THE GABELLI EQUITY INCOME FUND
THIRD QUARTER REPORT
JUNE 30, 2000(A)
TO OUR SHAREHOLDERS,
Technology stocks dominated the market headlines in the second quarter of
2000. For the first two months of the quarter, it was largely bad news, as the
tech heavy NASDAQ Composite plummeted. This sent investors scurrying into higher
yielding, more reasonably valued market sectors. However, when tech stocks
pulled out of their tailspin, investors lost enthusiasm for most everything
else. Fueled by takeovers, turnarounds, a rebound in food stocks, and the
generally good performance of our utility holdings, the Fund posted a solid
return.
INVESTMENT PERFORMANCE
For the quarter ended June 30, 2000, The Gabelli Equity Income Fund's (the
"Fund") net asset value rose 0.75%, after adjusting for the $0.12 per share
dividend paid on June 28, 2000. The Standard & Poor's ("S&P") 500 Index and
Lipper Equity Income Fund Average declined 2.66% and 1.08%, respectively, over
the same period. The S&P 500 Index is an unmanaged indicator of stock market
performance, while the Lipper Average reflects the average performance of mutual
funds classified in this particular category. The Fund was up 0.86% over the
trailing twelve-month period. The S&P 500 Index rose 7.24% and the Lipper Equity
Income Fund Average fell 6.63% over the same twelve-month period.
For the five-year period ended June 30, 2000, the Fund's total return
averaged 16.39% annually, versus average annual total returns of 23.80% and
13.58% for the S&P 500 Index and Lipper Equity Income Fund Average,
respectively. Since inception on January 2, 1992 through June 30, 2000, the Fund
had a cumulative total return of 216.24%, which equates to an average annual
total return of 14.50%.
COMMENTARY
"WHAT, ME WORRY?"
The labor market remains tight and the threat of wage-driven inflation is
quite real. Despite six Federal Reserve interest rate hikes over the last
eighteen months, the economy is still growing at a pace that troubles the
monetary authorities. This is also an election year. While the campaign has been
a relatively quiet one, the rhetoric is sure to heat up as we approach November.
Political posturing on economic issues,
[Graphic omitted]
[Pyramid text as follows:]
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
--------------------------------------------------------------------------------
(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>
2000: Net Asset Value ................... $15.86 $15.86 -- -- --
Total Return ...................... 0.8% 0.8% -- -- --
-------------------------------------------------------------------------------------------------------------
1999: Net Asset Value ................... $16.39 $18.26 $17.58 $15.80 $15.80
Total Return ...................... (1.5)% 11.7% (3.4)% 2.8% 9.3%
-------------------------------------------------------------------------------------------------------------
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 - June 30, 2000 (a)
------------------------------------------
1 Year ..................................... 0.86%
5 Year ..................................... 16.39%
Life of Fund (b) ........................... 14.50%
(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.
--------------------------------------------------------------------------------
principally how to re-allocate the growing budget surplus, may rattle the
financial markets. Finally, while there are large pockets of attractive
fundamental values in the equity markets, the overall market, as measured by the
S&P 500 Index, is still rather richly priced relative to historic norms.
Of concern to us is the soaring trade deficit. Thus far, the world has
been happy to finance this deficit by buying U.S. stocks and bonds. This has
worked out well for all concerned. However, if we see inflation continue to
trend higher and if the U.S. financial markets sputter, international investors
may seek opportunities elsewhere. Reduced global demand for U.S. financial
assets may have a greater impact on stocks and bonds than the aforementioned
economic, political, and market issues. If international demand dries up, the
favorable supply/demand dynamics the U.S. financial markets have enjoyed over
the last decade may be disrupted. In addition, the Federal Reserve may have to
pump up interest rates even further, and at the wrong time, to defend the
dollar.
2
<PAGE>
Dividend History
----------------------------------------------------
Rate Reinvestment
Payment (ex) Date Per Share Price
------------------- --------- ------------
June 28, 2000 $0.12 $16.02
March 29, 2000 $0.06 $15.75
----------------------------------------------------
December 20, 1999 $2.21 $15.30
September 27, 1999 $0.06 $17.39
June 28, 1999 $0.05 $17.98
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
----------------------------------------------------
That is the dark side. The bright side is that we are finally seeing
evidence of economic deceleration. Housing starts and home sales are down
substantially, and with the exception of oil, commodity prices have stabilized.
The most recently released employment numbers were relatively benign and there
are indications that consumer confidence has been dented. For the time being,
the Federal Reserve has spared us an additional rate hike. We just may be
returning to a "Goldilocks" economy--not too hot, not too cool, but just
right--that will help propel stocks higher. We have labeled this rosy economic
scenario "Soft Landing Part II". Ideally, we will see a much broader market
advance in which companies in a wider range of industries participate.
MORE THAN JUST YIELD
Historically, dividends are responsible for approximately 40% of equity
returns - a fact all but forgotten in the growth stock dominated 1990s. Why
waste capital on dividends when it can be used to grow a business either
internally or via acquisitions? Good question. Using a real estate analogy, the
answer used to be that landlords (investors) demanded to be paid rent while they
waited for their apartment buildings to appreciate. Today, they are content to
speculate on higher prices for their properties down the road. So, higher
yielding stocks aren't for everyone. However, they still play an important role
for investors needing current income and looking for greater portfolio stability
in the increasingly volatile stock market.
But yield and portfolio stability are not the whole story. A yield bias is
leading investors to some of the most undervalued sectors of the market. To a
degree this is always true, but we think it is particularly true today. There
are many great companies in out-of-favor industry groups that are trading at
bargain basement prices. Yields for beaten-down cyclical companies are quite
high. More importantly, while technology stocks are valued as if nothing can
possibly go wrong, economically sensitive stocks are priced as if nothing can go
right. We believe technology companies may struggle to meet rising and perhaps
overly optimistic earnings expectations and that cyclical company earnings may
continue to surprise on the upside. At some point, we think this will translate
into materially higher prices for cyclical stocks.
3
<PAGE>
In general, financial services stocks (banks, brokerage firms, asset
management and credit card companies) struggled this quarter, reflecting
investors' fear that higher interest rates will restrain earnings. We believe
earnings for well-positioned companies in the financial services sector will
also be better than many investors anticipate. Finally, after recent years'
exceptional performance, telecommunications and media stocks have stalled. Many
of these stocks had become somewhat extended and deserved a breather. However,
their long term outlook remains bright. The Interactive Age is still in its
infancy. Going forward, quality distribution (wired and wireless
telecommunications systems, and cable television and broadcast networks), and
information and entertainment content (publishers, and movie, television, and
recorded music companies) will be among the world's most prized assets. Ongoing
consolidation in the telecommunications and media industries should help these
stocks regain momentum in the year ahead.
Utility stocks, the meat and potatoes of most equity income funds, have
performed well this year, as is evidenced by the Dow Jones Utilities Average's
10.71% first half 2000 gain. This is also more than just a yield story. The
deregulation of the electric and gas utilities industries is creating two kinds
of investment opportunities: growth through investing in larger utilities
expanding their franchises via acquisition, and value through investing in the
smaller utilities companies that are being targeted. The hunters should perform
well, but we are biased toward the hunted that we think are likely to receive
premium bids.
WINNERS AND LOSERS
Our two best performers this quarter, Pioneer Group and Bestfoods, both
received takeover bids. This is no accident. We focus on industry groups
undergoing consolidation and on undervalued companies we believe are the most
likely targets. We point out that high yields are often the result of the low
valuations that attract corporate acquirers and leveraged buyout groups. The
rest of our top performers list come from industry groups ranging from household
products (Avon Products, Clorox), publishing (McGraw-Hill), environmental
services (Waste Management), aerospace (Northrop), pharmaceuticals (Johnson &
Johnson), and entertainment (Viacom).
In general, our food company holdings, which we highlighted as appetizing
values in our Semi-Annual Report, performed well. H.J. Heinz, Coca Cola, Quaker
Oats, Albertson's and Diageo all produced double-digit returns. Regional Bell
Operating Companies U.S. West and SBC Communications also posted solid gains.
Industrial cyclicals including Trinity Industries, Dana Corp., General
Motors, and Honeywell International were among our poorest performers in a
market that disdained economically sensitive companies. European
telecommunications companies Deutsche Telekom, France Telecom, and British
Telecomm also got hit hard. Financial services stocks such as J.P Morgan,
SunTrust Bank, Chase Manhattan, and First Union Corp. disappointed.
CHEMICAL DEPENDENCE
Specialty chemicals companies are economically sensitive, but do not
generally experience the pricing pressure that could wipe out the earnings of
commodity chemical producers during economic downturns. That has not stopped
investors from dumping these stocks, which we feel are now among the most
attractive bargains in the stock market.
4
<PAGE>
Recently, we have been adding a few names to the portfolio and increasing
our positions in existing specialty chemicals stock holdings. We believe
earnings will be better than expected and that the severely wounded specialty
chemicals stocks will attract a few predators. Lilly Industries, a specialty
coatings manufacturer, has just received a premium bid from Valspar. Putting a
comparable Private Market Value on portfolio holdings such as Ferro indicates
exceptional value. Dexter is up for sale. Great Lakes Chemical may follow. So,
we may soon have another test case of the real world economic value of specialty
chemicals companies.
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.
BP AMOCO PLC (BPA - $56.5625 - NYSE; BPA - $9.59 - LONDON STOCK EXCHANGE) is
Britain's largest company and one of the world's top three oil companies on the
basis of market capitalization and proved reserves. BPA's main businesses are
Exploration and Production, Refining and Marketing, and Chemicals, whose
activities include petrochemicals manufacturing and marketing. The company
provides high quality technological support for all its businesses through its
research and engineering activities.
DEUTSCHE BANK AG (DBKG.F - $82.50 - FRANKFURT STOCK EXCHANGE) is the leading
publicly quoted bank in Germany. The bank is organized into five self-contained
Group Divisions providing services and products to over seven million customers
retail and private banking, corporate and real estate, Global Corporates and
Institutions, Asset Management and Global Technology and Services. Deutsche Bank
has a strong market position in Germany, and is expanding throughout Europe - it
is now the biggest foreign bank in Italy and Spain. Deutsche Bank's presence in
the U.S. has been expanded by the acquisition of Bankers Trust.
EASTERN ENTERPRISES (EFU - $63.00 - NYSE) owns and operates Boston Gas Company,
Colonial Gas Company, Essex Gas Company, Midland Enterprises, and ServicEdge
Partners. Shareholders of EnergyNorth (EI - $59.25 - NYSE) have approved a
proposed merger agreement with Eastern. Eastern will then serve over 800,000
residential, commercial and industrial natural gas customers in Massachusetts
and New Hampshire. 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 2,300 barges and 87 towboats.
ServicEdge is the largest unregulated provider of residential heating,
ventilation and air conditioning ("HVAC") equipment installation and service to
customers in Massachusetts. In November, Eastern announced it had entered into
an agreement to be acquired by KeySpan Corp. (KSE - $30.75 - NYSE) for $64.00
per share in cash.
EXXON MOBIL CORP. (XOM - $78.50 - NYSE), headquartered in Irving, Texas, is a
worldwide leader in the petroleum and petrochemical businesses. Exxon Mobil
Corp. conducts business in nearly 200 countries around the world, engaging in
the exploration and production of oil and gas, manufacturing and marketing of
fuels, lubes and chemicals, electric power generation or coal and minerals
operations. Exxon Mobil's global upstream and chemical companies and its coal
and minerals company are headquartered in Houston, Texas.
5
<PAGE>
GTE CORP. (GTE - $62.25 - NYSE), following its merger with Bell Atlantic (BEL -
$50.8125 - NYSE), has been renamed Verizon Communications (VZ - NYSE). VZ
becomes the largest domestic provider of wireline communications, with 95
million access line equivalents. Verizon is also the largest domestic wireless
carrier, with about 25 million subscribers, and is one of the world's largest
and most successful wireless companies, with domestic operations in 24 states
and international investments in Latin America, Europe and the Pacific Rim. In
early April, BEL, GTE and Vodafone AirTouch (VOD - $41.4375 - NYSE) finished
combining their U.S. wireless operations into a joint venture called Verizon
Wireless, which will reach more than 90% of the U.S. population. VZ is also a
global leader in publishing directories and in providing Internet-based shopping
guides, website creation and hosting, and other electronic commerce services.
The company has a mix of mature and start-up communications businesses in Europe
and the Pacific Rim, including a 24.9% stake in Telecom Corp. of New Zealand and
an 18.5% stake in Cable & Wireless Communications.
MARK IV INDUSTRIES INC. (IV - $20.875 - NYSE) is a diversified manufacturer of a
broad range of proprietary and other power and fluid transfer products and
systems that primarily serve industrial and automotive markets. The company
classifies its operations into two business segments. Mark IV Industrial
includes the design, manufacture and distribution of power and fluid management
systems and components for industrial original equipment manufacturers ("OEM")
and distribution markets worldwide. Mark IV Automotive includes the design,
manufacture and distribution of power transmission, fuel, and fluid handling
systems and components, and filters and filtration systems, for the global
automotive aftermarket and OEM market. BC Partners, a leading European private
equity firm, has reached an agreement providing for the acquisition of Mark IV
for $23.00 cash per share.
NIAGARA MOHAWK HOLDINGS INC. (NMK - $13.9375 - NYSE) is the holding company of
Niagara Mohawk Power Corp., which is primarily a regulated electric and gas
utility, and Opinac North America, which is mainly involved in unregulated
activities in the energy business. Opinac and its subsidiaries consist of an
energy marketing company, and have investments in energy related and services
businesses, a development stage telecommunications company (Telergy Inc.), and a
research and development company (EVonyx, Inc.) that has developed and intends
to commercialize new fuel cell and battery technology. Niagara Mohawk provides
electric service, and sells, distributes, and transports natural gas to
approximately 1.6 million electric and 540,000 gas customers in areas of
central, northern and western New York State.
PHARMACIA CORP. (PHA - 51.6875 - NYSE), the result of the merger between
Pharmacia & Upjohn and Monsanto Company in April 2000, is a global group engaged
in the research, development, manufacture and sale of pharmaceutical and
healthcare products, including both prescription and non-prescription products
for humans and animals, bulk pharmaceuticals and contract manufacturing. The
company's major pharmaceutical brands include Celebrex, Xalatan, Ambien,
Nicorette and Rogaine. Through its Monsanto subsidiary, the company is engaged
in the research, development, manufacture and sale of various agricultural
products, including: Roundup herbicide; biotechnology products that produce
crops which are tolerant to Roundup herbicide and protect crops from certain
viruses and insect pests; seeds, including corn, soybeans and wheat; and Posilac
bovine somatotrophin to increase milk production in dairy cows.
6
<PAGE>
MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment for regular accounts is $1,000.
There are no subsequent investment minimums. No initial minimum is required for
those establishing an Automatic Investment Plan. Additionally, the Fund and
other Gabelli Funds are available through the no-transaction fee programs at
many major brokerage firms.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage 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].
IN CONCLUSION
High yielding stocks provide current income and portfolio stability. At
currently depressed levels, we also believe they have excellent capital
appreciation potential. Equity/income investors may be in a win/win situation.
They are receiving attractive dividends from quality companies in a range of
out-of-favor industries. If technology stocks stumble and investors seek safety
and better value elsewhere, high yielding stocks can be excellent performers in
the years ahead.
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/ SIGNATURE
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
August 14, 2000
--------------------------------------------------------------
TOP TEN HOLDINGS
JUNE 30, 2000
-------------
Eastern Enterprises Pharmacia Corp.
BP Amoco plc GTE Corp.
Exxon Mobil Corp. Texaco Inc.
Deutsche Bank AG Mark IV Industries Inc.
Gallaher Group plc Niagara Mohawk Holdings 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.
7
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ -------
COMMON STOCKS -- 87.2%
AEROSPACE -- 1.9%
20,000 Boeing Co. ..................................... $ 836,250
10,000 Northrop Grumman Corp. ......................... 662,500
2,000 Raytheon Co., Cl. A ............................ 38,875
2,000 Rockwell International Corp. ................... 63,000
----------
1,600,625
----------
AUTOMOTIVE -- 0.9%
4,500 Ford Motor Co. ................................. 193,500
9,401 General Motors Corp. ........................... 545,846
----------
739,346
----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 2.7%
31,000 Dana Corp. ..................................... 656,812
6,000 Ethyl Corp. .................................... 15,000
25,000 GenCorp Inc. ................................... 200,000
65,000 Genuine Parts Co. .............................. 1,300,000
6,000 Meritor Automotive Inc. ........................ 66,000
8,000 Tenneco Automotive Inc. ........................ 42,000
589 Visteon Corp.+ ................................. 7,144
----------
2,286,956
----------
AVIATION: PARTS AND SERVICES -- 1.9%
25,000 Barnes Group Inc. .............................. 407,812
17,000 Curtiss-Wright Corp. ........................... 632,187
9,000 United Technologies Corp. ...................... 529,875
----------
1,569,874
----------
BROADCASTING -- 0.2%
17,000 Granite Broadcasting Corp.+ .................... 125,375
----------
BUSINESS SERVICES -- 0.3%
7,000 Donnelley (R.H.) Corp. ......................... 135,625
500 Imation Corp.+ ................................. 14,687
2,000 IMS Health Inc. ................................ 36,000
1,500 Landauer Inc. .................................. 23,344
----------
209,656
----------
COMMUNICATIONS EQUIPMENT -- 1.3%
1,500 Motorola Inc. .................................. 43,594
15,000 Nortel Networks Corp. .......................... 1,023,750
----------
1,067,344
----------
COMPUTER HARDWARE -- 0.1%
500 International Business Machines Corp. .......... 54,781
2,000 Xerox Corp. .................................... 41,500
----------
96,281
----------
CONSUMER PRODUCTS -- 6.9%
2,000 Avon Products Inc. ............................. 89,000
4,000 Clorox Co. ..................................... 179,250
9,000 Eastman Kodak Co. .............................. 535,500
MARKET
SHARES VALUE
------ -------
1,666 Energizer Holdings Inc.+ ....................... $ 30,404
12,000 Fortune Brands Inc. ............................ 276,750
75,000 Gallaher Group plc, ADR ........................ 1,607,812
21,000 Gillette Co. ................................... 733,687
10,000 Maytag Corp. ................................... 368,750
26,000 National Presto Industries Inc. ................ 799,500
37,000 Philip Morris Companies Inc. ................... 982,812
5,000 Ralston Purina Group ........................... 99,687
3,000 Rothmans Inc. .................................. 36,993
----------
5,740,145
----------
CONSUMER SERVICES -- 0.5%
30,000 Rollins Inc. ................................... 446,250
----------
DIVERSIFIED INDUSTRIAL -- 2.2%
2,000 Cooper Industries Inc. ......................... 65,125
29,000 GATX Corp. ..................................... 986,000
3,000 General Electric Co. ........................... 159,000
2,500 Honeywell Inc. ................................. 84,219
3,000 Minnesota Mining & Manufacturing Co. ........... 247,500
18,000 Thomas Industries Inc. ......................... 318,375
1,000 Trinity Industries Inc. ........................ 18,500
----------
1,878,719
----------
ELECTRONICS -- 0.6%
27,500 Thomas & Betts Corp. ........................... 525,937
----------
ENERGY AND UTILITIES: ELECTRIC -- 5.8%
6,600 American Electric Power Company Inc. ........... 195,525
10,000 CMP Group Inc. ................................. 293,125
35,000 Conectiv Inc. .................................. 544,687
105,000 El Paso Electric Co.+ .......................... 1,174,687
15,000 Florida Progress Corp. ......................... 703,125
8,000 FPL Group Inc. ................................. 396,000
95,000 Niagara Mohawk Holdings Inc. ................... 1,324,062
8,000 St. Joseph Light & Power Co. ................... 168,000
2,000 United Illuminating Co. ........................ 87,500
----------
4,886,711
----------
ENERGY AND UTILITIES: INTEGRATED -- 3.8%
16,000 Burlington Resources Inc. ...................... 612,000
12,000 CH Energy Group Inc. ........................... 407,250
22,000 Energy East Corp. .............................. 419,375
20,000 MCN Energy Group Inc. .......................... 427,500
26,000 NSTAR .......................................... 1,057,875
5,000 Public Service Enterprise Group Inc. ........... 173,125
3,000 ScottishPower plc, ADR ......................... 100,312
----------
3,197,437
----------
ENERGY AND UTILITIES: NATURAL GAS -- 10.1%
55,000 AGL Resources Inc. ............................. 876,562
68,000 Eastern Enterprises ............................ 4,284,000
10,000 Fall River Gas Co. ............................. 220,000
8
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ -------
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES: NATURAL GAS (CONTINUED)
25,000 KeySpan Corp. .................................... $ 768,750
4,000 Peoples Energy Corp. ............................. 129,500
13,000 Piedmont Natural Gas Co. Inc. .................... 345,312
4,000 Providence Energy Corp. .......................... 162,000
3,150 Southern Union Co.+ .............................. 49,809
75,000 Southwest Gas Corp. .............................. 1,312,500
4,000 Vastar Resources Inc. ............................ 328,500
----------
8,476,933
----------
ENERGY AND UTILITIES: OIL -- 9.0%
42,000 BP Amoco plc, ADR ................................ 2,375,625
10,000 Chevron Corp. .................................... 848,125
4,000 Conoco Inc., Cl. A ............................... 88,000
58,000 ENI SpA .......................................... 334,468
22,000 Exxon Mobil Corp. ................................ 1,727,000
28,000 Texaco Inc. ...................................... 1,491,000
8,759 Total Petroleum of North America Ltd., ADR ....... 672,801
----------
7,537,019
----------
ENERGY AND UTILITIES: SERVICES -- 0.9%
16,000 Halliburton Co. .................................. 755,000
----------
ENERGY AND UTILITIES: WATER -- 1.5%
35,000 United Water Resources Inc. ...................... 1,220,625
----------
ENTERTAINMENT -- 0.2%
3,000 Viacom Inc., Cl. A+ .............................. 205,125
----------
ENVIRONMENTAL SERVICES -- 0.9%
40,000 Waste Management Inc. ............................ 760,000
----------
EQUIPMENT AND SUPPLIES -- 2.2%
3,000 Caterpillar Inc. ................................. 101,625
24,000 Deere & Co. ...................................... 888,000
1,000 Ingersoll-Rand Co. ............................... 40,250
15,000 Mark IV Industries Inc. .......................... 313,125
1,500 Minerals Technologies Inc. ....................... 69,000
18,000 Smith (A.O.) Corp. ............................... 376,875
1,000 Union Carbide Corp. .............................. 49,500
----------
1,838,375
----------
FINANCIAL SERVICES -- 12.3%
5,000 Aegon NV, ADR .................................... 178,125
3,000 American Express Co. ............................. 156,375
11,000 Argonaut Group Inc. .............................. 188,375
3,000 Banco Popular Espanol SA ......................... 92,802
18,000 Banco Santander Central Hispano SA, ADR .......... 186,750
2,000 Banco Santiago ................................... 35,750
9,052 Bank of America Corp. ............................ 389,236
25,000 Bank One Corp. ................................... 664,062
3,000 Banque Nationale de Paris ........................ 288,716
MARKET
SHARES VALUE
------ -------
10,000 Block (H&R) Inc. ................................. $ 323,750
6,000 Chase Manhattan Corp. ............................ 276,375
31,000 Commerzbank AG, ADR .............................. 1,092,750
20,000 Deutsche Bank AG, ADR ............................ 1,650,000
3,000 Dresdner Bank AG, ADR ............................ 123,449
4,000 Dun & Bradstreet Corp. ........................... 114,500
3,000 Fannie Mae ....................................... 156,563
2,000 Fidelity National Corp. .......................... 12,250
38,000 First Union Corp. ................................ 942,875
20,000 Mellon Financial Corp. ........................... 728,750
1,000 Merrill Lynch & Co. Inc. ......................... 115,000
2,000 MONY Group Inc. .................................. 67,625
6,000 Morgan (J.P.) & Co. Inc. ......................... 660,750
3,000 Municipal Mortgage & Equity LLC .................. 60,375
6,000 Northern Trust Corp. ............................. 390,375
3,000 Pioneer Group Inc.+ .............................. 127,125
5,141 Schwab (Charles) Corp. ........................... 172,849
8,000 St. Paul Companies Inc. .......................... 273,000
17,000 Sterling Bancorp ................................. 267,750
12,000 SunTrust Banks Inc. .............................. 548,250
1,500 Waddell & Reed Financial Inc., Cl. A ............. 49,219
----------
10,333,771
----------
FOOD AND BEVERAGE -- 3.9%
15,000 Bestfoods Inc. ................................... 1,038,750
20,000 Coca-Cola Amatil Ltd., ADR ....................... 77,747
12,000 Coca-Cola Beverages plc+ ......................... 18,793
3,000 Coca-Cola Co. .................................... 172,313
3,000 Corn Products International Inc. ................. 79,500
25,000 Diageo plc, ADR .................................. 889,063
10,000 Heinz (H.J.) Co. ................................. 437,500
1,000 Hershey Foods Corp. .............................. 48,500
15,000 Kellogg Co. ...................................... 446,250
1,000 Quaker Oats Co. .................................. 75,125
----------
3,283,541
----------
HEALTH CARE -- 3.2%
8,000 Aventis SA, ADR .................................. 580,500
3,000 Bristol-Myers Squibb Co. ......................... 174,750
1,000 Glaxo Wellcome plc, ADR .......................... 57,813
2,000 Johnson & Johnson ................................ 203,750
30,000 Pharmacia Corp. .................................. 1,550,625
2,000 SmithKline Beecham plc, ADR ...................... 130,375
----------
2,697,813
----------
METALS AND MINING -- 0.2%
15,000 Freeport-McMoRan Copper
& Gold Inc., Cl. B+ ............................ 138,750
----------
PAPER AND FOREST PRODUCTS -- 0.3%
34,000 Pactiv Corp.+ .................................... 267,750
----------
9
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ -------
COMMON STOCKS (CONTINUED)
PUBLISHING -- 2.0%
4,000 Dow Jones & Co. Inc. ........................... $ 293,000
3,000 Harcourt General Inc. .......................... 163,125
5,000 McGraw-Hill Companies Inc. ..................... 270,000
25,000 Reader's Digest Association Inc., Cl. B ........ 914,063
-----------
1,640,188
-----------
REAL ESTATE -- 0.0%
2,500 Griffin Land & Nurseries Inc.+ ................. 30,781
-----------
RETAIL -- 0.9%
20,000 Albertson's Inc. ............................... 665,000
2,000 Sears, Roebuck & Co. ........................... 65,250
-----------
730,250
-----------
SATELLITE -- 0.2%
5,000 COMSAT Corp. ................................... 123,438
300 General Motors Corp., Cl. H+ ................... 26,325
-----------
149,763
-----------
SPECIALTY CHEMICALS -- 1.5%
1,200 Celenese AG .................................... 23,400
5,000 Dexter Corp. ................................... 240,000
2,000 du Pont de Nemours (E.I.) & Co. ................ 87,500
7,500 Ferro Corp. .................................... 157,500
8,000 Grace (W.R.) & Co.+ ............................ 97,000
17,000 Great Lakes Chemical Corp. ..................... 535,500
1,500 IMC Global Inc. ................................ 19,500
20,000 Omnova Solutions Inc. .......................... 125,000
-----------
1,285,400
-----------
TELECOMMUNICATIONS -- 8.8%
1,500 ALLTEL Corp. ................................... 92,906
5,750 AT&T Corp. ..................................... 181,844
11,000 BCE Inc. ....................................... 261,938
7,108 Bell Atlantic Corp. ............................ 361,175
1,500 British Telecommunications plc, ADR ............ 198,375
19,000 Cable & Wireless plc, ADR ...................... 951,188
10,000 Cable & Wireless HKT Ltd., ADR ................. 215,000
44,000 Citizens Communications Co. .................... 759,000
7,000 Deutsche Telekom AG, ADR+ ...................... 397,250
1,000 France Telecom SA, ADR ......................... 142,500
24,000 GTE Corp. ...................................... 1,494,000
28,000 SBC Communications Inc. ........................ 1,211,000
1,000 Telecom Italia SpA, ADR ........................ 137,563
7,000 Telefonica SA, ADR ............................. 448,438
13,500 TELUS Corp. .................................... 360,304
4,500 TELUS Corp., Non-Voting ........................ 119,949
1,000 US West Inc. ................................... 85,750
-----------
7,418,180
-----------
TOTAL COMMON STOCKS ............................ 73,139,920
-----------
MARKET
SHARES VALUE
------ -------
PREFERRED STOCKS -- 3.5%
AVIATION: PARTS AND SERVICES -- 0.2%
2,000 Coltec Capital Trust,
5.25% Cv. Pfd. ............................... $ 82,625
3,000 Coltec Capital Trust,
5.25% Cv. Pfd. (b) ........................... 123,938
-----------
DIVERSIFIED INDUSTRIAL -- 0.0%
2,000 WHX Corp.,
$3.75 Cv. Pfd., Ser. B ....................... 34,500
-----------
ENTERTAINMENT -- 0.0%
1,000 Metromedia International Group Inc.,
7.25% Cv. Pfd. ............................... 28,000
-----------
EQUIPMENT AND SUPPLIES -- 0.6%
6,000 Sequa Corp.,
$5.00 Cv. Pfd. ............................... 475,500
-----------
METALS AND MINING -- 0.1%
5,000 Freeport-McMoRan Copper & Gold Inc.,
7.00% Cv. Pfd. ............................... 66,563
-----------
PAPER AND FOREST PRODUCTS -- 1.2%
20,000 Sealed Air Corp.,
$2.00 Cv. Pfd., Ser. A ....................... 1,012,500
-----------
TELECOMMUNICATIONS -- 1.4%
17,000 Citizens Communications Co.,
5.00% Cv. Pfd. ............................... 1,145,375
-----------
TOTAL PREFERRED STOCKS ......................... 2,969,001
-----------
PRINCIPAL
AMOUNT
---------
CORPORATE BONDS -- 5.0%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.6%
$ 1,000,000 Standard Motor Products Inc.,
Sub. Deb. Cv.
6.75%, 07/15/09 .............................. 517,500
-----------
BUSINESS SERVICES -- 0.1%
100,000 BBN Corp.,
Sub. Deb. Cv.
6.00%, 04/01/12 (a) .......................... 96,750
-----------
CONSUMER PRODUCTS -- 1.3%
3,600,000 Pillowtex Corp.,
Sub. Deb. Cv.
6.00%, 03/15/12 .............................. 1,116,000
-----------
ENTERTAINMENT -- 0.2%
150,000 USA Networks Inc.,
Sub. Deb. Cv.
7.00%, 07/01/03 .............................. 146,063
-----------
10
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
CORPORATE BONDS -- 5.0%
EQUIPMENT AND SUPPLIES -- 2.1%
$ 334,000 Kollmorgen Corp.,
Sub. Deb. Cv.
8.75%, 05/01/09 ................................ $ 332,748
1,500,000 Mark IV Industries Inc.,
Sub. Deb. Cv.
4.75%, 11/01/04 ................................ 1,393,125
-----------
1,725,873
-----------
HOTELS AND GAMING -- 0.4%
400,000 Hilton Hotels Corp.,
Sub. Deb. Cv.
5.00%, 05/15/06 ................................ 316,000
-----------
PUBLISHING -- 0.3%
100,000 News America Holdings Inc.,
Sub. Deb. Cv.
Zero Coupon, 03/31/02 .......................... 232,000
-----------
TOTAL CORPORATE BONDS ........................... 4,150,186
-----------
U.S. GOVERNMENT OBLIGATIONS -- 4.2%
3,562,000 U.S. Treasury Bills,
5.60% to 6.02%++,
due 07/06/00 to 09/28/00 ....................... 3,535,999
-----------
MARKET
VALUE
------
TOTAL
INVESTMENTS -- 99.9%
(Cost $69,775,082) $83,795,106
OTHER ASSETS AND
LIABILITIES (NET) -- 0.1% 64,217
-----------
NET ASSETS -- 100.0%
(5,287,322 shares outstanding) $83,859,323
===========
------------------------
PRINCIPAL SETTLEMENT NET UNREALIZED
AMOUNT DATE DEPRECIATION
------ ---------- --------------
FORWARD FOREIGN EXCHANGE CONTRACTS
2,808,830(c) Deliver Hong Kong Dollars
in exchange for
USD 360,534 ................... 08/24/00 $(3,948)
========
------------------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At June 30,
2000, the market value of Rule 144A securities amounted to $123,938 or
0.1% of total net assets.
(c) Principal amount denoted in Hong Kong Dollars.
+ Non-income producing
security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
USD - U.S. Dollars.
11
<PAGE>
Gabelli Equity Series Funds, Inc.
THE GABELLI EQUITY INCOME FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
BOARD OF DIRECTORS
Mario J. Gabelli, CFA Robert J. Morrissey
CHAIRMAN AND CHIEF ATTORNEY-AT-LAW
INVESTMENT OFFICER MORRISSEY, HAWKINS & LYNCH
GABELLI ASSET MANAGEMENT INC.
Felix J. Christiana Karl Otto Pohl
FORMER SENIOR VICE PRESIDENT FORMER PRESIDENT
DOLLAR DRY DOCK SAVINGS BANK DEUTSCHE BUNDESBANK
Anthony J. Colavita Anthony R. Pustorino
ATTORNEY-AT-LAW CERTIFIED PUBLIC ACCOUNTANT
ANTHONY J. COLAVITA, P.C. PROFESSOR, PACE UNIVERSITY
Vincent D. Enright Anthonie C. van Ekris
FORMER SENIOR VICE PRESIDENT MANAGING DIRECTOR
AND CHIEF FINANCIAL OFFICER BALMAC INTERNATIONAL, INC.
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.
--------------------------------------------------------------------------------
GAB444Q200SR
[Photo of Mario J.Gabelli omitted]
THE
GABELLI
EQUITY
INCOME
FUND
THIRD QUARTER REPORT
JUNE 30, 2000
