Annual Report
[LOGO]
THE GABELLI
EQUITY TRUST INC.
December 31, 1996
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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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To Our Shareholders,
[PHOTO]
MARIO J. GABELLI
[LOGO]
THE GABELLI
EQUITY TRUST INC.
In the fourth quarter of 1996, we experienced one of the most breathtaking
rallies in stock market history. Investors saw the Clinton victory, combined
with the Republicans retaining control of Congress, as the best of all possible
worlds and poured money into equities. Blue chip stocks led the post-election
charge, with the Standard & Poor's 500 Index (S&P 500) and the Dow Jones
Industrial Average (DJIA) surging to record levels. This strong fourth quarter
capped a second great year for U.S. equities, concluding one of the best
two-year periods in history.
During the fourth quarter ended December 31, 1996, the Gabelli Equity Trust
Inc.'s ("Equity Trust") net asset value per share increased 3.2% to $9.77, after
adjusting for the $0.25 distribution on December 27, 1996. This compares to the
8.3% return in the unmanaged Standard & Poor's 500 Composite Stock Price Index
("S&P 500") for the quarter. For the twelve months ended December 31, 1996, the
Equity Trust's net asset value increased 9.0% after adjusting for all
distributions. The S&P 500 was up 23.0% for the same period.
Since inception on August 21, 1986 through December 31, 1996, the Equity
Trust's net asset value has achieved a 257.7% total return, which equates to a
13.1% average annual return. The five- and ten-year average annual returns were
13.0% and 13.5%, respectively.
The Equity Trust's common shares ended the quarter at $9.375 per share on
the New York Stock Exchange, an increase of 4.1% for the quarter. For the twelve
months ended December 31, 1996, the common shares are up 11.0%, after adjusting
for all distributions.
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.
[Pyramid Depicting Investment Philosophy]
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.
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.
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BARRON'S 1997 Roundtable
We thought we would share with you excerpts from BARRON'S 1997 Roundtable
interview with our Chief Investment Officer. Discussion of individual companies
is not necessarily reflective of the Fund's entire portfolio.
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===================================
BARRON'S
ROUNDTABLE
o
MARIO GABELLI
ARCHIE MACALLASTER
JOHN NEFF
MARC PERKINS
MICHAEL PRICE
JIM ROGERS
OSCAR SCHAFER
CARLENE MURPHY ZIEGLER
FELIX ZULAUF
===================================
(the following has been excerpted:)
Playing Themes
Our panelists scour the globe for underappreciated stocks
Barron's 1997 Investment Roundtable features an avalanche of ideas - mega-cap
and micro-, foreign and domestic, straight equity and derivative - about
profitable ways to engage with the markets this year. This first of three
Roundtable installments is a distillation of the mid-section of our marathon
Jan. 6 gabfest. And it's dominated by the four panelists we put on the
stockpicking hot seat during that stretch: Felix Zulauf, Mario Gabelli, Carlene
Ziegler and Mike Price (in the order that we grilled them). But it includes,
too, considerably more than two cents' worth of (frequently contrary) opinions
from the other five stalwarts who graced the table.
The stocks Felix, Mario, Carlene and Mike came prepared to talk about range
from a play on the Polish economy (no kidding) to a little company that's
tearing up the ski slopes; from restructuring stories to consolidation dreams.
Then there's Mario's "Hall of Shame," and even one single solitary short - but
it does encompass an entire market.
So what are they? For all the juicy details, read the Q&A that follows
these brief bios of the knights of the Roundtable who take their stockpicking
turns in this issue.
- Kathryn M. Welling
Mario Gabelli: Iconoclastic, irrepressible, ingenious and indefatigable. The
erstwhile auto analyst from the Bronx is chairman and chief investment officer
of Gamco Inc., the money-management firm otherwise known as Gabelli Asset
Management. Mario is also chairman of Gabelli Funds Inc., the adviser to the
Gabelli family of mutual funds.
PART 1: Outlook on the Economy and Stock Market
Q: Mario, what kind of economy do you see?
Gabelli: Oh, 1997 should be another good year, with GDP up about 2% to 3%. We
talked a year ago about seeing the early part of a global recovery in `97, but
that seems a little further off now. Still, with the currency changes taking
place, you could see a pretty decent economy in the second half in Germany and
France. Hungary, Poland, the Czech Republic are reasonably strong. Latin
America's reasonably good. Southeast Asia, ex-Japan, and the 3.5 billion new
consumers around the world, have a pretty good appetite for American goods.
Overall, the export side of the house - even with the recent strength of the
dollar vis-a-vis the yen and the mark - should be decent. The
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outlook for '98 is not clear. But for '97, I'm in the 2% inflation camp,
trickling up to 3% to 3 1/2% by year-end, and I see long interest rates backed
up to a level of stability around 6 3/4% to 7 1/4%.
Q: Everyone always says that.
Gabelli: No. A year ago, long rates were 6.05%, and I argued they would back up
to 6 1/2% to 6 1/4% - as they have.
Q: Mario, what's in store for the stock market ?
Gabelli: I don't see the market helped by rate changes. Profits, I see up 7%,
more or less. So I don't see any gremlins there, though I watch for them.
Earnings surprises are clearly the wild card for the market. Valuations are not
outrageously high. The flow of funds is incredibly positive. The net inflow into
mutual funds in '96 was about $200 billion, compared with $100 billion net in
'95. Corporate buybacks announced were about $130 billion in '96. Only completed
about $30 billion. But even that is a big number. Corporate dividends were about
$100 billion. There are a couple of other elements. The buying of U.S. stocks by
non-U.S. holders I see accelerating. So I see the money flow into mutual funds
continuing, though it's hard to make the case that it will go up at a higher
incremental rate.
But the big number is not any of those. It is acquisitions. In 1996, we
announced $1 trillion on a global basis, $659 billion in the U.S. So whatever we
see in mutual fund inflows, dividends, buybacks, net foreign investments will be
a paltry number relative to transactions, many of which are for cash.
Q: Isn't that circular? One reason you've had this M&A boom is that the stock
market is so high. If it were to drop off for some reason, mergers would, too.
Gabelli: No. In 1995, there were $200 billion in cash deals, retiring shares and
putting cash in investors' hands. In 1996, I don't have the final number.
Counterbalancing that, last year there was about $48 billion raised in IPOs,
which take cash out of the market and put shares in. And another big chunk of
cash left the U.S. in `95 to go into foreign markets. But that is a loop. In
1997, that flow of funds is still going to be enormously powerful. Deals will be
at an all-time record. Whether, as you saw Gillette do with Duracell, paper will
be swapped for paper, or whether cash is exchanged for paper, it's all recycled.
I would guess the entire world did $1.2 trillion worth of deals in 1996. In
1997, you are going to see more Boeing/McDonnells. Megadeals like Philip Morris
buying Pepsi-Cola. American Express and someone. GTE buying British Telecom.
Q: In any event, is your point that this is going to keep the stock market going
up?
Gabelli: Let me keep going. I don't think 1997 is going to be a year in which
"three-peats" happen. The Lakers and the Celtics and the Bulls may have been
able to do it. But I don't think the market is going to make it three
championship seasons in a row. So 1997, even with its powerful flow of funds,
will not see another big uplift. However, in light of the powerful flow of funds
and all the deal activity, it's going to be a fertile year to get in front of
themes like the consolidations in certain industries.
Q: Utilities?
Gabelli: They're one example. Banks. Brokers. Money managers. There's an
incredible consolidation going on in the money-management business!
Q: Does lightning strike twice?
Gabelli: Hit me!
Q: So it will be a terrible market year except for investors?
Gabelli: I didn't say "terrible." I am not where John is, down 15% to 20%.
Neff: I said zip, though, for the year.
Gabelli: That's where I am, as well, for the whole year. More volatility in the
market. The flow of funds is so powerful that it doesn't allow a material
downdraft from here. At the same time, the places you make money are in
spinoffs, split-ups, corporate transactions. On March 14, 1994, when GE went
after Kemper, I said that signaled a third wave of takeovers. Each year since,
we have seen progressively more, and 1997 is going to be the year of the global
behemoths. Scale economics on a global basis are at work. When you see British
Telecom buying MCI and then you see GTE thinking about buying British Telecom,
it's just phenomenal. The Boeing/McDonnell Douglas and Gillette/Duracell are
just a taste of what you will see. And when you have a stock that's up 20 points
in a day, you're going to say, "Hey, what else can I buy that's going to be
bought?" You are going to have all the speculative fervor of 1986-87, or
1968-69. Whenever Charlie Bluhdorn was around and Jimmy Ling.
Reprinted by Permission.
The views expressed in this article reflect
those of the portfolio manager as of its
writing. The manager's views
are subject to change at any time based on
market and other conditions.
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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 Company (AXP - $56.50 - 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 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 charge card and
investment management businesses. The company has significantly expanded the
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range of merchants who welcome its cards. Management's objective is virtual
parity with bankcard networks. Last July, the company joined forces with
Microsoft to start an 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 - $41.875 - NYSE), through its 76% 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 58% of United Television, Inc., which
operates an NBC affiliate, an ABC affiliate and three UPN affiliates. BHC had
owned 100% of United Paramount Network (UPN), but Viacom exercised its option to
purchase 50% of UPN for $160 million, which is equal to about one-half of UPN's
operating losses to date. With about $1.5 billion in cash and marketable
securities, the Chris-Craft complex is strongly positioned to expand its
operations. CCN's station group covers almost 20% of U.S. TV households.
--------------------------------
Chris-Craft Industries
--------------------------------
76%
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BHC Communications
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58%
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United Television
--------------------------------
Deere & Company (DE - $40.625 - 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, farm income
should show substantial increases in 1997. Global 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. Since the U.S. government no longer
restricts plantings, additional land is likely to be cultivated by the nation's
farmers.
General Motors Corporation (GM - $55.75 - NYSE), the world's largest auto
manufacturer, is materially undervalued. Its North American operations have been
profitable for two years. International profits continue to grow. With Jack
Smith at the helm, GM is improving the style and quality of its cars,
rationalizing its production processes and greatly reducing its costs. The
company is poised to outsource more of its parts, realizing lower labor costs
and better quality components. Peak earnings power is likely to exceed $12 per
share. A reorganization of GM along the lines of ITT and AT&T becomes an
intriguing possibility.
GTE Corporation (GTE - $45.50 - NYSE) is the fourth-largest publicly-owned
telecommunications company in the world. The company owns the largest non-Bell
telecommunications system, serving 20 million access lines in 30 states. GTE is
the nation's fourth-largest provider of wireless services, with a controlling
interest in cellular and personal communications services (PCS) markets covering
more than 60 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 - $52.125 - NYSE; PRY'A - $53.50 - NYSE) 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 (Pittway owns 4.2 million
shares), a direct-to-the-home (DTH) satellite broadcast company. PRY now has its
securities listed on the New York Stock Exchange.
Telecomunicacoes Brasileiras SA (Telebras) (TBR - $76.50 - 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 priced 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 the company to recoup inflation-related cost increases on
a more consistent basis.
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Time Warner Inc. (TWX - $37.50 - 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 U.S. West Media Group. Time Warner's holiday film, Space Jam, starring
Michael Jordan and Bugs Bunny was a hit at the box office.
United Television, Inc. (UTVI - $86.125 - 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 58%-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 $126 per share, $23 of which is cash. UTVI's PMV is expected
to approach $170 by the year 2000.
Viacom Inc. (VIA - $34.50 - ASE; VIA'B - $34.875 - 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.
SHAREHOLDER QUESTIONS AND COMMENTS
Clearly our shareholders want to talk to us. During 1996, we received 4,412
telephone calls, 340 letters and 45 e-mails. The following are common questions
and/or situations that you may have about the Equity Trust. Shareholders who
hold their shares in "Street Name" with a brokerage firm should contact their
broker regarding account specific questions.
When do I write to the Equity Trust?
You may write directly to the Equity Trust at One Corporate Center, Rye, NY
10580-1434. You may also call us directly at (914) 921-5070 or e-mail us at
[email protected]. Marc Diagonale, Vice President, Investor Relations, has
worked with the Equity Trust since May 1994. Prior to that he was a client
services representative for Gabelli & Company, Inc. Marc holds an MBA from New
York University and a B.A. from Georgetown University. Marc is available to
assist you with any questions you may have about the Equity Trust, including the
following:
[PHOTO OF MARC DIAGONALE]
How may I buy more shares?
What has the Equity Trust paid out in dividends?
I have a question about the portfolio/investment style.
How has the Equity Trust performed? What have the returns been?
I have a question about rights offerings.
I have a question about my account value.
I would like a printout of the history of my account.
I have a question about taxes.
I would like my dividend check mailed directly to my bank.
How do I reinvest my dividends?
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
December 27, 1996, bringing the total for the year to $1.00 per share. We would
now like to review specific questions on dividends that have been raised by our
shareholders.
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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 $846.6 million or $11.27 per share from inception --
an exceptional run considering we started with $374 million on August 21, 1986.
[The following table was represented as a line graph in the printed material]
Cumulative Distributions
December 31, 1986 through December 31, 1996
Distributions by Year
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991(a) 1992(b) 1993(c) 1994(d) 1995(e) 1996
---- ---- ---- ---- ------- ------- ------- ------- ------- ----
<S> <C> <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 $1.00
</TABLE>
(a) On October 21, 1991, the Fund distributed Rights equivalent to $0.42 per
share based upon full subscription of all issued shares.
(b) On September 28, 1992, the Fund distributed Rights equivalent to $0.36 per
share based upon full subscription of all issued shares.
(c) On July 14, 1993, the Fund distributed Rights equivalent to $0.50 per share
based 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 based upon full subscription of all issued shares.
(f) Does not include value of rights distributed.
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.
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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 capital
gains earned through 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.
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.
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
If we may borrow former N.Y. Knicks and current Miami Heat coach Pat
Riley's trademarked expression, we don't think the market will "three-peat" in
1997. We see less risk and higher return potential in selected small- and
mid-cap stocks, which are priced much more reasonably than the large cap growth
stocks that benefited most from the "irrational exuberance" that so concerns Fed
Chairman Greenspan. Corporate restructurings of every variety from mergers to
asset sales and spin-offs will provide a tailwind for value oriented investors.
We remind ourselves and our shareholders that investing is not a sprint but
a marathon. The swift hare may shine during many stages. But the tortoise, who
carries the heavy protective shell of fundamental discipline, will triumph in
the end. We will continue to do what we do best: work hard to identify
fundamentally undervalued companies that will, over the long term, provide
consistently attractive investment returns.
Best wishes for a financially successful 1997!
Sincerely,
/s/Mario J. Gabelli
Mario J. Gabelli
President and Chief Investment Officer
February 3, 1997
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.
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THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
Quarter Ended December 31, 1996
(Unaudited)
Shares/ Ownership at
Principal December 31,
Amount 1996
----------- -----------
NET PURCHASES
Common Stocks
Ackerley Communications, Inc. (a) 12,700 21,000
Albertson's, Inc. 50,000 50,000
Automatic Data Processing, Inc. 100,000 100,000
Aztar Corporation 30,000 30,000
Biogen, Inc. (a) 6,500 13,000
Brau und Brunnen 8,000 18,000
Cablevision Systems Corporation,
Class A 66,500 179,500
Centennial Cellular Corp., Class A 63,000 83,000
Coltec Industries Inc. 30,000 400,000
Commerzbank AG, Sponsored
ADR (a) 18,000 36,000
Crane Co. (b) 33,075 105,000
CTS Corporation 5,000 80,000
CUC International Inc. (b) 6,625 25,000
Department 56, Inc. 10,000 10,000
EG&G Inc. 2,500 20,000
El Paso Natural Gas Company (c) 7,440 --
Gaylord Entertainment Company,
Class A 27,500 185,000
Gerber Scientific, Inc. 20,000 100,000
Giant Food Inc., Class A 20,000 80,000
Gray Communications Systems,
Inc 20,500 20,500
HSN, Inc. 24,000 24,000
International Family Entertainment,
Inc., Class B 234,205 500,000
ITT Industries Inc. 10,000 160,000
Liberty Corporation 2,000 55,000
Lillian Vernon Corporation 19,400 59,400
Lucent Technologies Inc. (d) 25,000 25,000
Newport News Shipbuilding Inc. (c) 16,000 16,000
Novartis AG, ADR (e) 54,000 54,000
Paxson Communications
Corporation, Class A 55,000 100,000
Pegasus Gold Inc. 40,000 120,000
Pittway Corporation 21,500 89,000
Quaker Oats Company 5,000 185,000
Royce Value Trust, Inc. (f) 2,342 45,942
Sequa Corporation, Class A 2,500 62,000
TCI Satellite Entertainment Inc.,
Class A (g) 47,000 47,000
Tele-Communications International,
Inc., Class A 10,000 50,000
Thomas Industries Inc. 2,000 52,000
Ticketmaster Group Inc. 55,000 55,000
Tootsie Roll Industries, Inc. 5,000 35,660
TRINOVA Corporation 21,500 21,500
Wynn's International, Inc. 10,000 20,000
Preferred Stock
Fieldcrest Cannon, Inc., Series A,
6.000%, Conv. Pfd. 1,000 35,000
Corporate Bond
Flagstar Corporation, Conv. Jr
Sub. Deb., 10.000%, 11/01/2014 $ 1,550,000 $ 1,550,000
Ownership at
December 31,
Shares 1996
----------- -----------
NET SALES
Common Stocks
American Brands, Inc. 32,000 205,000
American Express Company 205,000 345,000
American Re Corp. 20,000 --
AMR Corporation 2,000 80,000
APS Holding Corporation, Class A 4,000 30,000
AptarGroup, Inc. 1,900 29,000
Archer-Daniels-Midland Co. 100,000 65,000
Ascent Entertainment Group Inc. 10,000 15,000
Atlantic Richfield Company 4,000 36,000
AT&T Corp. 5,000 80,000
Barrick Gold Corporation 15,000 --
Bay Meadows Operating Company 29,000 --
BBN Corporation 12,000 88,000
BCE Inc. 10,000 250,000
British Petroleum Company plc,
ADR 5,500 47,000
British Telecommunications plc,
Sponsored ADR 6,000 1,000
Burlington Resources Inc. 30,000 80,000
Campbell Soup Company (h) 30,000 --
Cincinnati Bell Inc. 32,000 1,000
Deere & Company 15,000 355,000
Dole Food Company, Inc. 30,000 --
Donaldson Company, Inc. 30,000 195,000
Eastman Kodak Company 5,000 25,000
E.I. du Pont de Nemours and
Company 2,000 37,000
Electronic Data Systems Corp. 17,500 62,500
El Paso Natural Gas Company (c) 7,440 --
Financial Security Assurance
Holdings Ltd. 13,432 --
First Brands Corporation 3,000 57,000
General Motors Corporation 15,000 270,000
General Motors Corporation,
Class H 2,000 27,000
Gillette Company 23,000 1,000
Grupo Televisa S.A., GDR 8,000 322,000
GTE Corporation 85,000 340,000
Handy & Harman (i) 102,340 122,660
Harley Davidson, Inc. 3,000 27,000
H&R Block Inc. 20,000 60,000
IDEX Corporation 52,000 278,000
Independent Newspapers plc
ORD 1,999 98,000
International Business Machines
Corporation 60,000 60,000
Johnson Controls, Inc. 26,000 74,000
Johnson & Johnson 35,000 100,000
Kaneb Services, Inc. 120,000 --
Lehman Brothers Holdings Inc. 15,000 115,000
Loral Space & Communications
Ltd 10,000 110,000
LucasVarity plc 81,000 119,000
Manitowoc Company, Inc. 24,000 31,000
Mark IV Industries, Inc. 8,500 170,000
Media General, Inc., Class A 19,200 450,800
8
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES (Continued)
Quarter Ended December 31, 1996
(Unaudited)
Ownership at
December 31,
Shares 1996
----------- -----------
NET SALES (Continued)
Common Stocks (Continued)
Minnesota Mining and
Manufacturing Company 5,000 80,000
Modine Manufacturing Company 10,000 310,000
Motorola, Inc. 2,000 10,000
National Service Industries, Inc. 5,000 100,000
Neiman Marcus Group, Inc. 62,500 357,500
New York Times Company,
Class A 50,002 110,000
NEXTEL Communications, Inc.,
Class A 19,000 11,000
NYNEX Corporation 45,000 --
Pfizer Inc. 5,000 15,000
Philips Electronics N.V.,
New York 15,000 15,000
Pittway Corporation, Class A 184,500 277,500
Quaker State Corporation 2,000 10,000
Ralston Purina Group 13,000 157,000
Reader's Digest Association, Inc.,
Class B 6,000 40,000
Rohr Inc. 2,000 12,000
Sandoz Ltd., Sponsored ADR (e) 54,000 --
SBC Communications Inc. 115,000 55,000
Securicor Group plc ORD 5,491 285,000
Sprint Corporation 85,000 320,000
Shares/ Ownership at
Principal December 31,
Amount 1996
----------- -----------
STET-Societa Finanziaria
Telefonica SpA, Sponsored
ADR 46,000 200,000
St. Joe Corp. 6,000 89,000
Tambrands Inc. 10,000 40,000
Tele-Communications, Inc.,
Class A 2,125 470,000
Telecom Italia Mobile SpA 2,100,000 1,400,000
Telecom Italia SpA ORD 1,700,000 800,000
Telecomunicacoes Brasileiras SA
(Telebras), Sponsored ADR 44,073 200,000
Telefonica de Espana, Sponsored
ADR 1,000 54,000
Tenneco Inc. 10,000 80,000
360(degree)Communications Company 30,000 120,000
Todd-AO Corporation, Class A 2,179 65,000
TransPro Inc. 1,250 110,000
Trinity Industries, Inc. 5,000 95,000
United Television, Inc. 140,000 200,000
Unitrin, Inc. 5,000 40,000
US WEST Media Group 8,000 77,000
Walt Disney Company 8,452 65,000
Corporate Bond
Nortek, Inc., Sr. Sub. Note, 9.875%
due 03/01/2004 $ 2,500,000 --
- ----------
(a) 2 for 1 stock split.
(b) 3 for 2 stock split.
(c) Spinoff - 0.0931 shares of El Paso Natural Gas Company for each share of
Tenneco Inc. 0.20 shares of Newport News Shipbuilding Inc. for each share
of Tenneco Inc.
(d) Spinoff - 0.324084 shares of Lucent Technologies Inc. for each share of
AT&T Corp.
(e) Merger - 1 share of Novartis AG, ADR for each share of Sandoz Ltd.,
Sponsored ADR.
(f) Stock dividend.
(g) Spinoff - 1 share of TCI Satellite Entertainment Inc., Class A for every 10
shares of Tele-Communications, Inc., Class A.
(h) Tendered all shares at $80.00.
(i) Tendered partial shares at $18.75.
- --------------------------------------------------------------------------------
Top Ten Holdings
December 31, 1996
Chris-Craft Industries, Inc. General Motors Corporation
American Express Company Viacom Inc.
Pittway Corporation Telecomunicacoes Brasileiras SA (Telebras)
Time Warner Inc. GTE Corporation
United Television, Inc. Deere & Company
- --------------------------------------------------------------------------------
9
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS
December 31, 1996
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS -- 79.1%
Equipment And Supplies -- 9.4%
220,000 AMETEK, Inc. ...................... $ 3,241,129 $ 4,895,000
180,000 Ampco-Pittsburgh
Corporation ..................... 2,386,035 2,160,000
29,000 AptarGroup, Inc. .................. 422,892 1,022,250
7,000 Caterpillar Inc. .................. 191,305 526,750
66,000 CLARCOR Inc. ...................... 1,202,150 1,460,250
20,000 Cooper Industries, Inc. ........... 774,737 842,500
80,000 CTS Corporation ................... 2,105,071 3,420,000
355,000 Deere & Company ................... 3,412,671 14,421,875
195,000 Donaldson Company, Inc. ........... 2,262,692 6,532,500
19,125 Duriron Company, Inc. ............. 109,331 518,766
20,000 EG&G Inc. ......................... 354,638 402,500
10,000 Franklin Electric Company ......... 322,425 467,500
100,000 Gerber Scientific, Inc. ........... 1,022,407 1,487,500
130,000 Goulds Pumps, Incorporated ........ 2,892,460 2,981,875
278,000 IDEX Corporation .................. 2,702,854 11,085,250
35,000 Keystone International, Inc. ...... 717,913 704,375
50,000 Lufkin Industries, Inc. ........... 908,349 1,250,000
31,000 Manitowoc Company, Inc. ........... 418,753 1,255,500
170,000 Mark IV Industries, Inc. .......... 1,797,298 3,846,250
500,000 Navistar International
Corporation+ .................... 8,191,553 4,562,500
10,000 PACCAR Inc. ....................... 450,000 680,000
89,000 Pittway Corporation ............... 2,086,717 4,639,125
277,500 Pittway Corporation,
Class A ......................... 2,742,808 14,846,250
62,000 Sequa Corporation, Class A+ ....... 2,382,265 2,433,500
50,000 Sequa Corporation, Class B+ ....... 2,346,035 2,500,000
84,000 SPS Technologies, Inc.+ ........... 2,830,863 5,397,000
21,500 TRINOVA Corporation ............... 628,063 782,063
20,000 Watts Industries, Inc.,
Class A 415,830 477,500
----------- -----------
49,319,244 95,598,579
----------- -----------
Telecommunications -- 8.8%
40,000 Aliant Communications Inc. ........ 593,225 680,000
80,000 AT&T Corp. ........................ 2,663,612 3,480,000
100,000 BC TELECOM Inc. ................... 1,788,094 2,164,944
250,000 BCE Inc. .......................... 9,161,230 11,937,500
11 BHI Corporation ................... 176 219
1,000 British Telecommunications
plc, Sponsored ADR .............. 64,346 68,625
70,000 Cable & Wireless plc,
Sponsored ADR ................... 1,723,750 1,453,923
1,000 Cincinnati Bell Inc. .............. 16,050 61,375
10,000 Compania de
Telecomunicaciones
de Chile SA,
Sponsored ADR+ .................. 719,250 1,011,250
130,500 C-TEC Corporation+ ................ 2,643,433 3,164,625
30,000 C-TEC Corporation,
Class B+ ........................ 463,817 712,500
340,000 GTE Corporation ................... 6,626,834 15,470,000
40,000 Hong Kong
Telecommunications
Ltd., Sponsored ADR ............. 693,550 650,000
1,020,000 Jamaica Telephone Ltd. ............
ORD ............................. 101,641 110,160
10,000 Maritime Telegraph and
Telephone Company,
Limited ......................... 162,919 177,430
10,000 Motorola, Inc. .................... 188,125 613,750
55,000 SBC Communications Inc. ........... 968,645 2,846,250
10,000 Singapore Telecommunications
Limited ORD ..................... 23,114 23,583
320,000 Sprint Corporation ................ 3,562,520 12,760,000
200,000 STET-Societa Finanziaria
Telefonica SpA,
Sponsored ADR ................... 4,102,845 8,875,000
5,000 Telecom Argentina Stet-France
Telecom S.A.,
Sponsored ADR ................... 227,333 201,875
800,000 Telecom Italia SpA ORD ............ 946,214 2,077,785
200,000 Telecomunicacoes
Brasileiras SA (Telebras),
Sponsored ADR ................... 3,505,504 15,300,000
5,927 Telecomunicacoes
Brasileiras SA (Telebras),
Sponsored ADR, 144A (c) ......... 333,613 453,415
91,314 Telecomunicacoes
de Sao Paulo SA (Telesp)+ ....... 14,675 19,738
10,000 Telefonica de Argentina S.A.,
ADR, Class B .................... 274,045 258,750
54,000 Telefonica de Espana,
Sponsored ADR ................... 1,844,599 3,739,500
20,000 Telefonos De Mexico SA,
Class L, ADR .................... 733,042 660,000
------------ ------------
43,876,374 89,242,024
------------ ------------
Broadcasting -- 7.3%
21,000 Ackerley Communications,
Inc ............................. 212,550 246,750
55,000 BHC Communications, Inc.,
Class A+ ........................ 3,000,947 5,575,625
325,802 Chris-Craft Industries, Inc. ...... 4,690,339 13,642,959
526,791 Chris-Craft Industries, Inc.,
Class B (a) ..................... 8,836,324 22,059,373
20,500 Gray Communications
Systems, Inc. ................... 377,899 386,938
322,000 Grupo Televisa S.A., GDR+ ......... 6,952,008 8,251,250
55,000 Liberty Corporation ............... 1,613,322 2,158,750
7,000 LIN Television Corporation+ ....... 148,927 295,750
30,000 New World Communications
Group Incorporated,
Class A+ ........................ 656,340 757,500
100,000 Paxson Communications
Corporation, Class A+ ........... 1,082,125 787,500
100,000 Television Broadcasting
Ltd. ORD ........................ 396,239 399,509
200,000 United Television, Inc. ........... 5,382,153 17,225,000
100,000 Westinghouse Electric Corp. ....... 1,699,337 1,987,500
------------ ------------
35,048,510 73,774,404
------------ ------------
Financial Services -- 5.5%
345,000 American Express Company .......... 6,048,167 19,492,500
24,000 Banco Santander SA, ADR ........... 1,024,016 1,524,000
See Notes to Financial Statements.
10
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
Financial Services (Continued)
260 Berkshire Hathaway Inc.,
Class A+ ........................ $ 824,299 $ 8,866,000
300,000 Berliner Bank
Aktiengesellschaft .............. 6,004,015 5,458,621
36,000 Commerzbank AG,
Sponsored ADR ................... 715,317 909,000
150,000 Deutsche Bank AG,
Sponsored ADR ................... 6,224,445 6,825,000
25,000 Hibernia Corporation .............. 198,750 331,250
60,000 H&R Block Inc. .................... 1,737,915 1,740,000
115,000 Lehman Brothers
Holdings Inc. ................... 2,612,593 3,608,125
36,300 Midland Company ................... 1,133,208 1,397,550
12,000 Morgan (J.P.) & Co. ...............
Incorporated .................... 752,350 1,171,500
60,000 Riggs National Corporation ........ 552,538 1,035,000
20,000 SunTrust Banks, Inc. .............. 419,333 985,000
40,000 Unitrin, Inc. ..................... 1,349,673 2,230,000
------------ ------------
29,596,619 55,573,546
------------ ------------
Entertainment -- 4.4%
15,000 Ascent Entertainment Group
Inc.+ ........................... 225,000 241,875
40,000 CANAL+, Sponsored ADR ............. 1,355,000 1,766,474
120,000 EMI Group plc, Sponsored
ADR ............................. 1,363,258 2,848,800
185,000 Gaylord Entertainment
Company, Class A ................ 4,384,515 4,231,875
50,000 GC Companies, Inc.+ ............... 952,487 1,731,250
125,000 Havas, Sponsored ADR .............. 2,399,506 2,140,625
12,000 PolyGram NV ....................... 315,663 597,000
300,000 Time Warner Inc. .................. 8,272,826 11,250,000
65,000 Todd-AO Corporation,
Class A ......................... 177,273 666,250
310,000 Viacom Inc., Class A+ ............. 4,260,108 10,695,000
110,000 Viacom Inc., Class B+ ............. 2,753,953 3,836,250
65,000 Walt Disney Company ............... 2,728,666 4,525,625
------------ ------------
29,188,255 44,531,024
------------ ------------
Wireless Communications -- 4.1%
250,000 AirTouch Communications
Inc.+ ........................... 5,741,806 6,312,500
67,500 Associated Group, Inc.,
Class A+ ........................ 354,616 2,075,625
67,500 Associated Group, Inc.,
Class B+ ........................ 354,616 2,008,125
15,000 BCE Mobile Communications
Inc.+ ........................... 435,205 444,671
83,000 Centennial Cellular Corp.,
Class A+ ........................ 1,027,570 1,006,375
175,000 Century Telephone
Enterprises, Inc. ............... 947,557 5,403,125
110,000 COMSAT Corporation,
Series 1 ........................ 2,150,688 2,708,750
110,000 Loral Space &
Communications Ltd.+ ............ 1,360,188 2,021,250
11,000 NEXTEL Communications,
Inc., Class A+ .................. 175,378 143,688
285,000 Securicor Group plc ORD ........... 644,534 1,364,134
47,000 TCI Satellite Entertainment
Inc., Class A+ .................. 625,036 464,125
1,400,000 Telecom Italia Mobile SpA ......... 1,294,732 3,539,222
322,000 Telephone and Data Systems,
Inc ............................. 3,135,658 11,672,500
120,000 360(degree) Communications
Company ......................... 946,701 2,775,000
------------ ------------
19,194,285 41,939,090
------------ ------------
Consumer Products -- 4.1%
205,000 American Brands, Inc. ............. 7,666,703 10,173,125
500,000 Carter-Wallace, Inc. .............. 7,175,843 7,812,500
75,000 Church & Dwight Co., Inc. ......... 1,605,940 1,715,625
30,000 Culbro Corporation+ ............... 926,938 1,946,250
10,000 Duracell International Inc.+ ...... 271,927 698,750
25,000 Eastman Kodak Company ............. 1,482,489 2,006,250
57,000 First Brands Corporation .......... 735,613 1,617,375
1,000 Gillette Company .................. 28,025 77,750
27,000 Harley Davidson, Inc. ............. 270,075 1,269,000
10,000 National Presto
Industries, Inc. ................ 365,078 373,750
157,000 Ralston Purina Group .............. 5,830,066 11,519,875
50,000 Scotts Company, Class A+ .......... 833,295 993,750
40,000 Tambrands Inc. .................... 1,584,890 1,635,000
------------ ------------
28,776,882 41,839,000
------------ ------------
Food And Beverage -- 4.0%
18,000 Brau und Brunnen+ ................. 2,570,926 1,223,511
200,000 Fomento Economico
Mexicano SA, ADR ................ 607,500 676,000
34,000 General Mills, Inc. ............... 729,062 2,154,750
20,000 Guinness plc, Sponsored
ADR ............................. 729,363 724,400
45,000 Kellogg Company ................... 2,393,384 2,953,125
11,000 LVHM Moet Hennessy
Louis Vuitton,
Sponsored ADR ................... 416,625 616,000
400,000 PepsiCo, Inc. ..................... 10,265,756 11,700,000
185,000 Quaker Oats Company ............... 5,877,565 7,053,125
40,000 Ralcorp Holdings, Inc.+ ........... 1,737,776 845,000
100,000 Seagram Company Ltd. .............. 2,713,688 3,875,000
35,660 Tootsie Roll Industries, Inc. ..... 1,207,302 1,413,028
100,000 Whitman Corporation ............... 1,082,376 2,287,500
100,000 Wrigley (Wm.) Jr. Company ......... 4,409,114 5,625,000
------------ ------------
34,740,437 41,146,439
------------ ------------
Automotive: Parts And Accessories -- 3.6%
30,000 APS Holding Corporation,
Class A+ ........................ 465,000 465,000
85,000 Echlin Inc. ....................... 2,034,174 2,688,125
115,000 GenCorp Inc. ...................... 1,466,312 2,084,375
110,000 Genuine Parts Company ............. 4,078,485 4,908,750
122,660 Handy & Harman .................... 1,851,765 2,146,550
74,000 Johnson Controls, Inc. ............ 2,106,277 6,132,750
119,000 LucasVarity plc ................... 1,970,449 4,522,000
310,000 Modine Manufacturing
Company ......................... 3,235,639 8,292,500
10,000 Quaker State Corporation .......... 142,637 141,250
See Notes to Financial Statements.
11
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
Automotive: Parts And Accessories (Continued)
20,000 Republic Automotive
Parts, Inc.+ .................... $ 149,858 $ 337,500
40,000 SPX Corporation ................... 866,937 1,550,000
120,000 Standard Motor Products,
Inc ............................. 818,500 1,665,000
110,000 TransPro Inc. ..................... 988,933 1,003,750
20,000 Wynn's International, Inc. ........ 383,017 632,500
------------ ------------
20,557,983 36,570,050
------------ ------------
Cable -- 3.4%
179,500 Cablevision Systems
Corporation, Class A+ ........... 8,051,855 5,497,188
65,000 Comcast Corporation,
Class A ......................... 1,009,207 1,145,625
68,125 Comcast Corporation,
Class A Special ................. 655,333 1,213,477
30,000 General Instrument
Corporation+ .................... 798,063 648,750
500,000 International Family
Entertainment, Inc.,
Class B+ ........................ 7,098,298 7,750,000
50,000 Shaw Communications Inc.,
Class B, Conv ................... 444,218 277,464
470,000 Tele-Communications, Inc.,
Class A ......................... 6,490,741 6,139,375
360,000 Tele-Communications, Inc./
Liberty Media Group,
Class A+ ........................ 8,390,371 10,282,500
50,000 Tele-Communications
International, Inc.,
Class A+ ........................ 988,876 662,500
77,000 US WEST Media Group+ .............. 1,428,452 1,424,500
------------ ------------
35,355,414 35,041,379
------------ ------------
Diversified Industrial -- 3.3%
105,000 Crane Co. ......................... 1,801,447 3,045,000
45,000 GATX Corporation .................. 903,684 2,182,500
20,000 Honeywell, Inc. ................... 926,000 1,315,000
160,000 ITT Industries Inc. ............... 2,673,239 3,920,000
400,000 Lamson & Sessions Co.+ ............ 2,511,294 2,900,000
60,000 Lawter International, Inc. ........ 632,883 757,500
80,000 Minnesota Mining and
Manufacturing Company ........... 4,342,477 6,630,000
100,000 National Service
Industries, Inc. ................ 2,203,498 3,737,500
26,715 Park-Ohio Industries, Inc.+ ....... 310,560 343,956
80,000 Tenneco Inc.+ ..................... 3,175,315 3,610,000
52,000 Thomas Industries Inc. ............ 790,732 1,085,500
95,000 Trinity Industries, Inc. .......... 1,716,164 3,562,500
100,000 Tyler Corporation+ ................ 354,618 187,500
------------ ------------
22,341,911 33,276,956
------------ ------------
Publishing -- 2.8%
225,000 Golden Books Family
Entertainment, Inc.+ ............ 3,535,472 2,503,125
98,000 Independent Newspapers
plc ORD ......................... 315,053 499,279
24,000 McGraw-Hill Companies,
Inc ............................. 707,700 1,107,000
450,800 Media General, Inc., Class A ...... 8,474,383 13,636,700
80,000 Meredith Corporation .............. 2,469,007 4,220,000
110,000 New York Times Company,
Class A ......................... 1,511,500 4,180,000
5,000 News Corporation Limited,
ADS ............................. 54,120 104,375
299,000 Oriental Press Group ORD .......... 161,077 134,336
40,000 Reader's Digest Association,
Inc., Class B ................... 1,560,180 1,450,000
200,000 South China Morning Post
Holdings ORD .................... 117,763 165,492
------------ ------------
18,906,255 28,000,307
------------ ------------
Hotels/Gaming -- 2.7%
30,000 Aztar Corporation+ ................ 211,500 210,000
10,000 GTECH Holdings
Corporation+ .................... 170,269 320,000
400,000 Hilton Hotels Corporation ......... 5,464,111 10,450,000
250,000 ITT Corporation, New+ ............. 9,951,360 10,843,750
1,000,000 Ladbroke Group plc ................ 3,108,141 3,955,872
100,000 Mirage Resorts,
Incorporated+ ................... 532,231 2,162,500
------------ ------------
19,437,612 27,942,122
------------ ------------
Aviation: Parts And Services -- 2.1%
70,000 Boeing Co. ........................ 5,317,303 7,446,250
400,000 Coltec Industries Inc.+ ........... 5,417,284 7,550,000
50,000 Curtiss-Wright Corporation ........ 2,491,103 2,518,750
27,000 General Motors Corporation,
Class H ......................... 1,612,150 1,518,750
145,000 Hi-Shear Industries Inc. .......... 1,737,757 380,625
2,500 Moog, Inc., Class A+ .............. 43,250 58,438
31,500 Precision Castparts Corp. ......... 1,241,900 1,563,188
12,000 Rohr Inc.+ ........................ 201,071 271,500
------------ ------------
18,061,818 21,307,501
------------ ------------
Energy -- 1.9%
34,000 Apache Corporation ................ 844,013 1,202,750
36,000 Atlantic Richfield Company ........ 3,865,378 4,774,500
47,000 British Petroleum Company
plc, ADR ........................ 2,175,906 6,644,625
80,000 Burlington Resources Inc. ......... 3,598,393 4,030,000
10,000 Chevron Corporation ............... 427,525 650,000
25,000 Halliburton Company ............... 1,064,376 1,506,250
50,000 Santa Fe Energy Resources,
Inc.+ ........................... 478,875 693,750
------------ ------------
12,454,466 19,501,875
------------ ------------
Business Services -- 1.9%
100,000 Automatic Data Processing,
Inc.+ ........................... 2,305,000 2,287,500
88,000 BBN Corporation+ .................. 2,667,994 1,980,000
62,500 Electronic Data Systems
Corp ............................ 2,219,776 2,703,125
60,000 International Business
Machines Corporation ............ 2,852,283 9,060,000
125,000 Landauer, Inc. .................... 809,065 3,062,500
------------ ------------
10,854,118 19,093,125
------------ ------------
See Notes to Financial Statements.
12
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
Automotive -- 1.5%
270,000 General Motors Corporation ........ $ 8,417,910 $ 15,052,500
------------ ------------
Paper And Forest Products -- 1.3%
240,000 Greif Bros. Corporation,
Class A ......................... 4,285,781 6,840,000
3,400 Greif Bros. Corporation,
Class B(a) ...................... 69,824 96,900
89,000 St. Joe Corp. ..................... 2,951,141 5,785,000
------------ ------------
7,306,746 12,721,900
------------ ------------
Health Care -- 1.2%
18,000 Amgen Inc.+ ....................... 324,394 978,750
13,000 Biogen, Inc.+ ..................... 181,025 503,750
100,000 Johnson & Johnson ................. 2,217,141 4,975,000
24,000 Mallinckrodt, Inc. ................ 710,919 1,059,000
54,000 Novartis AG, ADR+ ................. 973,438 3,071,250
15,000 Pfizer Inc. ....................... 486,812 1,243,125
------------ ------------
4,893,729 11,830,875
------------ ------------
Retail -- 1.1%
25,000 Crown Books Corporation+ .......... 284,112 293,750
67,500 Earl Scheib, Inc.+ ................ 651,094 472,500
1,000 Fred Meyer Inc.+ .................. 25,050 35,500
90,980 General Host Corporation .......... 528,313 238,823
59,400 Lillian Vernon Corporation ........ 733,893 727,650
357,500 Neiman Marcus Group, Inc.+ ........ 5,209,986 9,116,250
30,000 THORN plc, ADR+ ................... 388,930 513,750
------------ ------------
7,821,378 11,398,223
------------ ------------
Consumer Services -- 1.1%
25,000 CUC International Inc. ............ 111,391 593,750
10,000 Department 56, Inc.+ .............. 227,179 247,500
24,000 HSN, Inc.+ ........................ 574,643 570,000
450,000 Rollins, Inc. ..................... 4,546,119 9,000,000
55,000 Ticketmaster Group Inc.+ .......... 778,750 666,875
------------ ------------
6,238,082 11,078,125
------------ ------------
Transportation -- 0.7%
80,000 AMR Corporation+ .................. 5,280,952 7,050,000
------------ ------------
Specialty Chemical -- 0.7%
37,000 E.I. du Pont de Nemours
and Company ..................... 2,423,500 3,491,875
115,000 Ferro Corporation ................. 2,375,187 3,263,125
------------ ------------
4,798,687 6,755,000
------------ ------------
Retail Food And Drug -- 0.4%
50,000 Albertson's, Inc. ................. 1,733,750 1,781,250
80,000 Giant Food Inc., Class A .......... 2,717,913 2,760,000
------------ ------------
4,451,663 4,541,250
------------ ------------
Communications Equipment -- 0.4%
100,000 Allen Group Inc.+ ................. 1,166,791 ,225,000
25,000 Lucent Technologies Inc. .......... 1,019,063 1,156,250
20,000 Scientific-Atlanta, Inc. .......... 319,775 300,000
------------ ------------
2,505,629 3,681,250
------------ ------------
Country/Closed-End Funds -- 0.3%
60,263 Central European Equity
Fund Inc. ....................... 757,375 1,190,194
70,000 Emerging Germany
Fund Inc.+ ........................ 512,662 568,750
25,000 France Growth Fund, Inc. .......... 246,844 259,375
34,250 Italy Fund, Inc. .................. 300,170 299,688
72,229 New Germany Fund .................. 796,048 966,063
45,942 Royce Value Trust, Inc. ........... 519,501 580,018
------------ ------------
3,132,600 3,864,088
------------ ------------
Electronics -- 0.3%
2,000 Hitachi, Ltd., ADR ................ 171,183 185,000
8,500 Imation Corporation+ .............. 184,970 239,063
1,500 Matsushita Electric Industrial
Co. Ltd., ADR ................... 178,325 244,875
1,500 NEC Corp., ADR .................... 43,625 91,125
15,000 Philips Electronics N.V.,
New York ........................ 209,898 600,000
20,000 Sony Corporation, ADR ............. 1,057,068 1,312,500
------------ ------------
1,845,069 2,672,563
------------ ------------
Housing Related -- 0.3%
130,000 Nortek, Inc.+ ..................... 808,129 2,600,000
5,000 Nortek, Inc., Special
Common+ (a) ..................... 72,155 70,000
------------ ------------
880,284 2,670,000
------------ ------------
Metals And Mining -- 0.2%
20,000 Newmont Gold Company .............. 800,047 875,000
120,000 Pegasus Gold Inc.+ ................ 1,635,858 907,500
10,000 Placer Dome Inc. .................. 175,162 217,500
------------ ------------
2,611,067 2,000,000
------------ ------------
Real Estate -- 0.2%
74,500 Catellus Development
Corporation+ .................... 631,394 847,437
11,000 Florida East Coast
Industries, Inc. ................ 523,108 961,125
------------ ------------
1,154,502 1,808,562
------------ ------------
Agriculture -- 0.1%
65,000 Archer-Daniels-Midland Co. ........ 1,130,119 1,430,000
------------ ------------
Building And Construction -- 0.0%
15,000 Martin Marietta Materials,
Inc ............................. 322,688 348,750
------------ ------------
Shipbuilding -- 0.0%
16,000 Newport News Shipbuilding
Inc.+ ........................... 227,747 240,000
------------ ------------
TOTAL COMMON STOCKS ............................. 490,729,035 803,520,507
------------ ------------
PREFERRED STOCKS -- 0.3%
Consumer Products -- 0.1%
35,000 Fieldcrest Cannon, Inc.,
Series A, 6.000%,
Conv. Pfd., 144A (c) ............ 1,916,750 1,373,750
------------ ------------
Telecommunications -- 0.1%
15,000 Sprint Corporation, 8.250%,
Conv. Pfd. ...................... 478,125 538,125
2,130,723 Telecommunicacoes de Sao
Paulo SA (Telesp), Pfd.,
Registered ...................... 261,252 461,372
------------ ------------
739,377 999,497
------------ ------------
See Notes to Financial Statements.
13
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
Market
Shares Cost Value
------ ---- -----
PREFERRED STOCKS (Continued)
Cable -- 0.1%
8,000 Tele-Communications, Inc.,
Class B, 6.000%,
Ex. Jr. Pfd. .................... $ 408,017 $ 532,000
------------ ------------
Diversified Industrial -- 0.0%
3,500 GATX Corporation, 3.875%,
Conv. Pfd. ...................... 185,600 204,313
------------ ------------
TOTAL PREFERRED STOCKS .......................... 3,249,744 3,109,560
------------ ------------
COMMON STOCK WARRANTS -- 0.0%
29,900 Oriental Press Group,
Warrants, expires
10/02/1998+ ..................... 0 2,126
------------ ------------
Principal Market
Amount Cost Value
------ ---- -----
CORPORATE BONDS -- 1.2%
Entertainment -- 1.0%
FRF 125,000 Havas, Conv. Bonds, Payment-
in-kind, 3.000% due
12/31/1997 ...................... 26,357 31,107
$ 2,400,000 Time Warner Inc., Deb.,
8.110% due 08/15/2006 ........... 2,407,265 2,469,000
2,400,000 Time Warner Inc., Deb.,
8.180% due 08/15/2007 ........... 2,398,284 2,478,000
2,000,000 Time Warner Inc., Floating
Rate Note, 7.975%
due 08/15/2000 .................. 2,018,671 2,007,500
1,200,000 Time Warner Inc., Note,
7.975% due 08/15/2004 ........... 1,194,652 1,227,000
1,575,000 Viacom Inc., Sub. Deb.,
8.000% due 07/07/2006 ........... 1,017,844 1,535,625
------------ ------------
9,063,073 9,748,232
------------ ------------
Publishing -- 0.1%
200,000 News American Holdings
Incorporated, Gtd.
Ex. Sub. Note, Zero
Coupon due 03/31/2002 ........... 134,639 178,500
1,000,000 Thomas Nelson Inc.,
Conv. Sub. Note,
5.750% due 11/30/1999 ........... 992,380 1,011,250
------------ ------------
1,127,019 1,189,750
------------ ------------
Automotive: Parts And Accessories -- 0.1%
500,000 GenCorp Inc.,
Conv. Sub. Deb.,
8.000% due 08/01/2002 ........... 490,000 571,250
------------ ------------
Food And Beverage -- 0.0%
1,550,000 Flagstar Corporation,
Conv. Jr. Sub. Deb.,
10.000% due 11/01/2014 .......... 364,247 468,874
------------ ------------
Retail -- 0.0%
50,000 General Host Corporation,
Class D, Conv. Sub. Note,
8.000% due 02/15/2002 ........... 43,275 40,375
------------ ------------
TOTAL CORPORATE BONDS ........................... 11,087,614 12,018,481
------------ ------------
U.S. TREASURY BILLS -- 16.3%
$166,000,000 4.990% to 5.130%++
due 01/16/1997-
03/13/1997(d) ..................... 164,979,185 164,979,185
------------ ------------
REPURCHASE AGREEMENT -- 1.0%
10,648,000 Agreement with Morgan
(J.P.) & Co. Incorporated,
6.500% dated 12/31/1996,
to be repurchased at
$10,651,845 on 01/02/1997,
collateralized by
$10,675,000 U. S.
Treasury Note, 5.875%
due 08/15/1998
(value $11,152,075)................ 10,648,000 10,648,000
------------ ------------
TOTAL INVESTMENTS ......... 97.9% $680,693,578(b) 994,277,859
============
OTHER ASSETS AND
LIABILITIES (Net)........ 2.1 21,158,713
---- ------------
NET ASSETS ................ 100.0% $1,015,436,572
===== ==============
- ----------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Aggregate cost for Federal tax purposes was $681,350,586. Net unrealized
appreciation for Federal tax purposes was $312,927,273 (gross unrealized
appreciation was $330,265,813 and gross unrealized depreciation was
$17,338,540).
(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 December 31, 1996 was $1,827,165, representing
0.18% of total net assets.
(d) $144,108,324 of 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,
March 1997 ...................... $ 622,500
============
SCHEDULE OF FORWARD FOREIGN EXCHANGE
CONTRACTS
Contract
Value
Date Value
---- -----
Forward Foreign Exchange Contracts to Sell
2,287,023,517 Italian Lira....... 01/07/97 $ (1,507,317)
1,568,453,465 Italian Lira....... 01/09/97 (1,033,590)
------------
Total Forward Foreign Exchange
Contracts to Sell
(Contract amount $2,519,407) .................. $ (2,540,907)
------------
See Notes to Financial Statements.
14
<PAGE>
THE GABELLI EQUITY TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
ASSETS:
Investments, at value (Cost $680,693,578)
See accompanying portfolio:
Investment securities ................................. $ 818,650,674
U.S. Government obligations ........................... 164,979,185
Repurchase agreement .................................. 10,648,000
---------------
994,277,859
Cash and foreign currency (Cost $221,128) ............. 223,494
Receivable for investment securities sold ............. 29,100,991
Variation margin ...................................... 2,774,000
Dividends receivable .................................. 1,386,550
Interest receivable ................................... 314,965
---------------
Total Assets ...................................... 1,028,077,859
---------------
LIABILITIES:
Dividend payable ...................................... 8,069,731
Payable for investment securities purchased ........... 2,819,992
Payable for investment advisory fee ................... 865,531
Accrued Directors' fees ............................... 35,000
Net unrealized depreciation of forward foreign
exchange contracts .................................. 21,500
Accrued expenses and other payables ................... 829,533
---------------
Total Liabilities ................................. 12,641,287
---------------
NET ASSETS for 103,919,670 shares outstanding ............. $ 1,015,436,572
===============
NET ASSETS consist of:
Common stock at par value ............................. $ 103,920
Additional paid-in capital ............................ 702,469,606
Distributions in excess of net realized gain
on investments ...................................... (102,735)
Net unrealized appreciation of investments ............ 312,965,781
---------------
Total Net Assets .................................. $ 1,015,436,572
===============
NET ASSET VALUE ($1,015,436,572 / 103,919,670 shares
outstanding; 200,000,000 shares authorized of
$0.001 par value) ......................................... $9.77
=====
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
12/31/96 12/31/95
------------- -------------
<S> <C> <C>
Net investment income ......................................... $ 11,083,439 $ 11,411,921
Net realized gain on investments during the year .............. 81,151,706 48,989,177
Net change in unrealized appreciation/(depreciation) of
investments during the year ................................. (6,972,846) 108,119,852
--------------- ---------------
Net increase in net assets resulting from operations .......... 85,262,299 168,520,950
Distributions to shareholders from:
Net investment income ....................................... (10,886,116) (11,329,129)
Net realized gain on investments ............................ (81,110,584) (48,989,177)
Distributions in excess of net realized gains ............... (68,227) (2,258,315)
Paid-in capital ............................................. (11,851,508) (33,224,640)
Net increase in net assets from Equity Trust share transactions -- 136,178,420
--------------- ---------------
Net increase/(decrease) in net assets ......................... (18,654,136) 208,898,109
NET ASSETS:
Beginning of year ............................................. 1,034,090,708 825,192,599
--------------- ---------------
End of year ................................................... $ 1,015,436,572 $ 1,034,090,708
=============== ===============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
THE GABELLI EQUITY TRUST INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $491,588) $ 13,496,855
Interest ............................................... 9,854,423
------------
Total Investment Income .............................. 23,351,278
------------
EXPENSES:
Investment advisory fee ................................ $ 10,364,591
Shareholder communications expense ..................... 631,438
Shareholder services fees .............................. 476,518
Custodian fees ......................................... 238,029
Directors' fees ........................................ 138,677
Payroll ................................................ 119,020
Legal and audit fees ................................... 78,781
Other .................................................. 220,785
------------
Total Expenses ................................... 12,267,839
------------
NET INVESTMENT INCOME ...................................... 11,083,439
------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on:
Securities transactions .............................. 99,213,282
Futures transactions ................................. (18,076,443)
Forward foreign exchange contracts and
foreign currency transactions ........................ 14,867
------------
Net realized gain on investments during the year ....... 81,151,706
------------
Net change in unrealized appreciation/(depreciation) of:
Securities ........................................... (6,095,340)
Futures transactions ................................. (889,186)
Forward foreign exchange contracts ................... (21,500)
Foreign currency and other assets and liabilities .... 33,180
------------
Net change in unrealized depreciation of investments
during the year ...................................... (6,972,846)
------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS ...................................... 74,178,860
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................ $ 85,262,299
============
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
THE GABELLI EQUITY TRUST INC.
FINANCIAL HIGHLIGHTS
Per share amount for an Equity Trust share outstanding throughout each year
ended December 31,
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of year ............... $ 9.40 $ 9.82 $ 11.22 $ 13.34 $ 10.49 $ 10.61
---------- ---------- ---------- ---------- ---------- ----------
Net investment income ............. 0.16 0.14 0.38 0.44 0.27 0.19
Net realized and unrealized
gain/(loss) on investments ...... 0.89 2.32+ 3.26+ (2.11) 1.37 1.21
Provision for income taxes ........ -- (0.09) (0.21) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations .. 1.05 2.37 3.43 (1.67) 1.64 1.40
---------- ---------- ---------- ---------- ---------- ----------
Increase/(decrease) in net asset
value from Equity Trust
share transactions .............. 0.01 0.02 -- -- (0.42) (0.36)
Offering expenses charged to
capital surplus ................. -- -- -- -- (0.01) (0.01)
Distributions to shareholders from:
Net investment income ........... (0.19) (0.21) (0.29) (0.53) (0.27) (0.19)
Distributions in excess of
net investment income ......... -- -- -- -- -- --
Net realized gains .............. (0.45) (0.78) (1.02) (0.23) (0.14) (0.38)
Distributions in excess of
net realized gains ............ -- -- -- -- -- --
Paid-in capital ................. -- -- -- (0.42) (0.68) (0.49)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions ............... (0.64) (0.99) (1.31) (1.18) (1.09) (1.06)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of year ...... $ 9.82 $ 11.22 $ 13.34 $ 10.49 $ 10.61 $ 10.58
========== ========== ========== ========== ========== ==========
Market value, end of year ......... $ 7.625 $ 9.875 $ 14.000 $ 10.500 $ 10.125 $ 10.250
=========== =========== =========== =========== =========== ===========
Total Investment Return* .......... (0.90)% 37.80% 59.00% (16.70)% 10.90% 15.90%
========== ========== ========== ========== ========== ==========
Net Asset Value Total Return** .... 17.10% 21.50% 33.20% (12.70)% 16.20% 14.20%
========== ========== ========== ========== ========== ==========
Ratios to average net assets/
supplemental data:
Net assets, end of year (in 000's) $ 429,490 $ 484,792 $ 589,990 $ 479,863 $ 595,151 $ 725,263
Net investment income ............. 1.50% 1.36% 2.82% 3.84% 2.34% 1.88%
Operating expenses ................ 1.24% 1.25% 1.18% 1.18% 1.24% 1.22%
Portfolio turnover rate ........... 96.5% 51.5% 28.1% 15.5% 11.2% 12.5%
Average commission rate
(per share of security) (c) ..... N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
1993 (a) 1994 (a) 1995 (a) 1996 (a)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of year ............... $ 10.58 $ 11.23 $ 9.46 $ 9.95
---------- ---------- ---------- ----------
Net investment income ............. 0.14 0.14 0.13 0.11
Net realized and unrealized
gain/(loss) on investments ...... 2.13 (0.08) 1.74 0.71
Provision for income taxes ........ -- -- -- --
---------- ---------- ---------- ----------
Total from investment operations .. 2.27 0.06 1.87 0.82
---------- ---------- ---------- ----------
Increase/(decrease) in net asset
value from Equity Trust
share transactions .............. (0.50) -- (0.37) --
Offering expenses charged to
capital surplus ................. (0.01) -- (0.01) .--
Distributions to shareholders from:
Net investment income ........... (0.11) (0.14)(b) (0.13) (0.11)
Distributions in excess of
net investment income ......... -- -- -- --
Net realized gains .............. (0.77) (0.37) (0.47) (0.78)
Distributions in excess of
net realized gains ............ (0.02) -- (0.02) (0.00)(d)
Paid-in capital ................. (0.21) (1.32)(b) (0.38) (0.11)
---------- ---------- ---------- ----------
Total distributions ............... (1.11) (1.83) (1.00) (1.00)
---------- ---------- ---------- ----------
Net asset value, end of year ...... $ 11.23 $ 9.46 $ 9.95 $ 9.77
========== ========== ========== ==========
Market value, end of year ......... $ 12.125 $ 9.625 $ 9.375 $ 9.375
=========== =========== =========== ===========
Total Investment Return* .......... 36.50% (5.10)% 11.70% 11.00%
========== ========== ========== ==========
Net Asset Value Total Return** .... 22.40% 0.50% 20.60% 9.00%
========== ========== ========== ==========
Ratios to average net assets/
supplemental data:
Net assets, end of year (in 000's) $ 937,773 $ 825,193 $1,034,091 $1,015,437
Net investment income ............. 1.25% 1.29% 1.26% 1.07%
Operating expenses ................ 1.20% 1.19% 1.21% 1.18%
Portfolio turnover rate ........... 24.4% 22.2% 25.1% 18.9%
Average commission rate
(per share of security) (c) ..... N/A N/A N/A $ 0.0335
</TABLE>
- ----------------
* Based on market value per share, adjusted for reinvestment of distributions
and taxes, including the effect of shares issued pursuant to rights
offering, assuming full subscription by shareholder.
** Based on net asset value per share, adjusted for reinvestment of
distributions and taxes, including the effect of shares issued pursuant to
rights offering, assuming full subscription by shareholder.
+ Before provision for income taxes.
(a) Per share amounts have been calculated using the monthly average shares
outstanding method.
(b) A distribution equivalent to $0.75 per share for The Gabelli Global
Multimedia Trust Inc. spin-off from net investment income, realized
short-term gains, and paid-in capital were $0.064, $0.031 and $0.655,
respectively.
(c) Average commission rate (per share of security) as required by amended SEC
disclosure requirements effective for fiscal years beginning after
September 1, 1995.
(d) Amount represents less than $0.005 per share.
See Notes to Financial Statements.
17
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
The Gabelli Equity Trust Inc. ("Equity Trust") is a closed-end,
non-diversified management investment company organized as a Maryland
corporation and registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), whose primary objective is long-term growth of capital. The
Equity Trust had no operations until August 11, 1986, when it sold 10,696 shares
of common stock to Gabelli Funds, Inc. (the "Adviser") for $100,008. Investment
operations commenced on August 21, 1986. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
followed by the Equity Trust in the preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on a stock
exchange or NASDAQ National Market System are valued at the last sale price as
of the close of business on the day the securities are being valued, or lacking
any sales, at the mean between closing bid and asked prices. Other
over-the-counter securities are valued at the most recent bid prices as obtained
from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market, as
determined by the Adviser. Securities traded primarily on foreign exchanges are
valued at the closing price immediately prior to the close of the New York Stock
Exchange of such securities on their respective exchanges or markets. Securities
and assets for which market quotations are not readily available are valued at
fair market value as determined in good faith by or under the direction of the
Board of Directors of the Equity Trust. Short-term investments that mature in
more than 60 days are valued at the highest bid price obtained from a dealer
maintaining an active market on that security. Short-term investments that
mature in 60 days or fewer are valued at amortized cost, unless the Board of
Directors determines that such valuation does not constitute fair value. Debt
instruments having a greater maturity are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities or on
the basis of prices obtained from a pricing service approved as reliable by the
Board of Directors.
Repurchase Agreements. The Equity Trust may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Equity
Trust takes possession of an underlying debt obligation for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Equity Trust to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Equity Trust's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Equity Trust's holding period. The value of
the collateral is at least equal at all times to the total amount of the
repurchase obligation, including interest. The Equity Trust bears a risk of loss
in the event that the other party to a repurchase agreement defaults on its
obligations and the Equity Trust is delayed or prevented from exercising its
rights to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Equity Trust seeks to assert its rights. The Adviser, acting under the
supervision of the Board of Directors, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Equity Trust
enters into repurchase agreements to evaluate potential risks.
Futures Contracts. The Equity Trust may engage in futures contracts for the
purpose of hedging against changes in the value of its portfolio securities and
in the value of securities it intends to purchase. Such investments will only be
made if they are economically appropriate to the reduction of risks involved in
the management of the Equity Trust's investments. Upon entering into a futures
contract, the Equity Trust is required to deposit with the broker an amount of
cash or cash equivalents equal to a certain percentage of the contract amount.
This is known as the "initial margin." Subsequent payments ("variation margin")
are made or received by the Equity Trust each day, depending on the daily
fluctuation of the value of the contract. The daily changes in the contract are
recorded as unrealized gains or losses. The Equity Trust recognizes a realized
gain or loss when the contract is closed. The net unrealized appreciation/
depreciation is shown in the financial statements.
18
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
There are several risks in connection with the use of futures contracts as
a hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk the
Equity Trust may not be able to enter into a closing transaction because of an
illiquid secondary market.
Forward Foreign Exchange Contracts. The Equity Trust may engage in forward
foreign exchange contracts for hedging a specific transaction with respect to
either the currency in which the transaction is denominated or another currency
deemed appropriate by the Adviser. Forward foreign exchange contracts are valued
at the forward rate and are marked-to-market daily. The change in market value
is recorded by the Equity Trust as an unrealized gain or loss. When the contract
is closed, the Equity Trust records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate
fluctuations in the underlying prices of the Equity Trust's portfolio
securities, but it does establish a rate of exchange that can be achieved in the
future. Although forward foreign exchange contracts limit the risk of loss due
to a decline in the value of the hedged currency, they also limit any potential
gain that might result should the value of the currency increase. In addition,
the Equity Trust could be exposed to risks if the counterparties to the
contracts are unable to meet the terms of their contracts.
Foreign Currency. The books and records of the Equity Trust are maintained
in United States (U.S.) dollars. Foreign currencies, investments and other
assets and liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period, and purchases and sales of investment
securities, income and expenses are translated on the respective dates of such
transactions. Unrealized gains and losses, not relating to securities, which
result from changes in foreign currency exchange rates have been included in
unrealized appreciation/depreciation of foreign currency and other assets and
liabilities. Unrealized gains and losses of securities, which result from
changes in foreign exchange rates as well as changes in market prices of
securities, have been included in unrealized appreciation/depreciation of
investment securities. Net realized foreign currency gains and losses resulting
from changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, foreign
currency transactions and the difference between the amounts of interest and
dividends recorded on the books of the Equity Trust and the amounts actually
received. The portion of foreign currency gains and losses related to
fluctuation in exchange rates between the initial trade date and subsequent sale
trade date is included in realized gain/(loss) from investment securities sold.
Securities Transactions and Investment Income. Securities transactions are
accounted for as of the trade date with realized gain or loss on investments
determined using specific identification as the cost method. Interest income
(including amortization of premium and accretion of discount) is recorded as
earned.
Dividends and Distributions to Shareholders. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Equity Trust,
temporary differences and differing characterization of distributions made by
the Equity Trust. Permanent differences incurred during the year ended December
31, 1996 resulting from different book and tax accounting policies for currency
gains and losses and capital gain distributions, are reclassified between net
investment income and net realized gains at year end. The reclassifications for
the year ended December 31, 1996 were a decrease in undistributed net investment
income of $197,323 and a decrease in distributions in excess of net realized
gain on investments of $197,323. Paid-in capital was reduced by $11,851,508 due
to a tax basis return of capital.
Provision for Income Taxes. The Equity Trust has qualified and intends to
continue to qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended. As a result, a Federal income tax
provision is not required.
19
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Agreements and Transactions with Affiliates
The Equity Trust has entered into an investment advisory agreement (the
"Advisory Agreement") with the Adviser which provides that the Equity Trust will
pay the Adviser a fee, computed weekly and paid monthly, equal on an annual
basis to 1.00 percent of the value of the Equity Trust's average weekly net
assets. In accordance with the Advisory Agreement, the Adviser manages the
Equity Trust's portfolio, makes investment decisions for the Equity Trust,
places orders to purchase and sell securities of the Equity Trust and oversees
the administration of all aspects of the Equity Trust's business and affairs.
During the year ended December 31, 1996, Gabelli & Company, Inc. ("Gabelli
& Company") and its affiliates received $121,980 in brokerage commissions as a
result of executing agency transactions in portfolio securities on behalf of the
Equity Trust.
3. Portfolio Securities
Cost of purchases and proceeds from sales of securities, other than
short-term securities, aggregated $164,946,894 and $309,246,750, respectively,
for the year ended December 31, 1996.
4. Capital
Common stock transactions were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/96 12/31/95
-------- --------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares issued via rights offering* ....... -- -- 14,931,430 $118,877,097
Shares issued due to reinvestment
of dividends and distributions ....... -- -- 1,764,509 17,301,323
------------ ------------ ------------ ------------
Net increase ............................. -- -- 16,695,939 $136,178,420
============ ============ ============ ============
</TABLE>
- ----------------
* On October 19, 1995, the Equity Trust distributed one transferable Right
for each of the 89,588,286 shares outstanding to shareholders of record on
that date entitling each shareholder to acquire with six Rights one newly
issued share of Common Stock at the issue price of $8.00 per share. Stock
issuance costs, which totalled approximately $639,288, were charged
directly against the proceeds of the offering.
20
<PAGE>
THE GABELLI EQUITY TRUST INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of The Gabelli Equity Trust Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Equity Trust Inc. (the
"Equity Trust") at December 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and for the financial highlights for each of the ten years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Equity
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 14, 1997
21
<PAGE>
THE GABELLI EQUITY TRUST INC.
FEDERAL INCOME TAX INFORMATION (Unaudited)
December 31, 1996
Cash Dividends and Distributions
<TABLE>
<CAPTION>
Non-taxable
Total Amount Ordinary Return Long-Term Dividend
Payable Record Paid Investment of Capital Reinvestment
Date Date Per Share Income Capital Gains Price
- -------- -------- --------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
03/25/96 03/11/96 $ 0.25 $ 0.0262 $ 0.0285 $ 0.1953 $ 9.6414
06/24/96 06/17/96 0.25 0.0262 0.0285 0.1953 9.5679
09/23/96 09/16/96 0.25 0.0262 0.0285 0.1953 9.3098
12/27/96 12/19/86 0.25 0.0262 0.0285 0.1953 9.3240
-------- -------- -------- --------
$ 1.00 $ 0.1048 $ 0.1140 $ 0.7812
</TABLE>
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 1996 tax returns. Ordinary income distributions include net investment
income and realized net short-term capital gains.
Non-taxable Return of Capital
The amount received as a non-taxable (return of capital) distribution
should be applied to reduce the tax cost of shares. This amount will be
reflected on Form 1099-DIV. If the amount of the non-taxable portion exceeds
your tax basis, the excess will be taxable as a capital gain.
Corporate Dividends Received Deduction and U.S. Treasury Securities Income
The Equity Trust paid to shareholders an ordinary income dividend of
$0.1048 per share in 1996. The percentage of such dividends that qualifies for
the dividends received deduction available to corporations is 46.67% for all
such dividends paid in 1996. The percentage of the ordinary income dividends
paid by the Equity Trust during 1996 derived from U.S. Treasury Securities was
34.97%.
Historical Distribution Summary
<TABLE>
<CAPTION>
Taxes Paid
Short- Long- Undistributed on
term term Non-taxable Long-term Undistributed Adjustment
Annual Investment Capital Capital Return of Capital Capital Total to
Summary Income Gains Gains Capital Gains Gains (a) Distributions Cost Basis
- ------- ---------- ---------- --------- ---------- --------- --------- ---------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 ..... $ 0.10480 -- $ 0.78120 $ 0.11400 -- -- $ 1.00000 $0.11400 -
1995 (b) . 0.12890 -- 0.49310 0.37800 -- -- $ 1.00000 0.37800 -
1994 (c) . 0.13536 $ 0.06527 0.30300 1.38262 -- -- $ 1.88625 1.38262 -
1993 (d) . 0.13050 0.02030 0.72930 0.22990 -- -- $ 1.11000 0.22990 -
1992 (e) . 0.20530 0.04050 0.29660 0.51760 -- -- $ 1.06000 0.51760 -
1991 (f) . 0.22590 0.03990 0.14420 0.68000 -- -- $ 1.09000 0.68000 -
1990 ..... 0.50470 -- 0.22950 0.44580 -- -- $ 1.18000 0.44580 -
1989 ..... 0.29100 0.35650 0.66250 -- $ 0.6288 $ 0.2138 $ 1.31000 0.41500 +
1988 .... 0.14500 0.20900 0.19600 -- 0.2513 0.0854 $ 0.55000 0.16590 +
1987 .... 0.25600 0.49100 0.33500 -- -- -- $ 1.08200 --
</TABLE>
- ----------
(a) Net Asset Value is reduced by this amount on the last business day of the
year.
(b) On October 19, 1995, the Company distributed Rights equivalent to $0.37 per
share based upon full subscription of all issued shares.
(c) On November 15, 1994, the Company distributed shares of The Gabelli Global
Multimedia Trust Inc. valued at $8.0625 per share.
(d) On July 14, 1993, the Company distributed Rights equivalent to $0.50 per
share based upon full subscription of all issued shares.
(e) On September 28, 1992, the Company distributed Rights equivalent to $0.36
per share based upon full subscription of all issued shares.
(f) On October 21, 1991, the Company distributed Rights equivalent to $0.42 per
share based upon full subscription of all issued shares.
- - Decrease in cost basis.
+ Increase in cost basis.
22
<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 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
23
<PAGE>
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.
- --------------------------------------------------------------------------------
The Annual Meeting of the Equity Trust's stockholders will be held at 9:30 A.M.
on Monday, May 12, 1997, at the Cole Auditorium, Greenwich Public Library in
Greenwich, Connecticut.
- --------------------------------------------------------------------------------
24
<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
Phone: 1-800-GABELLI (1-800-422-3554)
Fax: 1-914-921-5118 Internet: http:/ /www.gabelli.com
e-mail: [email protected]
