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THE GABELLI
EQUITY TRUST INC.
Semi-Annual Report
June 30,1998
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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.
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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,
In the second quarter of 1998, there was a continuation of the best of
times for large cap stocks and the worst of times for small cap stocks. During
the quarter, the broad market, as measured by the Standard & Poor's ("S&P") 500
Index, rose by 3.3% while small cap stocks, as measured by the Russell 2000
Index, declined by 4.7%. U.S. government bonds rallied in a classic global
"flight to quality", with the yield on the 30 year U.S. Treasury Bond falling to
5.57% in mid-June.
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THE GABELLI
EQUITY TRUST INC.
Investment Performance
For the second quarter ended June 30, 1998, The Gabelli Equity Trust
Inc.'s ("Equity Trust") net asset value (NAV) per share increased 0.2% to
$12.35, after adjusting for the $0.27 per share distribution on June 26, 1998.
This compares to the Value Line Composite Index's decline of 3.0% and the
Russell 2000 Index's decline of 4.7% over the same period. The S&P 500 gained
3.3%. Each index is an unmanaged indicator of stock market performance.
Year-to-date the Equity Trust is exceeding our benchmark of a real rate of
return of 10% per year as it rose 11.5% through June 30, 1998. The Value Line
Composite, Russell 2000 and S&P 500 were up 8.2%, 4.9% and 17.7%, respectively
during the same period. For the twelve months concluded June 30, 1998, the
Equity Trust appreciated 25.9% after adjusting for the $1.06 per share in
distributions, versus 20.6%, 16.5% and 30.2% gains for the Value Line Composite,
Russell 2000 and S&P 500, respectively. Our own benchmark of ten percent real
was 12.3% for this time frame.
For the five year period ended June 30, 1998, the Equity Trust's return
averaged 16.0% annually, compared to average annual returns of 17.9%, 16.0% and
23.1% for the Value Line Composite, Russell 2000 and S&P 500, respectively.
Total return includes adjustments of $6.92 per share for the reinvestment of
dividends and distributions, rights offerings and the spin-off of the Gabelli
Global Multimedia Trust.
For the ten years ended June 30, 1998, the Equity Trust achieved a total
return of 284.4%, including adjustments of $13.70 per share in distributions,
which equates to an average annual return of 14.4%. This compares to 14.4%,
13.6% and 18.5% average annual returns over the same time period for the Value
Line Composite, Russell 2000 and S&P 500, respectively.
Since its inception on August 21, 1986 through June 30, 1998, the Equity
Trust has had a total return of 420.1%, including adjustments of $14.48 per
share in distributions, which equates to an average annual return of 14.9%.
The Equity Trust's common shares ended the quarter at $11.75 per share on
the New York Stock Exchange, an increase of 4.9% for the first six months of the
year. For the twelve months ended June 30, 1998, the common shares are up 27.7%,
after adjusting for all distributions.
Our long-term performance goal is to grow our net asset value by a real
rate of return of 10% per year. In addition, our goal is to have the publicly
traded market price track the net asset value.
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Preferred Stock - An Investment for the Future
THANK YOU!
At the Equity Trust's 1998 Annual Shareholder Meeting, shareholders
overwhelmingly re-affirmed a resolution allowing the Board to issue senior
securities, which cleared the way to proceed with a planned issue of cumulative
preferred stock. This is the second time such a resolution has been passed. This
year 83.9% of the shares were voted in favor of the resolution. At the 1997
Annual Meeting, a similar resolution was likewise approved with 75.6% of the
shares being voted in favor of the resolution. The proxy material for the 1998
meeting discussed a shareholder lawsuit which sought to block the Equity Trust
from issuing Preferred Stock. There can be no doubt now that a substantial
majority of our shareholders agree with the Board of Directors' assessment that
the issuance of preferred stock by the Equity Trust was desirable. The
overwhelming shareholder approval at the 1998 Annual Meeting, following as it
did on the expanded disclosure in the proxy material, has rendered the existing
lawsuit moot. It is also a clear signal for the Directors of the Trust to
consider recovery of expenses from the plaintiff for acting in, what we regard
as, a reckless manner.
On June 9, 1998, the Equity Trust successfully completed its offering of
7.25%, tax advantaged, cumulative preferred stock which was rated 'aaa' by
Moody's Investors Service, Inc. Shareholder response has been positive and we
appreciate the efforts of Salomon Smith Barney, Gabelli & Company, Inc.,
PaineWebber Incorporated and Prudential Securities Incorporated, the
underwriters, and wish to thank and welcome all those investors who
participated.
The Equity Trust issued 5,400,000 Preferred Shares at $25 per share with
an annual dividend rate of $1.8125 per share paying quarterly starting in
September 1998. The Preferred Shares are trading on the New York Stock Exchange
under the symbol "GAB Pr". Consistent with our conservative approach, the Equity
Trust issued the Preferred Shares in a cost effective manner at less than $0.045
per share. Although the immediate expensing of the costs associated with the
offering crimped our year-to-date results - 11.5% versus 11.9% had the Preferred
Shares not been issued - this minimal investment provides the underpinnings for
returns in the future.
How would Preferred Shares benefit Common Shareholders? The Equity Trust
has earned a 14.9% average annual return from inception on August 21, 1986
through June 30, 1998. The Preferred Shares were issued with a dividend rate of
7.25%. Any return earned in excess of the stated dividend rate would directly
benefit Common Shareholders; however, any shortfall from the stated rate would
impact the Common Shareholder in the opposite fashion. Therefore, by taking
advantage of the current relatively low interest rate environment and achieving
our long-term investment objectives, the Preferred Share issuance offers what we
believe is a method of adding wealth for our Common Shareholders.
Furthermore, Common Shareholders stand to receive certain tax benefits as
a result of the Preferred Stock offering. Since taxable income is allocated to
the Preferred Shareholders before Common Shareholders, taxable distributions to
Common Shareholders would not be required to the extent they would be if the
Preferred Shares were not outstanding.
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Open Letters to Shareholders of the Gabelli Equity Trust
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Chutzpah - What is it?
Chutzpah is best defined by telling a story. An individual is in front of
a judge. He was found guilty of stabbing both his parents brutally to death. He
is asking the court for leniency on the grounds that he is an orphan. That's
Chutzpah.
Our Fund was sued by Shapiro Haber and Urmy LLP on behalf of a shareholder
who owned 6,642 shares. We have a strong reason to believe the shareholder was
solicited - C. William Carter, 12 Barrett Road, Hanover, New Hampshire 03755.
The lawsuit was filed against the Fund and the Adviser.
The action was taken when our Fund filed an N-2 to cover an offering of
preferred stock which we as shareholders had approved in 1997 and again,
overwhelmingly ratified (84% in favor) in 1998 (which we thank you again for
your support and confidence). They either did not read or understand the N-2 and
then threatened to obtain an injunction preventing us from issuing this
preferred. At best they acted in what we regard as a reckless manner.
Chutzpah is alive and well. The lawyers (SHULLP) are planning to go to the
Court (The Honorable Charles L. Brieant, United States District Court, Southern
District of New York, United States Courthouse, 300 Quarropas Street, White
Plains, NY 10601) and ask the Court to award them expenses for bringing the
lawsuit in the first instance. This is Chutzpah! We will pursue all legal means
against Mr. Carter and his lawyers to recover our money.
Meanwhile, the "press" continues to praise these tactics, including their
lawyers and their "spokesman" - Phil Goldstein of Opportunity Partners who they
say is fighting for the little guy!
But you (our Shareholders) are the little guys! Shame on you Mr. Carter
for being used this way! You have abused your fellow shareholders!
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Sokaiya is Alive and Well in the United States
In Japan there is a common practice whereby the Sokaiya extort payments
from corporations in exchange for promises not to disrupt annual meetings.
American observers have chastised this practice.
Yet in America there is a practice that the Sokaiya would delight in. Our
legal system, which is wonderful in most respects and is the pillar of the
freedom and prosperity our country enjoys, has imperfections. It seems to bless
payments extracted from corporations in what are referred to as "strike suits."
A strike suit is an abusive and meritless action, brought by opportunistic
lawyers in order to extort money from corporate defendants. Lawyers who bring
these suits frequently are awarded their fees and expenses when the corporate
defendant decides that it is more economical to settle the case than to fight
it.
The Gabelli Equity Trust is trapped in the vortex of this imperfection that
exists in our system.
Let us explain:
On February 10, 1998, The Gabelli Equity Trust filed a Registration
Statement (referred to as a Form N-2) with the Securities and Exchange
Commission for the issuance of preferred stock. The N-2 specifically stated that
the preferred stock to be issued contained a mandatory redemption feature. This
feature was designed to ensure that the preferred shareholders, voting as a
class, could not block the common shareholders from voting to open-end the
Trust, in the event that a majority of the common shareholders sought to do so.
Nevertheless, the law firm of Shapiro Haber & Urmy, on behalf of a shareholder
named C. William Carter, who owned 6,642 shares of the Equity Trust, sued the
Equity Trust on March 9, 1998. Simultaneously, they threatened to obtain a
temporary injunction barring the issuance of the preferred stock. They claimed
that the preferred stock injured the common shareholders because the preferred
holders could vote to block open-ending of the Trust. We regard this as reckless
at best.
They also alleged that the size of the offering stated in the N-2 ($10
million) was evidence that the sole purpose of the offering was to block any
proposed open-ending of the Trust. They failed to mention that, as stated in the
N-2, the offering size was listed as $10 million "solely for the purpose of
calculating the registration fee." So again, Ready, Fire, Aim.
Apparently, the lawyers either did not read or did not understand the
provisions of the Registration Statement. Instead, they simply parroted claims
that had been made in an earlier lawsuit against The Gabelli Global Multimedia
Trust, involving a preferred offering that did not contain the special call
provision of the Equity Trust preferred.
On May 22, 1998, the shareholders of the Equity Trust re-affirmed a
resolution allowing the Board to issue senior securities, including preferred
stock. This vote, as the court ruled on June 10, 1998, makes the lawsuit moot.
Nevertheless, in an American version of Sokaiya, the plaintiff's lawyers have
asked the court to award them over $100,000 in fees and expenses supposedly
incurred in bringing their baseless lawsuit.
The Equity Trust will vigorously oppose their request, and will seek to
recover the loss in economic value caused by what we regard as a reckless and
capricious lawsuit. Just as American observers have viewed the practice of
paying off the Sokaiya as reprehensible, we should also view any payments for
this kind of reckless strike suit as reprehensible.
A copy of Mr. Carter's lawsuit is available upon request.
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What We Do
The success of momentum investing in recent years and investors' desire
for instant gratification have combined to make value investing appear dull. At
the risk of being dull, we will once again describe the "boring" value approach
that has seen us through both good and bad markets over the last 11 years at The
Gabelli Equity Trust and for over 20 years at Gabelli Asset Management Company.
In past reports, we have tried to articulate our investment philosophy and
methodology. The following graphic further illustrates the interplay among the
four components of our valuation approach.
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Our focus is on free cash flow; earnings before interest, taxes,
depreciation and amortization (EBITDA) minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value (PMV) estimates.
Finally, we look for a catalyst; something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing world-wide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
COMMENTARY
In compiling our thoughts for this shareholder letter we looked forward by
looking through the rear view mirror. In the process, we witnessed the testimony
of Federal Reserve Board Chairman Alan Greenspan and we could not say it any
better. To quote Alan . . .
"Mr. Chairman and members of the Committee, I appreciate this
opportunity to present the Federal Reserve's midyear report on monetary
policy.
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Overall, the performance of the U.S. economy continues to be
impressive. Over the first part of the year, we experienced further gains
in output and employment, subdued prices, and moderate long-term interest
rates. Important crosscurrents, however, have been impacting the economy.
With labor markets very tight and domestic final demand retaining
considerable momentum, the risks of a pickup in inflation remain
significant. But inventory investment, which was quite rapid late last
year and early this year, appears to have slowed, perhaps appreciably.
Moreover, the economic and financial troubles in Asian economies are now
demonstrably restraining demands for U.S. goods and services -- and those
troubles could intensify and spread further. Weighting these forces, the
Federal Open Market Committee chose to keep the stance of policy unchanged
over the first half of 1998. However, should pressures on labor resources
begin to show through more impressively in cost increases, policy action
may need to counter any associated tendency for prices to accelerate
before it undermines this extraordinary expansion."
-- Excerpt from the Monetary Policy Testimony and Report to Congress
Before the Subcommittee on Domestic and International Monetary Policy of
the Committee on Banking and Financial Services, U.S. House of
Representatives, July 21, 1998.
Beating Up the Little Guys
While investors worry about a substantial correction or even bear market
for the Dow Jones Industrial Average ("DJIA") and S&P 500, small cap stocks are
already experiencing one. Although, as of the end of the second quarter of 1998,
the Russell 2000 is up modestly, approximately 60% of all Nasdaq listed stocks
are off 20% or more from their 52 week highs. What's wrong with small cap
stocks? In our opinion, nothing. In fact, as aforementioned, we believe that
small companies operating primarily in the domestic market are far less
vulnerable to Asian economic problems than the large multinationals. This has
not prevented investors from abandoning small cap stocks to chase large cap
stock returns. Is this likely to change in the foreseeable future? We do not
know and in a sense, do not care. We are patient value investors who count on
Mr. Market's mood swings to allow us to buy quality companies at discount
prices. The fact that Mr. Market, perhaps fueled by the migration of assets into
S&P 500 index funds, is mindlessly lavishing attention on large companies and
ignoring more fundamentally attractive smaller ones, makes it easier for us to
pick up small cap stock bargains.
Deal Activity Surfaces Value
A component of our investment methodology is to identify industry and
sector trends and themes ahead of the curve and position ourselves to benefit
from these developments. Industry consolidation is one such trend. As we have
discussed in previous letters, the continued strong merger and acquisition
activity is providing a tailwind to the performance of the Fund this year. The
accompanying tables illustrate how deal activity surfaced value in a small
sample of the portfolio holdings.
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1998 Completed Deals
Fund Holding Closing Date % Return(a)
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Ticketmaster Group Inc. 6/24 24.6%
Culligan Water Technologies Inc. 6/16 11.2
Handy & Harman 4/06 2.2
Percentage Changes through 6/30/98 for Announced Deals
Second Year-to-Date
Current Fund Holdings Quarter Return(b) Return(b)
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Cable Michigan 52.9% 70.5%
360(degree)Communications Co. 6.0 64.1
Tele-Communications Inc. 23.6 37.6
Echlin Inc. (6.4) 35.6
Southern New England Telecommunications Corp. (9.2) 31.9
Giant Food Inc. 11.5 28.5
PolyGram NV 9.7 6.7
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(a) Represents changes in share price and dividends paid from December 31,
1997 through the closing date.
(b) Represents changes in share price and dividends paid from the beginning of
the period through June 30, 1998.
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The Envelope Please. The Winners Are . . .
With only a few exceptions, our media, telecommunications, and financial
holdings posted positive returns this quarter. These industry groups are all
benefiting from powerful and in our opinion, sustainable trends. Leading media
companies like Time Warner, Seagrams, and News Corp. were all applauded for
making bold moves to extend their global franchises. At the end of the quarter,
cable television stocks like Tele-Communications, Inc. (TCI), Comcast and
Cablevision soared following the announcement of the AT&T/TCI deal. Telephone
stocks like Sprint and AirTouch continued to make progress as investors
acknowledged these companies' competitive advantages in arguably the greatest
growth industry worldwide. Financial stocks such as American Express and
Deutsche Bank posted strong gains.
And Some Losers
As can be expected in light of Asian economic turmoil, Deere and Boeing
got hit hard this quarter. Deere's problem is not so much from international
competition for its state-of-the-art farm equipment, but from the impact of weak
foreign currencies and economies on the American farmer. American agricultural
exports to Asia and the former Soviet Union will likely trend down. Competition
from Latin American agricultural exporters will heat up. These global dynamics,
coupled with the absence of agricultural price supports, will likely pinch the
pockets of American farmers, who will probably be more reluctant to invest in
new Deere equipment. Boeing is seeing its backlog reduced by cancellation of
orders from Asian airlines. This comes at a time when the company is still
struggling with production problems. With the price of oil declining to a twelve
year low, oil service stocks like Halliburton took it on the chin.
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Should we have followed momentum investors out of these stocks? That is
not our style. We believe these companies still have strong global franchises
and very attractive long term business prospects. We have always been willing to
tolerate poor short term, market related performance from portfolio companies we
believe are positioned to provide superior long term results.
The Bottom of the Barrel?
The price of a barrel of oil declined to a twelve year low in the second
quarter of 1998. The market appears to have priced in all the bad news: the warm
El Nino winters, slackening Asian demand, and excess OPEC production. We point
out that despite Asia's woes, worldwide demand for oil is expected to be up
modestly in 1998. According to the National Weather Service, El Nino is not
likely to revisit us next winter. OPEC has made some modest production cuts
already and will likely try to turn down the tap further in the year ahead. We
doubt oil prices will explode from current levels. But long-term supply/demand
trends support our increasingly positive view on the energy sector. This should
ultimately put some life in moribund energy stocks.
Too Much of a Good Thing?
Investors' cool response to the Norwest Bank/Wells Fargo and
Citicorp/Travelers mergers and the government's new found sensitivity to the
further consolidation of American industry has led some market observers to
proclaim the end of what we have termed the third great wave of takeovers.
Upon his widely rumored demise, Mark Twain said, "The reports of my death
are greatly exaggerated". We echo these sentiments in regard to the premature
obituary for deals. We will likely see fewer deals in those industries like
aerospace that have already undergone extensive consolidation. Also, with some
takeover yeast baked into bank stock valuations, future deals may not be at the
kind of premium prices seen in recent years.
But, we believe the "urge to merge" will remain strong in many other
industry groups. We expect to see more mega-deals in the telecommunications
business as the big hitters jockey for position in this globally deregulated
business. We anticipate more big media deals as the leaders extend their global
franchises. Manufacturing companies are still looking to acquire complimentary
product lines and boost global market shares. Importantly, small companies have
become cheaper making them even more attractive targets at a time when lower
long term capital gains tax rates have made it more profitable for
owner/managers to cash in the chips.
As for government meddling? We agree with Federal Reserve Board Chairman
Alan Greenspan's recent comments to Congress that deals are a natural part of
the free market process. There is certainly ample evidence worldwide that
consolidation helps energize economies. As we expect the Clinton Administration
learned from the healthcare debacle, if it isn't broken, there is little
political incentive to try to fix it. While the job dislocation that generally
accompanies consolidation is an issue that lends itself to political football,
with today's strong labor market, we don't think it will evolve into any
government restraints on deals without legitimate antitrust implications.
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Dialing Up a Big Deal - "Ma Bell" is Now Riding Motorcycles
Deregulation and technology have been driving change in the global
telecommunications industry. The need for speed is swiftly changing the "dial
tone" into the "web tone" as the telephone, computer and television converge
into one all purpose interactive information and entertainment instrument.
Convergence has just taken a leap forward with the prospective merger of AT&T
and cable television leader Tele-Communications, Inc.
Does the proposed AT&T/TCI combination make sense? We think so. The
transaction gives AT&T the digital platform to compete in the local telephone
business. It also allows them to bundle long distance, local telephony, internet
access and entertainment programming services on one line, passing approximately
one third of all U.S. homes.
How will this change the global telecommunications/media landscape? It
opens the door for other long distance companies to break into local telephone
monopolies and perhaps for local telephone operators to further their inroads to
the long distance business. It dramatically increases the value of the cable
television industry's millions of coaxial connections into homes worldwide. It
will push the pace in which telephone infrastructure is upgraded to match
cable's digital and high speed capacity. It puts increasing pressure on every
global telecommunications company to create business combinations that will
allow them to compete with the full range of services that AT&T/TCI would be
capable of delivering. Finally, as additional business combinations are formed,
'content and creativity' providers could continue to be viewed as appetizing
targets.
International Segment
A portion of the Equity Trust's portfolio continues to be managed by
Caesar Bryan. Caesar also manages the Gabelli International Growth Fund and is a
co-manager of the newly launched Gabelli Global Opportunity Fund. Below are
Caesar's thoughts on international markets and global economies:
Europe took another important step towards integration at the beginning of
May when European leaders reached an agreement as to which countries would join
the single currency. There were no surprises and out of fifteen European Union
member countries, those not joining the euro club at the outset include the
United Kingdom, Sweden, Denmark and Greece. After considerable haggling , it was
also decided that a former central banker and finance minister from Holland, Wim
Duisenberg, will head the European Central Bank which will be headquartered in
Frankfurt. Beginning on January 1, 1999, responsibility for European monetary
policy will transfer from national central banks, such as the Bundesbank and the
Bank of France, to the European Central Bank. For investors, Mr. Duisenberg is
about to become a very important person.
Economic activity in continental Europe has accelerated and hopefully
France's victory in the World Cup will put French consumers in a better mood.
However, with unemployment levels remaining very high and little evidence of
inflation, it is unlikely that interest rates will be raised during the
remainder of the year. In this event, the euro will begin life with an interest
rate structure similar to that which currently exists in France and Germany,
where short term interest rates are about 3.5%. Therefore, rates in other
European countries, such as Spain and Italy, have further to fall. Italy, a
country with a very high savings rate, has never before experienced interest
rates
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at current low levels. This has caused savers to shift assets from traditional
fixed bank deposits to equities. Indeed, one analyst quipped that the only
things that people are buying in Italy are mutual funds and cellular telephones.
Banca Commerciale Italiana and Telecom Italia Mobile, both significant holdings
in the Equity Trust, continued their strong performance during the second
quarter.
Many industries remain relatively fragmented in Europe and we expect a
continuing high level of corporate activity. The largest deal by far announced
during the quarter was Daimler Benz's proposed merger with Chrysler. This
sparked interest in other European auto manufacturers and the Equity Trust's two
holdings in the sector, namely Volkswagen and Renault, both performed strongly.
Volkswagen has agreed to buy Rolls Royce and is eager to do further deals to
round out its product offering. Renault's earnings are recovering sharply
following the success of recently introduced models.
Financial and telecom stocks continued their strong performance during the
quarter. In the former category Deutsche Bank, Skandia and SCOR performed well.
Warren Buffett's recently announced acquisition of General Re highlighted the
value in SCOR, which is one of Europe's largest reinsurance companies.
In the telecom sector, Vodafone, the U.K.-based cellular operator,
appreciated by over 20% during the quarter. Other solid performers were Invik,
Nestle, Swatch Group (formerly S.M.H.) and Pearson. The extent that these
companies have anything in common is that they are not particularly economically
sensitive and have pro-active managements working on our behalf.
On the other side of the coin, some of the winners from the first quarter
did not do well in the second quarter. These include Bank of Scotland and CGU
(formerly Commercial Union) in the United Kingdom and the two large Swiss
pharmaceutical companies, Novartis and Roche Holdings.
The market continued to punish companies involved in commodities or doing
significant business in the Far East. HSBC Holdings, based in Hong Kong,
Publishing and Broadcasting in Australia, and Independent Newspapers, which is
listed in Ireland, fall into this category. All three companies have strong
market positions.
Japan continues to misfire on all cylinders and remains in recession.
Indeed, the only bright spot in the economy up to now, due to the yen's
weakness, has been exports. And even exports are now declining on a year-to-year
basis.
Early in July, Japanese voters handed the ruling party a defeat in Upper
House elections and the Prime Minister has resigned. A new Prime Minister is
expected to be more aggressive in cleaning up the bad debt mess and encouraging
consumption through fiscal reform.
Japan's weakness is another blow to Southeast Asia, which is attempting to
recover from collapsing currencies and crippling levels of foreign debt. It is
important for the global economy that the "Asian Flu" is contained and does not
spread. Potential trouble spots, which we have to monitor closely, include
Russia, China and Brazil. The U.S. and European economies continue to perform
well and have actually been helped by lower commodity prices, which tend to
reduce inflation. However, with valuations at current levels, there is little
margin for error with regard to earnings disappointments.
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The Equity Trust's exposure to Southeast Asia has remained largely
unchanged during the quarter. Apart from HSBC Holdings which is based in Hong
Kong but is a global company, the Equity Trust's investments in the region are
limited to leading companies in Japan and Australia, such as News Corp and
Nintendo, which both performed strongly during the quarter. The decline in the
region's equity markets has been so severe that many of the region's markets are
now very small. For example, the Korean stock market is now the same size, in
terms of market capitalization, as the 45th largest company in the S&P 500
Index.
We certainly do not profess to be able to forecast the full effect of the
"Asian Flu" on the major world equity markets. However, we will continue to
invest in leading non-U.S. based companies, paying close attention to valuation
levels.
Let's Talk Stocks
The following are stock specifics on selected holdings of the Equity
Trust. Favorable EBITDA prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
American Express Co. (AXP - $114.00 - NYSE) is a global travel, financial and
network services provider. Founded in 1850, the company operates in 160
countries around the world. Best known for its "green" charge card and its
travel-related services, American Express also offers financial planning,
brokerage services, mutual funds, insurance and other investment products.
Harvey Golub, Chairman and CEO, has refocused AXP on its core charge card and
investment management businesses. The company continues to expand the reach of
its credit card operations.
BCE Inc. (BCE - $42.6875 - NYSE), the holding company for Bell Canada, is
Canada's largest telecommunications company. BCE has controlling interests in
Northern Telecom (NT - $56.75 - NYSE) and BCE Mobile Communications (BCX -
$26.00 - NYSE). These are substantial values for BCE. For example, "behind" each
share of BCE there are 0.4 shares of Northern Telecom. This NT interest, marked
to market, is worth over $22 per BCE share. The company is a possible candidate
for break-up. In the interim, the Canadian Radio and Television Commission is
providing a more attractive operating environment in which BCE is becoming more
competitive.
Berkshire Hathaway Inc. (BRK'A - $78,305.00 - NYSE), based in Omaha, Nebraska,
is a diversified company with operations primarily in property casualty
insurance (GEICO), candy manufacturing (See's), newspapers, home furnishings
retailing and fine jewelry. The company is the publisher of the World Book
Encyclopedia and owns Dairy Queen. Under the guidance of Warren Buffett and
Charles Munger, periodic large equity investments in other corporations are
made. Berkshire Hathaway recently agreed to acquire General Re Corp., the
nation's largest reinsurance company, for $23.5 billion in stock.
Cablevision Systems Corp. (CVC - $83.50 - ASE), based in Woodbury, NY, owns and
operates cable television systems in 18 states serving 2,844,000 basic service
subscribers at year end 1997. CVC's revenue per subscriber is
10
<PAGE>
the highest in the cable industry. CVC has exercised its option to purchase
ITT's 50% stake in MSG (Madison Square Garden) Properties, including the NY
Knicks and NY Rangers. In March, Cablevision purchased Tele-Communications
Inc.'s New York area cable properties with 829,000 subscribers by issuing almost
24.5 million shares (adjusted for the March 30, 1998 two-for-one stock split)
and assuming $670 million of TCI's debt. These shares represent a one-third
stake in CVC. The company's new, vigorous activity includes the sale of a 40%
stake in Rainbow Sports to a News Corp./TCI joint venture with the proceeds used
to pay down a significant portion of MSG's debt. With its upgraded cable
systems, CVC is well-positioned to offer telephony, high speed data and enhanced
video services.
Chris-Craft Industries Inc. (CCN - $54.6875 - NYSE), through its 79% ownership
of BHC Communications (BHC - $140.3125 - ASE), is primarily a television
broadcaster. BHC owns and operates UPN affiliated stations in New York (WWOR),
Los Angeles (KCOP) and Portland (KPTV). BHC also owns 59% of United Television
(UTVI - $114.50 - Nasdaq), which operates an NBC affiliate, an ABC affiliate and
four UPN affiliates. United Television has purchased WHSW in Baltimore for $80
million and has an agreement to purchase WRBW, a UPN affiliate in Orlando, for
$60 million. Chris-Craft's television stations constitute one of the nation's
largest television station groups, reaching approximately 22% of U.S.
households. The Chris-Craft complex is debt free and strongly positioned to
expand its operations with roughly $1.5 billion in cash and marketable
securities.
----------------------
Chris-Craft Industries
----------------------
79%
----------------------
BHC Communications
----------------------
59%
----------------------
United Television
----------------------
DeKalb Genetics Corp. (DKB - $94.625 - NYSE), an agricultural genetics and crop
biotechnology company, develops and sells hybrid seeds and is the second largest
supplier of hybrid seed corn. DeKalb was recently put up for sale by the
founding Roberts family. Monsanto (MTC - $55.875 - NYSE), which already owns 40%
of DeKalb, won the three-month-long auction and is to pay $100 in cash for each
additional share, or $2.3 billion.
Giant Food Inc. (GFS'A - $43.0625 - ASE) operates a chain of over 170
supermarkets, mostly food and drug combination stores, primarily in the
Washington, DC and Baltimore metropolitan areas. The company is expanding from
this base into New Jersey, Pennsylvania and Delaware. J. Sainsbury plc, one of
the largest supermarket retailers in the United Kingdom, was the owner of a
non-controlling 50% of Giant's voting shares, in addition to approximately 20%
of the non-voting shares. The Dutch food retailer Royal Ahold NV (AHO - $32.00 -
NYSE) paid Sainsbury $613 million for its Giant Food stake and has purchased the
remaining Giant Food shares for $43.50.
Time Warner Inc. (TWX - $85.4375 - NYSE), having completed its acquisition of
Turner Broadcasting, is the global leader in media and entertainment. The
combined companies have more than $24 billion in revenues and almost $5.4
billion in EBITDA. Together they control a host of powerful media brands, such
as CNN, Warner Brothers, HBO, Cinemax and Time and People magazines. Under the
leadership of Chairman Gerald Levin and Vice Chairman Ted Turner, Time Warner is
now focused on reducing its almost $12 billion in debt and simplifying its
capital structure.
11
<PAGE>
United Television Inc. (UTVI - $114.50 - Nasdaq) is a television broadcasting
company which owns and operates six television stations: one ABC, one NBC and
four UPN affiliates. UTVI recently purchased WHSW in Baltimore for $80 million.
The purchase of WRBW, a UPN affiliate in Orlando, for $60 million is pending.
UTVI stations will cover approximately eight percent of the U.S. population.
UTVI is a 59%-owned subsidiary of BHC Communications (BHC - $140.3125 - ASE).
Strong advertising demand, prospects for favorable regulatory changes in the
industry and corporate cost controls should increase EBITDA growth going
forward.
Viacom Inc. (VIA - $58.50 - ASE), long a major provider of entertainment
"content", has evolved into one of the world's dominant media companies.
Following its acquisitions of Paramount Communications and Blockbuster
Entertainment, the company is now divesting non-core assets to reduce its debt
of approximately $10 billion and is focusing on the global expansion of its
media franchises. The company divested its cable systems subsidiary in a
transaction with Tele-Communications Inc. which reduced Viacom's debt by $1.7
billion and the number of common shares outstanding by about four percent. Its
radio group, Evergreen Media, is being sold for $1.1 billion in cash. Its
publishing business, Simon & Schuster, has been put up for sale. Viacom is
well-positioned in music (notably MTV) and cable networks (such as Nickelodeon).
Shareholder Meeting - May 11, 1998 - Final Results
The Annual Meeting of shareholders was held on May 11, 1998 at the
Greenwich Library in Greenwich Connecticut. At that meeting, shareholders
re-elected Mario J. Gabelli, Thomas E. Bratter and Felix J. Christiana and
elected Frank J. Fahrenkopf, Jr. as Directors of the Equity Trust. A total of
52,100,044 votes, 52,091,616 votes, 51,996,889 votes and 51,852,070 votes were
cast in favor of each Director and 1,003,284 votes, 1,011,713 votes, 1,106,439
votes and 1,251,258 votes were withheld for each Director, respectively.
Bill Callaghan, James P. Conn, Karl Otto Pohl, Anthony R. Pustorino and
Salvatore J. Zizza continue to serve in their capacities as Directors of the
Equity Trust.
At the meeting, the shareholders also ratified the selection of
PricewaterhouseCoopers LLP as the independent accountants for the Equity Trust
for the year ending December 31, 1998. 51,663,462 votes were cast in favor of
the approval of this proposal, 609,066 votes were cast against the proposal and
830,799 votes abstained, including broker non-votes.
In addition, the shareholders ratified the Equity Trust's authority to
issue senior securities. 44,580,802 votes were cast in favor of the approval of
this proposal, 5,920,812 votes were cast against the proposal and 2,601,711
votes abstained, including broker non-votes. We thank you for your participation
and appreciate your continued support.
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, IRAs, 401(k)s, quarterly reports, closing prices and other
current news. You can send us e-mail at [email protected].
12
<PAGE>
10% Distribution Policy
The Equity Trust continues to maintain its 10% Distribution Policy whereby
the Equity Trust pays out 10% of its average net assets each year. Pursuant to
this policy, the Equity Trust distributed $0.27 per share on June 26, 1998. The
next distribution is scheduled for September 1998.
In Conclusion
We believe it is still too early to accurately assess the impact of Asian
economic distress on the U.S. economy and corporate earnings. However, Asia's
problems may prolong investment uncertainty and restrain stock prices, perhaps
for the balance of the year. Looking farther ahead, we believe equities will
still provide investors with superior risk adjusted returns relative to other
asset classes and that our value discipline will enable us to provide
satisfactory returns over the long term.
Sincerely,
/s/ Mario J. Gabelli
Mario J. Gabelli
President and Chief Investment Officer
August 1, 1998
------------------------------------------------------
Top Ten Holdings
June 30, 1998
Chris-Craft Industries, Inc. Viacom Inc.
Cablevision Systems Corp. Time Warner Inc.
American Express Co. BCE Inc.
United Television Inc. Giant Foods Inc.
Dekalb Genetics Corp. Berkshire Hathaway
------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio managers
only through the end of the period of this report as stated on the cover. The
managers' views are subject to change at any time based on market and other
conditions.
13
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
Quarter Ended June 30, 1998
(Unaudited)
Ownership at
June 30,
Shares 1998
---------- ------------
NET PURCHASES
Common Stocks
Allegiance Telecom Inc. ............... 4,000 4,000
Allied Group Inc. ..................... 70,800 70,800
American Bankers Insurance
Group, Inc. ......................... 42,000 52,000
American Stores Co .................... 220,000 220,000
AMP Inc. .............................. 27,000 87,000
AMR Corp. (a) ......................... 40,000 98,000
Arco Chemical Co. ..................... 196,000 196,000
Argonaut Group, Inc. .................. 2,000 8,000
Aztar Corp ............................ 5,000 85,000
Banco Pastor SA (a). .................. 10,500 21,000
Bestfoods Inc. (a) .................... 15,000 30,000
Cable & Wireless
Jamaica Ltd (b) ..................... 2,040,000 2,040,000
Carter-Wallace Inc. ................... 5,000 505,000
Central Newspaper Cl.A ................ 1,500 1,500
Century Telephone
Enterprises Inc. (c) ................ 72,500 217,500
CGU PLC (d) ........................... 75,342 75,342
Chris-Craft Industries Inc. ........... 5,150 346,673
CLARCOR Inc. (c) ...................... 34,900 104,700
Coldwater Creek Inc. .................. 13,000 18,000
Corn Products International, Inc. ..... 9,250 28,250
Dekalb Genetics Corp. Class B ......... 310,000 310,000
Dynatech Corporation .................. 15,000 30,000
EMI Group plc ......................... 84,713 108,000
Exel Limited .......................... 20,000 20,000
Florida East Coast
Industries Inc. (e). ................ 33,000 44,000
Flowserve Corp. ....................... 7,500 22,500
Frontier Corp. ........................ 5,000 55,000
GATX Corp. (a) ........................ 59,022 118,044
Gaylord Entertainment
Co., Cl. A .......................... 2,000 110,000
GC Companies Inc. ..................... 5,000 65,000
General Cigar Holdings Inc.
Class B. ............................ 105,000 105,000
Giant Food Inc., Cl. A ................ 253,000 480,000
Hartwall Oy AB (f). ................... 36,000 45,000
Independent Newspapers
Ltd., ORD ........................... 10,000 238,000
Indus Holding AG ...................... 5,000 10,000
ITT Industries Inc. ................... 60,000 260,000
Keebler Foods Corp. ................... 2,000 2,000
Leucadia National Corporation ......... 1,000 6,000
Loewen Group Inc. ..................... 3,000 103,000
Lucent Technologies Inc. (a). ......... 15,000 33,000
MediaOne Group Inc. (g) ............... 305,000 305,000
Mercantile Stores Co. Inc. ............ 100,000 100,000
Merkantildata (f) ..................... 42,000 52,500
Midland Co. (h) ....................... 77,800 116,700
MIF Ltd. (i) .......................... 673 31,273
Moevenpick Holding AG ................. 500 740
Nortek Inc. ........................... 10,000 140,000
NRJ SA ................................ 500 3,750
Oerlikon-Buhrle Holding AG ............ 1,250 9,000
Pegasus Gold Inc. ..................... 165,000 914,000
Pennzoil Co. .......................... 10,000 90,000
Pittway Corp., Cl. A .................. 4,500 82,500
PolyGram NV ........................... 8,000 20,000
RCN Corporation (a). .................. 143,000 295,000
Reader's Digest Association Inc.,
Class A ............................. 12,000 12,000
Reader's Digest Association Inc.,
Cl. B ............................... 30,000 130,000
Reckitt & Colman PLC .................. 10,000 10,000
Republic Services Inc., Cl. A ......... 3,000 3,000
Reuters Holdings plc, Cl. B,
Sponosred ADR ....................... 10,833 10,833
Safra Republic Holdings SA (a) ........ 7,000 14,000
Schroders Ltd. ....................... 15,000 15,000
Sealed Air Corp. ...................... 80,000 80,000
Skandia Forsakrings AB (f). ........... 89,000 115,000
Swatch Group AG (j). .................. 1,200 1,200
TCI Satellite Entertainment Inc.,
Cl. A ............................... 5,000 80,000
Telefonica de Espana, Sponsored
ADR (k) ............................. 3,000 51,000
Triangle Pacific Corp. ................ 16,000 16,000
UBS AG (c) ............................ 2,000 2,000
Ucar International Inc. ............... 22,000 22,000
United Television Inc. ................ 4,600 279,106
USA Networks, Inc. (l) ................ 112,600 212,600
US Filter Corp. (m) ................... 37,500 37,500
PREFERRED STOCKS
Sealed Air Corp., Pfd. ................ 15,000 15,000
Telesp Celular SA, Pfd. B (n) ......... 2,223,575 2,223,575
COMMON STOCK WARRANTS AND RIGHTS
Colonial Limited Inc, Rights (o) ...... 47,497 47,497
Principal
Amount
--------
CORPORATE BONDS
Rogers Communications Inc.,
7.5% due 09/01/1999 ................. $ 100,000 $ 100,000
14
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES -- (Continued)
Quarter Ended March 31, 1997
(Unaudited)
Ownership at
June 30,
Shares 1998
---------- ------------
NET SALES
Common Stocks
360(degree)Communications Co. ......... (5,000) 95,000
Alliance et Gestion ................... (1,000) 7,625
Amphenol Corp., Cl. A ................. (500) 137,500
AptarGroup Inc. ....................... (4,500) 5,000
Bruno's Inc. .......................... (5,000) 115,000
Cablevision Systems Corp., Cl. A ...... (10,000) 430,000
Centennial Cellular Corp., Cl. A ...... (7,000) 50,000
Cheung Kong (Holdings) Ltd. ........... (74,000) --
Clariant AG (p) ....................... (700) --
Commercial Union plc.(d) .............. (75,342) --
Computer Sciences Corporation ......... (170,000) --
Contextvision AB ...................... (10,000) --
Crown Books Corp. ..................... (30,000) --
CTS Corp. ............................. (5,000) 45,000
Culligan Water Technologies
Inc. (m) ............................ (25,000) --
Dow Jones & Co. Inc. .................. (5,000) 85,000
Elsag Bailey Process
Automation N.V. ..................... (5,000) 15,000
EMI Group plc, Sponsored ADR .......... (84,713) 23,287
E.I. du Pont de Nemours and Co. ....... (16,000) 4,000
General Cigar Holdings Inc. ........... (70,000) 50,000
GTE Corp. ............................. (5,000) 265,000
Handy & Harman (q) .................... (95,000) --
Hilton Hotels Corp. ................... (5,000) 345,000
Illinois Central Corporation (r) ...... (873) --
Landauer Inc. ......................... (5,000) 100,000
Lehman Brothers Holdings Inc. ......... (11,300) 69,000
LucasVarity plc ....................... (4,000) 6,000
Manitowoc Co. Inc. .................... (1,200) 30,000
Mark IV Industries Inc. ............... (3,000) 142,000
NEC Corp., Sponsored ADR .............. (45,000) 1,500
Neiman Marcus Group Inc. .............. (2,000) 330,000
New Germany Fund ...................... (2,000) 68,000
New York Times Co., Cl. A ............. (1,000) 84,000
Pfizer Inc. ........................... (10,000) 15,000
Pittway Corp. ......................... (8,000) 205,000
Rieter Holding AG ..................... (750) --
SMH AG (j). ........................... (1,200) --
Southern New England
Telecommunications Corp. ............ (5,000) 30,000
Swedish Match AB ...................... (25,000) 250,000
Telecom Italia SpA,
Sponsored ADR ....................... (1,000) 170,000
Telecomunications of
Jamaica Ltd. (b) .................... (2,040,000) --
Tenneco Inc. .......................... (5,000) 100,000
Ticketmaster Group Inc. (l) ........... (100,000) --
Unitrin Inc. .......................... (1,000) 26,000
US WEST Media Group (g) .............. (296,670) 8,330
Wrigley (Wm.) Jr. Co. ................. (1,000) 73,000
PREFERRED STOCKS
KSB AG, Pfd. .......................... (1,000) 3,000
ProSieben Media AG .................... (2,000) 7,750
Village Roadshow Ltd., PFD. ........... (183,856) --
- ----------
(a) 2 for 1 stock split
(b) Name change from Telecomunications of Jamaica to Cable & Wireless Jamaica
Ltd.
(c) 3 for 2 stock split
(d) Name change from Commercial Union plc to CGU PLC
(e) 4 for 1 stock split
(f) 5 for 1 stock split
(g) Name change from US West Media to MediaOne Group
(h) 3 for 1 stock split
(i) 2.2% bonus issue
(j) Name change from SMH AG to Swatch Group AG
(k) 1 to1 rights issue
(l) Merger-- 1 share USA Networks, Inc. For 1.126 share Tickermaster Group Inc.
(m) Merger-- 1 share of US Filter Corp. for 1.875 Culligan Water Technologies
(n) Spin off from Telesp Pfd.
(o) 1 for 5 rights issue
(p) 2 for 1 subdivision
(q) Tender at $35.25
(r) Tender at $39.00
15
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS -- 87.2%
Equipment And Supplies -- 9.1%
30,000 Aeroquip-Vickers Inc. ........... $ 995,425 $ 1,751,250
85,000 AMETEK Inc. ..................... 1,133,614 2,491,563
190,000 Ampco-Pittsburgh Corp. .......... 2,557,510 2,921,250
137,500 Amphenol Corp., Cl. A + ......... 3,564,688 5,362,500
5,000 AptarGroup Inc. ................. 83,738 310,938
12,000 Caterpillar Inc. ................ 163,932 634,500
104,700 CLARCOR Inc. .................... 1,294,491 2,198,700
45,000 CTS Corp. ....................... 481,703 1,341,563
345,000 Deere & Co. (d) ................. 3,335,659 18,241,864
312,000 Donaldson Co. Inc. .............. 1,816,437 7,351,500
20,000 EG&G Inc. ....................... 354,638 600,000
22,500 Flowserve Corp. ................. 270,813 548,438
6,500 Franklin Electric Co. ........... 210,023 442,000
107,500 Gerber Scientific Inc. .......... 1,176,688 2,445,625
230,750 Hussmann International, Inc. .... 2,743,525 4,326,563
350,000 IDEX Corp. ...................... 2,271,076 12,075,000
10,000 Indus Holding AG ................ 350,158 398,758
50,000 Lufkin Industries Inc. .......... 908,349 1,650,000
30,000 Manitowoc Co. Inc. .............. 300,850 1,211,250
142,000 Mark IV Industries Inc. ......... 1,528,781 3,070,750
498,500 Navistar International
Corp. + ....................... 8,224,819 14,394,176
20,000 PACCAR Inc. ..................... 450,000 1,045,000
205,000 Pittway Corp. ................... 9,666,490 15,631,250
82,500 Pittway Corp., Cl. A ............ 1,416,520 6,094,688
80,000 Sequa Corp., Cl. A + ............ 3,159,916 5,340,000
75,000 Sequa Corp., Cl. B + ............ 3,888,160 5,925,000
170,000 SPS Technologies Inc. + ......... 2,920,863 9,945,000
12,000 TI Group plc .................... 126,225 91,166
37,500 US Filter Corp. ................. 519,861 1,052,344
20,000 Watts Industries Inc., Cl. A .... 415,830 417,500
----------- ------------
56,330,782 129,310,136
----------- ------------
Financial Services -- 9.0%
70,800 Allied Group Inc. ............... 3,295,094 3,314,325
52,000 American Bankers Insurance
Group, Inc. ................... 3,350,600 3,126,500
285,000 American Express Co. (d) ........ 4,986,225 32,490,000
8,000 Argonaut Group, Inc. ............ 277,508 253,000
400,000 Banca Commerciale Italiana ...... 908,418 2,393,134
21,000 Banco Pastor SA ................. 633,260 1,184,545
66,000 Banco Santander SA, ADR ......... 939,291 3,345,375
80,631 Bank of Ireland ................. 813,417 1,652,467
120,782 Bank of Scotland ................ 725,022 1,353,206
260 Berkshire Hathaway Inc.,
Cl. A + ....................... 824,299 20,359,300
300,000 Berliner Bank
Aktiengesellschaft ............ 6,004,015 6,189,341
237,482 Colonial Limited (c) ............ 573,208 719,395
75,342 CGU PLC ......................... 899,407 1,406,428
46,000 Commerzbank AG,
Sponsored ADR ................. 1,074,067 1,759,500
14,400 Corporacion Mapfre .............. 385,405 505,197
163,000 Deutsche Bank AG,
Sponsored ADR ................. 7,120,260 13,737,710
30,000 Dundee Bancorp Inc., Cl. A + .... 638,757 473,990
4,000 Exel Limited .................... 295,216 311,250
25,000 Hibernia Corp. .................. 198,750 503,125
92,000 H&R Block Inc. .................. 3,097,432 3,875,500
30,695 HSBC Holdings plc ............... 777,005 750,736
20,666 Invik & Co. AB, Cl. B ........... 929,248 1,619,592
125,000 Istituto Nazionale delle
Assicurazioni ................. 390,865 355,284
69,000 Lehman Brothers Holdings
Inc. .......................... 1,561,604 5,351,813
6,000 Leucadia National
Corporation ................... 227,969 198,375
2,000 Mellon Bank Corporation ......... 123,183 139,250
116,700 Midland Co. ..................... 1,243,686 2,669,510
15,000 Morgan (J.P.) & Co. Inc. ........ 1,262,337 1,756,875
35,000 Nomura Securities
Company, Ltd. ................. 497,665 408,802
10,833 Reuters Holdings plc, Cl. B,
Sponosred ADR ................. 815,788 742,061
60,000 Riggs National Corp. ............ 552,538 1,753,125
14,000 Safra Republic Holdings SA ...... 698,000 1,050,000
15,000 Schroders, Plc .................. 428,939 388,957
20,000 SCOR SA ......................... 773,680 1,268,670
115,000 Skandia Forsakrings AB .......... 669,447 1,643,887
74,000 Skandinaviska Enskilda
Banken ........................ 843,194 1,266,583
40,000 State Street Corp. .............. 1,417,370 2,780,000
See accompanying notes to financial statements.
16
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (continued)
Financial Services (continued)
20,000 SunTrust Banks Inc. ............. $ 419,333 $ 1,626,250
8,000 Trimark Financial
Corporation ................... 391,417 247,358
2,000 UBS AG. ......................... 701,145 744,899
26,000 Unitrin Inc. .................... 850,527 1,807,000
----------- ------------
52,614,591 127,522,315
----------- ------------
Telecommunications -- 8.9%
40,000 Aliant Communications Inc. ...... 593,225 1,097,500
4,000 Allegiance Telecom Inc. ......... 60,000 60,000
67,000 AT&T Corp. ...................... 2,232,628 3,827,375
87,000 BC TELECOM Inc. ................. 1,563,919 3,254,276
545,000 BCE Inc. ........................ 10,484,925 23,264,676
75,000 Cable & Wireless plc,
Sponsored ADR ................. 1,581,417 2,760,938
2,040,000 Cable & Wireless Jamaica Ltd. ... 101,642 134,640
2,000 Cincinnati Bell Inc. ............ 16,050 57,250
35,000 Compania de
Telecomunicaciones de
Chile SA, Sponsored ADR+ ...... 592,324 710,938
80,000 Commonwealth Telephone
Enterprises, Inc. + ........... 695,564 2,110,000
20,000 Commonwealth Telephone
Enterprises, Inc. Cl. B+ ...... 128,902 525,000
70 DDI Corp. ....................... 359,307 244,522
55,000 Frontier Corp. .................. 1,220,157 1,732,500
265,000 GTE Corp. (d) ................... 5,521,802 14,740,620
35,000 Hong Kong
Telecommunications Ltd.,
Sponsored ADR ................. 619,835 660,625
10,000 Maritime Telegraph and
Telephone Co. Ltd. ............ 162,918 283,714
10,000 Motorola Inc. ................... 187,870 525,625
95 Nippon Telegraph and
Telephone Corp. ............... 739,864 790,121
295,000 RCN Corporation ................. 1,900,908 5,715,625
56,000 SBC Communications Inc. ......... 507,348 2,240,000
30,000 Southern New England
Telecommunications Corp. ...... 1,615,964 1,965,000
250,000 Sprint Corp. (d) ................ 2,831,164 17,625,000
10,000 Telecom Argentina Stet-
France Telecom S.A.,
Sponsored ADR ................. 227,333 298,125
400,041 Telecom Italia SpA ORD .......... 851,138 2,946,123
170,000 Telecom Italia SpA,
Sponsored ADR ................ 3,336,680 12,495,000
167,000 Telecomunicacoes
Brasileiras SA (Telebras),
Sponsored ADR ................. 2,928,605 18,234,310
10,000 Telefonica de Argentina
S.A., ADR, Cl. B .............. 274,045 324,375
51,000 Telefonica de Espana,
Sponsored ADR ................. 1,941,994 7,092,188
20,000 Telefonos De Mexico SA,
Cl. L, ADR .................... 733,042 961,250
8,330 U.S. WEST Inc. + ............... 218,462 391,489
----------- ------------
44,229,032 127,068,805
----------- ------------
Broadcasting -- 7.0%
50,000 Ackerley Group Inc. ............. 544,975 1,050,000
346,673 Chris-Craft Industries Inc. ..... 5,082,462 18,958,680
558,865 Chris-Craft Industries Inc.,
Cl. B (a) ..................... 8,836,280 30,562,930
25,000 Gray Communications
Systems Inc. .................. 493,649 809,375
275,000 Grupo Televisa S.A., GDR + ...... 6,151,302 10,346,875
54,532 Liberty Corp. ................... 2,619,602 2,743,641
3,750 NRJ SA .......................... 560,129 597,946
3,000 Pathe SA + ...................... 735,192 588,021
125,000 Paxson Communications
Corp., Cl. A + ................ 1,286,801 1,515,625
100,000 Television Broadcasting
Ltd. ORD ...................... 396,239 264,584
279,106 United Television Inc. .......... 18,983,596 31,957,633
----------- ------------
45,690,227 99,395,310
----------- ------------
Entertainment -- 5.5%
103,768 Ascent Entertainment
Group Inc. + .................. 936,953 1,154,419
40,000 CANAL+, Sponsored ADR ........... 1,355,000 1,493,968
23,287 EMI Group plc ................... 89,739 203,747
108,000 EMI Group plc, Sponsored
ADR ........................... 1,273,519 1,944,000
See accompanying notes to financial statements.
17
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (continued)
Entertainment (continued)
110,000 Gaylord Entertainment Co.,
Cl. A ........................ $ 2,823,053 $ 3,547,500
65,000 GC Companies Inc. + ............. 1,562,324 3,371,875
65,000 Granada Group plc ORD ........... 961,008 1,196,006
120,000 Havas, Sponsored ADR ............ 2,305,631 2,430,000
20,000 PolyGram NV ..................... 738,808 1,017,500
295,000 Time Warner Inc. ................ 10,589,278 25,204,060
65,000 Todd-AO Corp., Cl. A ............ 177,273 666,250
212,600 USA Networks, Inc. + ............ 2,910,436 5,341,575
480,000 Viacom Inc., Cl. A + ............ 10,060,286 28,080,000
30,000 Walt Disney Co. ................. 1,257,219 3,151,875
----------- ------------
37,040,527 78,802,775
----------- ------------
Cable -- 5.3%
40,125 Cable Michigan .................. 292,992 1,564,875
430,000 Cablevision Systems Corp.,
Cl. A + ....................... 8,927,446 35,905,000
40,000 Comcast Corp., Cl. A ............ 707,299 1,590,000
40,000 Comcast Corp., Cl. A
Special ...................... 533,414 1,623,750
305,000 MediaOne Group Inc. ............. 5,757,953 13,400,932
40,000 Shaw Communications Inc.,
Cl. B, Conv. (London) ......... 382,635 778,470
10,000 Shaw Communications Inc.,
Cl. B, Conv. (Toronto) ........ 61,583 194,353
301,547 Tele-Communications Inc.,
Cl. A ......................... 4,887,104 11,590,713
55,000 Tele-Communications
International Inc., Cl. A + ... 1,074,813 1,105,156
361,970 TCI Ventures Group + ............ 2,089,627 7,262,023
----------- ------------
24,714,866 75,015,272
----------- ------------
Food And Beverage -- 4.9%
28,108 Advantica Restaurant
Group, Inc. + ................. 258,546 274,050
30,000 Bestfoods Inc. .................. 1,507,812 1,741,875
18,000 Brau und Brunnen+ ............... 2,282,408 2,335,977
28,250 Corn Products International,
Inc. + ....................... 962,006 964,031
21,600 Diageo PLC, Sponsored ADR ....... 613,843 1,040,850
200,000 Fomento Economico
Mexicano SA, ADR
144A (c) ...................... 607,500 1,260,000
450,000 Foster's Brewing Group Ltd. ..... 857,334 1,061,483
40,520 General Mills Inc. .............. 1,851,311 2,770,555
45,000 Hartwall Oy AB .................. 517,989 1,445,242
2,000 Keebler Foods Co. ............... 56,875 55,000
100,000 Kellogg Co. ..................... 2,832,009 3,756,250
11,000 LVHM Moet Hennessy
Louis Vuitton, Sponsored
ADR ........................... 416,625 434,500
700 Nestle SA ....................... 827,951 1,500,495
335,000 PepsiCo Inc. .................... 8,599,600 13,797,812
240,000 Quaker Oats Co. ................. 8,140,547 13,185,000
40,000 Ralcorp Holdings Inc. + ......... 615,527 755,000
120,000 Seagram Co. Ltd. ................ 3,398,438 4,912,500
45,195 Tootsie Roll Industries Inc. .... 1,501,016 3,468,716
356,000 Whitman Corp. ................... 4,792,266 8,188,000
73,000 Wrigley (Wm.) Jr. Co. ........... 3,292,884 7,154,000
----------- ------------
43,932,487 70,101,336
----------- ------------
Wireless Communications -- 4.5%
125,000 AirTouch Communications
Inc. + ........................ 2,902,429 7,304,688
133,000 Associated Group Inc.,
Cl. A + ....................... 354,616 5,453,000
133,000 Associated Group Inc.,
Cl. B + ....................... 354,616 5,286,750
50,000 Centennial Cellular Corp.,
Cl. A + ....................... 550,000 1,865,625
217,500 Century Telephone
Enterprises Inc. .............. 813,890 9,977,813
100,000 COMSAT Corp., Series 1 .......... 1,613,789 2,831,250
100,000 Loral Space &
Communications Ltd. + ......... 1,242,688 2,825,000
5,000 NEXTEL Communications
Inc., Cl. A + ................. 78,950 124,375
250,000 Securicor Group plc ORD ......... 567,956 2,047,470
80,000 TCI Satellite Entertainment
Inc., Cl. A+ .................. 850,498 470,000
1,495,000 Telecom Italia Mobile SpA ....... 2,043,114 9,146,278
320,000 Telephone and Data
Systems Inc. .................. 3,119,613 12,600,000
See accompanying notes to financial statements.
18
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (continued)
Wireless Communications (continued)
95,000 360& Communications Co. ......... $ 776,232 $ 3,040,000
115,812 Vodafone Group plc ORD .......... 546,042 1,471,556
----------- ------------
15,814,433 64,443,805
----------- ------------
Publishing -- 3.8%
30,000 Arnoldo Mondadori Editore
SpA + ......................... 250,450 354,580
85,000 Dow Jones & Co. Inc. ............ 3,607,915 4,738,750
1,500 Central Newspapers Inc.,
Cl. A ......................... 105,638 104,625
215,000 Golden Books Family
Entertainment Inc. + .......... 3,361,485 826,406
50,000 Harcourt General Inc. ........... 2,329,563 2,975,000
238,000 Independent Newspapers
Ltd., ORD ..................... 1,075,899 1,279,888
50,000 McGraw-Hill Companies Inc. ...... 2,236,763 4,078,125
360,000 Media General Inc., Cl. A (d) ... 6,706,606 17,730,000
140,000 Meredith Corp. .................. 2,267,120 6,571,250
84,000 New York Times Co., Cl. A ....... 1,154,230 6,657,000
5,000 News Corp. Ltd., ADR ............ 54,120 160,625
140,000 News Corp. Ltd., ORD ............ 666,213 1,145,408
60,000 Pearson plc ORD ................. 729,454 1,099,998
85,000 Publishing & Broadcasting
Ltd. .......................... 416,624 366,708
12,000 Reader's Digest Association
Inc., Class A ................. 321,600 325,500
130,000 Reader's Digest Association
Inc., Class B ................. 3,378,246 3,526,250
65,000 Schibsted A/A ................... 1,261,301 1,094,148
1,500,000 Seat SpA + ...................... 321,923 1,013,086
200,000 South China Morning Post
Holdings ORD ................. 117,763 96,154
----------- ------------
30,362,913 54,143,501
----------- ------------
Consumer Products -- 3.7%
505,000 Carter-Wallace Inc. ............. 7,265,156 9,121,563
9,500 Christian Dior SA ............... 1,389,109 1,195,809
75,000 Church & Dwight Co. Inc. ........ 1,605,940 2,428,125
700 Compagnie Financiere
Richemont AG, Cl. A .......... 975,331 917,586
30,000 Eastman Kodak Co. ............... 1,792,538 2,191,875
57,000 First Brands Corp. .............. 735,613 1,460,625
170,000 Fortune Brands Inc. ............. 4,092,153 6,534,375
240,000 Gallaher Group plc .............. 3,905,111 5,250,000
50,000 General Cigar Holdings Inc. + ... 765,951 493,750
105,000 General Cigar Holdings Inc.
Class B+ ...................... 653,399 1,036,875
54,000 Harley Davidson Inc. ............ 270,075 2,092,500
33,000 National Presto Industries
Inc. .......................... 1,238,474 1,284,938
6,500 Nintendo Co. Ltd. ............... 520,367 609,713
10,000 Reckitt & Colman PLC ............ 206,737 191,014
145,000 Ralston Purina Co. .............. 5,133,822 16,937,810
1,200 Swatch Group AG ................. 700,980 928,746
250,000 Swedish Match AB ................ 847,212 830,721
----------- ------------
32,097,968 53,506,025
----------- ------------
Diversified Industrial -- 3.4%
70,909 Antofagasta Holdings plc ........ 480,668 298,952
100,000 Crane Co. ....................... 1,714,909 4,856,250
15,000 Elsag Bailey Process
Automation N.V. ............... 267,900 360,938
118,044 GATX Corp. ...................... 1,659,864 5,179,182
60,000 Honeywell Inc. .................. 3,708,044 5,013,750
260,000 ITT Industries Inc. ............. 6,111,304 9,717,500
390,000 Lamson & Sessions Co. + ......... 2,439,425 2,413,125
100,000 Lawter International Inc. ....... 1,097,383 1,087,500
100,000 National Service Industries
Inc. ......................... 2,203,498 5,087,500
30,715 Park-Ohio Holding Corp.+ ........ 390,720 568,227
80,000 Sealed Air Corp. ................ 3,175,778 2,940,000
100,000 Tenneco Inc. + .................. 3,871,706 3,806,250
78,000 Thomas Industries Inc. .......... 790,732 1,906,125
50,000 Trinity Industries Inc. ......... 918,546 2,075,000
26,000 Tyco International Ltd. ......... 541,378 1,638,000
100,000 Tyler Corp. + ................... 354,618 1,031,250
----------- ------------
29,726,473 47,979,549
----------- ------------
Agriculture -- 2.5%
325,000 Archer-Daniels-Midland Co. ...... 5,981,115 6,296,875
310,000 Dekalb Genetics Corp.
Class B ....................... 29,273,618 29,333,745
----------- ------------
35,254,733 35,630,620
----------- ------------
See accompanying notes to financial statements.
19
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (continued)
Automotive: Parts And Accessories -- 2.4%
110,000 Echlin Inc. ..................... $ 3,102,512 $ 5,396,875
140,000 GenCorp Inc. .................... 1,857,938 3,675,000
55,000 Genuine Parts Co. ............... 1,388,317 1,897,500
125,000 Johnson Controls Inc. ........... 2,156,527 7,132,813
6,000 LucasVarity plc ................. 93,859 238,875
290,000 Modine Manufacturing Co. ........ 3,062,480 10,041,250
47,500 Phoenix AG ...................... 790,439 1,053,741
6,500 SPX Corp. ....................... 87,669 418,438
130,000 Standard Motor Products
Inc. .......................... 1,019,000 2,892,500
5,000 Superior Industries
International, Inc. ........... 154,750 140,938
110,000 TransPro Inc. ................... 988,933 818,125
54,000 Wynn's International Inc. ....... 568,179 1,039,500
----------- ------------
15,270,603 34,745,555
----------- ------------
Retail -- 2.2%
220,000 American Stores Co .............. 5,350,784 5,321,250
18,000 Coldwater Creek Inc. + .......... 374,265 495,000
80,000 Earl Scheib Inc. + .............. 749,281 620,000
2,000 Fred Meyer Inc. + ............... 25,050 85,000
100,000 Lillian Vernon Corp. ............ 1,362,258 1,662,500
100,000 Mercantile Stores Co. Inc. ...... 7,887,193 7,893,750
330,000 Neiman Marcus Group Inc. + ...... 4,855,263 14,334,370
100,000 Simint SpA ...................... 595,336 976,502
10,425 Syratech Corp. + ................ 333,704 333,600
----------- ------------
21,533,134 31,721,972
----------- ------------
Energy -- 1.9%
34,000 Apache Corp. .................... 844,013 1,071,000
70,000 Atlantic Richfield Co. .......... 3,751,112 5,468,750
90,000 British Petroleum Co. plc,
ADR ........................... 2,085,506 7,942,500
60,000 British Petroleum Co. plc,
ORD ........................... 725,215 875,586
65,000 Burlington Resources Inc. ....... 2,874,685 2,799,063
10,000 Chevron Corp. ................... 427,525 830,625
30,000 Eastern Enterprises ............. 1,194,500 1,286,250
50,000 Halliburton Co. ................. 1,064,376 2,228,120
90,000 Pennzoil Co. .................... 6,213,836 4,556,250
11,000 Veba AG ......................... 653,669 740,308
----------- ------------
19,834,437 27,798,452
----------- ------------
Retail Food And Drug -- 1.5%
115,000 Bruno's Inc. .................... 1,098,156 120,750
480,000 Giant Food Inc., Cl. A .......... 18,187,823 20,670,000
----------- ------------
19,285,979 20,790,750
----------- ------------
Specialty Chemical -- 1.4%
196,000 Arco Chemical Co. ............... 11,239,880 11,233,243
5,400 Ciba Specialty Chemicals,
ADR 144A (c) + ................ 21,140 348,138
20,000 E.I. du Pont de Nemours
and Co. ....................... 655,000 1,492,500
240,000 Ferro Corp. ..................... 3,724,262 6,075,000
5,000 Monsanto Company ................ 195,250 279,375
----------- ------------
15,835,532 19,428,256
----------- ------------
Hotels and Gaming -- 1.3%
85,000 Aztar Corp. + ................... 631,625 579,063
5,000 GTECH Holdings Corp. + .......... 86,269 168,438
345,000 Hilton Hotels Corp. ............. 5,493,800 9,832,493
1,016,949 Ladbroke Group plc .............. 3,174,247 5,586,419
100,000 Mirage Resorts Inc. + ........... 532,231 2,131,250
740 Moevenpick Holding AG ........... 354,203 367,972
----------- ------------
10,272,375 18,665,635
----------- ------------
Paper And Forest Products -- 1.2%
252,000 Greif Bros. Corp., Cl. A ........ 4,620,381 9,418,500
3,400 Greif Bros. Corp., Cl. B (a) .... 69,825 141,950
255,000 St. Joe Corp. ................... 2,859,868 6,980,625
----------- ------------
7,550,074 16,541,075
----------- ------------
Aviation: Parts And Services -- 1.2%
85,000 Boeing Co. ...................... 3,410,041 3,787,805
360,000 Coltec Industries Inc. + ........ 4,907,033 7,155,000
100,000 Curtiss-Wright Corp. ............ 2,491,103 3,918,750
145,000 Hi-Shear Industries Inc. ........ 1,737,757 389,681
23,000 Precision Castparts Corp. ....... 914,575 1,227,625
----------- ------------
13,460,509 16,478,861
----------- ------------
Automotive -- 1.1%
210,000 General Motors Corp. (d) ........ 6,257,002 14,030,625
28,000 Renault SA ...................... 771,362 1,592,735
20,000 Toyota Motor Corp. .............. 556,685 519,274
----------- ------------
7,585,049 16,142,634
----------- ------------
See accompanying notes to financial statements.
20
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (continued)
Health Care -- 1.0%
15,000 Amgen Inc. + .................... $ 256,894 $ 980,625
49,666 Astra AB, Cl. A ................. 847,207 1,015,111
13,000 Biogen Inc. + ................... 181,025 637,000
49,000 Glaxo Wellcome plc ORD .......... 1,069,208 1,590,959
1,150 Novartis AG, Registered + ....... 1,431,247 1,916,793
54,000 Novartis AG, ADR+ ............... 970,641 4,496,228
15,000 Pfizer Inc. ..................... 240,750 1,630,313
120 Roche Holding AG ................ 1,125,656 1,180,347
25,000 Zeneca Group plc+ ............... 767,122 1,073,617
----------- ------------
6,889,750 14,520,993
----------- ------------
Consumer Services -- 1.0%
25,000 Cendant Corporation ............. 111,391 521,875
20,000 Department 56 Inc.+ ............. 407,679 710,000
103,000 Loewen Group Inc. ............... 2,724,772 2,781,000
30,000 Midas, Inc. + ................... 334,014 603,856
10,000 N2K Inc. + ...................... 235,125 196,250
15,000 Republic Industries, Inc. + ..... 313,219 375,000
12,000 Response USA, Inc. + ............ 76,080 80,250
447,000 Rollins Inc. .................... 4,584,395 9,163,500
----------- ------------
8,786,675 14,431,731
----------- ------------
Transportation -- 0.7%
98,000 AMR Corp. + ..................... 3,312,950 8,158,500
12,000 Kansas City Southern
Industries, Inc. .............. 381,291 595,500
31,273 MIF Ltd. + ...................... 450,000 612,120
60,000 SAS Norge ASA ................... 726,418 1,025,641
----------- ------------
4,870,659 10,391,761
----------- ------------
Electronics -- 0.5%
87,000 AMP Inc. ........................ 2,827,413 2,424,554
2,000 Hitachi Ltd., ADR ............... 171,183 129,000
35,000 Matsushita Electric Industrial
Co. Ltd., ORD ................ 678,676 564,475
1,500 Matsushita Electric Industrial
Co. Ltd., ADR ................. 178,325 241,125
1,500 NEC Corp., ADR .................. 43,625 69,563
12,000 Philips Electronics N.V.,
New York ...................... 167,918 1,020,000
29,000 Sony Corp., ADR ................. 1,725,227 2,499,076
22,000 Ucar International Inc. ......... 681,053 642,125
----------- ------------
6,473,420 7,589,918
----------- ------------
Real Estate -- 0.5%
300,000 Catellus Development Corp. + .... 4,719,014 5,306,250
44,000 Florida East Coast Industries
Inc. ......................... 523,108 1,287,000
50,000 Griffin Land & Nurseries
Inc. + ....................... 447,943 875,000
----------- ------------
5,690,065 7,468,250
----------- ------------
Country/Closed-End Funds -- 0.3%
59,000 Central European Equity
Fund Inc. ..................... 740,735 951,375
70,000 Emerging Germany Fund
Inc. + ........................ 512,662 1,071,875
25,000 France Growth Fund Inc. ......... 246,844 376,563
40,250 Italy Fund Inc. ................. 360,845 543,375
68,000 New Germany Fund ................ 750,658 1,266,500
45,942 Royce Value Trust Inc. .......... 519,501 758,043
----------- ------------
3,131,245 4,967,731
----------- ------------
Communications Equipment -- 0.3%
100,000 Allen Telecom Inc.+ ............. 1,166,791 1,162,500
30,000 Dynatech Corporation ............ 135,000 93,750
33,000 Lucent Technologies Inc. ........ 734,861 2,745,188
20,000 Scientific-Atlanta Inc. ......... 319,775 507,500
----------- ------------
2,356,427 4,508,938
----------- ------------
Housing Related -- 0.3%
140,000 Nortek Inc. + ................... 1,690,022 4,305,000
5,000 Nortek Inc., Special
Common + ..................... 72,155 153,750
----------- ------------
1,762,177 4,458,750
----------- ------------
Business Services -- 0.3%
7,625 Alliance et Gestion ............. 359,223 756,736
2,000 CheckFree Corp. ................. 42,250 58,875
100,000 Landauer Inc. ................... 647,252 2,987,500
3,000 Republic Services Inc., Cl. A ... 72,000 72,000
500 Seagate Technology, Inc. + ...... 9,400 11,906
----------- ------------
1,130,125 3,887,017
----------- ------------
See accompanying notes to financial statements.
21
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (continued)
Aerospace / Defense -- 0.1%
100,000 Fairchild Corporation, Cl. A .... $ 2,004,008 $ 2,018,750
------------ --------------
Building and Construction -- 0.1%
70,000 CRH plc ORD ..................... 720,634 995,819
15,000 Martin Marietta Materials
Inc. ......................... 322,688 675,000
============ ==============
1,043,322 1,670,819
------------ --------------
Conglomerates -- 0.1%
9,000 Oerlikon-Buhrle Holding AG ...... 1,093,579 1,646,305
------------ --------------
Metals And Mining -- 0.1%
20,000 Newmont Gold Co. ................ 665,921 493,750
914,000 Pegasus Gold Inc. + ............. 1,095,914 219,360
20,000 Placer Dome Inc. ................ 225,856 235,000
40,000 Rangold and Exploration
Co. Ltd. + .................... 117,200 30,000
------------ --------------
2,104,891 978,110
------------ --------------
Home Furnishings -- 0.1%
16,000 Triangle Pacific Corp. .......... 878,028 880,000
------------ --------------
Computer Software -- 0.0%
52,500 Merkantildata ................... 400,865 664,514
------------ --------------
TOTAL COMMON
STOCKS ........................ 627,051,960 1,245,316,226
------------ --------------
PREFERRED STOCKS -- 0.5%
Telecommunications -- 0.2%
40,000 Sprint Corp., 8.250%,
Conv. Pfd. .................... 1,419,783 2,312,500
2,223,575 Telecomunicacoes de Sao
Paulo SA (Telesp), Pfd.,
Registered .................... 206,541 522,945
------------ --------------
1,626,324 2,835,445
------------ --------------
Diversified Industrial -- 0.1%
3,000 KSB AG, Pfd. .................... 672,162 748,711
15,000 Sealed Air Corp., Pfd. .......... 676,630 630,000
------------ --------------
1,348,792 1,378,711
------------ --------------
Publishing -- 0.1%
43,500 News Corp. Ltd..,
Sponsored ADR, Pfd. ........... 656,340 1,228,875
------------ --------------
Automotive -- 0.1%
1,500 Volkswagen AG, Pfd. ............. 665,292 1,034,884
------------ --------------
Cable -- 0.0%
8,000 Tele-Communications
Inc., Cl. B, 6.000%,
Ex. Jr. Pfd. ................. 408,018 744,000
------------ --------------
Broadcasting -- 0.0%
7,750 ProSieben Media AG .............. 380,293 401,877
------------ --------------
Wireless Communications -- 0.0%
2,223,575 Telecomunicacoes de Sao
Paulo Celular, Pfd., B ........ 82,623 184,569
------------ --------------
TOTAL PREFERRED
STOCKS ........................ 5,167,682 7,808,361
------------ --------------
COMMON STOCK WARRANTS AND RIGHTS -- 0.0%
62,463 Advantica Restaurant Group,
Inc., Warrants, expires
01/07/2005 + .................. 105,603 242,044
29,900 Oriental Press Group,
Warrants, expires
10/02/1998 + .................. 0 39
47,497 Colonial Limited Inc,
Rights ....................... 0 10,909
------------ --------------
105,603 252,992
------------ --------------
Principal
Amount
------
CORPORATE BONDS -- 0.6%
Entertainment -- 0.5%
$2,400,000 Time Warner Inc., Deb.,
8.110% due
08/15/2006 .................... 2,407,265 2,640,000
2,400,000 Time Warner Inc., Deb.,
8.180% due 08/15/2007 ......... 2,398,284 2,670,000
1,200,000 Time Warner Inc., Note,
7.975% due 08/15/2004 ......... 1,194,652 1,300,500
------------ --------------
6,000,201 6,610,500
------------ --------------
Publishing -- 0.1%
200,000 News American Holdings
Inc., Gtd. Ex. Sub. Note,
Zero Coupon due 03/31/2002 ...... 151,108 279,250
1,000,000 Thomas Nelson Inc., Conv.
Sub. Note, 5.750% due
11/30/1999 144A (c) ........... 996,177 995,000
------------ --------------
1,147,285 1,274,250
------------ --------------
See accompanying notes to financial statements.
22
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Principal Market
Amount Cost Value
------ ---- -----
CORPORATE BONDS (continued)
Cable -- 0.0%
$100,000 Rogers Communications,
Inc., 7.5% due 09/01/1999 .... $ 69,765 $ 67,786
------------ --------------
TOTAL CORPORATE
BONDS ........................ 7,217,251 7,952,536
------------ --------------
U.S. TREASURY BILLS -- 11.6%
165,747,000 4.901% to 4.935%++
due 07/23/1998 (d) ........... 165,259,505 165,259,505
------------ --------------
REPURCHASE AGREEMENT -- 0.5%
7,303,000 Agreement with Salomon
Brothers Inc., 5.85%
due 07/01/98 (b) ............. 7,303,000 7,303,000
------------ --------------
TOTAL INVESTMENTS .....100.4% $812,105,001 1,433,892,620
============ ==============
OTHER ASSETS, LIABILITIES AND LIQUIDATION
VALUE OF CUMULATIVE PREFERRED
STOCK-- (9.9%) ............................................. (140,681,255)
--------------
NET ASSETS -- COMMON STOCK
(104,676,383 common shares
outstanding)-- 90.5% ....................................... 1,293,211,365
--------------
NET ASSETS -- PREFERRED STOCK
(5,400,000 preferred shares outstanding)-- 9.5% ............. 135,000,000
--------------
TOTAL NET ASSETS -- 100.0% ................................... $1,428,211,365
==============
NET ASSET VALUE PER COMMON SHARE
($1,292,613,239 104,676,383 shares outstanding) $12.35
=====
FUTURES CONTRACTS - SHORT POSITION
Contracts Depreciation
- --------- ------------
550 S&P 500 Index Futures,
September 1998 ............................ ($2,053,315)
==============
Expiration Appreciation/
Date (Depreciation)
---------- --------------
Forward Foreign Exchange Contracts:
18,800,000(e) Deliver Hong Kong
Dollars in exchange for
USD 2,391,533 ........................... 08/26/98 $ (21,917)
--------------
Total Net Unrealized Depreciation on
Forward Foreign Exchange Contracts ......................... $ (21,917)
==============
- ----------
For Federal tax purposes:
Aggregate cost ................................... $ 812,105,001
==============
Gross unrealized appreciation .................... $ 633,685,580
Gross unrealized depreciation .................... (11,897,961)
--------------
Net unrealized appreciation ...................... $ 621,787,619
==============
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Agreement dated 06/30/98 to be repurchased at $7,304,187 on 07/01/1998,
collateralized by $5,289,000 U.S. Treasury Bond, 8.875% due 02/15/19
(value $7,630,256).
(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 June 30, 1998 was $3,322,533 representing
0.23% of total net assets.
(d) Securities pledged as collateral for futures contracts.
(e) Principal amount denoted in Hong Kong Dollars.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR -- American Depositary Receipt.
ADS -- American Depositary Share.
GDR -- Gobal Depositary Receipt.
ORD -- Ordinary Share.
See accompanying notes to financial statements.
23
<PAGE>
THE GABELLI EQUITY TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS:
Investments, at value (Cost $804,802,001) .............. $ 1,426,589,620
Repurchase agreement ................................... 7,303,000
Cash ................................................... 3,320,344
Foreign currency, at value (Cost $322,601) ............. 266,009
Receivable for investments sold ........................ 2,824,907
Dividends and interest receivable ...................... 1,981,298
---------------
Total Assets ..................................... 1,442,285,178
---------------
LIABILITIES:
Payable for investments purchased ...................... 4,041,627
Dividends payable ...................................... 8,023,763
Net unrealized depreciation on forward
foreign currency exchange contracts ................ 21,917
Payable for investment advisory fees ................... 165,950
Due to custodian ....................................... 105,000
Accrued Directors' fees ................................ 32,500
Other accrued expenses ................................. 1,683,056
---------------
Total Liabilities ................................ 14,073,813
---------------
NET ASSETS applicable to 104,676,383 shares
outstanding ............................................ $ 1,428,211,365
===============
NET ASSETS consist of:
Cumulative Preferred Stock (7.25% $25
liquidation value, $0.001 par value,
8,000,000 shares authorized with
5,400,000 shares issued and outstanding) ........... $ 135,000,000
Common stock, at par value ............................. 104,676
Additional paid-in capital ............................. 703,884,331
Distributions in excess of net
investment income .................................. (49,727,571)
Accumulated net realized gain on investments,
futures contracts and foreign currency
transactions ....................................... 19,306,757
Net unrealized appreciation of investments,
futures contracts and foreign currency
transactions ....................................... 619,643,172
---------------
Total Net Assets ................................. $ 1,428,211,365
===============
NET ASSET VALUE per Common Share ($1,292,613,239 /
104,676,383 shares outstanding; 200,000,000
shares authorized of $0.001 par value) ............... $12.35
======
See accompanying notes to financial statements.
24
<PAGE>
THE GABELLI EQUITY TRUST INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
INVESTMENT INCOME:
Dividends (net of foreign taxes of $379,168) ............... $ 7,910,489
Interest ................................................... 3,789,137
------------
Total Investment Income .................................. 11,699,626
------------
EXPENSES:
Investment advisory fees ................................... 6,531,034
Custodian fees ............................................. 174,897
Directors' fees ............................................ 76,026
Payroll .................................................... 58,969
Legal and audit fees ....................................... 46,045
Other ...................................................... 108,375
------------
Total Expenses ........................................... 6,995,346
------------
NET INVESTMENT INCOME ........................................ 4,704,280
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT:
Net realized gain on investments, futures
contracts and foreign currency
transactions ............................................. 20,599,254
Net change in unrealized appreciation on
investments, futures contracts and
foreign currency transactions ............................ 116,481,256
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .............. 137,080,510
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $141,784,790
============
See accompanying notes to financial statements.
25
<PAGE>
THE GABELLI EQUITY TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year
06/30/98 Ended
(Unaudited) 12/31/97
---------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income .......................... $ 4,704,280 $ 8,419,648
Net realized gain on investments, futures
contracts and foreign currency transactions .. 20,599,254 95,863,412
Net change in unrealized appreciation/
(depreciation) of investments during the
year, futures contracts and foreign currency
transactions ................................. 116,481,256 190,174,275
--------------- ---------------
Net increase in net assets resulting from
operations ................................. 141,784,790 294,457,335
--------------- ---------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income .......................... (4,704,280) (7,906,675)
Distributions in excess of net investment income (49,727,490) --
Net realized gain on investment transactions ... -- (95,857,817)
In excess of net realized gains ................ -- (1,716,903)
Paid-in capital ................................ -- (2,600,093)
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income .......................... -- --
Net realized gain on investment transactions ... -- --
Distributions in excess of net realized gains .. -- --
Net proceeds from issuance of preferred stock .... 130,288,751 --
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets from capital share
transactions ................................. -- 8,757,175
--------------- ---------------
Net increase in net assets ................... 217,641,771 195,133,022
NET ASSETS:
Beginning of period ............................ 1,210,569,594 1,015,436,572
--------------- ---------------
End of period .................................. $ 1,428,211,365 $ 1,210,569,594
=============== ===============
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Description
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.
2. Significant Accounting Policies
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 nationally
recognized stock exchange or Nasdaq National Market System are valued at the
last sale price as of the close of regular trading 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 mean of the current
bid and asked prices as reported by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or, in the case of securities not
quoted by Nasdaq, the National Quotation Bureau or other comparable sources, as
the Board of Directors deems appropriate to reflect their fair value. If no
asked prices are quoted on such day, then the security is valued at the closing
bid price on such day. If no bid or asked prices are quoted on that day, then
the security is valued by such method as the Board of Directors shall determine
in good faith to reflect its fair market value. Portfolio securities traded on
more than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by the Adviser.
Securities traded primarily on foreign exchanges are valued at the closing price
on such exchange immediately prior to the close of the New York Stock Exchange,
Inc. 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 in that security or on the basis of
prices obtained from a pricing service approved as reliable by the Board of
Directors. 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.
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
27
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
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 included in unrealized appreciation/depreciation on investments.
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.
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
as 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, which result from changes in foreign
exchange rates as well as changes in market prices of securities, have been
included in unrealized appreciation/depreciation on investments. 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) on securities transactions.
28
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
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. Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders. 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, timing differences and differing
characterization of distributions made by the Equity Trust. Distributions to
shareholders of The Gabelli Equity Trust Inc.,7.25% Tax Advantaged Cumulative
Preferred Stock ("Cumulative Preferred Stock") are accrued on a daily basis and
are determined as described in note 5.
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.
3. 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% 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 on behalf of the Equity Trust and oversees the
administration of all aspects of the Equity Trust's business and affairs. The
Adviser has agreed to reduce the management fee on the incremental assets
attributable to the Cumulative Preferred Stock if the total return of the net
asset value of the common shares of the Equity Trust, including distributions
and advisory fee subject to reduction, does not exceed the stated dividend rate
of the Cumulative Preferred Stock. As of June 30, 1998, the Equity Trust has not
yet achieved a total return in excess of the stated dividend rate and the
management fee reduction was $81,369.86.
During the six months ended June 30, 1998, Gabelli & Company, Inc.
("Gabelli & Company") and its affiliates received $87,923 in brokerage
commissions as a result of executing agency transactions in portfolio securities
on behalf of the Equity Trust.
4. Portfolio Securities
Cost of purchases and proceeds from sales of securities, other than
short-term securities, aggregated $171,784,185 and $146,668,178, respectively,
for the six months ended June 30, 1998.
29
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
5. Capital
The Articles of Incorporation, dated May 19, 1986, permit the Equity Trust
to issue 192,000,000 shares of common stock (par value $0.001).
Capital stock transactions were as follows:
Six months ended Year ended
June 30, 1998 December 31, 1997
---------------- -----------------------
Shares Amount Shares Amount
------ ------ ---------- ----------
Shares issued upon reinvestment
of dividends and distributions .... -- -- 756,713 $8,757,175
------ ------ ---------- ----------
Net Increase ........................ -- -- 756,713 $8,757,175
------ ------ ---------- ----------
The Equity Trust's Articles of Incorporation authorize the issuance of up
to 8,000,000 shares of $0.001 par value Cumulative Preferred Stock. On June 9,
1998, the Equity Trust received net proceeds of $130,288,751 (after offering
costs and underwriting discounts of $4,711,249) from the public offering of
5,400,000 shares of Cumulative Preferred Stock. The Cumulative Preferred Stock
is senior to the common stock and results in the financial leveraging of the
common stock. Such leveraging tends to magnify both the risks and opportunities
to Common Shareholders. Dividends on shares of the Cumulative Preferred Stock
are cumulative. The Equity Trust is required to meet certain asset coverage
tests with respect to the Cumulative Preferred Stock. If the Equity Trust fails
to meet these requirements and does not correct such failure, the Equity Trust
may be required to redeem, in part or in full, the Cumulative Preferred Stock at
a redemption price of $25.00 per share plus an amount equal to the accumulated
and unpaid dividends whether or not declared on such shares in order to meet
these requirements. Additionally, failure to meet the foregoing asset
requirements could restrict the Equity Trust's ability to pay dividends to
Common Shareholders and could lead to sales of portfolio securities at
inopportune times. Commencing June 1, 2002 and thereafter, the Equity Trust, at
its option, may redeem the Cumulative Preferred Stock in whole or in part at the
redemption price. At June 30, 1998, 5,400,000 shares of the Cumulative Preferred
Stock were outstanding at the fixed dividend rate of 7.25% per share and accrued
dividends amounted to $598,125. The income received on the Equity Trust's assets
may vary in a manner unrelated to the fixed rate, which could have either a
beneficial or detrimental impact on net investment income and gains available to
Common Shareholders.
The holders of Cumulative Preferred Stock have voting rights equivalent to
those of the holders of common stock (one vote per share) and will vote together
with holders of shares of common stock as a single class. In addition, the 1940
Act requires, that along with approval of the holders of a majority of the
holders of common stock, approval of a majority of the holders of any
outstanding preferred shares, voting separately as a class, would be required to
(a) adopt any plan of reorganization that would adversely affect the Cumulative
Preferred Stock, and (b) take any action requiring a vote of security holders,
including, among other things, changes in the Equity Trust's subclassification
as a closed-end investment company or changes in its fundamental investment
restrictions.
30
<PAGE>
THE GABELLI EQUITY TRUST INC.
FINANCIAL HIGHLIGHTS
Per share amount for an Equity Trust share outstanding throughout each period.
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
06/30/98 -----------------------------------------------------------------------
(Unaudited)(a) 1997(a) 1996(a) 1995(a) 1994(a) 1993(a)
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period .. $11.56 $9.77 $9.95 $9.46 $11.23 $10.58
------ ----- ----- ----- ------ ------
Net investment income ................. 0.04 0.08 0.11 0.13 0.14 0.14
Net realized and unrealized gain
(loss) on investments ............... 1.27 2.75 0.71 1.74 (0.08) 2.13
------ ----- ----- ----- ------ ------
Total from investment operations ...... 1.31 2.83 0.82 1.87 0.06 2.27
------ ----- ----- ----- ------ ------
Increase (decrease) in net asset
value from Equity Trust share
transactions ........................ -- -- -- (0.37) -- (0.50)
Offering expenses charged to capital
surplus ............................. -- -- -- (0.01) -- (0.01)
Distributions to common stock
shareholders:
Net investment income ................. (0.04) (0.08) (0.11) (0.13) (0.14)(b) (0.11)
Distributions in excess of net
investment income ................... (0.48) (0.00)(d) -- -- -- --
Net realized gains .................... -- (0.92) (0.78) (0.47) (0.37) (0.77)
Distributions in excess of net
realized gains ...................... -- (0.01) (0.00)(c) (0.02) -- (0.02)
Paid-in capital ....................... -- (0.03) (0.11) (0.38) (1.32)(b) (0.21)
------ ----- ----- ----- ------ ------
Total distributions to preferred stock
shareholders ........................ (0.52) (1.04) (1.00) (1.00) (1.83) (1.11)
------ ----- ----- ----- ------ ------
Net Asset Value, end of period ........ $12.35 $11.56 $9.77 $9.95 $9.46 $11.23
====== ===== ===== ===== ====== ======
Market value, end of period ........... $11.750 $11.688 $9.375 $9.375 $9.625 $12.125
====== ===== ===== ===== ====== ======
Total Investment Return* .............. 4.90% 37.46% 11.00% 11.70% (5.10)% 36.50%
====== ===== ===== ===== ====== ======
Total Return** ........................ 11.50% 30.46% 9.00% 20.60% 0.50% 22.40%
====== ===== ===== ===== ====== ======
Ratios to average net assets available
to common stock shareholders and
supplemental data:
Net assets, end of period (in 000's) .. $1,428,211 $1,210,570 $1,015,437 $1,034,091 $825,193 $937,773
Net investment income ................. 0.74%(d) 0.76% 1.07% 1.26% 1.29% 1.25%
Operating expenses(e) ................. 1.10%(d) 1.14% 1.18% 1.21% 1.19% 1.20%
Portfolio turnover rate ............... 13.0% 39.2% 18.9% 25.1% 22.2% 24.4%
</TABLE>
- ----------
* Based on market value per share, adjusted for reinvesment 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.
(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) Amount represents less than $0.005 per share.
(d) Annualized.
(e) Based on assets attributable to common stock. The expense ratio based on
total net assets would be 1.07%.
See accompanying notes to financial statements.
31
<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 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.
32
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DIRECTORS AND OFFICERS
THE GABELLI EQUITY TRUST INC.
One Corporate Center, Rye, NY 10580-1434
Directors
Mario J. Gabelli, CFA
Chairman & Chief Investment Officer,
Gabelli Funds, Inc.
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 and Chief Investment Officer,
Financial Security Assurance Holdings Ltd.
Frank J. Fahrenkopf, Jr.
President and Chief Executive Officer,
American Gaming Association
Karl Otto Pohl
Former President, Deutsche Bundesbank
Anthony R. Pustorino
Certified Public Accountant
Professor, Pace University
Salvatore J. Zizza
Chairman, The Bethlehem Corp.
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: 104,676,383
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.
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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]
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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.
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<PAGE>
THE GABELLI EQUITY TRUST INC.
One Corporate Center
Rye, NY 10580-1434
(914) 921-5070
http://www.gabelli.com
Semi-Annual Report
June 30, 1998
GAB 06/98
