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[THE GABELLI EQUITY TRUST INC. LOGO]
FIRST-QUARTER REPORT
MARCH 31, 1999
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[THE GABELLI EQUITY TRUST INC. LOGO]
Our cover icon represents the underpinnings of Gabelli. The Teton mountains in
Wyoming represent what we believe 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,
[PHOTO]
[THE GABELLI EQUITY TRUST INC. LOGO]
The first quarter of 1999 was an up, then down, and then up again period
for stocks. January's gains eroded in February as a much stronger than expected
U.S. economy sparked inflationary concerns. Bonds declined, ultimately dragging
stocks down with them. Then, in March, a favorable employment report coupled
with positive comments on inflation from Federal Reserve Chairman Greenspan
encouraged investors and, as a result, stocks and bonds rallied.
The market advance continued to be uneven, strongly favoring large cap
stocks over mid caps and small caps, and growth stocks over the value sector
across the market capitalization spectrum. Mid cap and small cap indices closed
the quarter with losses.
INVESTMENT PERFORMANCE
For the first quarter ended March 31, 1999, The Gabelli Equity Trust Inc.'s
("Equity Trust") net asset value (NAV) per share increased 3.7% to $11.64, after
adjusting for the $0.27 per share distribution on March 29, 1999. This compares
to the Value Line Composite Index's decline of 3.7%, the Russell 2000 Index's
decline of 5.4% and the Standard & Poor's 500 Index (S&P 500) increase of 5.0%
over the same period. Each is an unmanaged indicator of stock market
performance. For the twelve months concluded March 31, 1999, the Equity Trust
appreciated 2.2% after adjusting for the $1.185 per share in distributions,
versus decreases of 16.3% for the Russell 2000 and 8.7% for the Value Line
Composite and a gain of 18.5% for the S&P 500.
For the five year period ended March 31, 1999, the Equity Trust's return
averaged 15.1% annually, compared to average annual returns of 17.0%, 11.2% and
26.2% for the Value Line Composite, Russell 2000 and S&P 500. Total return
includes adjustments of $7.76 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 March 31, 1999, the Equity Trust achieved a total
return of 217.4%, including adjustments of $13.51 per share in distributions,
which equates to an average annual return of 12.2%. This compares to 13.0%,
11.5% and 19.0% average annual returns over the same time period for the Value
Line Composite, Russell 2000 and S&P 500.
AVERAGE ANNUAL RETURNS - MARCH 31, 1999
<TABLE>
<CAPTION>
NAV Average Average Annual
Annual Return Investment Return (a)
------------- ---------------------
<S> <C> <C>
1 Year.......................................... 2.2% 6.7%
5 Year.......................................... 15.1% 13.1%
10 Year......................................... 12.2% 15.7%
Life of Fund (August 21, 1986) ................. 14.1% 13.7%
</TABLE>
(a) Based on initial offering price of $10.00
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Since its inception on August 21, 1986 through March 31, 1999, the Equity
Trust has had a total return of 430.2%, including adjustments of $15.39 per
share in distributions, which equates to an average annual return of 14.1%.
The Equity Trust's common shares ended the quarter at $11.875 per share on
the New York Stock Exchange, an increase of 5.0% for the quarter. For the twelve
months ended March 31, 1999, the common shares are up 6.7%, 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.
THE GABELLI EQUITY TRUST INC. ANNOUNCES PROPOSED SPIN-OFF
OF THE GABELLI UTILITY FUND
We recently notified you of the proposed spin-off of a new Gabelli Utility
Fund from the Equity Trust. Equity Trust shareholders will vote on the proposed
transaction on May 17, 1999. Please note that the proposed spin-off does not
affect the Equity Trust's 10% Annual Distribution Policy. The Equity Trust will
continue to pay out $0.27 per share in each of the first three quarters of the
year with an adjusting distribution in the fourth quarter of a sufficient amount
to pay 10% of the average net asset value of the Fund.
A proxy/registration statement describing the proposed spin-off in more
detail has been delivered to all shareholders.
PREFERRED STOCK - AN INVESTMENT FOR THE FUTURE
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 Inc., 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 ($135
million) 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.
How would Preferred Shares benefit Common Shareholders? The Equity Trust
has earned a 13.5% average annual return from inception on August 21, 1986
through December 31, 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
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potentially adding wealth for our Common Shareholders. With the completion of
the preferred offerings, the Adviser will not earn the management fee on the
incremental assets during any year in which the net asset value total return on
the Equity Trust does not exceed the stated dividend rate on the Preferred
Shares.
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. Long-term capital gains are passed
through to shareholders.
In 1998, 94.49% of the common and preferred distributions was classified as
long-term capital gains, taxable at a maximum rate of 20%. As a result, the
Ordinary Income equivalent yield on the preferred stock, for a shareholder in
the 31% tax bracket, was 8.34%
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 12 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.
[GRAPHIC]
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.
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COMMENTARY
THE ECONOMY AND THE MARKET--A REVERSAL OF FORTUNES?
In 1998, the drivers of the market were declining interest rates and
continued liquidity as opposed to corporate earnings. For the year, S&P 500
earnings rose a modest 2.0% and if calculated on a non-weighted basis, earnings
were flat. However, the 30-year Treasury bond yield dropped nearly a full
percentage point from its March 1998 high, resulting in a significant expansion
of equities' price/earnings multiples and a 28.7% annual gain for the S&P 500.
We are faced with a mirror image situation today. We believe S&P earnings
can grow in the 8.0% to 10.0% range, a terrific showing compared to 1998. If
interest rates hold relatively steady near current levels, the S&P 500's current
lofty price/earnings multiple could be sustained and the market could advance in
line with earnings gains. The less optimistic picture would be rising inflation,
materially higher interest rates, rapidly contracting equity multiples and a
meaningful correction in the S&P 500. At this stage, we think either scenario is
plausible and will leave market forecasting to the Wall Street gurus.
AMERICAN CONSUMERS: WILL THE ENGINE OF GLOBAL ECONOMIC GROWTH CONTINUE STEAMING
ALONG?
In our September 30, 1998 report, we pondered the impact of our "Four M's"
(Market, McGwire, Monica and Meriwether) on the American consumer. Would the
American consumer stop spending because of global economic turmoil, accentuated
in the U.S. and global capital markets by John Meriwether (the head of ill-fated
Long Term Capital Management), and the domestic political crisis spawned by
President Clinton's relationship with Monica Lewinsky? Or, would the consumer be
buoyed by rising capital markets resulting from a strong domestic economy along
with the heroics of baseball slugger Mark McGwire and continue to help sustain
economic momentum here and overseas. We favored the latter conclusion. In
retrospect, the American consumer continued to be the engine driving global
economic growth.
Today, we still ask the same question. Will the American consumer continue
to carry the rest of the world, or will the consumer eventually run low on
confidence and/or the resources required to nourish the global economy? Put
another way, can the U.S. continue to run enormous balance of payment deficits
that provide hope and sustenance for the other economies of the world as they
attempt to emerge from their economic malaise?
REFLATION VERSUS DEFLATION
Another critical economic and market question is whether domestic inflation
will continue to be subdued. Thus far, deflationary pressures from abroad have
kept inflation in check at home. A question to keep in mind though is how long
will the "price dumping" of exports from Asian and Latin American nations
continue? Oil has already spiked up. Asian and European economies are in the
process of being reflated--the Japanese are essentially giving money away in an
attempt to revive their moribund economy while Euroland is cutting interest
rates in order to accelerate economic momentum. We also wonder how much longer
productivity gains will continue to offset rising wages in fully employed
America. We have our fingers crossed, but suspect that at some point, inflation
may once again raise its ugly head and create a headwind for the American
financial markets.
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We remain focused on values and individual investment opportunities. If one
looks exclusively at the S&P 500, which is trading at more than 30 times
trailing earnings, stocks would have to be characterized as richly valued. But
in reality, the S&P 500 is a narrow gauge of the market, with the largest 25
component stocks having an enormous influence on the performance of the index.
The same can be said about the Nasdaq Composite Index, which is driven by a
relative handful of large technology stocks. However, there are many cheap
stocks available, as reflected in the much more reasonable valuations of broader
market indices. It is anyone's guess as to when the investing public will stop
chasing the high priced market favorites and begin gravitating toward more
realistically priced stocks. Nonetheless, we note that corporate buyers are out
in force, searching for business bargains. As we have repeatedly stated over the
past several years, quality companies trading at low valuations--the type of
stocks we favor--should continue to attract corporate bargain hunters and
provide a tailwind for our portfolio.
FLOW OF FUNDS ($ Billions)
<TABLE>
<CAPTION>
Sources 1993 1994 1995 1996 1997 1998
- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
U.S. Deals $ 234 $ 340 $ 511 $ 652 $ 919 $1,620
Stock Buybacks 37 46 99 176 181 207
Equity Mutual Funds (Net) 130 119 128 222 232 159
Dividends 158 182 205 262 275 279
----- ------ ------ ------ ------ ------
TOTAL SOURCES: 558 688 943 1,312 1,607 2,265
----- ------ ------ ------ ------ ------
Uses
- ----
IPOs 103 62 82 115 118 108
U.S./International Equity Capital Flow
U.S. Purchases of Non-U.S. Equities (net) 63 48 50 60 41 (25)
International Purchases of U.S. Equities (net) 21 1 17 11 64 (22)
----- ------ ------ ------ ------ ------
Net Flow: 43 47 34 49 (23) (3)
----- ------ ------ ------ ------ ------
TOTAL USES: 146 109 116 164 95 105
----- ------ ------ ------ ------ ------
NET FLOW OF FUNDS: $ 413 $ 579 $ 827 $1,148 $1,513 $2,160
===== ====== ====== ====== ====== ======
</TABLE>
Sources: Securities Data Corp, Investment Company Institute, Birinyi
Associates.
(C) 1999 Gabelli Asset Management Inc.
A FLY (OR A FLYSPECK) IN THE MERGER AND ACQUISITION OINTMENT?
The accounting profession is once again meddling with the "deal" world. The
pencil pushers have decided to take a hard look at "pooling of interest"
accounting that minimizes the consequences on reported earnings of many
corporate mergers by essentially allowing companies to merge at book value, thus
eliminating goodwill charges. We suspect the rules will be changed within the
next several years. In the short term, a change will likely ignite deal fervor.
In the long run, we doubt it will restrain merger and acquisition activity for
long, if at all. We recall that in the late 1960s and early 1970s, changes in
the accounting standards for amortizing goodwill had a negative impact on
reported net earnings for merging companies. In fact, that is what inspired us
to begin focusing on
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EBITDA ("earnings before interest, taxes, depreciation and amortization")
instead of net earnings in valuing stocks. By the time the accounting rules
changes were on the books, the investment bankers and financial engineers had
figured out how to thwart the new rules and deals continued to be transacted.
We think the same thing will happen this time. By the time the accountants
develop new rules for pooling of interest in mergers, smart money will have
figured out how to circumvent the new rules and structure deals so that they
still make economic sense. In fact, we may see mergers and acquisitions
accelerate as companies scramble to get deals done before the rules change.
REST IN PEACE
During the first quarter, we bid a sad (tongue firmly planted in cheek)
farewell to Aeroquip-Vickers, which will be passed on to Eaton Corp., and
AirTouch Communications, which succumbed to a premium bid from Vodafone. We also
mourn the impending demise of Frontier Corp. to Global Crossing and MediaOne to
AT&T. Amongst our foreign friends, Olivetti is preparing the last rites as an
independent company for Telecom Italia. We will miss these portfolio friends,
but are comforted by their generous bequests to portfolio performance this
quarter.
A component of our investment methodology is to identify industry and
sector trends and themes ahead of the curve and position ourselves to take
advantage of these developments. Industry consolidation is one such trend. As we
have discussed in previous letters, the continued high level of activity in
mergers and acquisitions contributes significantly to the solid performance of
the Equity Trust. The accompanying table illustrates how deal activity surfaced
value in a small sample of the portfolio holdings.
FIRST QUARTER 1999 COMPLETED DEALS
<TABLE>
<CAPTION>
NUMBER AVERAGE COST CLOSING
FUND HOLDING OF SHARES (a) PER SHARE (b) PRICE (c) CLOSING DATE %RETURN (d)
- ------------ ------------- -------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Tele-Communications Inc., Cl.A 265,000 10.01 67.88 3/10/99 578.34
TCI Ventures Group 361,970 5.99 28.00 3/10/99 367.52
TCI/Liberty Media Group 36,000 32.68 54.44 3/10/99 66.60
BC Telecom Inc. 87,000 17.94 26.48 2/1/99 47.58
British Petroleum Co. 85,000 23.21 90.75 1/4/99 291.06
</TABLE>
(a) Number of shares held by the Fund on the final day of trading for the
issuer.
(b) Average purchase price of issuer's shares held by the Fund on the final day
of trading for the issuer.
(c) Closing price on the final day of trading for the issuer or the tender price
on the closing date of the tender offer.
(d) Represents average estimated return based on average cost per share and
closing price per share.
Note: See the Portfolio of Investments for a complete listing of holdings.
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Going forward, we expect accelerating deal activity from large companies
using high price/earnings multiple stock as currency to buy smaller companies
with much lower P/Es. This is accounting magic. If your stock is trading at 30
times earnings, you can pay a 100% premium for a smaller company trading at 10
times earnings and the transaction will still be accretive to earnings. This is
before factoring in any potential cost savings from combining the two companies'
operations. This price/earnings multiple arbitrage will be a deal too good for
many savvy business buyers to pass up.
FIRST QUARTER SCORECARD
In addition to the aforementioned "Rest in Peace" companies, our big hits
this quarter include Liberty Media Group, the former Tele-Communication Inc.'s
("TCI") cable programming subsidiary, now trading as a tracking stock of AT&T.
Former TCI Chairman John Malone has been given free reign to put Liberty Media's
$5.5 billion in cash to work, doing what he has always done best, investing in
media companies. Our cable television ("CATV") holdings, Cablevision Systems,
Comcast and Time Warner also contributed handsomely to returns. Additionally, we
received a performance boost from the recovery in our Latin American
telecommunications and media investments, most notably Telecomunicacoes
Brasileiras, Telefonos de Mexico and Grupo Televisa.
Commodity oriented holdings such as Archer-Daniels-Midland; capital goods
investments such as Gerber Scientific; aerospace component suppliers such as
AMETEK and SPS Technologies; and energy positions such as PennzEnergy must be
scored as portfolio errors this quarter. Funeral home and cemetery
owner/operator Loewen Group, which turned down an attractive takeover offer from
Service Corp. International two years ago and embarked on an ill-advised
acquisition rampage, deserves Hall of Shame recognition for burying more
investors than clients this quarter.
TUNING IN TO CABLE VALUES
As aforementioned, our cable television holdings continued to contribute to
portfolio returns. A flurry of smaller private acquisitions in the CATV
industry, Adelphia's purchase of Century Communications and AT&T's bid for
MediaOne, have resulted in the average transactional value of a cable subscriber
(as measured by acquisition price) jumping from $2,500 to nearly $4,000 in the
last year.
Are these values economically justifiable? If you believe, as we do, that
cable television will become the dominant Internet transmission pipeline and the
most effective way for long distance telephone giants to enter the local
telephone business, then today's cable values may look cheap compared to
tomorrow's. An examination of AT&T's recent agreement with Time Warner provides
an illustration. AT&T has agreed to pay Time Warner $1.50 per cable
subscriber/per month for exclusive access to its cable network this year. Over
the next five years, this price escalates to $6.00 per cable subscriber/per
month. Theoretically, this adds $12 billion of economic value to Time Warner's
cable television business five years hence! Despite the strong gains of recent
years, if you plug these types of numbers into other large cable holdings such
as Cablevision Systems and Comcast, these operators look dirt cheap at today's
prices. We are not suggesting that AT&T will strike similar deals with these
companies. However, AT&T is not the only company in the world seeking access to
the cable television pipeline.
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THE INTERNET--A REALITY THAT IS CHANGING OUR WORLD
As the Internet becomes more firmly entrenched in our everyday lives, we
would like to share with you a sampling of past technological advances that
contributed to improved quality of life and productivity.
<TABLE>
<CAPTION>
INVENTION DATE INVENTOR
--------- ---- --------
<S> <C> <C>
Internal Combustion Engine 1860 Jean Joseph Etienne Lenoir
Stock Ticker 1869 Thomas Edison
Telephone 1876 Alexander Graham Bell
Incandescent Electric Lamp 1879 Thomas Edison
Electric Motor 1881 Thomas Edison
Radio 1895 Guglielmo Marconi
Talking Motion Picture 1913 Thomas Edison
Television 1926 Philo Farnsworth
Nylon 1935 DuPont and Co.
Internet 1969 BBN Corp.
</TABLE>
Internet stocks have dominated the business and consumer headlines. There
are two widely divergent schools of thought on Internet stocks. The bulls, led
by a whole new category of investors (aggressive on-line day traders), seem to
believe that even the most optimistic projections fall well short of accurately
reflecting the true growth potential of Internet companies. Their approach seems
to be one of discounting valuations because no price is too high to pay for a
stock with a "dot.com" at the end of its name. Stodgy investment
traditionalists, who were brought up believing that stock prices should have
some rational relationship to current as well as future value, are, of course,
appalled at the notion that any young company in even the most explosive growth
industry should trade at 100 times revenues.
We fall somewhere in between. We think some of the current Internet stars
(and perhaps a few "garage stage" companies we do not even know about), will go
on to become giant, highly profitable companies. At some point down the road, we
may look back and realize that a few Internet companies would have been bargains
at 200 times revenues. Unfortunately, we do not know which Internet companies
will end up in the S&P 500 and which will end up on the market trash heap.
So, we will continue to pass on the richly priced pure Internet plays. But,
we hope to continue to profit from reasonably valued companies that can benefit
from the growth of the Internet. In recent years, we have reaped tremendous
gains from cable television stocks, which as we anticipated, have become
legitimate Internet players. More recently, we added Reader's Digest to the
portfolio--remember the company that publishes the wholesome little magazine
your grandparents and parents loved. Reader's Digest as an Internet company? We
will see. The company has aggressive new management, which has shed money losing
and marginally profitable businesses. Management also has a new business plan to
capitalize on its data bank of 140 million names concentrated in the 50 year old
and over demographic, which controls 70% of America's net worth. Reader's Digest
will be on the Internet, selling home improvement, health care, financial and
religious products--the kind of products in demand by its customer base. Over
the next five years, the company's goal is to increase revenues from $2.8
billion to $5.0 billion, and profits from $100 million to $500 million. We think
new Chairman and CEO Thomas Ryder, an
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American Express veteran who knows a few things about leveraging sales to an
existing customer base, may be able to meet these goals.
Another favorite is Navistar, which has a 38% share of the medium sized
trucking market. If e-commerce lives up to growth expectations, the demand for
medium sized trucks to deliver smaller packages over a wider distribution
network should increase. Navistar's balance sheet is now more stable, and over
the last two years, earnings have exceeded consensus estimates. If e-commerce
helps improve demand in the medium sized truck market that Navistar dominates,
earnings may continue to surprise on the upside. There is also some potential
takeover speculation with Sweden's Volvo reportedly on the prowl for an
acquisition in the trucking industry.
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:
On January 1, 1999, the Euro was born. How is it doing three months after
its introduction? The answer is fine. Technically, the launch was a success, but
the Euro skeptics have had the pleasure of watching the Euro slide against the
dollar since the beginning of the year from a high of $1.18 to nearly $1.07 by
the end of March. For reference, the Euro's current exchange rate is only
slightly lower than where it was trading, on a theoretical basis, last spring.
The skeptics claim this is the result of the markets' lack of confidence in the
Euro. This is arguably not the case.
We believe the weakness of the Euro probably reflects economic fundamentals
although the currency has had to contend with the resignation of the entire
European Commission and the conflict in Yugoslavia. European growth, which has
been sluggish, has necessitated interest rate cuts, while the U.S. economy has
powered ahead helped by a strong stock market. Indeed, looking ahead, the Euro
could easily recover as the European economy strengthens relative to the U.S.
The fundamentals of the Euro remain sound. Inflation is negligible at 1.0% and
Euroland had a current account surplus of roughly $100 billion in 1998, or about
1.5% of Gross Domestic Product ("GDP"). By contrast, the U.S. is running a large
current account deficit.
A major success is that the Euro has adopted the interest rate structure of
its strongest currency, the Deutschemark, as opposed to a weighted average of
all the currencies in the system. This has benefited high interest rate
countries such as Italy and Spain. A better measure of the Euro's success will
be whether its introduction will encourage a more efficient, more liquid capital
market in Europe and whether corporate restructuring and cost savings can be
achieved across national borders. The early signs on both of these measures are
reasonably encouraging.
We believe the free movement of capital will be a major catalyst for reform
in Europe. This should result in a shift of power from the politicians to the
market, or if you prefer, the consumer. And how ironic that this is happening
after most of Europe has recently elected left of center governments. Take
Germany as an example.
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The new S.P.D. government announced a series of tax increases to be paid by the
insurance industry. Allianz, the giant German insurance company, reacted by
threatening to move from Germany. Now the government appears to be backing down.
Government interventionism was dealt a further blow when Oskar Lafontaine
resigned as German Finance Minister. The more he badgered the European Central
Bank ("ECB") to lower rates, the more the ECB refused to budge. Sure enough,
once he was gone, Chairman Duisenberg and his colleagues lowered rates by 50
basis points, to 2.5%, a larger cut than had been expected.
We expect M&A transactions will remain strong in industries currently
experiencing robust activity such as health care and financial services. This
indeed has occurred. Two portfolio holdings, Astra and Zeneca, have merged and
Glaxo Wellcome continues to scour the dance floor for a partner. We have
holdings in all of these companies as well as in the two large Swiss
pharmaceutical companies, Novartis and Roche Holdings.
In financial services, the consolidation process continues with France and
Italy currently taking center stage. One of our large international holdings,
Banca Commerciale Italiana, is currently being wooed by a variety of Italian
suitors. We continue to believe that European asset managers remain attractive
investments and we still hold Skandia in Sweden, Schroders in the U.K. and Safra
Republic Holdings in Switzerland.
The power of the market and the competition for capital should speed the
pace of reform on both a macro and micro level. National governments will likely
set aside ideological baggage and undertake meaningful tax harmonization and
labor reform. Also, institutional reform is required in areas such as the
hostile takeovers of public companies. The Telecom Italia saga and the LVMH bid
for Gucci have highlighted the problem. In the latter case, Dutch law allows a
target company to issue as many shares as necessary to dilute the acquirer.
In a more competitive environment, European companies will have to continue
in their efforts to improve returns and to better communicate objectives to
investors in order to attract capital. European companies' return on equity
("ROE"), one corporate measure of performance, continues to lag significantly
behind U.S. corporations. This varies by country but, for example, the average
ROE in Germany is significantly less than that of the S&P 500. Can this gap be
closed? If it can, we believe Europe will remain an attractive location to
invest.
These trends are coinciding with a major shift among savers from bonds to
equities. Europeans are investing nearly $4 billion per month in equity funds.
While this is well down from the inflows seen last spring, it is far greater
than the average of $1 billion per month prior to 1997.
So far this year, European equity markets have lagged both Japan and the
emerging markets, which have rallied sharply from depressed levels.
Japan has experienced six significant rallies since the market peaked in
1989. Each one has stalled after a few months. Is this one any different? Maybe.
Two things have changed. First, a massive bank bailout has been implemented
which will help end the credit crunch. Second, companies have now recognized
that restructuring is
10
<PAGE> 13
necessary for survival. No longer can employees be sent to majority owned
subsidiaries and capacity be increased on an uneconomic basis. But there is
still a long way to go. In the late 1980s era of free capital in Japan, capital
investment as a percent of the economy peaked at well over 20%. It is now at 14%
during the third year of economic contraction and still 2% above the U.S. level.
The market is rewarding companies that announce restructuring plans, which
totaled 130 in March alone. The difficulty will be in implementing these plans.
The Japanese government, led by Mr. Obouchi, is now encouraging companies
to be more efficient and reduce capacity. This has caused fear among consumers
who have reacted by spending even less. The numbers are startling. Wages are
falling at an annual rate of 4.0%, retail sales declined by 4.3% and industrial
production has fallen by 7.0% in the past year. Consumer weakness has prompted
the government to increase spending which has sent government debt levels
soaring.
Therefore, the investment case for Japan is probably not based on an
economic upturn in the short term but rather on a more bottom up analysis of
corporate restructuring. Indeed, if companies are successful in becoming more
efficient, unemployment will probably rise further in the short term. Therefore,
it is a case of short term pain for long term gain. Actually, an upturn in the
economy could result in company managements collectively wiping their brow and
reverting to business as usual.
The Equity Trust's international portion remains heavily weighted in the
European market and its largest holdings are concentrated in the health care,
telecommunications, media and consumer non-durable sectors. Richemont, one of
our largest international holdings, is an example of an investment that meets
most of our criteria. We believe Richemont has attractive assets and the
management has made value-enhancing moves over the past two years. First, they
swapped their pay television assets for a 15% stake in Canal +, Europe's largest
pay television company, and then they sold Rothmans for a 25% stake in B.A.T.,
the world's second largest tobacco company. Both businesses should perform
better as part of larger groups. This leaves management free to concentrate on
their luxury goods businesses, such as Cartier, which we believe trade at a
significant discount to comparable companies. The market is now beginning to
recognize the changes that management has undertaken.
Other, better known consumer stocks that the Equity Trust holds include
Nestle, Danone (the French food company) and Foster's Brewing (the Australian
beer company). Less well known is KAO, the Japanese consumer products company.
This holding is a fine example of a successful restructuring. KAO is Japan's
largest detergent manufacturer with a brand called "Attack." In the late 1980s,
the company decided to take its expertise in consumer goods and move into making
floppy disks which, of course, was a disaster. The company has now retreated
from this adventure and has adopted EVA management techniques.
Telecommunications stocks continue to benefit from deregulation and the
explosive growth in data transmission and Internet and wireless traffic. The
Fund's largest international telecommunications holdings include Vodafone,
Telecom Italia, NTT and Cable & Wireless.
11
<PAGE> 14
The introduction of digital television and excitement surrounding the
growth of the Internet has focused investor attention on broadcasting and media
stocks. Another of the Fund's larger international holdings is Granada Group, a
dominant U.K. commercial television broadcaster. The company has just launched
its digital television offering called On Digital. BSkyB has also recently
launched its own digital pay television offering, Sky Digital, and we continue
to hold Pathe, the French company that owns 17% of BSkyB as well as other media
assets in Europe. Other broadcasters that we believe are attractive include
Publishing and Broadcasting in Australia and Tokyo Broadcasting System.
LET'S TALK STOCKS
The following are stock specifics on selected holdings (particularly
SmallCap) 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.
Aeroquip-Vickers Inc. (ANV - $57.3125 - NYSE) is a leading worldwide
manufacturer and distributor of components and systems to industrial, automotive
and aerospace markets. Aeroquip's products include pressure hoses, fittings,
adapters, couplings, fluid connectors and precision molded and extruded plastic
products. Vickers' products include hydraulic pumps, motors and cylinders,
electric motors and drivers, electronic controls, filters, and fluid-evaluation
products and services. Eaton Corp. (ETN - $71.50 - NYSE) completed its
acquisition of Aeroquip in April for $2 billion, or $58 per share.
AirTouch Communications Inc. (ATI - $96.625 - NYSE), based in San Francisco, is
the world's largest wireless communications provider. With more than 35 million
total venture customers in 13 countries, AirTouch and its partners serve more
than ten percent of the world's wireless subscribers. AirTouch will offer
satellite communications in the future through its interest in the Globalstar
satellite system. In April 1998, the company acquired MediaOne Group's (formerly
US West Media Group) U.S. wireless interests in a deal valued at almost $6
billion. On January 15, 1999, Britain's largest cellular company, Vodafone Group
plc (VOD - $187.75 - NYSE), signed a definitive merger agreement with ATI
whereby Vodafone would acquire ATI for $97 per ATI share. Vodafone successfully
topped Bell Atlantic's (BEL - $51.6875 - NYSE) $45 billion bid for AirTouch.
Allen Telecom Inc. (ALN - $6.0625 - NYSE) is a leading supplier to the worldwide
two-way wireless communications industry. The company manufactures system
expansion products, site management products and antennas. Frequency planning,
system engineering services and software design programs are also developed and
marketed through current and emerging wireless markets. ALN should be a
beneficiary of the next generation technology for wireless communications, known
as 3-G (for third generation). 3-G is a broadband technology that will provide
wireless applications for data, Internet and video.
AMP Inc. (AMP - $53.6875 - NYSE) is the leading designer, manufacturer and
marketer of a broad range of electronic, electrical and electro-optic connection
devices, interconnection systems and connector-intensive assemblies. Its major
markets include consumer and industrial (roughly 28% of sales), communications
(25%), automotive (24%) and personal computer (20%). Approximately 50% of sales
are to Europe and the Asia/Pacific region. AlliedSignal (ALD - $49.1875 - NYSE)
made an unsolicited bid for AMP in August 1998, offering $44.50
12
<PAGE> 15
per share. The AlliedSignal offer has been topped by AMP's planned merger with
Tyco International (TYC - $71.75 - NYSE).
Atlantic Richfield Co. (ARCO) (ARC - $73.00 - NYSE) is the leading gasoline
marketer on the U.S. west coast, with 1,760 retail sites spread across
California, Arizona, Nevada, Oregon and Washington. Two refineries are operated
in the region. ARCO has proven oil reserves of 2.8 billion barrels, mainly in
Alaska. The company's proven gas reserves total 9.8 trillion cubic feet, but gas
reserves of a further 15 trillion cubic feet, mainly in Southeast Asia, are
unbooked. BP Amoco (BPA - $100.9375 - NYSE) has reached an agreement to combine
with ARCO in an all-share transaction valuing ARCO at almost $27 billion. The
deal will give BP Amoco the largest oil output of any non-state company.
Coltec Industries Inc. (COT - $18.1875 - NYSE) manufactures a diversified range
of engineered aerospace and industrial products. The aerospace division is a
leading producer of landing gear systems, engine fuel controls, cockpit seating,
turbine blades and fuel injectors for commercial and military aircraft. The
industrial division manufactures seals, gaskets, packaging products and
self-lubricating bearings. The B.F. Goodrich Co. (GR - $34.3125 - NYSE) is in
the process of acquiring Coltec for $2.2 billion, or $20.125 per share.
Ferro Corp. (FOE - $24.75 - NYSE), established in 1919 and based in Cleveland,
Ohio, is a leading producer of porcelain enamel frit, powder coating and plastic
compounds. Ferro is being repositioned as a premier specialty chemical company,
producing specialty materials for industry including coatings, colors, ceramics,
chemicals and plastics. Ferro's major markets are building and renovation, major
appliances, household furnishings, transportation, industrial products,
packaging and leisure products.
Frontier Corp. (FRO - $51.875 - NYSE) is a telecommunications provider operating
various business segments: the nation's fifth largest long distance company, a
local telephone provider in and around Rochester, NY with one million lines, a
CLEC with over 200,000 lines, a nationwide network leased long term from Qwest
and a high-end web hosting business. Frontier has announced plans to merge with
Global Crossing (GBLX - $46.25 - Nasdaq) in a stock for stock transaction for
$62 per Frontier share if GBLX trades between $34.56 and $56.78 before the
transaction is completed. Hamilton, Bermuda-based GBLX also will take on $1.3
billion in FRO debt. The acquisition of FRO is the latest step by GBLX toward
becoming a worldwide phone company.
Mirage Resorts Inc. (MIR - $21.25 - NYSE) owns and operates casino-based
entertainment resorts primarily in Las Vegas and Laughlin, Nevada. These resorts
include Bellagio, Golden Nugget, The Mirage, Treasure Island and the Golden
Nugget Laughlin. The $1.6 billion Bellagio hotel-casino next to Caesars Palace
was opened in October. The $600 million Beau Rivage is set to open in Biloxi,
Mississippi. A resort is planned for Atlantic City.
Navistar International Corp. (NAV - $40.1875 - NYSE) is the leading North
American producer of heavy and medium duty trucks and school buses under the
International brand. The company is also the leading supplier of mid-range, 160
to 300 horsepower, diesel engines. NAV has an approximate 40% share of the
medium duty truck market and 20% share of the heavy duty truck market. NAV
participates in cyclical industries. Nonetheless, the company generates
substantial cash flow, which is not presently taxed due to Navistar's large
(nearly $1.6 billion)
13
<PAGE> 16
tax loss carryforwards. Part of the anticipated increase in cash flow is likely
to be directed to a six year, $650 million capital spending, development and
production program for the company's "next generation" truck.
Nortek Inc. (NTK - $24.75 - NYSE) is a leading international manufacturer and
distributor of high-quality, competitively-priced building, remodeling and
indoor environmental control products for the residential and commercial
markets. The company's products include range hoods and other spot ventilation
products, heating and air conditioning systems, wood and vinyl windows and
doors, vinyl siding products, indoor air quality systems and specialty
electronic products. In April, Nortek announced it had agreed to acquire three
businesses from Caradon plc: Peachtree Doors and Windows, Thermal-Gard and
Caradon Windows and Doors Canada.
DAILY NAVS NOW DISTRIBUTED BY NASDAQ
Since our inception, we have made the net asset value available on nightly
recordings through 1-800-GABELLI. Now, Nasdaq is also disseminating the daily
per share net asset values (NAVs) for the Equity Trust, which is traded on the
New York Stock Exchange. The NAV ticker symbol via Nasdaq is "XGABX".
The NAVs are available through any stock quote lookup service and on broker
Nasdaq level one terminals. The dissemination of daily NAVs allows investors and
brokers to better track the long-term performance of the Fund's underlying
portfolios. We support Nasdaq's efforts in making closed-end funds' NAVs
available on a daily basis.
INTERNET
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Asset Management 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].
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 March 29, 1999. The
next distribution is scheduled for June 1999.
14
<PAGE> 17
IN CONCLUSION
We are pleased with our competitive returns versus the growth oriented S&P
500 and superior returns relative to broader market indices and most of our
value peers. We believe the S&P 500, where valuations have been growing much
faster than earnings, is vulnerable at current levels. However, we are
continuing to find what we view as great values in an otherwise reasonably
priced stock market.
We will continue striving to provide shareholders with our long term
performance goal of a real rate of return of 10% each year.
Sincerely,
/s/ MARIO J. GABELLI
MARIO J. GABELLI
President and Chief Investment Officer
April 30, 1999
TOP TEN HOLDINGS
MARCH 31, 1998
--------------
Cablevision Systems Corp. AMP Inc.
Viacom Inc. Chris-Craft Industries Inc.
Time Warner Inc. American Express Co.
Telephone & Data Systems Inc. Aeroquip Vickers Inc.
United Television Inc. BCE Inc.
NOTE: The views expressed in this report reflect those of the portfolio
managers only through the end of the period stated in this report. The
managers' views are subject to change at any time based on market and other
conditions.
15
<PAGE> 18
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
QUARTER ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
OWNERSHIP AT
MARCH 31,
SHARES 1999
------ ------------
<S> <C> <C>
NET PURCHASES
COMMON STOCKS
Aeroquip-Vickers Inc. ............. 40,000 400,000
AGL Resources Inc. ................ 10,000 10,000
Allen Telecom Inc. ................ 158,200 268,200
American Bankers Insurance
Group, Inc. ..................... 10,000 125,000
Amgen Inc. (a)..................... 15,000 30,000
Amphenol Corp., Cl. A.............. 2,000 143,000
Archer-Daniels-Midland Co. ........ 25,000 685,000
Argonaut Group, Inc. .............. 9,000 30,000
Arnoldo Mondadori Editore SpA...... 10,000 60,000
AT&T Corp. (b)..................... 185,000 185,000
Audiofina.......................... 7,000 15,000
BA Merchant Services Inc. ......... 263,800 344,800
Banca Commerciale Italiana......... 30,000 153,000
Banca Nazionale Lavoro, ORD........ 30,000 170,000
Bankers Trust Corp. ............... 4,000 10,000
BCT.Telus Communications Inc.,
ADR (c).......................... 52,500 52,500
BCT.Telus Communications Inc.
Cl. A, ADR (c)................... 17,500 17,500
BCT.Telus Communications Inc.
Cl. A (d)........................ 4,250 4,250
Borg Warner Automotive Inc. ....... 8,302 16,302
BP Amoco plc, Sponsored ADR (e).... 75,000 75,000
BP Amoco plc, ORD (f).............. 60,000 60,000
Brylane Inc. ...................... 55,000 55,000
Cable & Wireless plc............... 32,000 95,000
Catellus Development Corp. ........ 30,000 430,000
CDnow Inc. (g)..................... 9,960 9,960
Cendant Corporation................ 30,000 130,000
Central Newspaper Cl. A (a)........ 1,500 3,000
Chris Craft Industries Inc. (h).... 10,400 357,073
Chris Craft Industries Inc. Cl. B
(h).............................. 16,766 575,630
Compagnie Financiere Richemont AG,
Cl. A............................ 300 1,400
COMSAT............................. 50,000 150,000
Convergys Corp. ................... 25,000 25,000
Corn Products International,
Inc. ............................ 3,000 45,250
Dana Corp. ........................ 195,000 300,223
Dexter Corp. ...................... 20,000 20,000
Diageo plc, Sponsored ADR.......... 15,000 40,000
Eastern Enterprises................ 13,000 48,000
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP AT
MARCH 31,
SHARES 1999
------ ------------
<S> <C> <C>
El Paso Electric Co. .............. 70,000 70,000
Ferro Corp. ....................... 6,000 250,000
Florida Panthers Holdings Inc. .... 20,000 20,000
Flowserve.......................... 55,000 100,000
Fortune Brands..................... 22,000 190,000
Frontier Corp. .................... 5,000 80,000
Gabelli Utility Fund............... 10,000 10,000
Gaylord Entertainment Co., Cl. A... 17,800 180,000
GC Companies Inc. ................. 7,000 72,000
GenCorp Inc. ...................... 16,600 210,000
General Chemical Group Inc. ....... 5,000 5,000
General Cigar Holdings Inc. ....... 60,000 160,000
General Mills Inc. ................ 20,480 65,000
Genuine Parts Co. ................. 15,000 70,000
Glaxo Wellcome ORD................. 5,000 50,000
Granada Group plc ORD.............. 5,000 95,000
Group Danone SA.................... 2,500 2,500
H&R Block Inc. .................... 10,000 110,000
Hilton Hotels Corp. ............... 45,000 545,000
Hong Kong Telecomm Ltd Spon ADR.... 23,000 55,000
Independent Newspapers Ltd., ORD... 30,000 308,000
Instituto Nazionale Delle
Assicurazio...................... 265,000 390,000
Invik & Co. AB, Cl. B.............. 425 19,116
Ito Yokado Co. Ltd. ............... 7,000 11,000
KAO Corp. ......................... 16,000 30,000
Kadowkawa Shoten Publishing Co.,
Ltd. ............................ 3,500 3,500
King World Productions............. 3,000 3,000
Liberty Corp. ..................... 15,000 140,000
Liberty Media Group (i)............ 188,224 224,224
Life Technologies Inc. ............ 2,000 2,000
Loewen Group Inc. ................. 10,000 310,000
LucasVarity plc, Spon ADR.......... 160,000 160,000
Mark IV Industries Inc. ........... 15,000 195,000
Mattel Inc. ....................... 10,000 10,000
Matsushita Electrical Industrial... 10,000 45,000
McGraw Hill Cos. Inc. (a).......... 50,000 100,000
Modine Manufacturing Co. .......... 27,200 330,000
Morton International Inc. ......... 175,000 175,000
Nintendo Co. ...................... 3,000 9,500
Nippon Telegraph and Telephone
Corp. ........................... 28 150
Nortek Inc. ....................... 12,000 150,000
Northern Telecom Ltd. ............. 11,000 11,000
</TABLE>
16
<PAGE> 19
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES (CONTINUED)
QUARTER ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
OWNERSHIP AT
MARCH 31,
SHARES 1999
------ ------------
<S> <C> <C>
NET PURCHASES (CONTINUED)
COMMON STOCKS (CONTINUED)
Northrop Grumman Corp. ............ 28,000 70,000
Park-Ohio Holding Corp. ........... 2,000 52,715
Park Place Entertainment Corp.
(j).............................. 550,000 550,000
PennzEnergy Co. ................... 71,200 240,000
Pepsi Bottling Group Inc. ......... 5,000 5,000
Pioneer Hi-Bred International
Inc. ............................ 20,000 20,000
PLATINUM Tech International
Inc. ............................ 11,000 11,000
Public Service Co. of North
Carolina Inc. ................... 6,000 6,000
Pulitzer Inc. ..................... 2,500 2,500
Republic Industries, Inc. ......... 74,000 274,000
Rogers Communications Inc., Cl. B,
Sponsored ADR.................... 20,000 20,000
Rogers Communications Inc.,
Cl. B............................ 150,000 150,000
Sanofi SA.......................... 5,000 5,000
Schroders, plc..................... 9,000 40,000
Sekisui House Ltd. ................ 25,000 52,500
SMH AG............................. 300 1,500
SmithKline Beecham plc............. 55,000 55,000
Softbank Corp. .................... 9,000 9,000
St. Joseph Light & Power Co. ...... 15,000 15,000
Superior Industries International,
Inc. ............................ 10,000 40,000
Swisscom AG........................ 500 1,800
Telecom Italia SpA................. 73,800 550,040
Telefonica SA...................... 16,000 16,000
Telephone & Data Systems Inc. ..... 47,300 520,000
Telstra Corp. Ltd. ................ 90,000 90,000
Telewest Communications plc........ 200,000 200,000
Tenneco Inc. ...................... 355,000 455,000
Thomas Nelson Inc. ................ 12,000 62,000
TI Group ORD....................... 15,000 27,000
Tokyo Broadcasting System Inc. .... 13,000 60,000
Tootsie Roll Industries Inc. (h)... 2,711 93,101
Toyo Seikan Kaisha Ltd. ........... 15,000 30,000
Tribune Co. ....................... 2,000 17,000
T. Rowe Price Associates Inc. ..... 60,000 60,000
Unilever plc....................... 5,000 79,200
United Television Inc. ............ 800 269,009
Unitrin Inc. (a)................... 25,000 50,000
USA Networks, Inc. ................ 70,000 300,000
US Filter Corp. ................... 462,500 500,000
Vivendi............................ 1,550 5,050
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP AT
MARCH 31,
SHARES 1999
------ ------------
<S> <C> <C>
Waddell & Reed Financial Inc.,
Cl. A............................ 29,900 29,900
Watts Industries Inc., Cl. A....... 45,000 85,000
Weir Group (The) plc............... 100,000 100,000
Xylan Corp. ....................... 100,000 100,000
NET SALES
COMMON STOCKS
AirTouch Communications Inc. ...... (47,000) 78,000
Alltel Corp. ...................... (15,000) 50,000
American Express Co. .............. (28,000) 220,000
AMP Inc. .......................... (65,000) 515,000
AMP Ltd. .......................... (25,000) --
Banco Santander SA, ADR............ (14,640) 120,000
BCE Inc. .......................... (30,000) 515,000
BC TELECOM Inc. (d)................ (4,250) 12,750
BC TELECOM Inc. ADR (c)............ (70,000) --
BJ Services Co. ................... (120,000) --
British Petroleum Co. plc,
Sponsored ADR (e)................ (85,000) --
British Petroleum Co. plc, ORD
(f).............................. (60,000) --
Cablevision Systems Corp., Cl. A... (32,000) 610,000
CalMat Co. (k)..................... (510,000) --
Century Telephone Enterprises
Inc. ............................ (12,000) 170,000
CheckFree Holdings Corp. .......... (7,000) 18,000
Church & Dwight Co. Inc. .......... (2,000) 68,000
Cincinnati Bell Inc. .............. (15,000) 30,000
Coltec Industries Inc. ............ (20,000) 390,000
Comcast Corp., Cl. A Special....... (10,800) 29,200
Corporacion Mapfre SA New.......... (14,400) --
DDI Corp. ......................... (70) --
Deutsche Babcock AG................ (7,000) --
Donaldson, Lufkin & Jenrette
Inc. ............................ (6,000) --
Flo (Groupe)....................... (10,500) --
General Motors Corp. .............. (4,000) 188,000
Golden Books Family Entertainment
Inc. ............................ (350,000) --
Grupo Televisa S.A., GDR........... (15,000) 240,000
Honda Motor Co., Ltd. ............. (8,500) --
Infinity Broadcasting Corp. ....... (3,000) --
Kuhlman Corp. ..................... (200,000) --
Lehman Brothers Holdings Inc. ..... (2,000) 38,000
Manitowoc Co. Inc. ................ (2,000) 6,000
MediaOne Group Inc. ............... (10,000) 250,000
Midland Co. ....................... (1,300) 110,000
N2K Inc. (g)....................... (12,000) --
</TABLE>
17
<PAGE> 20
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES (CONTINUED)
QUARTER ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
OWNERSHIP AT
MARCH 31,
SHARES 1999
------ ------------
<S> <C> <C>
NET SALES (CONTINUED)
COMMON STOCKS (CONTINUED)
Navistar International Corp. ...... (7,000) 490,000
Pennzoil-Quaker State Inc. ........ (10,000) 158,800
Petersen Cos. Inc. ................ (105,400) --
Pheonix AG......................... (10,335) --
Pittway Corp., Cl. A............... (15,000) 115,000
RCN Corporation.................... (10,000) 270,000
Readers Digest Association Inc.
Class A.......................... (20,000) --
Reckitt & Colman plc............... (30,000) --
Renault SA......................... (20,000) --
Simint SpA......................... (100,000) --
Sony Corp. ........................ (9,000) --
Sprint Corp. ...................... (5,000) 230,000
Sprint Corp. (PCS Group)........... (5,000) 120,000
TCI Ventures Group (i)............. (361,970) --
Telecom Italia SpA, Sponsored
ADR.............................. (5,500) 151,500
Telecom Italia Mobile SpA.......... (35,000) 1,360,000
Tele-Communications Inc., Cl A
(b).............................. (270,000) --
Telefonica de Espana, Sponsored
ADR.............................. (1,960) 47,000
Time Warner Inc. .................. (11,500) 472,000
Viacom Inc., Cl. A................. (2,000) 475,000
PREFERRED STOCKS
ProSieben Media AG................. (3,750) --
CORPORATE BONDS
Thomas Nelson Inc., Conv. Sub.
Note, 5.750% due 11/30/99 144A
(l).............................. (1,000,000) --
</TABLE>
- ----------------
(a) 2 for 1 stock split
(b) Merger -- 0.7757 shares of AT&T Corp. for every share of Tele-Communications
Inc., Cl. A
(c) Spinoff -- 0.25 shares of BCT.Telus Communications Inc. Cl. A ADR and 0.75
shares of BCT.Telus Communications Inc. ADR for every 1 share of BC Telecom
Inc. ADR
(d) Spinoff -- 0.25 shares of BCT.Telus Communuications Inc. Cl. A for every 1
share BC Telecom Inc.
(e) Merger -- 1 share of BP Amoco plc, Sponsored ADR for every 1 share of
British Petroleum Co. plc, Sponsored ADR.
(f) Merger -- 1 share of BP Amoco plc, ORD for every 1 share of British
Petroleum Co. plc, ORD.
(g) Merger -- 0.83 CDnow Inc. shares for every 1 share of N2K Inc.
(h) 3% stock dividend
(i) Merger -- 0.52 shares of Liberty Media Group for every 1 share of TCI
Ventures Group
(j) Spinoff -- 1 share of Park Place Entertainment Corp. for every 1 share of
Hilton Hotels Corp.
(k) Tender offer at $31.00 per share.
(l) Call -- Thomas Nelson Inc. Conv. Sub. Note, 5.750% due 11/30/99 144A called
at $100.82 effective 3/1/99
18
<PAGE> 21
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS -- 94.0%
EQUIPMENT AND SUPPLIES -- 12.2%
400,000 Aeroquip-Vickers Inc. ......... $ 22,925,000
90,000 AMETEK Inc. ................... 1,642,500
515,000 AMP Inc. ...................... 27,649,063
195,000 Ampco-Pittsburgh Corp. ........ 1,925,625
143,000 Amphenol Corp., Cl. A +........ 5,469,750
10,000 Caterpillar Inc. .............. 459,375
107,000 CLARCOR Inc. .................. 1,825,687
345,000 Deere & Co. ................... 13,325,625
280,400 Donaldson Co. Inc. ............ 5,047,200
100,000 Flowserve Corp. ............... 1,556,250
6,500 Franklin Electric Co. ......... 422,500
107,500 Gerber Scientific Inc. ........ 2,170,156
250,000 Hussmann International,
Inc. ......................... 3,671,875
340,000 IDEX Corp. .................... 8,011,250
50,000 Lufkin Industries Inc. ........ 828,125
6,000 Manitowoc Co. Inc. ............ 251,250
195,000 Mark IV Industries Inc. ....... 2,547,188
490,000 Navistar International
Corp. +....................... 19,691,875
20,000 PACCAR Inc. ................... 823,750
410,000 Pittway Corp. ................. 10,762,500
115,000 Pittway Corp., Cl. A........... 3,047,500
85,000 Sequa Corp., Cl. A +........... 4,271,250
75,000 Sequa Corp., Cl. B +........... 5,081,250
168,000 SPS Technologies Inc. +........ 6,594,000
30,000 Toyo Seikan Kaisha Ltd. ....... 647,300
500,000 US Filter Corp. +.............. 15,312,500
85,000 Watts Industries Inc., Cl. A... 1,152,813
--------------
167,113,157
--------------
TELECOMMUNICATIONS -- 11.8%
42,000 Aliant Communications Inc. .... 1,719,375
5,000 Allegiance Telecom Inc. +...... 125,000
50,000 Alltel Corp. .................. 3,118,750
185,001 AT&T Corp. .................... 14,765,352
515,000 BCE Inc. ...................... 22,820,937
12,750 BCT.Telus Communications
Inc. ......................... 312,521
52,500 BCT.Telus Communications Inc.,
Sponsored ADR................. 1,286,850
4,250 BCT.Telus Communications Inc.
Cl. A......................... 100,654
17,500 BCT.Telus Communications Inc.
Cl. A, Sponsored ADR.......... 414,458
95,000 Cable & Wireless plc........... 1,186,774
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
75,000 Cable & Wireless plc, Sponsored
ADR........................... $ 2,770,312
2,448,000 Cable & Wireless Jamaica
Ltd. ......................... 83,501
30,000 Cincinnati Bell Inc. .......... 673,125
255,466 Commonwealth Telephone
Enterprises, Inc. +........... 9,404,342
20,000 Commonwealth Telephone
Enterprises, Inc. Cl. B +..... 720,000
35,000 Compania de Telecomunicaciones
de Chile SA, Sponsored ADR.... 824,687
167,000 Embratel Participacoes SA +.... 2,786,813
80,000 Frontier Corp. ................ 4,150,000
265,000 GTE Corp. ..................... 16,032,500
55,000 Hong Kong Telecommunications
Ltd., Sponsored ADR........... 1,075,937
10,000 Maritime Telegraph and
Telephone Co. Ltd. ........... 266,645
10,000 Motorola Inc. ................. 732,500
150 Nippon Telegraph and Telephone
Corp. ........................ 1,469,408
270,000 RCN Corporation................ 9,061,875
170,000 Rogers Communications Inc., Cl.
B +, Sponsored ADR............ 3,081,784
5,000 SBC Communications Inc. ....... 235,625
230,000 Sprint Corp. .................. 22,568,750
1,800 Swisscom AG.................... 704,162
33,400 Tele Centro Sul Participacoes
SA +.......................... 1,542,663
167,000 Tele Norte Leste Participacoes
SA +.......................... 2,567,625
10,000 Telecom Argentina -- Stet
France Telecom S.A., Sponsored
ADR........................... 274,375
550,040 Telecom Italia SpA............. 5,848,094
151,500 Telecom Italia SpA, Sponsored
ADR........................... 15,812,813
167,000 Telecomunicacoes Brasileiras SA
(Telebras), Sponsored ADR..... 23,484
16,000 Telefonica S.A. ............... 679,246
10,000 Telefonica de Argentina S.A.,
ADR, Cl. B.................... 302,500
47,000 Telefonica de Espana, Sponsored
ADR........................... 6,004,250
18,000 Telefonos De Mexico SA, Cl. L,
ADR........................... 1,179,000
167,000 Telesp Participacoes SA........ 3,444,375
</TABLE>
19
<PAGE> 22
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
90,000 Telstra Corp. Ltd. +........... $ 471,142
7,000 U.S. West Inc. +............... 385,438
--------------
161,027,642
--------------
ENTERTAINMENT -- 7.8%
105,768 Ascent Entertainment Group
Inc. ......................... 1,156,838
40,000 CANAL +, Sponsored ADR......... 2,011,484
23,288 EMI Group plc.................. 166,228
118,000 EMI Group plc, Sponsored ADR... 1,637,250
20,000 Florida Panthers Holdings
Inc. +........................ 155,000
20,000 Fox Entertainment Group
Inc. ......................... 542,500
72,000 GC Companies Inc. +............ 2,263,500
3,000 King World Productions Inc. ... 91,687
224,224 Liberty Media Group Cl. A +.... 11,799,809
472,000 Time Warner Inc. .............. 33,541,500
65,000 Todd-AO Corp., Cl. A........... 511,875
300,000 USA Networks, Inc. +........... 10,743,750
475,000 Viacom Inc., Cl. A +........... 39,573,438
90,000 Walt Disney Co. ............... 2,801,250
--------------
106,996,109
--------------
FINANCIAL SERVICES -- 7.7%
220,000 American Express Co. (d)....... 25,850,000
30,000 Argonaut Group, Inc. .......... 770,625
344,800 BA Merchant Services Inc. ..... 7,025,300
153,000 Banca Commerciale Italiana..... 1,256,406
18,500 Banca Nazionale del Lavoro,
ORD +......................... 986,070
120,000 Banco Pastor SA................ 2,415,000
10,000 Banco Santander SA, ADR........ 882,500
170,000 Bankers Trust Corp. ........... 595,140
300,000 Bankgesellschaft Berlin AG..... 4,457,065
42,001 Bank of Ireland................ 880,407
56,000 Bank of Scotland............... 743,860
260 Berkshire Hathaway Inc.,
Cl. A +....................... 18,564,000
284,979 Colonial Limited Inc. +........ 1,133,111
50,000 Commerzbank AG, Sponsored
ADR........................... 1,462,500
150,000 Deutsche Bank AG, Sponsored
ADR........................... 7,612,500
25,000 Hibernia Corp. ................ 328,125
110,000 H&R Block Inc. ................ 5,211,250
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
38,000 Lehman Brothers Holdings
Inc. ......................... $ 2,270,500
10,000 Leucadia National
Corporation................... 302,500
30,000 Mellon Bank Corporation........ 2,111,250
50,000 Merrill Lynch & Co. ........... 4,421,875
110,000 Midland Co. ................... 2,653,750
20,000 Morgan (J.P.) & Co. Inc. ...... 2,467,500
60,000 Riggs National Corp. .......... 1,012,500
14,000 Safra Republic Holdings SA..... 581,000
40,000 Schroders, plc................. 926,436
40,000 State Street Corp. ............ 3,287,500
20,000 SunTrust Banks Inc. ........... 1,245,000
60,000 T. Rowe Price Associates
Inc. ......................... 2,062,500
50,000 Unitrin Inc. .................. 1,562,500
29,900 Waddell & Reed Financial Inc.,
Cl. A......................... 612,950
--------------
105,691,620
--------------
BROADCASTING -- 6.8%
50,000 Ackerley Group Inc. ........... 846,875
15,000 Audiofina...................... 599,678
357,073 Chris-Craft Industries
Inc. +........................ 16,291,464
575,630 Chris-Craft Industries Inc.
Cl. B + (a)................... 26,263,115
95,000 Granada Group plc ORD.......... 1,924,291
37,500 Gray Communications Systems
Inc. ......................... 623,437
240,000 Grupo Televisa S.A., GDR +..... 7,530,000
140,000 Liberty Corp. ................. 7,341,250
3,750 NRJ SA......................... 753,649
3,500 Pathe SA....................... 900,057
120,000 Paxson Communications Corp.
Cl. A......................... 1,027,500
85,000 Publishing & Broadcasting
Ltd. ......................... 485,125
100,000 Television Broadcasting Ltd.
ORD........................... 364,540
60,000 Tokyo Broadcasting System
Inc. ......................... 762,572
269,009 United Television Inc. ........ 27,976,936
--------------
93,690,489
--------------
WIRELESS COMMUNICATIONS -- 6.6%
78,000 AirTouch Communications
Inc. +........................ 7,536,750
133,000 Associated Group Inc., Cl.
A +........................... 6,591,812
133,000 Associated Group Inc., Cl.
B +........................... 6,450,500
170,000 Century Telephone Enterprises
Inc. ......................... 11,942,500
150,000 COMSAT Corp., Series 1......... 4,340,625
100,000 Loral Space & Communications
Ltd. ......................... 1,443,750
</TABLE>
20
<PAGE> 23
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
WIRELESS COMMUNICATIONS (CONTINUED)
5,000 NEXTEL Communications Inc., Cl.
A +........................... $ 183,125
250,000 Securicor Group plc ORD........ 2,201,091
120,000 Sprint Corp. (PCS Group)....... 5,317,500
350,000 TCI Satellite Entertainment
Inc., Cl. A +................. 229,687
16,700 Tele Celular Sul Participacoes
SA............................ 319,387
55,666 Tele Centro Oeste Celular
Participacoes SA +............ 205,268
3,340 Tele Leste Celular
Participacoes SA.............. 106,880
8,350 Tele Nordeste Celular
Participacoes SA.............. 185,788
3,340 Tele Norte Celular
Participacoes SA +............ 99,365
33,400 Tele Sudeste Celular
Participacoes SA +............ 676,350
8,350 Telemig Celular Participacoes
SA +.......................... 218,666
66,800 Telesp Celular Participacoes
SA +.......................... 1,398,625
1,360,000 Telecom Italia Mobile SpA...... 9,154,865
520,000 Telephone and Data Systems
Inc. ......................... 29,315,000
115,813 Vodafone Group plc ORD......... 2,151,473
--------------
90,069,007
--------------
CABLE -- 5.0%
610,000 Cablevision Systems Corp., Cl.
A +........................... 45,216,250
40,000 Comcast Corp., Cl. A........... 2,460,000
29,200 Comcast Corp., Cl. A Special... 1,837,775
250,000 MediaOne Group Inc. +.......... 15,875,000
40,000 Shaw Communications Inc. +..... 1,287,500
10,000 Shaw Communications Inc., Cl.
B, Conv....................... 321,298
200,000 TeleWest Communications
plc +......................... 866,718
--------------
67,864,541
--------------
FOOD AND BEVERAGE -- 4.7%
30,108 Advantica Restaurant Group,
Inc. +........................ 150,540
30,000 Bestfoods Inc. ................ 1,410,000
18,000 Brau und Brunnen +............. 1,320,588
45,250 Corn Products International,
Inc. +........................ 1,083,172
40,000 Diageo plc, Sponsored ADR...... 1,830,000
450,000 Foster's Brewing Group Ltd. ... 1,324,391
65,000 General Mills Inc. ............ 4,911,562
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
2,500 Groupe Danone SA............... $ 629,662
4,000 Keebler Foods Co. +............ 146,000
115,000 Kellogg Co. ................... 3,888,437
11,000 LVHM Moet Hennessy Louis
Vuitton, Sponsored ADR........ 540,375
700 Nestle SA...................... 1,273,976
5,000 Pepsi Bottling Group Inc. +.... 108,437
350,000 PepsiCo Inc. .................. 13,715,625
122,000 Quaker Oats Co. ............... 7,632,625
60,000 Ralcorp Holdings Inc. +........ 1,140,000
120,000 Seagram Co. Ltd. .............. 6,000,000
93,102 Tootsie Roll Industries
Inc. ......................... 4,288,497
356,000 Whitman Corp. ................. 6,118,750
73,000 Wrigley (Wm.) Jr. Co. ......... 6,601,938
--------------
64,114,575
--------------
PUBLISHING -- 4.0%
60,000 Arnoldo Mondadori Editore
SpA +......................... 897,896
3,000 Central Newspapers Inc.,
Cl. A......................... 93,375
40,000 Dow Jones & Co. Inc. .......... 1,887,500
50,000 Harcourt General Inc. ......... 2,215,625
308,000 Independent Newspapers Ltd.,
ORD........................... 1,397,735
3,500 Kadokawa Shoten Publishing Co.,
Ltd. ......................... 467,002
100,000 McGraw-Hill Companies Inc. .... 5,450,000
345,000 Media General Inc., Cl. A...... 16,042,500
130,000 Meredith Corp. ................ 4,086,875
140,000 New York Times Co., Cl. A...... 3,990,000
140,000 News Corp. Ltd. ............... 1,036,252
5,000 News Corp. Ltd., ADR........... 147,500
70,000 Pearson plc ORD................ 1,594,147
300,000 Penton Media Inc. ............. 6,750,000
2,500 Pulitzer Inc. ................. 101,094
160,000 Reader's Digest Association
Inc., Class B................. 4,400,000
65,000 Schibsted A/A.................. 774,310
1,500,000 Seat Pagine Gialle SpA +....... 1,758,515
200,000 South China Morning Post
Holdings ORD.................. 110,975
62,000 Thomas Nelson Inc. ............ 620,000
17,000 Tribune Co. ................... 1,112,437
--------------
54,933,738
--------------
</TABLE>
21
<PAGE> 24
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS -- 4.0%
530,000 Carter-Wallace Inc. ........... $ 9,606,250
10,750 Christian Dior SA.............. 1,381,069
68,000 Church & Dwight Co. Inc. ...... 2,771,000
1,400 Compagnie Financiere Richemont
AG, Cl. A..................... 2,330,964
10,000 Department 56 Inc. +........... 304,375
190,000 Fortune Brands Inc. (e)........ 7,350,625
220,000 Gallaher Group plc............. 5,170,000
160,000 General Cigar Holdings Inc. ... 1,490,000
105,000 General Cigar Holdings Inc.
Class B + (a)................. 977,812
52,000 Harley Davidson Inc. .......... 2,990,000
30,000 KAO Corp. ..................... 662,501
45,000 Matsushita Electric Industrial
Co. Ltd., ORD................. 877,845
1,500 Matsushita Electric Industrial
Co. Ltd., ADR................. 290,062
10,000 Mattel Inc. ................... 248,750
35,000 National Presto Industries
Inc. ......................... 1,240,313
9,500 Nintendo Co. Ltd. ............. 822,320
422,000 Ralston Purina Co. ............ 11,262,125
5,000 Sanofi SA...................... 842,790
20,000 Sony Corp., ADR................ 1,826,250
1,500 Swatch Group AG, Bearer........ 954,315
10,425 Syratech Corp. +............... 166,800
79,200 Unilever plc................... 735,654
--------------
54,301,820
--------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.5%
16,302 Borg Warner Automotive Inc. ... 779,439
300,223 Dana Corp. .................... 11,408,474
210,000 GenCorp Inc. .................. 3,780,000
70,000 Genuine Parts Co. ............. 2,016,875
118,000 Johnson Controls Inc. ......... 7,360,250
160,000 LucasVarity plc, Sponsored
ADR........................... 7,400,000
330,000 Modine Manufacturing Co. ...... 9,260,625
6,500 SPX Corp. ..................... 327,844
160,000 Standard Motor Products
Inc. ......................... 3,310,000
40,000 Superior Industries
International, Inc. .......... 930,000
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
110,000 TransPro Inc. ................. $ 474,375
60,000 Wynn's International Inc. ..... 1,046,250
--------------
48,094,132
--------------
DIVERSIFIED INDUSTRIAL -- 2.9%
12,000 Cooper Industries Inc. ........ 511,500
140,000 Crane Co. ..................... 3,386,250
105,000 GATX Corp. .................... 3,458,437
60,000 Honeywell Inc. ................ 4,548,750
10,000 Indus Holding AG............... 324,150
10,000 ITT Industries Inc. +.......... 353,750
416,300 Lamson & Sessions Co. +........ 2,055,481
100,000 Lawter International Inc. ..... 700,000
105,000 National Service Industries
Inc. ......................... 3,576,562
9,000 Oerlikon-Buhrle Holding AG..... 1,309,645
52,715 Park-Ohio Holding Corp. +...... 738,010
455,000 Tenneco Inc. .................. 12,711,562
75,000 Thomas Industries Inc. ........ 1,406,250
27,000 TI Group plc................... 175,510
50,000 Trinity Industries Inc. ....... 1,468,750
26,000 Tyco International Ltd. ....... 1,865,500
95,000 Tyler Corp. +.................. 415,625
100,000 Weir Group plc................. 397,851
--------------
39,403,583
--------------
ENERGY AND UTILITIES -- 2.1%
10,000 AGL Resources Inc. ............ 175,625
34,000 Apache Corp. .................. 886,125
70,000 Atlantic Richfield Co. ........ 5,110,000
75,000 BP Amoco plc, Sponsored ADR.... 7,570,312
60,000 BP Amoco plc, ORD.............. 1,015,367
70,000 Burlington Resources Inc. ..... 2,795,625
48,000 Eastern Enterprises............ 1,746,000
70,000 El Paso Electric Company +..... 533,750
10,000 Energy East Corporation........ 525,625
55,000 Halliburton Co. ............... 2,117,500
25,000 New England Electric System.... 1,212,500
240,000 PennzEnergy Co. +.............. 2,520,000
158,800 Pennzoil-Quaker State Inc. +... 1,965,150
6,000 Public Service Co. of North
Carolina Inc. ................ 170,250
15,000 St. Joseph Light & Power
Co. .......................... 306,562
11,000 Veba AG........................ 578,824
--------------
29,229,215
--------------
</TABLE>
22
<PAGE> 25
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HOTELS/GAMING -- 1.7%
110,000 Aztar Corp. +.................. $ 529,375
180,000 Gaylord Entertainment Co.,
Cl. A......................... 4,365,000
5,000 GTECH Holdings Corp. +......... 121,875
545,000 Hilton Hotels Corp. ........... 7,664,062
1,016,949 Ladbroke Group plc............. 4,649,138
100,000 Mirage Resorts Inc. ........... 2,125,000
950 Moevenpick Holding AG.......... 501,523
550,000 Park Place Entertainment
Corp. +....................... 4,159,375
--------------
24,115,348
--------------
HEALTH CARE -- 1.6%
30,000 Amgen Inc. +................... 2,246,250
69,666 Astra AB, Cl. A................ 1,598,934
13,000 Biogen Inc. +.................. 1,486,062
50,000 Glaxo Wellcome plc ORD......... 1,675,331
4,000 Glaxo Wellcome plc ADR......... 267,750
2,000 Life Technologies, Inc. ....... 77,125
1,150 Novartis AG, Registered........ 1,868,799
54,000 Novartis AG, ADR +............. 4,401,000
15,000 Pfizer Inc. ................... 2,081,250
140 Roche Holding AG............... 1,710,321
7,000 Schering AG.................... 815,724
55,000 SmithKline Beecham plc......... 793,160
35,000 Zeneca Group plc +............. 1,654,026
--------------
20,675,732
--------------
AUTOMOTIVE -- 1.2%
188,000 General Motors Corp. (f)....... 16,332,500
--------------
RETAIL -- 1.2%
55,000 Brylane Inc. +................. 1,333,750
20,500 Coldwater Creek Inc. +......... 235,750
80,000 Earl Scheib Inc. +............. 400,000
140,000 Food Lion Inc., Cl A........... 1,288,437
11,000 Ito Yokado Co. Ltd. ........... 707,850
100,000 Lillian Vernon Corp. .......... 1,200,000
340,000 Neiman Marcus Group Inc. +..... 7,692,500
274,000 Republic Industries, Inc. +.... 3,390,750
--------------
16,249,037
--------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
SPECIALTY CHEMICAL -- 1.0%
5,400 Ciba Specialty Chemicals, ADR
144A (c) +.................... $ 207,814
20,000 Dexter Corp. .................. 630,000
20,000 E.I. du Pont de Nemours Co. ... 1,161,250
250,000 Ferro Corp. ................... 6,187,500
5,000 General Chemical Group Inc. ... 65,625
175,000 Morton International Inc. ..... 6,431,250
105,000 Sybron Chemicals Inc. ......... 1,338,750
--------------
16,022,189
--------------
AVIATION: PARTS AND SERVICES -- 0.9%
390,000 Coltec Industries Inc. +....... 7,093,125
100,000 Curtiss-Wright Corp. .......... 3,106,250
130,000 Fairchild Corporation, Cl. A... 1,324,375
145,000 Hi-Shear Industries Inc. +..... 371,563
23,000 Precision Castparts Corp. ..... 925,750
--------------
12,821,063
--------------
PAPER AND FOREST
PRODUCTS -- 0.9%
252,000 Greif Bros. Corp., Cl. A....... 5,544,000
3,400 Greif Bros. Corp., Cl. B....... 109,650
255,000 St. Joe Company................ 6,183,750
--------------
11,837,400
--------------
FINANCIAL SERVICES: INSURANCE -- 0.8%
125,000 American Bankers Insurance
Group, Inc. .................. 6,500,000
75,342 CGU plc........................ 1,173,459
390,000 Istitute Nazionale delle
Assicurazioni................. 1,179,907
20,000 SCOR SA........................ 1,007,026
84,000 Skandia Forsakrings AB......... 1,564,836
--------------
11,425,228
--------------
AGRICULTURE -- 0.8%
685,000 Archer-Daniels-Midland Co. .... 10,060,938
20,000 Pioneer Hi-Bred International
Inc. ......................... 752,500
--------------
10,813,438
--------------
COMMUNICATIONS EQUIPMENT -- 0.8%
268,200 Allen Telecom Inc. +........... 1,625,963
60,000 Dynatech Corporation +......... 206,250
33,000 Lucent Technologies Inc. ...... 3,555,750
11,000 Northern Telecom Ltd. ......... 683,375
</TABLE>
23
<PAGE> 26
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
COMMUNICATIONS EQUIPMENT (CONTINUED)
22,000 Scientific-Atlanta Inc. ....... $ 599,500
100,000 Xylan Corp. +.................. 3,681,250
--------------
10,352,088
--------------
CONSUMER SERVICES -- 0.7%
310,000 Loewen Group Inc. ............. 561,875
30,000 Midas, Inc. ................... 1,001,261
510,000 Rollins Inc. .................. 8,574,375
--------------
10,137,511
--------------
BUSINESS SERVICES -- 0.6%
130,000 Cendant Corporation............ 2,047,500
18,000 CheckFree Holdings Corp. +..... 766,125
25,000 Convergys Corp. +.............. 428,125
100,000 Landauer Inc. ................. 2,412,500
10,833 Reuters Holdings plc, Cl. B,
Sponsored ADR................. 941,117
5,050 Vivendi........................ 1,243,543
--------------
7,838,910
--------------
REAL ESTATE -- 0.6%
430,000 Catellus Development Corp. +... 5,751,250
44,000 Florida East Coast Industries
Inc. ......................... 1,317,250
55,000 Griffin Land & Nurseries
Inc. +........................ 508,750
--------------
7,577,250
--------------
TRANSPORTATION -- 0.4%
79,000 AMR Corp. +.................... 4,626,438
15,000 Kansas City Southern
Industries, Inc. ............. 855,000
31,273 MIF Ltd. +..................... 550,709
--------------
6,032,147
--------------
AEROSPACE/DEFENSE -- 0.3%
70,000 Northrop Grumman Corp. ........ 4,191,250
--------------
CLOSED-END FUNDS -- 0.3%
59,000 Central European Equity Fund
Inc. ......................... 711,688
70,000 Dresdner RCM Europe Fund....... 840,000
25,000 France Growth Fund Inc. ....... 339,062
10,000 Gabelli Utility Fund (a)....... 100,000
40,250 Italy Fund Inc. ............... 606,266
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
68,000 New Germany Fund............... $ 811,750
45,942 Royce Value Trust Inc. ........ 519,719
--------------
3,928,485
--------------
HOUSING RELATED -- 0.3%
150,000 Nortek Inc. +.................. 3,712,500
5,000 Nortek Inc., Special
Common +(a)................... 123,750
--------------
3,836,250
--------------
BUILDING AND
CONSTRUCTION -- 0.2%
90,000 CRH plc ORD.................... 1,554,948
15,000 Martin Marietta Materials
Inc. ......................... 855,937
52,500 Sekisui House Ltd. ............ 558,629
--------------
2,969,514
--------------
ELECTRONICS -- 0.2%
3,000 Hitachi Ltd., ADR.............. 218,250
12,000 Koninklijke Philips Electronics
N.V........................... 989,250
1,500 NEC Corp., ADR................. 89,437
90,000 Ucar International Inc. +...... 1,271,250
--------------
2,568,187
--------------
METALS AND MINING -- 0.2%
10,000 Anglogold Ltd.-Spon ADR........ 201,250
70,909 Antofagasta Holdings plc....... 293,557
10,000 Barrick Gold Corp. ............ 170,625
60,000 Harmony Gold Mining Co Ltd. ... 281,414
150,000 Lihir Gold Ltd. ............... 132,601
38,000 Newmont Mining Corp. .......... 665,000
844,000 Pegasus Gold Inc. +............ 16,880
40,000 Placer Dome Inc. .............. 447,500
--------------
2,208,827
--------------
COMPUTER SOFTWARE AND SERVICES -- 0.1%
9,960 CDnow Inc. +................... 160,605
11,000 PLATINUM Technology
International Inc. +.......... 280,500
9,000 Softbank Corp. +............... 1,009,332
--------------
1,450,437
--------------
CONGLOMERATES -- 0.1%
19,116 Invik & Co. AB, Cl. B.......... 1,245,228
--------------
TOTAL COMMON STOCKS............ 1,287,157,647
--------------
</TABLE>
24
<PAGE> 27
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
PREFERRED STOCKS -- 0.4%
TELECOMMUNICATIONS -- 0.3%
10,000 Citizens Utilities Co., 5.000%
Conv. Pfd. (EPPICS)........... $ 402,500
40,000 Sprint Corp., 8.250%, Conv.
Pfd........................... 2,920,000
2,223,575 Telecomunicacoes de Sao Paulo
(Telesp), Pfd., Registered.... 272,923
--------------
3,595,423
--------------
PUBLISHING -- 0.1%
43,500 News Corp. Ltd., Sponsored ADR,
Pfd........................... 1,196,250
--------------
CABLE -- 0.0%
8,000 Tele-Communications Inc.,
Cl. B, 6.000%, Ex. Jr. Pfd.... 796,000
--------------
WIRELESS COMMUNICATIONS -- 0.0%
2,223,575 Telecomunicacoes de Sao Paulo
Celular, Pfd., B.............. 82,979
--------------
TOTAL PREFERRED STOCKS......... 5,670,652
--------------
COMMON STOCK WARRANTS AND RIGHTS -- 0.0%
FOOD AND BEVERAGE -- 0.0%
62,463 Advantica Restaurant Group,
Inc., Warrants, expires
01/07/2005 +.................. 72,223
--------------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
CORPORATE BONDS -- 0.0%
PUBLISHING -- 0.0%
200,000 News American Holdings Inc.,
Gtd. Ex. Sub. Note, Zero
Coupon
due 03/31/2002................ 250,500
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
TELECOMMUNICATIONS -- 0.0%
200,000(g) Rogers Communications, Inc.,
7.50% due 09/01/1999.......... $ 174,230
--------------
TOTAL CORPORATE BONDS.......... 424,730
--------------
U.S. TREASURY BILLS -- 5.6%
77,000,000 U.S. Treasury Bills, 5.16% ++
due 04/22/1999 (f)............ 76,789,790
--------------
TOTAL INVESTMENTS (b) -- 100.0%........................ $1,370,115,042
==============
OTHER ASSETS, LIABILITIES AND
LIQUIDATION VALUE OF CUMULATIVE
PREFERRED STOCK -- (10.1%)............................ (134,667,089)
--------------
NET ASSETS -- COMMON STOCK
(106,116,347 common shares outstanding) -- 89.9%...... $1,235,447,953
--------------
NET ASSETS -- PREFERRED STOCK
(5,400,000 preferred shares outstanding) -- 10.1%...... 135,000,000
--------------
TOTAL NET ASSETS -- 100.0%............................. $1,370,447,953
--------------
NET ASSET VALUE PER COMMON SHARE
($1,235,447,953 / 106,116,347 shares outstanding) $11.64
======
</TABLE>
<TABLE>
<C> <S> <C>
FUTURES CONTRACTS -- SHORT POSITION
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS APPRECIATION
--------- ------------
<C> <S> <C>
(380) S&P 500 Index Futures,
June 1999................................ $ 2,391,150
=============
</TABLE>
25
<PAGE> 28
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
SETTLEMENT APPRECIATION/
DATE (DEPRECIATION)
---------- --------------
<C> <S> <C> <C>
SCHEDULE OF FORWARD FOREIGN
EXCHANGE CONTRACTS
FORWARD FOREIGN EXCHANGE CONTRACTS TO DELIVER
4,608,000(h) British Pounds in $29,229
exchange for USD
$7,436,250......... 04/15/99
9,794,862(i) Hong Kong Dollars in ($2,412)
exchange for USD
$1,262,412......... 05/24/99
-------
$26,817
=======
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Security fair valued under procedures established
by the Board of Directors.
(b) For Federal tax purposes:
Aggregate cost $838,717,785
============
Gross unrealized appreciation $570,383,467
Gross unrealized depreciation (38,986,210)
------------
Net unrealized appreciation $531,397,257
============
(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 March 31, 1999 was $207,814
representing 0.71% of total net assets.
(d) At March 31, 1999, 204,000 shares were pledged as
collateral for futures contracts.
(e) At March 31, 1999, 100,000 shares were pledged as
collateral for futures contracts.
(f) Security was pledged as collateral for futures
contracts.
(g) Principal amount denoted in Canadian Dollars.
(h) Principal amount denoted in British Pounds.
(i) Principal amount denoted in Hong Kong Dollars.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR -- American Depositary Receipt
USD -- United States Dollar
CAD -- Canadian Dollar
ORD -- Ordinary Share
GDR -- Global Depositary Receipt
</TABLE>
26
<PAGE> 29
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.
27
<PAGE> 30
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. Beginning June 1, 1999, purchase
will be made on or about the 1st and 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.
28
<PAGE> 31
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
Former 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, LLC
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
<TABLE>
<CAPTION>
Common 7.25% Preferred
------ ---------------
<S> <C> <C>
NYSE-Symbol: GAB GAB Pr
Shares Outstanding: 106,116,347 5,400,000
</TABLE>
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "General Equity Funds," in Sunday's The New York Times and in Monday's
The Wall Street Journal. It is also listed in Barron's Mutual Funds/Closed End
Funds section under the heading "General Equity Funds".
The Net Asset Value may be obtained each day by calling (914) 921-5071.
For general information about the Gabelli Funds, call 1-800-GABELLI
(1-800-422-3554), fax us at 914-921-5118, visit Gabelli Funds' Internet homepage
at: HTTP://WWW.GABELLI.COM or e-mail us at: [email protected]
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Equity Trust may from time to time
purchase shares of its capital stock in the open market when the Equity Trust
shares are trading at a discount of 10% or more from the net asset value of the
shares.
<PAGE> 32
THE GABELLI EQUITY TRUST INC.
ONE CORPORATE CENTER
RYE, NY 10580-1434
(914) 921-5070
HTTP://WWW.GABELLI.COM
FIRST-QUARTER REPORT
MARCH 31, 1999
GAB 03/99
