[PHOTO OMITTED]
The
Gabelli
Equity
Income
Fund
THIRD QUARTER REPORT
JUNE 30, 1998
<PAGE>
The Gabelli Equity Income Fund
One Corporate Center
Rye, New York 10580-1434
Third Quarter Report
June 30, 1998(a)
* * * *
Morningstar rated The Gabelli Equity Income Fund 4 stars overall and for the
three and five year periods ended 6/30/98 among 2545 and 1462 domestic equity
funds, respectively.
To Our Shareholders,
In the second quarter of 1998, there was a continuation of the best of
times for large cap stocks and the worst of times for small cap stocks. During
the quarter, the large cap market, as measured by the Standard & Poor's 500
Index, rose by 3.3% while small cap stocks, as measured by the Russell 2000
Index, declined by 4.7%. U.S. government bonds rallied in a classic global
"flight to quality", with the yield on the 30 year U.S. Treasury Bond falling to
5.57% in mid-June.
Investment Performance
For the quarter ended June 30, 1998, The Gabelli Equity Income Fund's (the
"Fund") net asset value increased 0.5% to $17.72 after adjusting for the $0.06
per share dividend paid on June 26, 1998. The Lipper Analytical Services Equity
Income Fund Average declined 1.0% and Standard & Poor's (S&P) 500 Index had a
return of 3.3% over the same period. Each index is an unmanaged indicator of
investment performance. The Fund was up 24.0% over the trailing twelve month
period. The Lipper Equity Income Fund Average and S&P 500 rose 21.0% and 30.2%,
respectively, over the same twelve month period.
For the five year period ended June 30, 1998, the Fund's return averaged
18.0% annually, versus average annual returns of 17.6% and 23.1% for the Lipper
Equity Income Fund Average and S&P 500, respectively. Since inception on January
2, 1992 through June 30, 1998, the Fund had a total return of 179.8%, which
equates to an average annual return of 17.2%. The Dividend History chart details
each dividend paid by the Fund since inception.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Morningstar proprietary
ratings reflect historical risk adjusted performance as of June 30, 1998 and are
subject to change every month. Morningstar ratings are calculated from a Fund's
three, five and ten year average annual returns in excess of 90-day T-bill
returns with appropriate fee adjustments and a risk factor that reflects fund
performance below 90-day T-Bill returns. The top 10% of the funds in an
investment category receive five stars and the next 22.5% receive four stars.
(a) The Fund's fiscal year ends September 30.
<PAGE>
INVESTMENT RESULTS (a)(c)
- --------------------------------------------------------------------------------
Calendar Quarter
----------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
1998: Net Asset Value .... $17.70 $17.72 -- -- --
Total Return ....... 10.1% 0.5%
- --------------------------------------------------------------------------------
1997: Net Asset Value .... $14.27 $16.03 $17.39 $16.12 $16.12
Total Return ....... 1.2% 12.7% 8.8% 3.0% 27.9%
- --------------------------------------------------------------------------------
1996: Net Asset Value .... $13.47 $13.54 $13.81 $14.16 $14.16
Total Return ....... 5.5% 1.0% 2.5% 8.0% 17.9%
- --------------------------------------------------------------------------------
1995: Net Asset Value .... $11.56 $11.99 $12.65 $12.84 $12.84
Total Return ....... 8.5% 4.3% 6.1% 6.9% 28.3%
- --------------------------------------------------------------------------------
1994: Net Asset Value .... $11.26 $11.08 $11.54 $10.72 $10.72
Total Return ....... (2.2)% (0.8)% 4.9% (0.7)% 1.1%
- --------------------------------------------------------------------------------
1993: Net Asset Value .... $11.35 $11.72 $12.15 $11.57 $11.57
Total Return ....... 7.4% 3.8% 4.2% 1.5% 17.9%
- --------------------------------------------------------------------------------
1992: Net Asset Value .... $10.19 $10.36 $10.40 $10.64 $10.64
Total Return ....... 2.4%(b) 2.3% 1.1% 3.7% 9.8%(b)
- --------------------------------------------------------------------------------
- ------------------------------------------------
Average Annual Returns - June 30, 1998 (a)
1 Year....................... 24.0%
5 Year....................... 18.0%
Life of Fund (b)............. 17.2%
- ------------------------------------------------
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of operations on January 2, 1992. (c) The
Fund's fiscal year ends September 30.
- --------------------------------------------------------------------------------
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 six years at
The Gabelli Equity Income Fund and for over 20 years at The Gabelli Asset
Management Company. In past reports, we have tried to articulate our investment
philosophy and methodology. The accompanying graphic further illustrates the
interplay among the four components of our valuation approach.
[Valuation Approach GRAPHIC OMITTED]
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
2
<PAGE>
momentum players, we do not try to forecast earnings with accounting precision
and then trade stocks based on quarterly expectations and realities. We simply
try to position ourselves in front of long term earnings uptrends. In addition,
we analyze on and off balance sheet assets and liabilities such as plant and
equipment, inventories, receivables, and legal, environmental and health care
issues. We want to know everything and anything that will add to or detract from
our private market value (PMV) estimates. Finally, we look for a catalyst;
something happening in the company's industry or indigenous to the company
itself that will surface value. In the case of the independent telephone stocks,
the catalyst is a regulatory change. In the agricultural equipment business, it
is the increasing worldwide demand for American food and feed crops. In other
instances, it may be a change in management, sale or spin-off of a division or
the development of a profitable new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
- ------------------------------------------------------
Dividend History
- ------------------------------------------------------
Rate Reinvestment
Payment (ex) Date Per Share Price
- ----------------- --------- -----
June 26, 1998 $0.06 $17.65
March 27, 1998 $0.05 $17.70
- ------------------------------------------------------
December 29, 1997 $1.78 $15.94
September 30, 1997 $0.05 $17.39
June 30, 1997 $0.05 $16.03
March 31, 1997 $0.06 $14.27
- ------------------------------------------------------
December 27, 1996 $0.76 $14.28
September 30, 1996 $0.07 $13.81
June 28, 1996 $0.06 $13.54
March 31, 1996 $0.07 $13.47
- ------------------------------------------------------
December 29, 1995 $0.68 $12.84
September 29,1995 $0.07 $12.65
June 30, 1995 $0.07 $11.99
March 31, 1995 $0.07 $11.56
- ------------------------------------------------------
December 30, 1994 $0.74 $10.72
September 30, 1994 $0.08 $11.54
June 30, 1994 $0.09 $11.08
March 31, 1994 $0.06 $11.26
- ------------------------------------------------------
December 31, 1993 $0.76 $11.57
September 30, 1993 $0.06 $12.15
June 30, 1993 $0.06 $11.72
March 31, 1993 $0.08 $11.35
- ------------------------------------------------------
December 31, 1992 $0.15 $10.64
September 30, 1992 $0.07 $10.40
June 30, 1992 $0.06 $10.36
March 31, 1992 $0.05 $10.19
- ------------------------------------------------------
COMMENTARY
In compiling our thoughts for this shareholder letter, we looked forward
by looking through the rear view mirror. In the process, we witnessed the
testimony of Federal Reserve Board Chairman Alan Greenspan and we could not say
it any better. To quote Alan . . .
3
<PAGE>
"Mr. Chairman and members of the Committee, I appreciate this opportunity
to present the Federal Reserve's midyear report on monetary policy.
Overall, the performance of the U.S. economy continues to be impressive.
Over the first part of the year, we experienced further gains in output and
employment, subdued prices, and moderate long-term interest rates. Important
crosscurrents, however, have been impacting the economy. With labor markets very
tight and domestic final demand retaining considerable momentum, the risks of a
pickup in inflation remain significant. But inventory investment, which was
quite rapid late last year and early this year, appears to have slowed, perhaps
appreciably. Moreover, the economic and financial troubles in Asian economies
are now demonstrably restraining demands for U.S. goods and services -- and
those troubles could intensify and spread further. Weighting these forces, the
Federal Open Market Committee chose to keep the stance of policy unchanged over
the first half of 1998. However, should pressures on labor resources begin to
show through more impressively in cost increases, policy action may need to
counter any associated tendency for prices to accelerate before it undermines
this extraordinary expansion."
-- Excerpt from the Monetary Policy Testimony and Report to Congress
Before the Subcommittee on Domestic and International Monetary Policy of the
Committee on Banking and Financial Services, U.S. House of Representatives, July
21, 1998.
Some Big Winners . . . and Losers
This quarter, our financial holdings including American Express, U.S.
Trust, Commerzbank and Deutsche Bank continued to perform well. Four of the
Fund's five European telecommunications stocks (British Telecom, France Telecom,
Deutsche Telekom and Telefonica de Espana) rang up solid gains. Our electric and
gas utilities holdings were somewhat mixed, but Orange & Rockland Utilities,
Niagra Mohawk and Southwest Gas made the portfolio's top twenty list.
On the downside, auto and auto parts companies (GenCorp, Meritor
Automotive, Genuine Parts, Dana Corp., Barnes Group and Ford) all retreated.
Manufacturing companies such as Minnesota Mining and Manufacturing, Ingersoll
Rand and Deere also gave ground. Although major integrated oils like Atlantic
Richfield and British Petroleum actually finished the quarter modestly higher,
Pennzoil and Halliburton, the big oil services company, were hit rather hard as
oil prices fell.
The Bottom of the Barrel?
The price of a barrel of oil declined to a twelve year low in the second
quarter of 1998. The market appears to have priced in all the bad news: the warm
El Nino winters, slackening Asian demand, and excess OPEC production. We point
out that despite Asia's woes, worldwide demand for oil is expected to be up
modestly in 1998. According to the National Weather Service, El Nino is not
likely to revisit us next winter. OPEC has made some modest production cuts
already and will likely try to turn down the tap further in the year ahead. We
doubt oil prices will explode from current levels. But, long term supply and
demand trends support our increasingly positive view on the energy sector. This
should ultimately put some life in moribund energy stocks.
4
<PAGE>
Winning on the Sidelines
Sometimes, the smartest things we do are what we don't do. Although
extremely popular among income oriented equity investors in recent years, we had
our reservations about Real Estate Investment Trusts (REITs). Our primary
concern was that commercial real estate property prices had already recovered
substantially in recent years and with investors throwing money at REITs, the
temptation to pay too much for properties would be hard to resist. With the
ongoing shakeout in the retail industry, we also worried that increasing vacancy
rates in shopping centers would penalize retail oriented REITs' revenues and
earnings. While it is still too early to tell if our worries will prove
justified, other investors are beginning to share them as evidenced by REITs
terrible performance over the last two quarters.
Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
American Express Co. (AXP - $114.00 - NYSE) is a global travel, financial and
network services provider. Founded in 1850, the company operates in 160
countries around the world. Best known for its "green" charge card and its
travel-related services, American Express also offers financial planning,
brokerage services, mutual funds, insurance and other investment products.
Harvey Golub, Chairman and CEO, has refocused AXP on its core charge card and
investment management businesses. The company continues to expand the reach of
its credit card operations.
BCE Inc. (BCE - $42.6875 - NYSE), the holding company for Bell Canada, is
Canada's largest telecommunications company. BCE has controlling interests in
Northern Telecom (NT - $56.75 - NYSE) and BCEMobile Communications (BCX - $26.00
- - NYSE). These are substantial values for BCE. For example, "behind" each share
of BCE there are 0.4 shares of Northern Telecom. This NT interest, marked to
market, is worth over $22 per BCE share. The company is a possible candidate for
break-up. In the interim, the Canadian Radio and Television Commission is
providing a more attractive operating environment in which BCE is becoming more
competitive.
British Petroleum Co. plc (BP - $88.25 - NYSE), with an equity market
capitalization exceeding $80 billion, is one of the world's largest integrated
oil companies. Production, which reached 1.25 million barrels and 1.7 billion
cubic feet per day in 1997, is slated to rise five percent per year to reach 1.8
million barrels of oil equivalent (BOE) per day by the year 2000 as new projects
come on stream. The company, like other major oil producers and refiners, has
embarked on a program to deliver $1.5 billion of underlying performance
improvements - cost savings and volume increases - by the year 2000. Sizable
cost savings are expected to result from the joint venture in European refining
and marketing formed with Mobil. BP is a substantial cash flow generator, even
in the current difficult environment of lower oil prices.
5
<PAGE>
Chevron Corp. (CHV - $83.0625 - NYSE) is the third largest U.S. natural gas
producer and is one of the nation's largest crude oil refiners and marketers of
petroleum products. Chevron is the largest supplier of California's mandated
reformulated gasolines. Worldwide, Chevron's 1997 net production was nearly 1.5
million barrels a day of oil and equivalent gas. The company plans to spend
approximately $4 billion on worldwide exploration and production in 1998.
Development projects include Kazakstan (building a pipeline linking the giant
Tengiz oil field to the Black Sea ports) and the North Sea. The quarterly
dividend was increased in January from 58 cents to 61 cents per share.
DeKalb Genetics Corp. (DKB - $94.625 - NYSE), an agricultural genetics and crop
biotechnology company, develops and sells hybrid seeds and is the second largest
supplier of hybrid seed corn. DeKalb was recently put up for sale by the
founding Roberts family. Monsanto (MTC - $55.875 - NYSE), which already owns 40%
of DeKalb, won the three-month-long auction and is to pay $100 in cash for each
additional share, or $2.3 billion.
Eastern Enterprises (EFU - $42.875 - NYSE) owns and operates Boston Gas Company,
New England's largest distributor of natural gas, serving 530,000 residential,
commercial and industrial customers. The company also owns and operates Midland
Enterprises, the leading U.S. dry-cargo, inland waterways barge operator with a
fleet of 2,300 barges and 87 tug boats. Headquartered in Cincinnati, Midland
provides low-cost marine transportation to many of the country's major
industrial and agricultural regions. In December 1997, Eastern sold its 50%
interest in AllEnergy. With a strong balance sheet, the company is positioned to
make attractive strategic commitments, such as its agreement to acquire Essex
County Gas for $80 million. The balance sheet was recently strengthened when the
Supreme Court ruled on the Coal Act of 1992 in Eastern's favor which means the
company will reverse a previously established liability reserve totalling $80
million. The dividend, increased to an annual rate of $1.64 per share, provides
an attractive 3.83% yield for this cash rich company.
Exxon Corp. (XON - $71.3125 - NYSE), with an equity market value of $175
billion, is the world's largest, publicly owned integrated oil company. The
company produced 1.6 million barrels of crude oil and 6.3 billion cubic feet of
natural gas per day in 1997. Roughly one-half of Exxon's production comes from
overseas reserves. Major, promising oil and gas exploration projects in West
Africa, the Caspian Sea, Russia, the Gulf of Mexico and South America are being
pursued. Profitability, in a period of fluctuating energy prices, has been
sustained by management's success in holding costs essentially flat since 1990.
Dividends have been paid since 1882 and have been increased annually since 1983.
Philip Morris Companies Inc. (MO - $39.375 - NYSE) is a leading consumer
products company concentrating on tobacco (44% of revenues), food (49% of
revenues) and beverages (6% of revenues). The company's Marlboro brand commands
an approximate 30% share of the domestic cigarette market and Miller beer is
number two (behind Anheuser-Busch) in its market. Food brands include Jell-O,
Kool-Aid, Kraft, Sealtest and Post cereals. The company generates significant
amounts of excess cash which is used to repurchase stock and to support a
healthy and rising dividend payment to shareholders.
6
<PAGE>
Southern New England Telecommunications Corp. (SNG - $65.50 - NYSE) is a holding
company for Southern New England Telephone (SNET) which provides telephone
services for most of Connecticut. SNET has had success in expanding into the
long distance market in its home territory, gathering a 40% share of the long
distance market in Connecticut. SBC Communications (SBC - $40.00 - NYSE) has
agreed to acquire SNG for $4.26 billion in stock.
Southwest Gas Corp. (SWX - $24.4375 - NYSE) is a natural gas utility based in
Las Vegas, providing natural gas service to approximately 1.15 million
residential, commercial and industrial customers in the fastest growing regions
of the United States: Arizona, Nevada and parts of northeastern and southeastern
California. The company added 63,000 net new customers during 1996 and 59,000
customers during 1997. This represents the fourth year in a row in which
Southwest's customers growth rate has been at least double the industry average.
The settlement with Arizona regulators providing a $32 million general rate
increase should impact 1998 cash flow and earnings.
Minimum Initial Investment - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Additionally, The Gabelli Equity Income Fund and other Gabelli Funds are
available through the no-transaction fee programs at many major discount
brokerage firms.
The Roth IRA
The Taxpayer Relief Act of 1997 included new tax incentives and more
opportunities to save for retirement and other major expenditures. The Roth IRA
is just one of these new opportunities now available at Gabelli Funds. Our
investor representatives are available at 1-800-GABELLI (1-800-422-3554) to
speak with you about establishing a new Roth IRA and to discuss your investment
choices.
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Mutual Funds, IRAs, 401(k)s, quarterly reports, closing prices and other
current news. You can send us e-mail at [email protected].
In Conclusion
We believe it is still too early to accurately assess the impact of Asian
economic distress on the U.S. economy and corporate earnings. However, Asia's
problems may prolong investment uncertainty and restrain stock prices, perhaps
for the balance of the year.
7
<PAGE>
In the second quarter of 1998, we were once again able to take advantage
of opportunities and avoid many of the potholes in higher yielding equity
sectors. We will continue following our somewhat unique approach to the higher
yielding sectors of the equity market.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's Nasdaq symbol is GABEX. Please call us during the
business day for further information.
Sincerely,
/s/ Mario J. Gabelli /s/ James Foung
Mario J. Gabelli, CFA James Foung, CFA
Portfolio Manager and Associate Portfolio Manager
Chief Investment Officer
August 1, 1998
- --------------------------------------------------------------------------------
Top Ten Holdings
June 30, 1998
Exxon Corp. British Petroleum Co. plc
American Express Co. DeKalb Genetics Corp.
Chevron Corp. Philip Morris Companies Inc.
Eastern Enterprises Southern New England Telecom
BCE Inc. Southwest Gas Corp.
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
8
<PAGE>
The Gabelli Equity Income Fund
Portfolio of Investments -- June 30, 1998 (Unaudited)
===================================================================
Market
Shares Value
------ -----
COMMON STOCKS -- 89.2%
Aerospace -- 1.1%
18,000 Boeing Co............................... $ 802,125
1,000 Raytheon Co., Cl. A..................... 57,625
2,000 Rockwell International Corp............. 96,125
----------
955,875
----------
Agriculture -- 3.0%
20,000 DeKalb Genetics Corp.................... 1,892,500
15,000 Monsanto Co............................. 838,125
----------
2,730,625
----------
Automotive -- 1.2%
4,500 Ford Motor Co........................... 265,500
12,000 General Motors Corp..................... 801,750
----------
1,067,250
----------
Automotive: Parts and Accessories -- 1.4%
2,500 Dana Corp............................... 133,750
5,000 Ethyl Corp.............................. 30,625
20,000 GenCorp Inc............................. 505,000
14,000 Genuine Parts Co........................ 483,875
4,000 Meritor Automotive Inc.................. 96,000
----------
1,249,250
----------
Aviation: Parts and Services -- 1.5%
10,000 Barnes Group Inc........................ 270,625
19,000 Curtiss-Wright Corp..................... 744,563
4,000 United Technologies..................... 370,000
----------
1,385,188
----------
Business Services -- 1.4%
2,000 Cognizant Corp.......................... 126,000
4,000 Dun & Bradstreet Corp................... 144,500
1,000 Imation Corp.+.......................... 16,563
8,000 International Business Machines Corp.... 918,500
2,000 Landauer Inc............................ 59,750
----------
1,265,313
----------
Communications Equipment -- 0.1%
1,000 Motorola Inc............................ 52,563
----------
Consumer Products -- 7.3%
18,000 Eastman Kodak Co........................ 1,315,125
8,000 Fortune Brands Inc...................... 307,500
40,000 Gallaher Group plc, ADR................. 875,000
5,000 General Cigar Holdings Inc., Cl. B+ (b). 49,375
12,000 General Electric Co..................... 1,092,000
8,000 Gillette Co............................. 453,500
18,000 National Presto Industries Inc.......... 700,875
45,000 Philip Morris Companies Inc............. 1,771,874
----------
6,565,249
----------
Consumer Services -- 0.5%
20,000 Rollins Inc............................. 410,000
----------
Diversified Industrial -- 4.2%
34,274 GATX Corp............................... 1,503,771
7,500 Honeywell Inc........................... 626,719
6,000 Minnesota Mining & Manufacturing Co..... 493,125
15,000 Tenneco Inc............................. 570,938
21,000 Thomas Industries Inc................... 513,188
1,000 Trinity Industries Inc.................. 41,500
----------
3,749,241
----------
Energy: Electric -- 4.0%
8,000 Central & South West Corp............... 215,000
2,500 Central Hudson Gas & Electric Corp...... 114,688
1,000 FPL Group Inc........................... 63,000
2,000 MarketSpan Corp. +...................... 59,875
95,000 Niagara Mohawk Power Corp.+............. 1,419,062
25,000 Orange & Rockland Utilities Inc......... 1,342,187
8,000 PacifiCorp.............................. 181,000
5,000 Public Services Enterprise Group Inc.... 172,188
----------
3,567,000
----------
Energy: Natural Gas -- 10.7%
30,000 Bay State Gas Co........................ 1,149,375
4,500 Berkshire Gas Co........................ 104,625
50,000 Colonial Gas Co......................... 1,431,250
34,000 Commonwealth Energy System.............. 1,283,500
52,000 Eastern Enterprises..................... 2,229,499
58,000 ENI SpA................................. 380,130
3,000 Essex County Gas Co..................... 138,000
10,000 Fall River Gas Co....................... 145,000
4,000 Peoples Energy Corp..................... 154,500
70,000 Southwest Gas Corp...................... 1,710,625
41,000 Wicor Inc............................... 948,125
----------
9,674,629
----------
Energy: Oil -- 13.4%
13,000 Atlantic Richfield Co................... 1,015,625
22,500 British Petroluem Co. plc, ADR.......... 1,985,625
15,000 Burlington Resources Inc................ 645,938
28,000 Chevron Corp............................ 2,325,749
6,000 Elf Aquitaine SA........................ 426,000
45,000 Exxon Corp.............................. 3,209,062
18,000 Halliburton Co.......................... 802,125
10,000 Pennzoil Co............................. 506,250
21,000 Texaco Inc.............................. 1,253,438
----------
12,169,812
----------
Entertainment -- 0.4%
2,000 PolyGram NV, ADR........................ 101,750
1,500 USA Networks Inc. +..................... 37,688
4,000 Viacom Inc., Cl. A+..................... 234,000
----------
373,438
----------
Equipment and Supplies -- 4.3%
15,000 Aeroquip-Vickers Inc.................... 875,625
4,000 Caterpillar Inc......................... 211,500
2,000 Cooper Industries Inc................... 109,875
25,000 Deere & Co.............................. 1,321,874
10,000 EG&G Inc................................ 300,000
9
<PAGE>
The Gabelli Equity Income Fund
Portfolio of Investments (Continued) -- June 30, 1998 (Unaudited)
===================================================================
Market
Shares Value
------ -----
COMMON STOCKS (Continued)
Equipment and Supplies (Continued)
5,000 Ingersoll Rand Co....................... $ 220,313
1,500 Minerals Technologies Inc............... 76,313
13,000 Smith (A.O.) Corp., Cl. B............... 671,938
1,000 Union Carbide Corp...................... 53,375
----------
3,840,813
----------
Financial Services -- 14.1%
6,000 Allied Group Inc........................ 280,875
25,000 American Express Co..................... 2,849,999
1,000 Banco Popular Espanol................... 85,440
29,000 Banco Santander SA, ADR................. 1,469,937
10,000 BankAmerica Co.......................... 864,375
3,000 Bankers Trust Co........................ 348,188
1,500 Banque Nationale de Paris............... 122,560
27,000 Commerzbank AG, ADR..................... 1,027,625
19,000 Deutsche Bank AG, ADR................... 1,606,284
2,000 Fidelity National Corp.+................ 22,500
3,240 First Union Corp........................ 188,730
4,000 Mellon Bank Corp........................ 278,500
9,000 Morgan (J.P.) & Co. Inc................. 1,054,125
3,000 Municipal Mortgage & Equity LLC......... 66,375
3,000 Northern Trust Co....................... 228,750
1,000 Pioneer Group Inc....................... 26,313
500 Sterling Bancorp........................ 13,000
12,000 SunTrust Banks Inc...................... 975,750
2,200 Transamerica Corp....................... 253,275
4,000 U.S. Trust Corp......................... 305,000
7,000 Wachovia Corp........................... 591,500
500 Wells Fargo & Co........................ 184,500
----------
12,843,601
----------
Food and Beverage -- 1.3%
4,000 Bestfoods Inc........................... 232,250
6,000 Coca-Cola Amatil Ltd., ADR.............. 77,899
2,000 Corn Products International Inc.+....... 67,750
6,000 Heinz (H.J.) Co......................... 336,750
10,000 Kellogg Co.............................. 375,625
2,000 Quaker Oats Co.......................... 109,875
----------
1,200,149
----------
Health Care -- 1.4%
1,000 Glaxo Wellcome plc, ADR................. 59,813
7,000 Johnson & Johnson....................... 516,250
10,000 Pharmacia & Upjohn Inc.................. 461,250
3,000 SmithKline Beecham plc, ADR............ 181,500
----------
1,218,813
----------
Metals and Mining -- 0.3%
15,000 Freeport-McMoRan Copper &
Gold Inc., Cl. B..................... 227,813
----------
Paper and Forest Products-- 0.2%
5,360 Sealed Air Corp. +...................... 196,980
----------
Publishing -- 2.9%
12,000 Dow Jones & Co. Inc..................... 669,000
3,000 Harcourt General Inc.................... 178,500
3,000 McGraw-Hill Companies Inc............... 244,688
36,000 Reader's Digest Association Inc., Cl. A. 976,500
21,000 Reader's Digest Association Inc., Cl. B. 569,625
----------
2,638,313
----------
Real Estate -- 0.0%
2,500 Griffin Land & Nurseries Inc.+.......... 43,750
----------
Retail -- 2.4%
30,000 Giant Food Inc., Cl. A.................. 1,291,875
10,000 Mercantile Stores Co.................... 789,375
2,000 Sears, Roebuck & Co..................... 122,125
----------
2,203,375
----------
Satellite -- 0.5%
15,000 COMSAT Corp............................. 424,688
----------
Specialty Chemicals -- 1.3%
2,000 du Pont de Nemours (E.I.) and Co........ 149,250
7,500 Ferro Corp.............................. 189,844
10,000 Grace (W.R.) & Co. +.................... 170,625
12,000 Hoechst AG, ADR......................... 595,499
2,500 IMC Global Inc.......................... 75,313
----------
1,180,531
----------
Telecommunications -- 9.8%
5,000 Alltel Corp............................. 232,500
2,000 AT&T Corp............................... 114,250
18,000 BC Telecom Inc.......................... 673,221
50,000 BCE Inc................................. 2,134,374
4,608 Bell Atlantic Corp...................... 210,240
1,500 British Telecommunications plc, ADR..... 185,250
10,000 Cable & Wireless plc, ADR +............. 368,750
40,659 Citizens Utilities Co., Cl. B+.......... 391,343
7,000 Deutsche Telekom AG, ADR................ 192,500
1,000 France Telecom SA, ADR+................. 69,563
24,000 GTE Corp................................ 1,335,000
10,000 Hong Kong Telecommunications Ltd., ADR.. 188,750
2,000 SBC Communications Inc.................. 80,000
27,000 Southern New England
Telecommunications Corp............... 1,768,500
3,500 Telecom Italia SpA, ADR................. 257,250
4,000 Telefonica de Espana, ADR............... 556,250
2,000 US West Inc............................. 94,000
----------
8,851,741
----------
Utilities -- 0.5%
24,000 United Water Resources Inc.............. 432,000
----------
TOTAL COMMON STOCKS..................... 80,518,000
----------
10
<PAGE>
The Gabelli Equity Income Fund
Portfolio of Investments (Continued) -- June 30, 1998 (Unaudited)
===================================================================
Market
Shares Value
------ -----
CONVERTIBLE PREFERRED STOCKS -- 4.0%
Broadcasting -- 0.2%
3,000 Granite Broadcasting Corp.
$1.938 Cv. Pfd....................... $ 180,750
-----------
Cable -- 0.4%
4,000 MediaOne Group Inc. Pfd. D.............. 359,750
-----------
Entertainment -- 0.0%
500 Metromedia International Group Inc.
Cv. Pfd.............................. 25,750
-----------
Equipment and Supplies -- 0.4%
4,000 Sequa Corp. $5.00 Cv. Pfd............... 400,000
-----------
Metals and Mining -- 0.1%
5,000 Freeport-McMoRan Copper &
Gold Inc. 7.00% Cv. Pfd.............. 97,500
-----------
Paper and Forest Products -- 0.5%
9,750 Sealed Air Corp. $2.00 Cv. Pfd.......... 409,500
-----------
Publishing -- 0.0%
2,000 Golden Books Financial Trust Pfd........ 44,000
-----------
Telecommunications -- 2.4%
16,500 Citizens Utilities Co. 5.00% Cv. Pfd.... 779,625
22,000 Sprint Corp. $2.6301 Cv. Pfd............ 1,271,875
-----------
2,051,500
-----------
TOTAL CONVERTIBLE
PREFERRED STOCKS..................... 3,568,750
-----------
Principal
Amount
------
CONVERTIBLE CORPORATE BONDS -- 2.8%
Business Services -- 0.1%
$ 100,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12 (b) ................ 92,500
-----------
Consumer Products -- 0.7%
700,000 Fieldcrest Cannon Inc. Sub. Deb. Cv.
6.00%, 03/15/12...................... 601,125
-----------
Energy -- 0.2%
100,000 Pennzoil Co. Sub. Deb. Cv.
6.50%, 01/15/03...................... 200,375
-----------
Entertainment -- 0.2%
150,000 Savoy Pictures Entertainment Inc.
Sub. Deb. Cv. 7.00%, 07/01/03........ 146,438
-----------
Equipment and Supplies -- 0.4%
377,000 Kollmorgen Corp. Sub. Deb. Cv.
8.75%, 05/01/09...................... 388,310
-----------
Hotels and Gaming -- 0.1%
50,000 Hilton Hotels Corp. Sub. Deb. Cv.
5.00%, 05/15/06...................... 52,750
-----------
Publishing -- 0.9%
100,000 News America Holdings Inc.
Sub Deb. Cv. Zero Cpn., 03/31/02..... 138,813
700,000 Thomas Nelson Inc. Sub. Deb. Cv.
5.75%, 11/30/99 (a).................. 697,374
-----------
836,187
-----------
Transportation -- 0.2%
200,000 Greyhound Lines Inc. Sub. Deb. Cv.
8.50%, 03/31/07...................... 213,250
-----------
TOTAL CONVERTIBLE
CORPORATE BONDS....................... 2,530,935
-----------
U.S. GOVERNMENT OBLIGATIONS -- 3.7%
3,404,000 U.S. Treasury Bills 4.92% to 5.12%,
due 08/06/98 to 09/17/98++........... 3,376,145
-----------
TOTAL INVESTMENTS -- 99.7%
(Cost $58,547,641).................... 89,993,830
Other Assets and
Liabilities (Net) -- 0.3%........... 283,835
-----------
NET ASSETS -- 100.0%
(5,093,694 shares outstanding)........ $90,277,665
===========
NET ASSET VALUE,
Offering and Redemption
Price Per Share...................... $17.72
======
FORWARD FOREIGN EXCHANGE CONTRACTS
Expiration Net Unrealized
Date Depreciation
------- -----------
1,500,000 (c) Sold Hong Kong Dollars
in exchange for
USD 190,815 08/26/98 $(1,432)
- ----------
(a) 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. At June 30,
1998, the market value of Rule 144A securities amounted to $697,374 or
0.8% of net assets.
(b) Security fair valued as determined by the Board of Directors.
(c) Principal amount denoted in Hong Kong Dollars.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
11
<PAGE>
Gabelli Equity Series Funds, Inc.
The Gabelli Equity Income Fund
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
fax: 1-914-921-5118
http://www.gabelli.com
e-mail: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
Board of Directors
Mario J. Gabelli, CFA John D. Gabelli
Chairman and Chief Vice President
Investment Officer Gabelli & Company, Inc.
Gabelli Funds, Inc. Robert J. Morrissey
Attorney-at-Law
Felix J. Christiana Morrissey & Hawkins
Former Senior Vice President
Dollar Dry Dock Savings Bank Karl Otto Pohl
Former President
Anthony J. Colavita Deutsche Bundesbank
Attorney-at-Law
Anthony J. Colavita, P.C. Anthony R. Pustorino
Certified Public Accountant
Vincent D. Enright Professor, Pace University
Former Senior Vice President
and Chief Financial Officer Anthonie C. van Ekris
KeySpan Energy Corp. Managing Director
BALMAC International, Inc.
Officers
Mario J. Gabelli, CFA Bruce N. Alpert
President and Chief Vice President and Treasurer
Investment Officer
James E. McKee
Secretary
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend Agent
State Street Bank and Trust Company
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli Equity Income Fund. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
