[PHOTO OMITTED]
The
Gabelli
Equity
Income
Fund
SEMI-ANNUAL REPORT
MARCH 31, 1999
<PAGE>
The Gabelli Equity Income Fund
Semi-Annual Report
March 31, 1999(a)
* * * *
Morningstar Rating(TM) of The Gabelli Equity Income Fund was 4 stars overall and
for the three-year period ended 4/30/99 among 2976 domestic equity funds, and
for the five-year period ended 4/30/99 among 1816 domestic equity funds,
respectively.
To Our Shareholders,
In the first quarter of 1999, dividends were ignored once again. Higher
yielding stocks, which were a haven for investors when the market was falling
apart in the third quarter of 1998, were shelved in favor of stocks with better
earnings potential. Rising interest rates in February also served as a drag on
the equity income sector.
Investment Performance
For the quarter ended March 31, 1999, The Gabelli Equity Income Fund's
(the "Fund") net asset value declined 1.5% after adjusting for the $0.06 per
share dividend paid on March 29, 1999. The Lipper Equity Income Fund Average
declined 0.4% while the Standard & Poor's ("S&P") 500 Index had a total return
of 5.0% over the same period. The S&P index and Lipper average are unmanaged
indicators of stock market and investment performance. The Fund was up 0.8% over
the trailing twelve-month period. The Lipper Equity Income Fund Average and S&P
500 rose 0.7% and 18.5%, respectively, over the same twelve-month period.
For the five-year period ended March 31, 1999, the Fund's total return
averaged 17.3% annually versus average annual total returns of 17.2% and 26.2%
for the Lipper Equity Income Fund Average and S&P 500, respectively. Since
inception on January 2, 1992 through March 31, 1999, the Fund had a cumulative
total return of 180.7%, which equates to an average annual total return of
15.3%. 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 March 31, 1999 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 a
broad asset class receive five stars, the next 22.5% receive four stars, the
next 35% receive three stars, the next 22.5% receive two stars and the bottom
10% receive one star. (a) The Fund's fiscal year ends September 30.
<PAGE>
INVESTMENT RESULTS (a)(c)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Calendar Quarter
----------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1999: Net Asset Value. $ 16.39 -- -- -- --
Total Return.... (1.5)% -- -- -- --
- --------------------------------------------------------------------------------
1998: Net Asset Value. $ 17.70 $ 17.72 $ 15.97 $ 16.70 $ 16.70
Total Return.... 10.1% 0.5% (9.7)% 12.7% 12.6%
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Average Annual Returns - March 31, 1999 (a)
-------------------------------------------
1 Year....................... 0.8%
5 Year....................... 17.3%
Life of Fund (b)............. 15.3%
- --------------------------------------------------------------------------------
(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 investment 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 seven years at
The Gabelli Equity Income Fund and for over 22 years at 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.
[GRAPHIC OMITTED]
2
<PAGE>
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.
Dividend History
----------------
Rate Reinvestment
Payment (ex) Date Per Share Price
- ----------------- --------- -----
March 29, 1999 $0.06 $16.67
- ------------------------------------------
December 21, 1998 $1.27 $16.36
September 28, 1998 $0.04 $16.20
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
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. equity markets. 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.
3
<PAGE>
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
4
<PAGE>
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.
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.
- --------------------------------------------------------------------------------
5
<PAGE>
A Parent's Love
When children, particularly teenagers, are secure and content, they tend
to shun their parents. But, when something goes wrong in the life of a child,
they cling to their parents. Many investors behave the same way toward higher
yielding stocks. During periods in which they are by and large bullish on the
economy and stock market, yield is generally not appreciated. During periods of
economic and market uncertainty, investors are consoled and comforted by
dividends. Mature and emotionally stable investors who realize that dividends
have been responsible for nearly one-half of the long term returns of equities
are not subject to these emotional swings.
In the third quarter of 1998, when the investment world appeared to be
collapsing, investors cleaved to higher yielding stocks. Now that most of the
world's problems have disappeared, investors have run back to play with their
friends--the large cap growth stocks that drive the S&P 500. We are not children
running out to play on a sunny day and then rushing back to mom or dad when we
skin our knees. We appreciate dividends all the time and never stray from
quality companies that can nurture us.
A Mixed Bag
As reflected in our first quarter performance, our portfolio was a mixed
bag of winners and losers. Telecommunications holdings AT&T, BCE, British
Telecom, Deutsche Telekom and France Telecom performed well this quarter.
MediaOne finished as a big winner, with Comcast making a premium bid for the
company. In general, our positions in the financial sector did well, with
Merrill Lynch, Chase Manhattan, BankAmerica and American Express near the top of
our performance list. A rebound in oil prices fueled a strong recovery in energy
holdings such as Halliburton, Elf Aquitaine and Conoco.
Our electric and gas utility holdings were mixed, with St. Joseph Light &
Power, Public Service Co. of North Carolina and Fall River Gas posting nice
gains, while PacifiCorp, Florida Public Utilities and Central Hudson Gas &
Electric retreated. We continue to believe the utility industry will experience
massive consolidation that should surface values in our portfolio.
Despite the ongoing strength in auto sales, our investments in auto parts
manufacturers GenCorp, Dana Corp. and Barnes Group declined. Tobacco holdings
Gallaher Group, General Cigar and Philip Morris also disappointed, as the
industry was targeted for more tax increases in the U.S. and increasing legal
scrutiny in Europe.
6
<PAGE>
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.
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.
American Express Co. (AXP - $117.50 - NYSE) and its subsidiaries provide
travel-related services, financial advisory services and international banking
services worldwide. Founded in 1850, the company operates in 160 countries
around the world. Best known for its "green" charge card and its travel-related
services, including travelers checks, American Express also offers financial
planning, brokerage services, mutual funds, insurance and other investment
products. Harvey Golub, Chairman and CEO, has focused AXP on its core charge
card and investment management businesses. The company is expanding the
competitive reach of its credit card operations which should benefit if the U.S.
Department of Justice prevails in its antitrust suit against the Visa and
MasterCard associations.
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.
BCE Inc. (BCE - $44.3125 - NYSE) is Canada's global communications company. BCE
recently announced a major transaction with Ameritech (AIT - $57.875 - NYSE).
Under the agreement, BCE will sell 20% of Bell Canada, its wholly-owned Canadian
telecommunications subsidiary, to Ameritech. BCE also owns strategic stakes in
Northern Telecom (NT - $62.125 - NYSE), Teleglobe, BCE Emergis and CGI Group.
One share of BCE provides ownership of 0.42 shares of Northern Telecom. The
company's positions in satellites, network operations, information technology,
media and e-commerce are expected to provide growth for the company.
7
<PAGE>
Colonial Gas Co. (CLG - $34.50 - NYSE), a Massachusetts corporation formed in
1849, is primarily a regulated, natural gas distribution utility. Colonial Gas
is the fastest growing natural gas utility in New England with over 150,000
residential and business customers in 24 communities northwest of Boston and on
Cape Cod. The company's subsidiary, Transgas Inc., is the largest over-the-road
transporter of liquefied natural gas, propane and other commodities. Colonial's
shareholders have approved a proposal to merge with Eastern Enterprises (EFU -
$36.375 - NYSE). The transaction, with an equity value of approximately $330
million to be paid for with $150 million in cash and the balance in Eastern
common stock, is expected to close in mid-1999.
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.
Eastern Enterprises (EFU - $36.375 - NYSE) owns and operates Boston Gas Company,
Essex Gas Company, Midland Enterprises and ServicEdge Partners. Together, Boston
Gas and Essex Gas are New England's largest distributor of natural gas, serving
580,000 residential, commercial and industrial customers in Boston and 90 other
eastern and central Massachusetts communities. Midland Enterprises,
headquartered in Cincinnati, Ohio, is the leading carrier of coal and a major
carrier of other dry bulk cargoes on the nation's inland waterways, with a fleet
of 2,399 barges and 87 towboats. ServicEdge provides HVAC equipment installation
and service to customers in eastern Massachusetts. An agreement to acquire
Colonial Gas Company (CLG - $34.50 - NYSE), a regulated natural gas distribution
company servicing customers northwest of Boston and on Cape Cod, has been
approved.
Exxon Corp. (XON - $70.5625 - NYSE), with an equity market value of $190
billion, is the world's largest, publicly-owned integrated oil company.
Nevertheless, Exxon is about to become even bigger. Its planned merger with
Mobil (MOB - $88.00 - NYSE) would produce a combined organization with a market
capitalization of almost $270 billion. On a stand-alone basis, roughly one-half
of Exxon's production comes from overseas reserves. Major, promising oil and gas
exploration projects include West Africa, the Caspian Sea, Russia, the Gulf of
Mexico and South America. Profitability, in a period of falling energy prices,
has obviously suffered but the expected $2.8 billion in pre-tax synergies from
combining Exxon and Mobil would represent a significant offset. Dividends have
been paid by Exxon since 1882 and have been increased annually since 1983.
8
<PAGE>
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.
Orange & Rockland Utilities Inc. (ORU - $57.4375 - NYSE) has agreed to be
acquired by Consolidated Edison (ED - $45.3125 - NYSE) for $1.15 billion in cash
and assumed debt, allowing Con Edison to boost its power transmission business
in a growing part of the New York City area. Orange & Rockland is a small
utility, with most of its customers in New York's northern suburbs. Con Edison
is to pay $58.50 per share for all of Orange & Rockland's 13.5 million
outstanding shares. Orange & Rockland shareholders approved the merger on August
20, 1998 and the companies have filed all necessary regulatory applications. The
transaction is expected to be completed once all state and federal regulatory
approvals are obtained which is expected during the second quarter of 1999. In
addition to the $58.50 per share, we will also receive Orange & Rockland's
$0.645 quarterly dividend.
Philip Morris Companies Inc. (MO - $35.1875 - NYSE) is a leading consumer
products company concentrating on tobacco (57% of revenues), food (37% of
revenues) and beverages (6% of revenues). The company's Marlboro brand commands
an increasing share of the domestic and international cigarette markets and its
Miller brand is number two (behind Anheuser-Busch's Budweiser) in the beer
market. Food brands include Jell-O, Kool-Aid, Kraft, Sealtest and Post cereals.
The company generates significant amounts of excess cash which is being used to
repurchase stock and to support healthy dividend payments to shareholders.
Southwest Gas Corp. (SWX - $27.50 - NYSE) is a natural gas utility based in Las
Vegas, providing natural gas service to over 1.2 million residential, commercial
and industrial customers in one of the most economically vibrant areas of the
United States: Arizona, Nevada and parts of northeastern and southeastern
California. The company added more than 58,000 customers during 1998. Southwest
is the nation's fastest growing natural gas distribution company. Southwest Gas'
board of directors has approved a revised offer from Oneok Inc. (OKE - $24.75 -
NYSE) to purchase all outstanding SWX shares for $30.00 per share in cash,
valuing Southwest Gas at approximately $1.8 billion, including assumed debt.
Texaco Inc. (TX - $56.75 - NYSE) is a major integrated international oil company
which operates in over 150 countries. Texaco and its affiliates explore for,
find and produce oil and natural gas; manufacture and market high-quality fuels
and lubricant products; operate trading, transportation and distribution
facilities; and produce alternative forms of energy for power, manufacturing and
chemicals. The Texaco
<PAGE>
"star" is one of the most recognized brands on earth. The company is positioned
to meet the world's growing demand for energy. Since 1995, Texaco has grown
production by 19%, one of the best records in its industry.
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.
Proposal to Shareholders
The Fund's Board of Directors has asked shareholders to consider a
proposal to amend the Fund's Articles of Incorporation to permit the Fund to
offer additional classes of shares. We believe that this proposal would benefit
the shareholders, and we urge you to give the proposal your careful
consideration.
For existing shareholders we intend to remain a no-load fund. At the same
time, mutual fund distributors are increasingly employing a variety of different
types and combinations of sales charge arrangements for different classes of
shares that are targeted to the needs of particular types of investors. Your
Board of Directors believes that the Fund should be able to provide the
distribution alternatives and investment flexibility provided by other similarly
situated funds that offer multiple classes of shares. We believe that approval
of the proposal to permit the Fund to offer additional classes of shares will
enhance the potential for the Fund to attract additional investors in a manner
that could provide additional benefits for all investors in the Fund. Again, to
repeat, approval of this proposal will not diminish the ability of existing and
future shareholders to purchase and redeem shares at net asset value.
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
<PAGE>
In Conclusion
This quarter, growth was in and yield was out. During the next quarter, it
may be a different story. So it goes. We do not care whether yield is in vogue
or passe. We will maintain a diversified portfolio of high quality, dividend
paying companies in a wide range of industries. We believe over the long term,
this type of portfolio should generate attractive risk adjusted returns.
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
April 30, 1999
- --------------------------------------------------------------------------------
Top Ten Holdings
March 31, 1999
--------------
BCE Inc. Eastern Enterprises
American Express Co. Philip Morris Companies Inc.
Southwest Gas Corp. Colonial Gas Co.
Orange & Rockland Utilities Inc. Aeroquip-Vickers Inc.
Exxon Corp. Texaco Inc.
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. 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 -- March 31, 1999 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Market
Shares Cost Value
------ ---- -----
<S> <C> <C> <C>
COMMON STOCKS - 89.9%
Aerospace - 1.9%
20,000 Boeing Co. ........................... $ 773,994 $ 682,500
12,000 Northrop Grumman Corp. ............... 841,732 718,500
1,000 Raytheon Co., Cl. A .................. 27,785 57,750
2,000 Rockwell International Corp. ......... 41,530 84,875
---------- ----------
1,685,041 1,543,625
---------- ----------
Agriculture - 1.8%
33,000 Monsanto Co. ......................... 1,209,123 1,515,938
---------- ----------
Automotive - 1.5%
4,500 Ford Motor Co. ....................... 70,226 255,375
11,500 General Motors Corp. ................. 402,488 999,063
---------- ----------
472,714 1,254,438
---------- ----------
Automotive: Parts and Accessories - 2.4%
25,000 Dana Corp. ........................... 995,435 950,000
6,000 Ethyl Corp. .......................... 43,488 25,500
20,000 GenCorp Inc. ......................... 327,212 360,000
20,000 Genuine Parts Co. .................... 505,546 576,250
4,000 Meritor Automotive Inc. .............. 82,200 62,000
---------- ----------
1,953,881 1,973,750
---------- ----------
Aviation: Parts and Services - 1.6%
10,000 Barnes Group Inc. .................... 166,500 187,500
19,000 Curtiss-Wright Corp. ................. 279,091 590,188
4,000 United Technologies .................. 226,617 541,750
---------- ----------
672,208 1,319,438
---------- ----------
Business Services - 0.5%
4,000 Dun & Bradstreet Corp. ............... 85,318 142,499
1,000 Imation Corp.+ ....................... 16,753 16,500
2,000 IMS Health Inc. ...................... 31,331 66,250
1,500 Landauer Inc. ........................ 25,747 36,188
1,666 Nielsen Media Research Inc. .......... 13,517 41,129
7,000 R. H. Donnelley Corp. ................ 79,054 108,063
---------- ----------
251,720 410,629
---------- ----------
Communications Equipment - 0.1%
1,000 Motorola Inc. ........................ 27,263 73,250
---------- ----------
Computer Software and Services - 0.9%
4,000 International Business
Machines Corp. ..................... 101,600 709,000
---------- ----------
Consumer Products - 6.3%
11,000 Eastman Kodak Co. .................... 660,722 702,625
2,000 Fortune Brands Inc. .................. 55,490 77,375
60,000 Gallaher Group plc, ADR .............. 1,227,871 1,409,999
5,000 General Cigar Holdings Inc.,
Cl. B+(b) .......................... 44,132 46,563
4,000 General Electric Co. ................. 93,925 442,500
2,000 Gillette Co. ......................... 23,963 118,875
19,000 National Presto Industries Inc. ...... 790,727 673,313
50,000 Philip Morris Companies Inc. ......... 2,055,628 1,759,374
200 Rothmans Inc. ........................ 27,296 26,706
---------- ----------
4,979,754 5,257,330
---------- ----------
Consumer Services - 0.6%
30,000 Rollins Inc. ......................... 580,657 504,375
---------- ----------
Diversified Industrial - 3.4%
30,000 GATX Corp. ........................... 891,844 988,125
7,000 Honeywell Inc. ....................... 301,396 530,688
5,000 Minnesota Mining &
Manufacturing Co. .................. 399,500 353,750
20,000 Tenneco Inc. ......................... 766,425 558,750
20,000 Thomas Industries Inc. ............... 157,958 375,000
1,000 Trinity Industries Inc. .............. 26,570 29,375
---------- ----------
2,543,693 2,835,688
---------- ----------
Energy and Utilities - 1.0%
41,270 Citizens Utilities Co., Cl. B+ ....... 428,235 319,843
24,000 United Water Resources Inc. .......... 437,013 498,000
---------- ----------
865,248 817,843
---------- ----------
Energy and Utilities: Electric - 7.9%
8,000 Central & South West Corp.. .......... 217,400 187,500
6,000 Central Hudson Gas & Electric
Corp. .............................. 251,613 214,875
7,300 Cilcorp Inc. ......................... 444,846 438,456
40,000 El Paso Electric Co. ................. 332,938 305,000
11,000 Energy East Corp. .................... 474,584 578,187
3,000 Florida Progress Corp. ............... 128,588 113,250
25,000 Florida Public Utilities Co. ......... 375,194 368,750
2,000 FPL Group Inc. ....................... 80,100 106,500
10,000 New England Electric System .......... 483,465 485,000
95,000 Niagara Mohawk Power Corp.+ .......... 1,010,837 1,276,562
35,000 Orange & Rockland Utilities Inc. ..... 1,877,652 2,010,312
8,000 PacifiCorp ........................... 158,700 138,000
5,000 Public Services Enterprise
Group Inc. ......................... 164,125 190,938
8,000 St. Joseph Light & Power Co. ......... 165,598 163,500
---------- ----------
6,165,640 6,576,830
---------- ----------
Energy and Utilities: Natural Gas - 13.4%
50,000 AGL Resources Inc. ................... 949,721 878,125
50,000 Colonial Gas Co. ..................... 1,183,188 1,725,000
40,000 Commonwealth Energy System ........... 1,001,875 1,540,000
52,000 Eastern Enterprises .................. 1,452,403 1,891,500
58,000 ENI SpA .............................. 304,221 369,434
10,000 Fall River Gas Co. ................... 160,250 176,875
40,000 KeySpan Energy Corp. ................. 1,127,276 1,005,000
4,000 Peoples Energy Corp. ................. 138,275 129,250
12,000 Piedmont Natural Gas Co. ............. 403,475 420,000
3,000 Providence Energy Corp. .............. 64,900 55,125
2,000 Public Service Co. of North
Carolina ........................... 59,100 56,750
1,000 Southern Union Co. ................... 20,113 18,875
75,000 Southwest Gas Corp. .................. 1,260,524 2,062,499
44,000 Wicor Inc. ........................... 973,183 891,000
---------- ----------
9,098,504 11,219,433
---------- ----------
Energy and Utilities: Oil - 11.1%
13,000 Atlantic Richfield Co. ............... 703,893 949,000
13,000 BP Amoco plc, ADR .................... 285,513 1,312,187
16,000 Burlington Resources Inc. ............ 661,765 639,000
10,000 Chevron Corp. ........................ 312,563 884,375
3,500 Conoco Inc., Cl. A ................... 80,500 85,969
6,000 Elf Aquitaine SA ..................... 299,550 403,875
28,000 Exxon Corp. .......................... 820,666 1,975,749
18,000 Halliburton Co. ...................... 378,023 693,000
20,000 PennzEnergy Co. ...................... 378,693 210,000
10,000 Pennzoil-Quaker State Co. ............ 247,181 123,750
29,000 Texaco Inc. .......................... 1,026,325 1,645,750
10,000 YPF SA, ADR .......................... 302,313 315,625
---------- ----------
5,496,985 9,238,280
---------- ----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
The Gabelli Equity Income Fund
Portfolio of Investments (Continued) -- March 31, 1999 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Market
Shares Cost Value
------ ---- -----
<S> <C> <C> <C>
COMMON STOCKS (Continued)
Entertainment - 0.3%
2,500 Viacom Inc., Cl. A + ................. $ 76,810 $ 208,281
---------- ----------
Equipment and Supplies - 4.7%
30,000 Aeroquip-Vickers Inc. ................ 803,988 1,719,374
3,000 Caterpillar Inc. ..................... 35,181 137,813
2,000 Cooper Industries Inc. ............... 84,754 85,250
28,000 Deere & Co. .......................... 438,965 1,081,500
5,000 EG&G Inc. ............................ 87,000 131,875
2,000 Ingersoll Rand Co. ................... 50,233 99,250
15,000 Mark IV Industries Inc. .............. 219,188 195,938
1,500 Minerals Technologies Inc.. .......... 37,938 72,000
18,000 Smith (A.O.) Corp., Cl. B.. .......... 401,225 342,000
1,000 Union Carbide Corp. .................. 16,675 45,188
---------- ----------
2,175,147 3,910,188
---------- ----------
Financial Services - 13.4%
20,000 American Express Co. ................. 426,909 2,349,999
8,000 Argonaut Group Inc. .................. 200,856 205,500
20,000 BA Merchant Services Inc. ............ 408,276 407,500
1,500 Banco Popular Espanol ................ 122,662 96,515
28,000 Banco Santander SA, ADR .............. 201,958 563,500
2,000 Banco Santiago ....................... 29,250 35,250
9,052 BankAmerica Co. ...................... 167,810 639,297
4,000 Bankers Trust Co. .................... 346,638 353,000
3,000 Banque Nationale de Paris ............ 212,719 261,043
2,000 Block (H&R) Inc. ..................... 89,100 94,750
5,000 Chase Manhattan Corp. ................ 216,475 406,563
31,000 Commerzbank AG, ADR .................. 678,161 927,042
20,000 Deutsche Bank AG, ADR ................ 1,015,262 1,028,845
3,000 Dresdner Bank AG, ADR ................ 107,625 120,158
2,000 Fidelity National Corp. .............. 22,958 16,750
1,500 First Union Corp. .................... 66,944 80,156
10,000 Mellon Bank Corp. .................... 598,279 703,750
1,500 Merrill Lynch & Co. .................. 68,700 132,656
2,000 MONY Group Inc. ...................... 47,000 49,750
7,500 Morgan (J.P.) & Co. Inc. ............. 461,044 925,313
3,000 Municipal Mortgage & Equity LLC ...... 60,488 55,875
3,000 Northern Trust Co. ................... 60,300 266,438
3,000 Pioneer Group Inc. ................... 66,204 44,438
5,000 Sterling Bancorp ..................... 118,500 97,813
12,000 SunTrust Banks Inc. .................. 251,737 747,000
4,400 Transamerica Corp. ................... 111,528 312,400
4,000 U.S. Trust Corp. ..................... 47,394 296,750
---------- ----------
6,204,777 11,218,051
---------- ----------
Food and Beverage - 2.0%
4,000 Bestfoods Inc. ....................... 192,316 188,000
6,000 Coca-Cola Amatil Ltd., ADR. .......... 63,363 51,833
12,000 Coca-Cola Beverages plc+ ............. 28,750 19,372
3,000 Corn Products International Inc. ..... 86,909 71,813
10,000 Diageo plc, ADR ...................... 453,102 457,500
6,000 Heinz (H.J.) Co. ..................... 289,963 284,250
15,000 Kellogg Co. .......................... 453,163 507,188
2,000 Quaker Oats Co. ...................... 69,725 125,125
---------- ----------
1,637,291 1,705,081
---------- ----------
Health Care - 1.7%
3,000 Bristol-Myers Squibb Co. ............. 193,463 192,938
1,000 Glaxo Wellcome plc, ADR .............. 54,024 66,938
3,000 Johnson & Johnson .................... 57,690 281,063
10,000 Pharmacia & Upjohn Inc. .............. 290,500 623,750
3,000 SmithKline Beecham plc, ADR .......... 184,980 214,499
---------- ----------
780,657 1,379,188
---------- ----------
Metals and Mining - 0.2%
15,000 Freeport-McMoRan Copper & Gold Inc.,
Cl. B .............................. 272,351 163,125
---------- ----------
Publishing - 2.4%
10,000 Dow Jones & Co. Inc. ................. 463,770 471,875
3,000 Harcourt General Inc. ................ 136,775 132,938
5,000 McGraw-Hill Companies Inc.. .......... 152,667 272,500
40,000 Reader's Digest Association Inc.,
Cl. B .............................. 1,042,957 1,100,000
---------- ----------
1,796,169 1,977,313
---------- ----------
Real Estate - 0.0%
2,500 Griffin Land & Nurseries Inc.+ ....... 11,716 23,125
---------- ----------
Retail - 0.1%
2,000 Sears, Roebuck & Co. ................. 51,242 90,375
---------- ----------
Satellite - 0.5%
15,000 COMSAT Corp. ......................... 291,042 434,063
---------- ----------
Specialty Chemicals - 1.1%
2,000 du Pont de Nemours (E.I.) and Co. .... 65,500 116,125
7,500 Ferro Corp. .......................... 138,500 185,625
8,000 Grace (W.R.) & Co.+ .................. 91,915 97,000
12,000 Hoechst AG, ADR ...................... 460,143 520,500
1,500 IMC Global Inc. ...................... 31,075 30,656
---------- ----------
787,133 949,906
---------- ----------
Telecommunications - 9.1%
3,000 Alltel Corp. ......................... 71,900 187,125
4,000 AT&T Corp. ........................... 235,950 319,250
55,000 BCE Inc. ............................. 1,027,396 2,437,187
13,500 BCT. Telus Communications Inc. ....... 238,092 330,184
4,500 BCT. Telus Communications Inc.,
CI. A .............................. 79,364 106,343
4,608 Bell Atlantic Corp. .................. 117,619 238,176
1,500 British Telecommunications plc, ADR .. 84,309 246,281
10,000 Cable & Wireless plc, ADR.. .......... 217,366 369,375
7,000 Deutsche Telekom AG, ADR ............. 149,708 283,063
1,000 France Telecom SA, ADR ............... 34,488 80,688
24,000 GTE Corp. ............................ 811,200 1,451,999
15,000 Hong Kong Telecommunications Ltd.,
ADR ................................ 224,921 293,438
8,000 SBC Communications Inc. .............. 154,297 377,000
3,000 Telecom Italia SpA, ADR .............. 93,240 313,125
4,080 Telefonica de Espana, ADR.. .......... 173,262 521,220
1,000 US West Inc. ......................... 24,839 55,063
---------- ----------
3,737,951 7,609,517
---------- ----------
TOTAL COMMON STOCKS .................. 53,926,317 74,918,060
---------- ----------
PREFERRED STOCKS - 5.9%
Aviation: Parts and Services - 0.3%
2,000 Coltec Capital Trust, Pfd. ........... 86,000 87,500
3,000 Coltec Capital Trust, Pfd. (a) ....... 129,000 131,250
---------- ----------
215,000 218,750
---------- ----------
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
The Gabelli Equity Income Fund
Portfolio of Investments (Continued) -- March 31, 1999 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Market
Shares Cost Value
------ ---- -----
<S> <C> <C> <C>
PREFERRED STOCKS (Continued)
Broadcasting - 0.1%
3,500 Granite Broadcasting Corp.,
$1.9375 Cv. Pfd. ................... $ 177,354 $ 115,938
----------- -----------
Cable - 0.6%
4,000 MediaOne Group Inc., Cv. Pfd. D ...... 206,033 514,250
----------- -----------
Diversified Industrial - 0.1%
2,000 WHX Corp., Cv. Pfd. Ser. B. .......... 75,038 72,000
----------- -----------
Entertainment - 0.0%
1,000 Metromedia International Group Inc.,
Cv. Pfd. ........................... 35,025 26,750
----------- -----------
Equipment and Supplies - 0.6%
6,000 Sequa Corp.,
$5.00 Cv. Pfd. ..................... 464,250 525,000
----------- -----------
Metals and Mining - 0.1%
5,000 Freeport-McMoRan Copper
& Gold Inc., 7.00% Cv. Pfd. ........ 106,500 79,375
----------- -----------
Paper and Forest Products - 1.2%
21,000 Sealed Air Corp., $2.00 Cv. Pfd. ..... 870,903 1,039,500
----------- -----------
Telecommunications - 2.9%
17,000 Citizens Utilities Co., 5.00%
Cv. Pfd. ........................... 816,716 684,250
22,000 Sprint Corp., $2.6301 Cv. Pfd. ....... 817,628 1,606,000
----------- -----------
1,634,344 2,290,250
----------- -----------
TOTAL PREFERRED STOCKS ............... 3,784,447 4,881,813
----------- -----------
<CAPTION>
Principal
Amount
------
<S> <C> <C> <C>
CORPORATE BONDS - 2.1%
Business Services - 0.1%
$ 100,000 BBN Corp., Sub. Deb. Cv. 6.00%,
04/01/12 (b) ....................... 97,160 96,669
----------- -----------
Consumer Products - 0.7%
700,000 Fieldcrest Cannon Inc.,
Sub. Deb. Cv. 6.00%, 03/15/12 ...... 550,235 488,250
----------- -----------
Entertainment - 0.2%
150,000 Savoy Pictures Entertainment Inc.,
Sub. Deb. Cv. 7.00%, 07/01/03 ...... 135,053 148,688
----------- -----------
Equipment and Supplies - 0.5%
377,000 Kollmorgen Corp., Sub. Deb. Cv.
8.75%, 05/01/09 .................... 329,124 385,011
----------- -----------
Food and Beverage - 0.0%
28,000 Chock Full o' Nuts Corp., Cv.
7.00%, 04/01/12 .................... 27,485 27,265
----------- -----------
Hotels and Gaming - 0.3%
300,000 Hilton Hotels Corp., Sub. Deb. Cv.
5.00%, 05/15/06 .................... 262,747 281,250
----------- -----------
Publishing - 0.1%
100,000 News America Holdings Inc.,
Sub. Deb. Cv. Zero Cpn., 03/31/02 .. 79,620 124,000
----------- -----------
Transportation - 0.2%
200,000 Greyhound Lines Inc., Sub. Deb.
Cv., 8.50%, 03/31/07 ............... 95,940 205,000
----------- -----------
TOTAL CORPORATE BONDS ................ 1,577,364 1,756,133
----------- -----------
U.S. GOVERNMENT OBLIGATIONS - 2.8%
2,329,000 U.S. Treasury Bills, 4.39% to
4.79% ++, due 04/19/99 to
05/27/99 ........................... 2,322,512 2,322,186
----------- -----------
TOTAL INVESTMENTS - 100.7% ........... $61,610,640 83,878,192
===========
Other Assets and Liabilities
(Net) -- (0.7)% .................... (618,839)
-----------
NET ASSETS - 100.0%
(5,081,290 shares outstanding) ..... $83,259,353
===========
NET ASSET VALUE,
Offering and Redemption
Price Per Share .................... $16.39
======
- -------------
For Federal tax purposes:
Aggregate cost $61,610,640
-----------
Gross unrealized appreciation $24,795,447
Gross unrealized depreciation (2,527,895)
-----------
Net unrealized appreciation $22,267,552
===========
<CAPTION>
Net
Settlement Unrealized
Date Depreciation
---- ------------
<S> <C> <C> <C>
FORWARD FOREIGN EXCHANGE CONTRACTS
1,881,235 (c) Sell Hong Kong Dollars
in exchange for USD 242,000 05/24/99 $(484)
</TABLE>
(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 March 31, 1999, the market value of Rule
144A securities amounted to $131,250 or 0.2% 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.
See accompanying notes to financial statements.
14
<PAGE>
The Gabelli Equity Income Fund
Statement of Assets and Liabilities
March 31, 1999 (Unaudited)
================================================================================
Assets:
Investments, at value (Cost $61,610,640) .................. $83,878,192
Cash ...................................................... 1,015
Dividends and interest reclaims receivable ................ 270,102
Receivable for investments sold ........................... 371,625
Receivable for capital shares issued ...................... 31,371
-----------
Total Assets ............................................ 84,552,305
-----------
Liabilities:
Payable for investments purchased ......................... 1,056,664
Payable for capital shares redeemed ....................... 44,465
Payable for investment advisory fees ...................... 71,622
Payable for distribution fees ............................. 17,905
Other accrued expenses .................................... 102,296
-----------
Total Liabilities ....................................... 1,292,952
-----------
Net Assets applicable to 5,081,290
shares outstanding .................................... $83,259,353
===========
Net Assets consist of:
Capital stock, at par value ............................... $ 5,081
Additional paid-in capital ................................ 56,184,581
Undistributed net investment income ....................... 23,690
Accumulated net realized gain on investments
and foreign currency transactions ....................... 4,778,855
Net unrealized appreciation on investments
and foreign currencies transactions ..................... 22,267,146
-----------
Total Net Assets .......................................... $83,259,353
===========
Net Asset Value, offering and redemption
price per share ($83,259,353 / 5,081,290
shares outstanding; 1,000,000,000 shares
authorized of $0.001 per velue .......................... $ 16.39
===========
Statement of Operations
For the Six Months Ended March 31, 1999 (Unaudited)
================================================================================
Investment Income:
Dividends (net of foreign taxes of $4,791) ................. $1,110,335
Interest ................................................... 144,914
----------
Total Investment Income .................................. 1,255,249
----------
Expenses:
Investment advisory fees ................................... 422,728
Distribution fees .......................................... 105,682
Shareholder services fees .................................. 59,105
Legal and audit fees ....................................... 20,650
Custodian fees ............................................. 19,836
Shareholder report expenses ................................ 19,199
Directors' Fees ............................................ 13,487
Registration fees .......................................... 12,588
Miscellaneous expenses ..................................... 11,145
----------
Total Expenses ........................................... 684,420
----------
Net Investment Income .................................... 570,829
----------
Net Realized and Unrealized Gain
on Investments:
Net realized gain on investments
and foreign currency transactions ........................ 5,310,243
Net change in unrealized appreciation
on investments and foreign currency
transactions ............................................. 2,786,652
----------
Net realized and unrealized gain on
investments and foreign currency
transactions ............................................. 8,096,895
----------
Net increase in net assets resulting
from operations ............................................ $8,667,724
==========
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1999 September 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
Operations:
Net investment income ................................................ $ 570,829 $ 1,048,086
Net realized gain on investments and foreign currency transactions ... 5,310,243 5,867,346
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions .................................. 2,786,652 (4,965,383)
------------ ------------
Net increase in net assets resulting from operations ................. 8,667,724 1,950,049
------------ ------------
Distributions to shareholders:
Net investment income ................................................ (544,531) (1,221,353)
Net realized gain on investments ..................................... (5,973,881) (7,160,971)
------------ ------------
Total distributions to shareholders .................................. (6,518,412) (8,382,324)
------------ ------------
Capital share transactions:
Net increase in net assets from capital share transactions ........... 1,441,158 12,370,942
------------ ------------
Net increase in net assets ........................................... 3,590,470 5,938,667
Net Assets:
Beginning of period .................................................. 79,668,883 73,730,216
------------ ------------
End of period ........................................................ $ 83,259,353 $ 79,668,883
============ ============
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
The Gabelli Equity Income Fund
Notes to Financial Statements (Unaudited)
================================================================================
1. Description. The Gabelli Equity Income Fund (the "Fund"), a series of Gabelli
Equity Series Funds, Inc. (the "Corporation"), was organized on July 25, 1991 as
a Maryland corporation. The Fund is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), and one of two separately managed portfolios
(collectively, the "Portfolios") of the Corporation. The Fund's primary
objective is to seek a high level of total return with an emphasis on income.
The Fund commenced investment operations on January 2, 1992.
2. Significant Accounting Policies. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day, except for open short positions, which are
valued at the last asked price). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Directors. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Directors determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair value as determined by the Directors. Debt instruments
having a greater maturity are valued at the highest bid price obtained from a
dealer maintaining an active market in those securities. Options are valued at
the last sale price on the exchange on which they are listed. If no sales of
such options have taken place that day, they will be valued at the mean between
their closing bid and asked prices.
Repurchase Agreements. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Bank of
New York, with member banks of the Federal Reserve System or with other brokers
or dealers that meet credit guidelines established by the Directors. Under the
terms of a typical repurchase agreement, the Fund takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. The Fund will always
receive and maintain securities as collateral whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement. The Fund will make payment for such securities
only upon physical delivery or upon evidence of book entry transfer of the
collateral to the account of the custodian. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to maintain the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Futures Contracts. The Fund may engage in futures contracts for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a
16
<PAGE>
The Gabelli Equity Income Fund
Notes to Financial Statements (Continued) (Unaudited)
================================================================================
futures contract, the Fund is required to deposit with the broker an amount of
cash or cash equivalents equal to a certain percentage of the contract amount.
This is known as the "initial margin". Subsequent payments ("variation margin")
are made or received by the Fund each day, depending on the daily fluctuation of
the value of the contract. The daily changes in the contract are included in
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. At March 31, 1999, there were no open futures contracts.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of future contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
Forward Foreign Exchange Contracts. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. Forward foreign exchange contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
included in unrealized appreciation/depreciation on investments and foreign
currency transactions. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate fluctuations in
the underlying prices of the Fund's portfolio securities, but it does establish
a rate of exchange that can be achieved in the future. Although forward foreign
exchange contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result should the
value of the currency increase. In addition, the Fund could be exposed to risks
if the counterparties to the contracts are unable to meet the terms of their
contracts.
Foreign Currency Translation. The books and records of the Fund are maintained
in United States (U.S.) dollars. Foreign currencies, investments and other
assets and liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period, and purchases and sales of investment
securities, income and expenses are translated at the exchange rate prevailing
on the respective dates of such transactions. Unrealized gains and losses, which
result from changes in foreign exchange rates and/or changes in market prices of
securities, have been included in unrealized appreciation/depreciation on
investments and foreign currency transactions. Net realized foreign currency
gains and losses resulting from changes in exchange rates include foreign
currency gains and losses between trade date and settlement date on investment
securities transactions, foreign currency transactions and the difference
between the amounts of interest and dividends recorded on the books of the Fund
and the amounts actually received. The portion of foreign currency gains and
losses related to fluctuation in exchange rates between the initial trade date
and subsequent sale trade date is included in realized gain/(loss) on
investments.
Securities Transactions and Investment Income. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
17
<PAGE>
The Gabelli Equity Income Fund
Notes to Financial Statements (Continued) (Unaudited)
================================================================================
Expenses. Certain administrative expenses are common to, and allocated among,
the Portfolios. Such allocations are made on the basis of each Portfolio's
average net assets or other criteria directly affecting the expenses as
determined by the Adviser.
Provision for Income Taxes. The Fund has qualified and intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.
Dividends and interest from non-U.S. sources received by the Fund are generally
subject to non-U.S. withholding taxes at rates ranging up to 30%. Such
withholding taxes may be reduced or eliminated under the terms of applicable
U.S. income tax treaties, and the Fund intends to undertake any procedural steps
required to claim the benefits of such treaties.
3. Investment Advisory Agreement. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Directors of the Fund who are its affiliates.
4. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the six months
ended March 31, 1999, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an affiliate of the Adviser, of $105,682, or 0.25% of average
daily net assets, the annual limitation under the Plan. Such payments are
accrued daily and paid monthly.
5. Portfolio Securities. Purchases and sales of securities for the six months
ended March 31, 1999, other than short term securities, aggregated $13,515,458
and $17,049,117, respectively.
6. Transactions with Affiliates. During the six months ended March 31, 1999, the
Fund paid brokerage commissions of $11,700 to Gabelli & Company, Inc. and its
affiliates.
7. Bank Loan. The Fund has access to an unsecured line of credit from the
custodian for temporary borrowing purposes. Borrowings under this arrangement
bear interest at 0.75% above the Federal Funds rate on outstanding balances.
There were no borrowings outstanding at March 31, 1999.
8. Capital Stock Transactions. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1999 September 30, 1998
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold .................................... 471,377 $ 7,848,057 1,216,183 $ 20,779,591
Shares issued upon reinvestment of dividends ... 378,596 6,199,111 491,179 7,882,560
Shares redeemed ................................ (757,014) (12,606,010) (958,240) (16,291,209)
------------ ------------ ------------ ------------
Net increase ................................. 92,959 $ 1,441,158 749,122 $ 12,370,942
============ ============ ============ ============
</TABLE>
9. Subsequent Event. On February 9, 1999, the Adviser reorganized its operations
and corporate structure by transferring a portion of its assets and liabilities
to a successor adviser, Gabelli Funds, LLC, which is wholly owned by Gabelli
Asset Mangement Inc., a newly formed publicly traded company that is 80% owned
by the former Adviser. Counsel to the former Adviser has concluded that the
ownership change does not constitute an assignment as defined by the 1940 Act.
18
<PAGE>
The Gabelli Equity Income Fund
Financial Highlights
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1999 ------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period .... $ 15.97 $ 17.39 $ 13.81 $ 12.65 $ 11.54 $ 12.15
-------- -------- -------- -------- -------- --------
Net investment income ................... 0.12 0.22 0.22 0.28 0.29 0.30
Net realized and unrealized gain
on investments ........................ 1.63 0.29 4.28 1.76 1.77 0.08
-------- -------- -------- -------- -------- --------
Total from investment operations ........ 1.75 0.51 4.50 2.04 2.06 0.38
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
Net investment income ................... (0.11) (0.26) (0.22) (0.28) (0.29) (0.31)
In excess of net investment income ...... -- -- -- (0.01) -- --
Net realized gain on investments ........ (1.22) (1.67) (0.70) (0.59) (0.66) (0.68)
-------- -------- -------- -------- -------- --------
Total distributions ..................... (1.33) (1.93) (0.92) (0.88) (0.95) (0.99)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .......... $ 16.39 $ 15.97 $ 17.39 $ 13.81 $ 12.65 $ 11.54
======== ======== ======== ======== ======== ========
Total return+ ........................... 11.0% 3.0% 34.0% 16.7% 19.2% 3.3%
======== ======== ======== ======== ======== ========
Ratios to average net assets and
supplemental data:
Net assets, end of period (in 000's) .... $ 83,259 $ 79,669 $ 73,730 $ 57,006 $ 54,806 $ 50,191
Ratio of net investment income
to average net assets ................. 1.35%(a) 1.27% 1.42% 1.99% 2.50% 2.58%
Ratio of operating expenses
to average net assets ................. 1.62%(a) 1.64% 1.78% 1.93% 1.83% 1.81%
Portfolio turnover rate ................. 16% 35% 43% 20% 30% 20%
</TABLE>
- ----------
+ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends.
(a) Annualized.
See accompanying notes to financial statements.
19
<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 Robert J. Morrissey
Chairman and Chief Attorney-at-Law
Investment Officer Morrissey, Hawkins & Lynch
Gabelli Asset Management Inc.
Karl Otto Pohl
Felix J. Christiana Former President
Former Senior Vice President Deutsche Bundesbank
Dollar Dry Dock Savings Bank
Anthony R. Pustorino
Anthony J. Colavita Certified Public Accountant
Attorney-at-Law Professor, Pace University
Anthony J. Colavita, P.C.
Anthonie C. van Ekris
Vincent D. Enright Managing Director
Former Senior Vice President BALMAC International, Inc.
and Chief Financial Officer
KeySpan Energy Corp.
John D. Gabelli
Senior Vice President
Gabelli & Company, 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.
- --------------------------------------------------------------------------------
