THE GABELLI EQUITY INCOME FUND
One Corporate Center
Rye, New York 10580-1434
FIRST QUARTER REPORT
DECEMBER 31, 1997(a)
[LOGO]
MORNINGSTAR RATES THE GABELLI EQUITY INCOME FUND 5 STARS OVERALL AND FOR THE
FIVE YEAR PERIOD ENDED 12/31/97 AMONG 1292 DOMESTIC EQUITY FUNDS.
THE FUND RECEIVED 4 STARS FOR THE THREE YEAR PERIOD ENDED 12/31/97
AMONG 2332 FUNDS.
TO OUR SHAREHOLDERS,
Driven by low inflation, low interest rates, good corporate earnings
gains, deals, stock repurchase programs and liquidity (the continuing strong
flow of cash into U.S. equity funds), stocks posted strong gains in 1997. Until
correcting in late December, large cap growth stocks continued to lead the
market parade. However, large cap value and mid and small cap indices also
posted solid gains.
In the fourth quarter of 1997, the U.S. stock market suffered repeated
bouts of the Asian Flu. As we write, the patient remains unstable. While the
International Monetary Fund is ministering to ailing Asian economies, the ever
vigilant Dr. Greenspan is carefully monitoring the U.S. economy's vital signs.
As we head into 1998, we will be making our rounds as well. We are relatively
pleased with the patient's condition, but as always, are on the lookout for any
symptoms of a relapse.
INVESTMENT PERFORMANCE
THE GABELLI EQUITY INCOME FUND'S PORTFOLIO MANAGER, MARIO J. GABELLI, WAS
RECENTLY NAMED THE DOMESTIC EQUITY FUND MANAGER OF THE YEAR FOR 1997 BY
MORNINGSTAR.
For the quarter ended December 31, 1997, The Gabelli Equity Income Fund's
net asset value increased 3.0% to $16.12 after adjusting for the $1.78 per share
dividend paid on December 29, 1997. The Lipper Analytical Services Equity Income
Fund Average and Standard & Poor's (S&P) 500 Index had returns of 2.4% and 2.9%,
respectively, over the same period. Each index is an unmanaged indicator of
investment performance. The Fund was up 27.9% for 1997. The Lipper Equity Income
Fund Average and S&P 500 rose 27.5% and 33.4%, respectively, over the same
twelve month period.
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(a) The Fund's fiscal year ends September 30, 1998.
Past performance is no guarantee of future results. Morningstar proprietary
ratings reflect historical risk adjusted performance as of December 31, 1997 and
are subject to change every month. Morningstar ratings are calculated from the
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.
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INVESTMENT RESULTS (a)(c)
<TABLE>
<CAPTION>
CALENDAR QUARTER
------------------------------------------
1ST 2ND 3RD 4TH YEAR
--- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C>
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%
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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)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURNS - DECEMBER 31, 1997 (A)
1 Year ....................................... 27.9%
5 Year ....................................... 18.2%
Life of Fund (b) ............................. 16.7%
(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, 1998.
For the five year period ended December 31, 1997, the Fund's return
averaged 18.2% annually, versus average annual returns of 17.1% and 20.3% for
the Lipper Equity Income Fund Average and S&P 500, respectively. Since inception
on January 2, 1992 through December 31, 1997, the Fund has a total return of
153.0%, which equates to an average annual return of 16.7%. The Dividend History
chart details each dividend paid by the Fund since inception.
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 five 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 following graphic further illustrates the interplay among
the four components of our valuation approach.
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DIVIDEND HISTORY
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RATE REINVESTMENT
PAYMENT (EX) DATE PER SHARE PRICE
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
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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
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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
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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
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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
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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
Our focus is on free cash flow; earnings before interest, taxes,
depreciation and amortization (EBITDA) minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value (PMV) estimates.
Finally, we look for a catalyst; something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing worldwide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
COMMENTARY
1997 REVISITED
Year ends are always time for reflection. We look back over the last
twelve months and assess what went right and what went wrong. To borrow from
Joseph Heller's classic novel CATCH 22, we tally the "feathers in our cap" and
"black eyes". In 1997, the former vastly outnumber the latter. Heading our
"feathers in the cap" list is deals. During the year, the Fund bid a cheerful
farewell to several portfolio holdings which found new homes under other
corporate roofs. Our other big "feathers" this year are an
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eclectic group of companies in industry groups ranging from financial services -
Northern Trust (NTRS - $69.75 - Nasdaq), Mellon Bank (MEL - $60.625 - NYSE),
U.S. Trust (USTC - $62.625 - Nasdaq), CoreStates Financial (CFL - $80.50 -
NYSE), BankAmerica (BAC - $73.00 - NYSE), SunTrust (STI - $71.375 - NYSE) and
American Express (AXP - $89.25 - NYSE); oil service - Halliburton (HAL - $51.875
- - NYSE); breakfast cereal - Kellogg (K - $49.625 - NYSE); and cable networks -
Home Shopping Network (HSNI - $51.50 - Nasdaq). Niche industrial companies such
as Curtiss-Wright (CW - $36.3125 - NYSE), GenCorp (GY - $25.00 - NYSE) and
Ingersoll Rand (IR - $40.50 - NYSE) also contributed to performance.
On the "black eyes" list were our smaller utility holdings, which
continued to suffer fallout from uncertainty over deregulation, and old
favorites such as Viacom (VIA - $40.875 - ASE), Giant Food (GFSA - $33.6875 -
ASE) and Boeing (BA - $48.9375 - NYSE), all of which we view as loaded laggards
capable of making the top of our "feathers in the cap" list in 1998.
1998: WILL IT BE ANOTHER GOOD YEAR?
Despite a roller coaster ride featuring some breathtaking ascents and
declines, equity investors enjoyed themselves in 1997. Will 1998 be equally
thrilling? We expect to continue to experience considerable market volatility as
investors react to economic and market developments overseas and attempt to
assess the impact on the U.S. economy and corporate earnings.
Looking ahead, many of the favorable economic factors that propelled
stocks in recent years will likely remain intact. Asian currency devaluation
will probably diminish inflationary pressure on the U.S. economy and delay the
need for a Federal Reserve interest rate hike. Long interest rates should remain
low and perhaps trend lower. Deals, restructurings and share repurchase programs
should continue to buoy stocks.
<TABLE>
<CAPTION>
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Flow of Funds
($ Billions)
SOURCES 1993 1994 1995 1996 1997E
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
U.S. Deals $ 234 $ 340 $ 511 $ 652 $ 919
Stock Buybacks 37 46 99 176 179
Equity Mutual Funds Net 130 119 128 222 231
Dividends 204 230 274 309 333
------ ------ ------ ------- -------
SOURCES: 605 735 1,012 1,359 1,662
------ ------ ------ ------- -------
USES
IPOs 103 62 82 115 118
U.S./International Equity Capital Flow
U.S. Purchases of Non-U.S. Equities 309 434 396 514 734
International Purchases of U.S. Equities 246 387 346 457 679
------ ------ ------ ------- -------
Net Flow: 63 47 50 57 55
------ ------ ------ ------- -------
USES: 166 109 132 172 173
------ ------ ------ ------- -------
NET FLOW OF FUNDS: $ 439 $ 626 $ 880 $1,187 $1,489
===== ====== ====== ====== ======
</TABLE>
SOURCES: SECURITIES DATA CORP, INVESTMENT COMPANY INSTITUTE, BIRINYI ASSOCIATES.
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The wild cards are corporate earnings and investor psychology. In general,
we believe corporate earnings growth from U.S. operations will be relatively
strong--in the 8% to 9% range. However, the non-U.S. portion of earnings is
likely to be as much as 10% lower in 1998. With earnings expectations high
across the board, we suspect we will see more earnings disappointments in the
year ahead. Other issues on our "Bear Watch" include:
o The Asian Flu spreading to Latin American currencies and economies.
o An upswing in wage inflation not offset by productivity gains.
o The emergence of trade barriers that cause a global political backlash.
o A disruption of oil flow from the Middle East.
o The lame duck administration. Will Greenspan and Rubin retire before
2000 causing a crisis in confidence, if not in the economy?
o Last, but not least, the level of the market -- valuations are high and
the margin of safety relatively low.
How will investors react if any or all of our concerns prove justified? We
will just have to wait and see. Investors have become conditioned to buying on
market dips. That's understandable because it's worked quite well since this
bull market began in 1982. Indeed, we saw the market rebound strongly from the
sharp correction we experienced in late October. However, if the problems in
Asia continue to escalate and we see more widespread earnings disappointments
from U.S. companies, investors may be somewhat more reluctant to view each
market dip as a buying opportunity. Bear in mind, liquidity itself does not
drive markets higher. It is liquidity combined with favorable investor
psychology that fuels a rising market. In other words, if greed turns to fear,
we could see a more substantial and prolonged market slump than we have become
accustomed to.
Our conclusion after all this conjecture is that in 1998, the market will
be up 5% to down 15%. We hope the market surprises on the upside. However, we
believe in the Boy Scout motto: "be prepared". Although value stocks will not
likely be immune to a substantial market correction, we believe they will
perform significantly better than the more fully valued market darlings.
Consequently, we are carefully monitoring the Fund portfolio, trimming or
eliminating holdings that have become more fully priced in this market advance
and adding to positions that offer better fundamental value. We are also being
more patient in re-deploying cash reserves. We doubt the Fund will be able to
duplicate its terrific 1997 returns in what should be a much more challenging
market. However, we believe we can achieve our 10% real rate of return objective
in the year ahead.
INTEREST RATES 101
Let's spend a few moments looking at what happens when interest rates decline:
o REDUCED FINANCIAL COSTS. This helps highly leveraged companies by
reducing interest outlays.
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o IMPROVED DEMAND. Lower rates help stimulate demand for traditional,
interest sensitive economic sectors - for which residential housing is
one key and visible component.
0 FOCUS ON DIVIDENDS. Clearly, higher-yielding stocks with reasonable
growth prospects benefit from investors seeking higher yields than
they are getting from savings accounts.
o HIGHER ASSET VALUES. Lower rates bolster the values of assets.
Let's take a look at one model that highlights this relationship.
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ASSET VALUE SCENARIOS
CASE
----
A B C
RATES
-----
$10.00 $10 + $1/YR $10 GROWING AT 8%
-------------------------------------------------------------
10.0% $3.86 $7.71 $8.32
8.0% $4.63 $9.26 $10.00
Case A: What is the present value of $10 ten years from now if interest
rates (the discount factor) are ten percent; eight percent?
Case B: What is the present value of ten dollars growing by one dollar
per year?
Case C: What is the present value of ten dollars growing at eight
percent a year?
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INTEREST RATES - VALUES - ANOTHER POINT OF VIEW
Among the ways to value stocks is with a dividend discount model. Here,
the key variable is the growth rate in dividends.
P/E = B
------
Multiple k-g Where P/E: price to earnings ratio
b: dividend payout rate
k: required rate of return by an investor
g: expected growth rate
Briefly, the model values stocks based on the relationship between two
crucial inputs: dividend growth and an investor's required rate of return.
As interest rates decline, the rate of return an investor requires drops
as well, because returns on alternative investments have fallen. Holding all
else constant, a drop in the required rate of return will increase the value
today of a future stream of dividends. Investors become willing to pay a higher
price relative to next year's earnings as interest rates drop. The same
methodology holds for bonds too. If interest rates fall, the present value of a
future stream of coupon payments becomes more valuable raising the price of the
bond.
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DEALS, DEALS, DEALS
There was an estimated $919 billion in domestic mergers and acquisition
activity during 1997. We do not believe a market correction will materially slow
deal activity in the year ahead. While we will probably continue to see some big
companies being taken over, much of the action will likely be in smaller, family
dominated public companies, as owner/managers take advantage of reduced long
term capital gains taxes to monetize their investments.
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Deals - "Third Wave of Takeovers"
($ Billions)
1993 1994 1995 1996 1997E
------ ------ ------ ------ ------
Worldwide Deals $ 452 $ 575 $ 950 $1,140 $1,600
U.S. Deals 234 340 511 652 919
52% 59% 54% 57% 57%
U.S. Deals $ 234 $ 340 $ 511 $ 652 $ 919
Cash Deals 131 212 254 356 414
56% 62% 50% 55% 45%
SOURCES: SECURITIES DATA CORP, INVESTMENT COMPANY INSTITUTE, BIRINYI ASSOCIATES.
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OILS WELL THAT ENDS WELL
One of our best performing groups in the first half of 1997, energy
stocks, faltered in the latter part of the year as oil prices declined to a
three year low near $18 per barrel. Is this a temporary phenomena or a longer
term trend? We vote for the former. To date, El Nino has blessed us with a mild
winter and consequently, the demand for heating oil is slack. And yes, economic
weakness in Asia should keep a ceiling on energy pricing over the short term.
However, the world is still consuming far more energy than it is producing. This
would indicate that the longer term trend for energy pricing is higher. Also,
continued instability in the Middle East could interrupt oil flow at any time.
Demand from Asia should recover as these economies attempt to export their way
out of the current economic malaise. Finally, El Nino is a cyclical weather
pattern. Mother Nature could be considerably less kind to us next year. Our
conclusion is that energy prices and energy company earnings and dividends are
likely to trend higher in the years ahead.
UTILITIES--TURN THE BEAT AROUND
Unlike many equity income funds, utility stocks have not been a mainstay
of our portfolio. Although providing quite attractive yields relative to most
industry groups, we were concerned that deregulation could impact earnings and
dividends throughout the utility industry. Our limited exposure to utilities
relative to other equity income funds has been beneficial as utility indices
have until rather recently lagged broader market benchmarks. Now, the cloud is
lifting and it appears selected utilities will be able to compete quite
effectively in a less regulated environment. Our utility holdings are generally
smaller companies that we believe will be targeted by larger utilities looking
to further diversify their holdings and expand geographically. We anticipate
other investors will gravitate to smaller utility companies as consolidation in
the industry gains momentum in the years ahead.
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MR. MARKET
Each year, we like to leave our shareholders with something to think
about. This year, we quote verbatim from Professor Benjamin Graham's classic,
THE INTELLIGENT INVESTOR.
"Let us close this section with something in the nature of a parable.
Imagine that in some private business you own a small share which cost you
$1,000. One of your partners, named Mr. Market, is very obliging indeed. Every
day he tells you what he thinks your interest is worth and furthermore offers
either to buy you out or to sell you an additional interest on that basis.
Sometimes his idea of value appears plausible and justified by business
developments and prospects as you know them. Often, on the other hand, Mr.
Market lets his enthusiasm or his fears run away with him, and the value he
proposes seems to you a little short of silly."
At Gabelli Funds, we want to take advantage of "Mr. Market's"
generosity--buying shares of businesses he offers us at prices below our
appraisal of their true worth, and selling back to him (or someone else) when
prices equal or exceed true value. It is this simple philosophy that guides us
in good markets and bad.
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 - $89.25 - NYSE), founded in 1850, is a diversified
travel and financial services company operating in 160 countries around the
world. The company is best known for its American Express charge card and its
travel-related services. Minneapolis-based American Express Financial Advisors
(formerly IDS Financial Services) sells financial products ranging from mutual
funds to annuities. Harvey Golub, Chairman and CEO, has refocused AXP on its
core charge card and investment management businesses. The company has
significantly expanded the range of merchants who welcome its cards and its
cards in use worldwide grew almost three percent to 42.7 million. Management's
objective is virtual parity with bankcard networks. American Express has joined
forces with Microsoft to start an online corporate travel service. As evidenced
by a 15% increase in per share earnings in 1996 and over 16% in 1997, we believe
that American Express has been repositioned to enjoy double digit earnings
growth over the balance of this decade.
BCE INC. (BCE - $33.3125 - NYSE), the holding company for Bell Canada, is
Canada's largest telecommunications company. BCE has controlling interests in
Northern Telecom (NT - $89.00 - NYSE) and BCEMobile Communications (BCX - $25.16
- - TSE). There are substantial values in BCE. For example, "behind" each share of
BCE there are 0.2 shares of Northern Telecom. This NT interest, marked to
market, is worth over $18 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 - $79.6875 - NYSE), with an equity market
capitalization exceeding $75 billion, is one of the world's largest integrated
oil companies. Production is slated to rise five percent per year to reach 1.8
million 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 major,
$1.5 billion cost-cutting program.
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As an example, lifting costs have been reduced by 20 cents, to $2.40 per BOE.
Finding costs also have been reduced by 20 cents, to $1.30 per BOE. 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, a portion
of which has been used to reduce debt.
CHEVRON CORP. (CHV - $77.00 - 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 production is more than one million barrels of
oil and nearly 2.5 billion cubic feet of natural gas per day. Through its 50%
interest in Caltex Petroleum, Chevron is benefiting from increasing energy
consumption in Southeast Asia. The company's worldwide capital and exploratory
spending totaled $5.5 billion in 1997, including overseas exploration and
development projects in Kazakstan (building a pipeline linking the giant Tengiz
oil field to the Black Sea ports) and in the North Sea. The quarterly dividend
was increased in January from 58 cents to 61 cents.
COLONIAL GAS CO. (CLG - $28.8125 - NYSE), a Massachusetts corporation founded in
1849, is primarily a regulated natural gas utility serving over 145,000
customers in 24 municipalities located northwest of Boston and on Cape Cod.
Through Transgas Inc., the company also provides over-the-road transportation of
liquefied natural gas, propane and other commodities. Colonial's customer base
has grown twice as fast as that of the U.S. natural gas utility industry.
EASTERN ENTERPRISES (EFU - $45.00 - NYSE) owns and operates Boston Gas Co., New
England's largest distributor of natural gas, serving 525,000 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 2,430 barges and 87 tug boats. Midland, headquartered in Cincinnati,
provides low cost marine transportation to much of the country's major
industrial and agricultural regions. Our interest in Eastern Enterprises stems
from management's direction under Woody Ives and from the prospect that the
company's strong balance sheet will be used to make attractive strategic
commitments, such as the agreement to purchase Essex County Gas for $80.5
million. The dividend, recently increased to an annual rate of $1.64 per share,
provides an appealing yield approaching 4% for this cash rich company.
EXXON CORP. (XON - $61.1875 - NYSE), with an equity market value of $150
billion, is the world's largest publicly owned integrated oil company. The
company produces 1.6 million barrels of crude oil and 6.6 billion cubic feet of
natural gas per day, roughly half of which comes from overseas reserves.
Production is being ramped up 2% to 3% each year. Major, promising projects are
under way in Africa, Russia and Indonesia. Profitability has been sustained by
management's success in cutting approximately $1 billion from overhead in each
of the last few years. Dividends have been paid since 1882 and have increased
annually since 1983.
HSN INC. (HSNI - $51.50 - NASDAQ) is the name for the parent company comprised
of Silver King Communications, Home Shopping Network and SF Broadcasting. Silver
King operates 12 wholly-owned UHF stations and one satellite station through
SKTV Inc. Home Shopping's major business is electronic retailing. The six SF
Broadcasting stations, four VHF stations and two satellites are 50%-owned with
Fox. The combined companies are guided by Barry Diller. HSNI is buying the
television assets of Universal Studios from Seagram's for $4.075 billion. Under
the proposal, Universal (a subsidiary of the Seagram Company) receives a 45%
interest in HSN and $1.2 billion in cash. HSN gets control of the USA Network,
the Sci-Fi Channel and Universal's U.S. television production and distribution
operations. HSNI has also acquired a 50.1% stake in Ticketmaster Group (TKTM -
$23.00 - Nasdaq).
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SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORP. (SNG - $50.3125 - 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 has agreed to
acquire SNET for $4.26 billion in stock.
TEJAS GAS CORP. (TEJ - $61.25 - NYSE) signed a definitive agreement to be
acquired by The Royal Dutch Shell Group's U.S. arm for $2.35 billion in cash and
debt, giving Shell Oil the pipelines it needs to transport natural gas
production from the Gulf of Mexico. Shell Oil, the U.S. unit, is paying $61.50
per share in cash ($1.45 billion) and assuming approximately $900 million in
debt and preferred stock. Tejas has 10,500 miles of natural gas pipelines,
including extensive networks in Texas and Louisiana that Shell will link with
its Gulf pipelines. Many companies in the natural gas industry have been sold in
the last two years, largely to utilities who want to sell both natural gas and
electricity and secure sources of fuel for power generation. In addition to its
pipelines, Tejas owns underground storage facilities that can hold 155 billion
cubic feet of natural gas and 14 processing plants used to separate liquid fuels
such as propane and butane from natural gas before it is shipped.
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.
NO LOAD - EFFECTIVE AUGUST 12, 1996
Effective August 12, 1996, the Fund no longer imposes a front-end sales
charge. All purchases made after August 12, 1996 are no load, that is, without a
sales charge.
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.
GABELLI U.S. TREASURY MONEY MARKET FUND
Shareholders of any of the Gabelli Funds may invest in The Gabelli U.S.
Treasury Money Market Fund with an initial investment of $3,000 or more. The
Fund provides checkwriting and exchange privileges. The Fund's expenses are
capped at .30% of average net assets, making it one of the most attractive U.S.
Treasury-only money market funds. With dividends that are exempt from state and
local income taxes in all states, the Fund is an excellent vehicle in which to
store idle cash. An investment in The Gabelli U.S. Treasury Money Market Fund is
neither insured nor guaranteed by the U.S. Government. There can be no assurance
that the Fund will maintain a stable $1 per share net asset value. Call us at
1-800-GABELLI (1-800-422-3554) for a prospectus which gives a more complete
description of the Fund, including management fees and expenses. Read the
prospectus carefully before you invest or send money.
10
<PAGE>
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
1997 was yet another very good year for equity investors. If earnings
expectations are realized, 1998 may be a reasonably good year as well. We do
have our reservations and are mindful that at current valuations, stocks are
well above the safety net. As always, we are focusing on value--stocks trading
at a material discount to their longer term intrinsic value. We believe this
discipline will effectively preserve and enhance the value of the assets you
have entrusted to us.
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
February 1, 1998
-----------------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1997
-----------------
Tejas Gas Corp. British Petroleum Co. plc
Exxon Corp. BCE Inc.
American Express Co. Home Shopping Network
Eastern Enterprises Colonial Gas Co.
Chevron Corp. Southern New England Telecom.
-----------------------------------------------------------------------
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.
11
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1997 (UNAUDITED)
================================================================================
Market
Shares Value
------ -------
COMMON STOCKS -- 86.3%
AEROSPACE -- 0.9%
10,000 Boeing Co. ..................... $ 489,375
2,452 Raytheon Co., Cl. A ............ 120,936
2,000 Rockwell International Corp. ... 104,500
------------
714,811
------------
AGRICULTURE -- 0.8%
15,000 Monsanto Co. ................... 630,000
------------
AUTOMOTIVE -- 1.3%
5,000 Ford Motor Co. ................. 243,438
12,000 General Motors Corp. ........... 727,500
------------
970,938
------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.5%
2,500 Dana Corp. ..................... 118,750
20,000 GenCorp Inc. ................... 500,000
14,000 Genuine Parts Co. .............. 475,125
2,666 Meritor Automotive Inc. ........ 56,153
------------
1,150,028
------------
AVIATION: PARTS AND SERVICES-- 1.7%
10,000 Barnes Group ................... 227,500
19,000 Curtiss-Wright Corp. ........... 689,937
3,000 General Motors Corp., Cl. H .... 110,813
4,000 United Technologies ............ 291,250
------------
1,319,500
------------
BUSINESS SERVICES -- 1.5%
2,000 Cognizant Corp. ................ 89,125
4,000 Dun & Bradstreet Corp. ......... 123,750
300 Imation Corp. .................. 4,800
8,000 International Business
Machines Corp. .............. 836,500
3,000 Landauer Inc. .................. 84,000
------------
1,138,175
------------
COMMUNICATIONS EQUIPMENT-- 0.1%
1,000 Motorola Inc. .................. 57,063
------------
CONSUMER PRODUCTS -- 6.1%
18,000 Eastman Kodak Co. .............. 1,094,624
12,000 Fortune Brands Inc. ............ 444,750
45,000 Gallaher Group plc, ADR ........ 961,875
5,000 General Cigar Holdings Inc. .... 106,563
12,000 General Electric Co. ........... 880,500
4,000 Gillette Co. ................... 401,750
15,000 National Presto Industries Inc. 593,438
4,000 Philip Morris Companies Inc. ... 181,250
------------
4,664,750
------------
DIVERSIFIED INDUSTRIAL-- 3.4%
14,137 GATX Corp. ..................... 1,025,816
7,500 Honeywell Inc. ................. 513,750
4,000 Minnesota Mining & Manufacturing Co. 328,250
Market
Shares Value
------ -------
DIVERSIFIED INDUSTRIAL (CONTINUED)
6,000 Tenneco Inc. ................... $ 237,000
21,000 Thomas Industries Inc. ......... 414,750
1,000 Trinity Industries Inc. ........ 44,625
-----------
2,564,191
-----------
ENERGY: ELECTRIC -- 1.3%
8,000 Central & South West Corp. ..... 216,500
1,000 FPL Group Inc. ................. 59,188
50,000 Niagara Mohawk Power Corp. ..... 525,000
8,000 PacifiCorp ..................... 218,500
-----------
1,019,188
-----------
ENERGY: NATURAL GAS-- 15.7%
28,000 Bay State Gas Co. .............. 1,039,500
4,000 Berkshire Gas Co. .............. 92,000
53,100 Colonial Gas Co. ............... 1,529,944
35,000 Commonwealth Energy System ..... 1,163,750
55,000 Eastern Enterprises ............ 2,474,999
58,000 ENI SpA ........................ 331,401
3,000 Essex County Gas Co. ........... 137,250
7,000 Fall River Gas Co. ............. 113,750
3,000 KeySpan Energy Corp. ........... 110,438
4,000 Peoples Energy Corp. ........... 157,500
72,000 Southwest Gas Corp. ............ 1,345,500
50,000 Tejas Gas Corp. ................ 3,062,499
7,500 USX-- Delhi Group .............. 153,750
5,000 Wicor Inc. ..................... 232,188
-----------
11,944,469
-----------
ENERGY: OIL -- 15.5%
13,000 Atlantic Richfield Co. ......... 1,041,625
22,500 British Petroluem Co. plc, ADR . 1,792,969
15,000 Burlington Resources Inc. ...... 672,188
29,000 Chevron Corp. .................. 2,232,999
5,000 Elf Aquitaine SA ............... 293,125
46,000 Exxon Corp. .................... 2,814,624
20,000 Halliburton Co. ................ 1,038,750
8,000 Pennzoil Co. ................... 534,500
26,000 Texaco Inc. .................... 1,413,750
-----------
11,834,530
-----------
ENTERTAINMENT -- 0.3%
2,000 PolyGram NV, ADR ............... 95,375
4,000 Viacom Inc., Cl. A ............. 163,500
-----------
258,875
-----------
EQUIPMENT AND SUPPLIES-- 5.1%
15,000 Aeroquip-Vickers Inc. .......... 735,938
4,800 Caterpillar Inc. ............... 233,100
2,000 Cooper Industries Inc. ......... 98,000
25,000 Deere & Co. .................... 1,457,812
10,000 EG&G Inc. ...................... 208,125
10,000 Ingersoll Rand Co. ............. 405,000
12
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS(CONTINUED) -- DECEMBER 31, 1997 (UNAUDITED)
================================================================================
Market
Shares Value
------ -------
COMMON STOCKS (CONTINUED)
EQUIPMENT AND SUPPLIES (CONTINUED)
1,500 Minerals Technologies Inc. ..... $ 68,156
14,000 Smith (A.O.) Corp., Cl. B ...... 591,500
2,000 Union Carbide Corp. ............ 85,875
-----------
3,883,506
-----------
FINANCIAL SERVICES-- 13.7%
28,000 American Express Co. ........... 2,498,999
29,000 Banco Santander SA, ADR ........ 944,313
10,000 BankAmerica Co. ................ 730,000
3,000 Bankers Trust Co. .............. 337,313
25,000 Commerzbank AG, Sponsored ADR .. 996,875
8,800 CoreStates Financial Corp. ..... 704,550
16,000 Deutsche Bank AG, ADR .......... 1,126,500
1,000 Fidelity National Corp. ........ 9,250
3,000 Mellon Bank Corp. .............. 181,875
10,000 Morgan (J.P.) & Co. Inc. ....... 1,128,749
2,000 Municipal Mortgage & Equity LLC 39,250
3,000 Northern Trust Co. ............. 209,250
12,000 SunTrust Banks Inc. ............ 856,500
2,200 Transamerica Corp. ............. 234,300
4,000 U.S. Trust Corp. ............... 250,500
3,000 Wachovia Corp. ................. 243,375
-----------
10,491,599
-----------
FOOD AND BEVERAGE -- 1.2%
2,000 CPC International Inc. ......... 215,500
5,000 Heinz (H.J.) Co. ............... 254,063
7,000 Kellogg Co. .................... 347,375
2,000 Quaker Oats Co. ................ 105,500
-----------
922,438
-----------
HEALTH CARE -- 1.3%
10,000 Johnson & Johnson .............. 658,750
10,000 Pharmacia & Upjohn Inc. ........ 366,250
-----------
1,025,000
-----------
METALS AND MINING -- 0.4%
15,000 Freeport-McMoRan Copper
& Gold Inc., Cl. B ........... 236,250
700 Freeport-McMoRan Sulphur Inc.+ . 8,225
1,000 Pioneer Group Inc. ............. 28,125
-----------
272,600
-----------
PUBLISHING -- 2.7%
15,000 Dow Jones & Co. Inc. ........... 805,313
3,000 Harcourt General Inc. .......... 164,250
2,000 McGraw-Hill Companies Inc. ..... 148,000
22,000 Reader's Digest Association
Inc., Cl. A .................. 519,750
17,000 Reader's Digest Association
Inc., Cl. B .................. 414,375
-----------
2,051,688
-----------
REAL ESTATE -- 0.1%
2,500 Griffin Land & Nurseries Inc. .. 38,750
-----------
RETAIL -- 0.3%
5,000 Giant Food Inc., Cl. A ......... 168,438
2,000 Sears, Roebuck & Co. ........... 90,500
-----------
258,938
-----------
SPECIALTY CHEMICALS -- 1.6%
2,000 E.I. du Pont de Nemours and Co. 120,125
7,500 Ferro Corp. .................... 182,344
10,000 Grace (W.R.) & Co. ............. 804,374
3,150 IMC Global Inc. ................ 103,163
-----------
1,210,006
-----------
TELECOMMUNICATIONS -- 9.4%
5,000 ALLTEL Corp. ................... 205,313
18,000 BC Telecom Inc. ................ 559,741
50,000 BCE Inc. ....................... 1,665,624
2,304 Bell Atlantic Corp. ............ 209,664
1,500 British Telecommunications
plc, ADR ..................... 120,469
10,000 Cable & Wireless plc, ADR ...... 271,875
40,357 Citizens Utilities Co., Cl. B .. 388,437
2,000 Deutsche Telekom AG,
Sponsored ADR ................ 37,250
1,000 France Telecom SA,
Sponsored ADR ................ 36,000
24,000 GTE Corp. ...................... 1,254,000
10,000 Hong Kong Telecommunications
Ltd., ADR .................... 206,250
1,000 SBC Communications Inc. ........ 73,250
29,000 Southern New England
Telecommunications Corp. ..... 1,459,062
3,500 Telecom Italia SpA, ADR ........ 224,000
4,000 Telefonica de Espana, ADR ...... 364,250
2,000 US WEST Communications Group ... 90,250
-----------
7,165,435
-----------
WIRELESS COMMUNICATIONS-- 0.4%
12,000 COMSAT Corp. ................... 291,000
-----------
TOTAL COMMON STOCKS 65,877,478
-----------
CONVERTIBLE PREFERRED STOCKS -- 2.8%
BROADCASTING -- 0.2%
2,500 Granite Broadcasting Corp.
$1.938 Cv. Pfd ............... 121,250
-----------
ENTERTAINMENT -- 0.0%
500 Metromedia International
Group Inc. Cv. Pfd............ 22,625
-----------
EQUIPMENT AND SUPPLIES -- 0.7%
2,500 Navistar International Corp.
$6.00 Cv. Pfd. Ser. G ......... 149,375
4,000 Sequa Corp. $5.00 Cv. Pfd. ..... 382,500
-----------
531,875
-----------
13
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS(CONTINUED) -- DECEMBER 31, 1997 (UNAUDITED)
================================================================================
Market
Shares Value
------ -------
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
METALS AND MINING -- 0.1%
5,000 Freeport-McMoRan Copper & Gold Inc.
7.00% Cv. Pfd. .......................... $ 108,438
-----------
PUBLISHING -- 0.1%
2,00 Golden Books Family Entertainment Inc.
8.75% Cv. Pfd. (a) ...................... 106,000
-----------
TELECOMMUNICATIONS -- 1.7%
22,000 Sprint Corp. $2.6301 Cv. Pfd. ........... 984,500
4,000 US WEST Communications Group Cv. Pfd. ..... 246,750
-----------
1,231,250
-----------
TOTAL CONVERTIBLE
PREFERRED STOCKS ........................ 2,121,438
-----------
PREFERRED STOCKS -- 0.6%
TELECOMMUNICATIONS -- 0.6%
9,500 Citizens Utilities Co. Pfd. ............... 453,625
-----------
TOTAL PREFERRED STOCKS .................... 453,625
-----------
WARRANTS -- 0.0%
SPECIALTY CHEMICALS -- 0.0%
1,167 IMC Global Inc. .......................... 4,521
-----------
TOTAL WARRANTS ............................ 4,521
-----------
Principal
Amount
CONVERTIBLE CORPORATE BONDS -- 5.6%
BUSINESS SERVICES -- 0.1%
$100,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12 ....... ................. 96,625
-----------
CONSUMER PRODUCTS -- 0.7%
700,000 Fieldcrest Cannon Inc. Sub. Deb. Cv.
6.00%, 03/15/12 ......................... 569,100
-----------
CONSUMER SERVICES -- 2.0%
800,000 HSN Inc. Sub. Deb. Cv.
5.875%, 03/01/06 (a) .................... 1,546,000
-----------
ENERGY -- 0.2%
100,000 Pennzoil Co. Sub. Deb. Cv.
6.50%, 01/15/03 ......................... 187,750
-----------
ENTERTAINMENT -- 0.2%
150,000 Savoy Pictures Entertainment Inc.
Sub. Deb. Cv. 7.00%, 07/01/03 ........... 140,250
-----------
EQUIPMENT AND SUPPLIES -- 0.6%
$398,000 Kollmorgen Corp. Sub. Deb. Cv.
8.75%, 05/01/09 ....... ................. $ 422,378
------------
HOTELS AND GAMING -- 0.1%
50,000 Hilton Hotels Corp. Sub. Deb. Cv.
5.00%, 05/15/06 ......................... 54,750
------------
PUBLISHING -- 0.9%
100,000 News America Holdings Inc. Sub. Deb. Cv.
Zero Cpn., 03/31/02 ... ................. 96,250
------------
600,000 Thomas Nelson Inc. Sub. Deb. Cv.
5.75%, 11/30/99 (a) ..................... 577,500
------------
673,750
------------
RETAIL -- 0.5%
400,000 General Host Corp. Sub. Deb. Cv.
8.00%, 02/15/02 ......................... 401,000
------------
TRANSPORTATION -- 0.3%
200,000 Greyhound Lines Inc. Sub. Deb. Cv.
8.50%, 03/31/07 ......................... 199,750
------------
TOTAL CONVERTIBLE
CORPORATE BONDS .......................... 4,291,353
------------
U.S. GOVERNMENT OBLIGATIONS -- 5.2%
4,003,000 U.S. Treasury Bills, 4.989% to 5.275%,
due 01/02/98 to 02/05/98 ............... 3,993,666
------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS ............................ 3,993,666
------------
TOTAL INVESTMENTS -- 100.5%
(cost $50,883,625) ..................... 76,742,081
OTHER ASSETS AND
LIABILITIES (NET)-- (0.5)% ............. (413,069)
------------
NET ASSETS -- 100.0%
(4,735,567 shares outstanding) ......... $76,329,012
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE ............. $16.12
=======
FORWARD FOREIGN
CURRENCY CONTRACTS
1,700,000(b) Sold Hong Kong Dollars at Foreign
Exchange Rate 7.8285 due 02/26/98 ...... $ (218,544)
============
(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
December 31, 1997, the market value of Rule 144A securities amounted to
$2,229,500 or 2.9% of net assets.
(b) Principal amount denoted in Hong Kong Dollars.
+ Non-income producing security
ADR -- American Depositary Receipt
14
<PAGE>
GABELLI FAMILY OF FUNDS
GABELLI ASSET FUND _________________________________
Invests in securities of companies selling below their intrinsic economic value.
The Fund's primary objective is long-term growth of capital. (No-load)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI GROWTH FUND ________________________________
Invests primarily in large-cap stocks believed to have superior earnings growth
potential. The Fund's primary objective is long-term capital appreciation.
(No-load)
PORTFOLIO MANAGER: HOWARD F. WARD, CFA
GABELLI WESTWOOD EQUITY FUND ______________________
Invests primarily in common stock of seasoned companies believed to have proven
records and above average historical earnings growth. The Fund's primary
objective is capital appreciation. (No-load)
PORTFOLIO MANAGER: SUSAN M. BYRNE
GABELLI SMALL CAP GROWTH FUND ______________________
Invests primarily in common stock of smaller companies (market capitalizations
of $500 million or less) with rapid revenue and earnings growth potential. The
Fund's primary objective is long-term capital appreciation.
(No-load)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI WESTWOOD SMALLCAP EQUITY FUND ____________
Invests primarily in smaller company equity securities (market capitalizations
of $1 billion or less). The Fund's primary objective is long-term capital
appreciation. (No-load)
PORTFOLIO MANAGER: LYNDA CALKIN, CFA
GABELLI VALUE FUND __________________________________
Invests in securities of companies selling below their intrinsic economic value.
The Fund's primary objective is long-term growth of capital. Max. Sales charge:
51/2%
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI EQUITY INCOME FUND __________________________
Invests primarily in equity securities with above market average yields. The
Fund pays quarterly dividends and seeks a high level of total return. (No-load)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI WESTWOOD BALANCED FUND ___________________
Invests in a diversified portfolio of stocks and bonds. The Fund's primary
objectives are capital appreciation and current income. (No-load)
PORTFOLIO MANAGERS: SUSAN M. BYRNE & PATRICIA FRAZE
GABELLI ABC FUND ___________________________________
Invests in securities with capital appreciation potential and above market
average yields. The Fund's primary objective is consistent returns in various
market conditions without excessive risk of capital loss. (No-load)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI U.S. TREASURY MONEY MARKET FUND _____________
Invests exclusively in short-term U.S. Treasury securities. The Fund's primary
objective is to provide high current income consistent with the preservation of
principal and liquidity. An investment in the Fund is neither insured nor
guaranteed by the U.S. Government and there can be no assurance that the Fund
will be able to maintain a stable net asset value of $1.00 per share.
PORTFOLIO MANAGER: JUDITH A. RANERI
THE TREASURER'S FUND ________________________________
Three money market portfolios designed to generate superior returns without
compromising portfolio safety. U.S. Treasury Money Market invests in U.S.
Treasury bills, notes and bonds. Tax Exempt Money Market invests in municipal
securities. Domestic Prime Money Market invests in prime quality, domestic money
market instruments. (No-Load)
PORTFOLIO MANAGER: JUDITH A. RANERI
GLOBAL SERIES
GABELLI GLOBAL TELECOMMUNICATIONS FUND
Invests in telecommunications companies throughout the world - targeting
undervalued companies with strong earnings and cash flow dynamics. The
Fund's primary objective is long-term capital appreciation. (No-load)
TEAM MANAGER: MARIO J. GABELLI, CFA
GABELLI GLOBAL CONVERTIBLE SECURITIES FUND
Invests principally in bonds and preferred stocks which are convertible into
common stock of foreign and domestic companies. The Fund's primary objective
is total return through a combination of current income and capital
appreciation. (No-load)
PORTFOLIO MANAGER: HART WOODSON
GABELLI GLOBAL INTERACTIVE COUCH POTATO(R) FUND
Invests globally in companies creating and/or distributing information and
entertainment products and services. The Fund will also invest in companies
participating in emerging technological advances in interactive services and
products. The Fund's primary objective is long-term capital appreciation.
(No-load)
PORTFOLIO MANAGER: MARC J. GABELLI
GABELLI GOLD FUND ___________________________________
Invests in a global portfolio of equity securities of gold mining and related
companies. The Fund's primary objective is capital appreciation. Investing in
gold is considered speculative and is affected by a variety of worldwide
economic, financial and political factors. (No-load)
PORTFOLIO MANAGER: CAESAR BRYAN
GABELLI INTERNATIONAL GROWTH FUND ___________________
Invests in international equity securities with superior long-term capital
appreciation potential. The Fund offers investors global diversification.
(No-load)
PORTFOLIO MANAGER: CAESAR BRYAN
THE FIVE FUNDS ABOVE INVEST IN FOREIGN SECURITIES WHICH INVOLVES RISKS NOT
ORDINARILY ASSOCIATED WITH INVESTMENTS IN DOMESTIC ISSUES, INCLUDING CURRENCY
FLUCTUATION, ECONOMIC AND POLITICAL RISKS. DISTRIBUTED BY GABELLI & COMPANY,
INC.
<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
CHAIRMAN AND CHIEF
INVESTMENT OFFICER
GABELLI FUNDS, INC.
Felix J. Christiana
FORMER SENIOR VICE PRESIDENT
DOLLAR DRY DOCK SAVINGS BANK
Anthony J. Colavita
ATTORNEY-AT-LAW
ANTHONY J. COLAVITA, P.C.
Vincent D. Enright
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
KEYSPAN ENERGY CORP.
John D. Gabelli
VICE PRESIDENT
GABELLI & COMPANY, INC.
Robert J. Morrissey
ATTORNEY-AT-LAW
MORRISSEY & HAWKINS
Karl Otto P(pi)hl
FORMER PRESIDENT
DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT
PROFESSOR, PACE UNIVERSITY
Anthonie C. van Ekris
MANAGING DIRECTOR
BALMAC INTERNATIONAL, INC.
OFFICERS
Mario J. Gabelli, CFA
PRESIDENT AND CHIEF
INVESTMENT OFFICER
James E. McKee
SECRETARY
Bruce N. Alpert
VICE PRESIDENT AND TREASURER
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.
- --------------------------------------------------------------------------------
THE
GABELLI
EQUITY
INCOME
FUND
FIRST QUARTER REPORT
DECEMBER 31, 1997
