Enterprises Inc............. 7,216,000
100,000 COMSAT Corp., Series 1........................ 2,381,250
100,000 Loral Space & Communications Ltd.+............ 2,062,500
5,000 NEXTEL Communications Inc.,
Class A+.................................... 144,375
250,000 Securicor Group plc ORD....................... 1,088,101
75,000 TCI Satellite Entertainment Inc., Class A+.... 567,188
1,470,000 Telecom Italia Mobile SpA..................... 5,833,502
322,000 Telephone and Data Systems Inc................ 14,490,000
120,000 360(degree)Communications Co.................. 2,505,000
115,000 Vodafone Group plc ORD........................ 616,389
---------------
55,431,930
---------------
Cable -- 4.3%
240,000 Cablevision Systems Corp., Class A+........... 15,060,000
50,000 Comcast Corp., Class A........................ 1,281,250
50,000 Comcast Corp., Class A Special................ 1,287,500
14
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
September 30, 1997 (Unaudited)
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Cable (Continued)
50,000 Shaw Communications Inc.,
Class B, Conv............................... $ 463,014
299,015 Tele-Communications Inc., Class A............. 6,129,808
540,000 Tele-Communications Inc./Liberty
Media Group, Class A+....................... 16,166,250
55,000 Tele-Communications International Inc.,
Class A+.................................... 900,625
170,985 TCI Ventures Group+........................... 3,526,566
300,000 US WEST Media Group+.......................... 6,693,750
---------------
51,508,763
---------------
Consumer Products -- 4.0%
500,000 Carter-Wallace Inc............................ 8,250,000
8,500 Christian Dior SA............................. 1,147,632
75,000 Church & Dwight Co. Inc....................... 2,175,000
650 Compagnie Financiere Richemont AG,
Class A..................................... 846,913
12,000 Eastman Kodak Co.............................. 779,250
57,000 First Brands Corp............................. 1,524,750
190,000 Fortune Brands Inc. (d)....................... 6,400,625
300,000 Gallaher Group plc............................ 5,756,250
110,000 General Cigar Holdings Inc., Class B (a)+..... 3,176,250
15,000 Gucci Group .................................. 703,125
125,000 Hanjaya Mandala Sampoerna..................... 256,459
54,000 Harley Davidson Inc........................... 1,576,125
5,000 Mattel Inc.................................... 165,625
28,000 National Presto Industries Inc................ 1,177,750
4,000 Nintendo Co. Ltd.............................. 381,205
145,000 Ralston Purina Group.......................... 12,832,500
275,000 Swedish Match AB.............................. 877,401
---------------
48,026,860
---------------
Publishing -- 3.7%
30,000 Arnoldo Mondadori Editore SpA+................ 219,332
60,000 Dow Jones & Co. Inc........................... 2,805,000
215,000 Golden Books Family Entertainment Inc.+....... 2,391,875
65,000 Harcourt General Inc. ........................ 3,221,563
203,000 Independent Newspapers Ltd., ORD ............ 1,179,024
50,000 McGraw-Hill Companies Inc..................... 3,384,375
425,500 Media General Inc., Class A................... 16,860,438
160,000 Meredith Corp................................. 5,300,000
87,000 New York Times Co., Class A................... 4,567,500
145,000 News Corp. Ltd., ADR.......................... 821,445
60,000 Pearson plc ORD............................... 757,802
70,000 Publishing & Broadcasting Ltd................. 462,430
15,000 Reader's Digest Association Inc., Class B..... 427,500
50,000 Schibsted A/A................................. 872,699
1,599,000 Seat SpA+..................................... 598,415
200,000 South China Morning Post Holdings ORD......... 182,218
85,000 Star Publication Malaysia..................... 196,502
---------------
44,248,118
---------------
Automotive: Parts And Accessories -- 3.4%
8,000 APS Holding Corp., Class A+................... 70,500
82,000 Echlin Inc.................................... 2,875,125
10,000 Federal-Mogul Corp............................ 371,250
140,000 GenCorp Inc................................... 3,981,250
160,000 Genuine Parts Co.............................. 4,930,000
122,660 Handy & Harman................................ 2,805,848
147,000 Johnson Controls Inc.......................... 7,285,688
40,000 LucasVarity plc............................... 1,517,500
300,000 Modine Manufacturing Co....................... 10,462,500
55,000 Phoenix AG.................................... 1,027,426
10,000 Quaker State Corp............................. 170,625
7,000 SPX Corp...................................... 410,375
120,000 Standard Motor Products Inc................... 2,805,000
110,000 TransPro Inc.................................. 1,196,250
36,000 Wynn's International Inc...................... 1,197,000
---------------
41,106,337
---------------
Hotels/Gaming -- 3.0%
30,000 Aztar Corp.+.................................. 221,250
10,000 GTECH Holdings Corp.+......................... 341,875
330,000 Hilton Hotels Corp. (d)....................... 11,116,875
240,000 ITT Corp., New+............................... 16,260,000
1,016,949 Ladbroke Group plc............................ 4,467,155
100,000 Mirage Resorts Inc.+.......................... 3,012,500
250,000 Sydney Harbour Casino Holdings Ltd.+.......... 352,086
---------------
35,771,741
---------------
Diversified Industrial -- 2.9%
70,909 Antofagasta Holdings plc...................... 470,938
105,000 Crane Co...................................... 4,318,125
59,022 GATX Corp..................................... 3,987,674
20,000 Honeywell Inc................................. 1,343,750
175,000 ITT Industries Inc............................ 5,807,813
900 Krones AG..................................... 371,911
390,000 Lamson & Sessions Co.+........................ 2,998,125
60,000 Lawter International Inc...................... 727,500
100,000 National Service Industries Inc............... 4,393,750
26,715 Park-Ohio Industries Inc.+.................... 407,404
750 Rieter Holding AG............................. 347,566
60,000 Tenneco Inc.+................................. 2,872,500
52,000 Thomas Industries Inc......................... 1,560,000
80,000 Trinity Industries Inc........................ 3,860,000
14,617 Tyco International Ltd........................ 1,199,508
100,000 Tyler Corp.+.................................. 343,750
---------------
35,010,314
---------------
15
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
September 30, 1997 (Unaudited)
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Energy -- 2.6%
34,000 Apache Corp................................... $ 1,457,750
70,000 Atlantic Richfield Co......................... 5,980,625
150,000 British Petroleum Co. plc, ADR................ 9,077,941
65,000 Burlington Resources Inc...................... 3,335,313
10,000 Chevron Corp.................................. 831,875
50,000 Halliburton Co................................ 2,600,000
300,000 Hong Kong & China Gas Co. Ltd................. 618,377
45,000 Pennzoil Co................................... 3,585,938
50,000 Tejas Gas Corp.+.............................. 3,003,125
9,000 Veba AG....................................... 526,025
---------------
31,016,969
---------------
Aviation: Parts And Services -- 1.7%
110,000 Boeing Co..................................... 5,988,125
400,000 Coltec Industries Inc.+....................... 8,650,000
50,000 Curtiss-Wright Corp........................... 3,868,750
145,000 Hi-Shear Industries Inc....................... 280,938
23,000 Precision Castparts Corp...................... 1,495,000
---------------
20,282,813
---------------
Automotive -- 1.5%
246,000 General Motors Corp. (d)...................... 16,466,625
28,000 Renault SA.................................... 830,186
20,000 Toyota Motor Corp............................. 613,243
---------------
17,910,054
---------------
Paper And Forest Products -- 1.4%
252,000 Greif Bros. Corp., Class A.................... 8,190,000
3,400 Greif Bros. Corp., Class B (a)................ 122,400
89,000 St. Joe Corp.................................. 8,811,000
---------------
17,123,400
---------------
Retail -- 1.3%
25,000 Crown Books Corp.+............................ 262,500
78,000 Earl Scheib Inc.+............................. 702,000
1,000 Fred Meyer Inc.+.............................. 53,250
90,000 General Host Corp............................. 320,625
80,300 Lillian Vernon Corp........................... 1,360,081
350,000 Neiman Marcus Group Inc.+..................... 11,200,000
115,000 PT Ramayana Lestari Sentosa+.................. 235,942
100,000 Simint SpA.................................... 822,640
10,425 Syratech Corp.+............................... 359,663
---------------
15,316,701
---------------
Consumer Services -- 1.3%
25,000 CUC International Inc......................... 775,000
20,000 Department 56 Inc.+........................... 578,750
50,000 HSN Inc.+..................................... 2,031,250
440,000 Rollins Inc................................... 10,505,000
60,000 Ticketmaster Group Inc.+...................... 1,395,000
---------------
15,285,000
---------------
Transportation -- 0.9%
80,000 AMR Corp.+.................................... 8,855,000
30,600 MIF Ltd.+..................................... 495,327
70,000 SAS Norske ASA................................ 1,083,835
---------------
10,434,162
---------------
Retail Food And Drug -- 0.9%
70,000 Albertson's Inc............................... 2,441,250
95,000 Bruno's Inc................................... 510,625
227,000 Giant Food Inc., Class A...................... 7,391,688
---------------
10,343,563
---------------
Specialty Chemical -- 0.8%
5,400 Ciba Specialty Chemicals, ADR 144A (c)+....... 260,296
1,000 Clariant AG................................... 804,455
30,000 E.I. du Pont de Nemours and Co................ 1,846,875
165,000 Ferro Corp.................................... 6,300,938
---------------
9,212,564
---------------
Agriculture -- 0.7%
350,000 Archer-Daniels-Midland Co..................... 8,378,125
---------------
Electronics -- 0.7%
45,000 AMP Inc....................................... 2,410,313
57,000 Hitachi Ltd., ADR............................. 654,953
8,500 Imation Corp.+................................ 226,844
29,500 Matsushita Electric Industrial Co.
Ltd., ADR................................... 775,092
36,500 NEC Corp., Sponsored ADR...................... 518,432
12,000 Philips Electronics N.V., New York............ 1,008,000
28,000 Sony Corp., ADR............................... 2,634,530
---------------
8,228,164
---------------
Communications Equipment -- 0.4%
100,000 Allen Telecom Inc.+........................... 2,850,000
10,000 CommScope Inc.+............................... 135,625
18,000 Lucent Technologies Inc....................... 1,464,750
20,000 NextLevel Systems Inc.+....................... 335,000
20,000 Scientific-Atlanta Inc........................ 452,500
---------------
5,237,875
---------------
Real Estate -- 0.4%
80,000 Catellus Development Corp.+................... 1,660,000
11,000 Florida East Coast Industries Inc............. 1,226,500
41,000 Griffin Land & Nurseries Inc.+................ 702,125
16
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
September 30, 1997 (Unaudited)
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Real Estate (Continued)
30,000 Mitsubishi Estate Co Ltd...................... $ 437,557
75,000 Sun Hung Kai Properties Ltd................... 882,011
---------------
4,908,193
---------------
Country/Closed-End Funds -- 0.4%
59,000 Central European Equity Fund Inc.............. 1,519,250
70,000 Emerging Germany Fund Inc..................... 778,750
25,000 France Growth Fund Inc........................ 293,750
34,250 Italy Fund Inc................................ 357,484
70,000 New Germany Fund.............................. 1,098,125
45,942 Royce Value Trust Inc......................... 746,558
---------------
4,793,917
---------------
Business Services -- 0.3%
9,625 Alliance et Gestion........................... 429,930
1,000 CheckFree Corp................................ 21,125
25,000 Frontec AB.................................... 225,778
120,000 Landauer Inc.................................. 3,000,000
800 SAP AG........................................ 205,825
---------------
3,882,658
---------------
Housing Related -- 0.3%
130,000 Nortek Inc.+.................................. 3,371,875
5,000 Nortek Inc., Special Common+.................. 77,500
---------------
3,449,375
---------------
Conglomerates -- 0.3%
85,000 Cheung Kong (Holdings) Ltd.................... 955,673
7,750 Oerlikon-Buhrle Holding AG.................... 1,004,452
75,000 Swire Pacific Ltd., Class A................... 574,276
10,000 Worms et Compagnie............................ 718,903
---------------
3,253,304
---------------
Metals And Mining -- 0.2%
20,000 Newmont Gold Co............................... 922,500
175,000 Pegasus Gold Inc.+............................ 984,375
10,000 Placer Dome Inc............................... 191,250
40,000 Rangold and Exploration Co. Ltd.+............. 155,000
---------------
2,253,125
---------------
Building And Construction -- 0.1%
70,000 CRH plc ORD................................... 793,598
15,000 Martin Marietta Materials Inc................. 540,000
---------------
1,333,598
---------------
TOTAL COMMON STOCKS........................................... 1,129,645,346
---------------
PREFERRED STOCKS -- 0.7%
Telecommunications -- 0.2%
40,000 Sprint Corp., 8.250%, Conv. Pfd............... 1,505,000
2,223,575 Telecomunicacoes de Sao Paulo SA
(Telesp), Pfd., Registered.................. 677,921
---------------
2,182,921
---------------
Consumer Products -- 0.2%
30,000 Fieldcrest Cannon Inc., Series A,
6.000%, Conv. Pfd., 144A (c)................ 1,800,000
---------------
Diversified Industrial -- 0.1%
4,000 KSB AG, Pfd................................... 1,197,815
---------------
Publishing -- 0.1%
43,500 News Corp. Ltd, Sponsored ADR, Pfd............ 780,281
---------------
Automotive -- 0.1%
1,500 Volkswagen AG, Pfd............................ 778,636
---------------
Cable -- 0.0%
8,000 Tele-Communications Inc., Class B,
6.000%, Ex. Jr. Pfd......................... 688,000
---------------
Entertainment -- 0.0%
175,000 Village Roadshow Ltd., Pfd.................... 463,701
---------------
TOTAL PREFERRED STOCKS........................................ 7,891,354
---------------
COMMON STOCK WARRANTS AND RIGHTS -- 0.0%
29,900 Oriental Press Group, Warrants,
expires 10/02/1998+......................... 962
---------------
Principal
Amount
---------
CORPORATE BONDS -- 0.7%
Entertainment -- 0.6%
FRF 125,000 Havas, Conv. Bonds, Payment-in-kind,
3.000% due 12/31/1997....................... 27,222
$ 2,400,000 Time Warner Inc., Deb.,
8.110% due 08/15/2006....................... 2,568,000
2,400,000 Time Warner Inc., Deb.,
8.180% due 08/15/2007....................... 2,589,000
1,200,000 Time Warner Inc., Note,
7.975% due 08/15/2004....................... 1,270,500
---------------
6,454,722
---------------
Publishing -- 0.1%
200,000 News American Holdings Inc., Gtd. Ex. Sub. Note,
Zero Coupon due 03/31/2002.................. 181,750
17
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
September 30, 1997 (Unaudited)
Principal Market
Amount Value
--------- ------
CORPORATE BONDS (Continued)
Publishing (Continued)
$1,000,000 Thomas Nelson Inc., Conv. Sub. Note,
5.750% due 11/30/1999 144A (c).............. $ 1,015,000
---------------
1,196,750
---------------
Food And Beverage -- 0.0%
1,550,000 Flagstar Companies Inc., Conv. Jr.
Sub. Deb., 10.000% due 11/01/2014........... 472,750
---------------
Retail -- 0.0%
50,000 General Host Corp., Class D, Conv. Sub. Note,
8.000% due 02/15/2002...................... 43,375
---------------
TOTAL CORPORATE BONDS......................................... 8,167,597
---------------
U.S. TREASURY BILLS -- 4.1%
49,000,000 5.072%++ due 11/13/1997 (d)................... 48,703,157
REPURCHASE AGREEMENT -- 0.4%
4,733,000 Agreement with Salomon Brothers Inc., 6.05%
dated 09/30/1997, to be repurchased at
$4,733,795 on 10/01/1997, collateralized
by $3,715,000 U.S. Treasury Note, 8.750%
due 05/15/2020 (value $4,832,844)............ 4,733,000
---------------
TOTAL INVESTMENTS
(Cost $672,437,931) (b).......................... 100.5% 1,199,141,416
OTHER ASSETS AND
LIABILITIES (Net)................................ (0.5) (5,452,776)
----- ---------------
NET ASSETS ................................... 100.0% $1,193,688,640
===== ===============
NET ASSET VALUE ($1,193,688,640 /
103,919,670 shares outstanding ).............................. $11.49
=====
FUTURES CONTRACTS - SHORT POSITION
Number of Unrealized
Contracts Depreciation
--------- ------------
290 S&P 500 Index Futures,
December 1997........................... $1,051,250
----------
Notes:
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Aggregate cost for Federal tax purposes was $672,850,072. Net unrealized
appreciation for Federal tax purposes was $526,291,344 (gross unrealized
appreciation was $533,617,366 and gross unrealized depreciation was
$7,326,022).
(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. The market
value of these securities at September 30, 1997 was $4,768,296
representing 0.40% of total net assets.
(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
18
<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 market
19
<PAGE>
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.
20
<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 Adviser
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. FIRST CLASS MAIL
One Corporate Center U.S. POSTAGE
Rye, NY 10580-1434 PAID
(914) 921-5070 RYE, NY
http://www.gabelli.com PERMIT No. 109
----------------
Third Quarter Report
September 30, 1997
GAB 09/97
