THE GABELLI EQUITY INCOME FUND
ANNUAL REPORT
SEPTEMBER 30, 2000(A)
TO OUR SHAREHOLDERS,
Higher yielding stocks continued to outperform in the third quarter of
2000. Fueled by ongoing consolidation in the industry, utilities were among the
best performing stocks in the market. Financial services stocks rebounded as
market interest rates (bond yields) declined. Aerospace and aerospace component
stocks also took off as the Asian recovery reinvigorated demand. Once again, the
defensive characteristics of higher yielding equities were clearly demonstrated
in a volatile market environment.
INVESTMENT PERFORMANCE
For the quarter ended September 30, 2000, The Gabelli Equity Income Fund's
(the "Fund") net asset value rose 3.84%, after adjusting for the $0.12 per share
dividend paid on September 28, 2000. The Standard & Poor's ("S&P") 500 Index
declined 0.97% and the Lipper Equity Income Fund Average rose 5.94% 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 8.41% over the
trailing twelve-month period. The S&P 500 Index and Lipper Equity Income Fund
Average rose 13.27% and 8.21%, respectively, over the same twelve-month period.
For the five-year period ended September 30, 2000, the Fund's total return
averaged 15.89% annually, versus average annual total returns of 21.68% and
13.56% for the S&P 500 Index and Lipper Equity Income Fund Average,
respectively. Since inception on January 2, 1992 through September 30, 2000, the
Fund had a cumulative total return of 228.40%, which equates to an average
annual total return of 14.55%.
COMMENTARY
THE FIVE E'S
In the third quarter of 2000, investors focused on the five E's--Energy,
the Euro, the Economy, Earnings, and the Election. We will share our perspective
on the five E's and offer an opinion on how they may impact the market going
forward.
[GRAPHIC OMITTED]
PYRAMID TEXT AS FOLLOWS:
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
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(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 $16.35 -- --
Total Return 0.8% 0.8% 3.8% -- --
--------------------------------------------------------------------------------------------------------------
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 - September 30, 2000 (a)
-----------------------------------------------
1 Year ...................................... 8.41%
5 Year ...................................... 15.89%
Life of Fund (b) ............................ 14.55%
------------------------------------------------------------
--------------------------------------------------------------------------------
(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.
--------------------------------------------------------------------------------
ENERGY
The price of oil hit a ten-year high in the third quarter. Gasoline prices
exceeded $2.00 per gallon in many areas of the country this summer and home
heating costs are expected to rise by 50% this winter. Rising oil prices have
already sparked demonstrations in Europe and energy has become a political issue
in the U.S. as well. Although OPEC has increased production and is publicly
targeting a $25 to $28 per barrel price, global inventories are still tight and
the price of oil remains well over $30 per barrel. The U.S. is attempting to
influence the world energy market by dipping into its strategic oil reserves.
However, this is not likely to have a meaningful near term impact on oil prices.
Treasury Secretary Lawrence Summers recently characterized high oil prices as
"the biggest cloud in the relatively blue sky" of a fundamentally sound global
economy. We agree.
2
<PAGE>
---------------------------------------------------
Dividend History
---------------------------------------------------
Rate Reinvestment
Payment (ex) Date Per Share Price
----------------- --------- -----
September 28, 2000 $0.12 $16.38
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
---------------------------------------------------
We do not anticipate a repeat of the 1973-74 oil shock, which sent the
global economy into recession and sparked the last great bear market in stocks.
After the Gulf War, we doubt Middle East oil producers, particularly the
Saudi's, would risk alienating their protectors. Only in our worst nightmares do
we consider the impact that $50 per barrel of oil would have on today's equity
markets. Our best guess is that oil prices will decline from their peaks, but
remain high enough to keep pressure on global economies.
THE EURO
[GRAPHIC OMITTED]
EURO VS. U.S. DOLLAR
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
1999 2000
------ ------
Jan 1.1874 1.0155
1.1761 1.0309
1.1637 1.0335
1.1675 1.0324
1.1556 1.0294
1.1535 1.0252
1.1555 1.0322
1.1698 1.0281
1.1687 1.0270
1.1592 1.0128
1.1603 1.0121
1.1604 1.0115
1.1574 1.0133
1.1578 1.0100
1.1583 1.0019
1.1568 1.0041
1.1575 1.0011
1.1478 0.9890
1.1393 0.9765
1.1374 0.9757
Feb 1.1303 0.9731
1.1328 0.9768
1.1338 0.9887
1.1308 0.9760
1.1283 0.9783
1.1297 0.9862
1.1303 0.9914
1.1330 0.9865
1.1303 0.9847
1.1283 0.9783
1.1247 0.9834
1.1191 0.9842
1.1231 0.9863
1.1223 0.9850
1.1072 1.0060
1.1037 1.0017
1.0994 0.9931
1.0975 0.9763
1.1069 0.9669
1.0993 0.9643
1.0891 0.9700
Mar 1.0929 0.9619
1.0887 0.9618
1.0825 0.9603
1.0843 0.9560
1.0901 0.9576
1.0873 0.9684
1.0961 0.9659
1.0917 0.9648
1.0948 0.9644
1.0930 0.9696
1.0916 0.9710
1.1017 0.9694
1.0993 0.9710
1.0925 0.9703
1.0918 0.9608
1.0919 0.9691
1.0924 0.9724
1.0872 0.9645
1.0745 0.9614
1.0718 0.9524
1.0734 0.9594
1.0809 0.9574
1.0780 0.9560
Apr 1.0707 0.9588
1.0842 0.9647
1.0785 0.9580
1.0842 0.9590
1.0785 0.9588
1.0843 0.9591
1.0780 0.9551
1.0780 0.9524
1.0718 0.9564
1.0690 0.9550
1.0610 0.9477
1.0631 0.9369
1.0614 0.9376
1.0599 0.9379
1.0633 0.9396
1.0590 0.9265
1.0649 0.9217
1.0618 0.9083
1.0597 0.9089
1.0566 0.9120
1.0570 0.9068
1.0594 0.8891
May 1.0725 0.8907
1.0779 0.8953
1.0785 0.8950
1.0790 0.9023
1.0723 0.9097
1.0667 0.9021
1.0624 0.9080
1.0652 0.9138
1.0672 0.9053
1.0672 0.8921
1.0643 0.8952
1.0632 0.8946
1.0575 0.9036
1.0589 0.9032
1.0469 0.9096
1.0439 0.9072
1.0426 0.9310
1.0436 0.9314
1.0446 0.9328
1.0360 0.9307
1.0347 0.9432
1.0330 0.9471
Jun 1.0298 0.9570
1.0442 0.9600
1.0451 0.9548
1.0479 0.9526
1.0519 0.9544
1.0418 0.9619
1.0420 0.9590
1.0303 0.9530
1.0329 0.9648
1.0368 0.9622
1.0324 0.9557
1.0322 0.9455
1.0320 0.9398
1.0371 0.9358
1.0443 0.9382
1.0372 0.9444
1.0339 0.9444
1.0300 0.9515
1.0248 0.9545
1.0224 0.9526
1.0252 0.9548
1.0221 0.9527
Jul 1.0200 0.9484
1.0187 0.9521
1.0138 0.9497
1.0179 0.9401
1.0216 0.9339
1.0221 0.9374
1.0204 0.9351
1.0204 0.9322
1.0418 0.9237
1.0526 0.9292
1.0509 0.9343
1.0501 0.9314
1.0653 0.9391
1.0628 0.9413
1.0645 0.9331
1.0716 0.9246
1.0696 0.9266
1.0680 0.9228
1.0769 0.9137
1.0794 0.9042
1.0771 0.9075
1.0712 0.9105
Aug 1.0752 0.9019
1.0664 0.8991
1.0635 0.9077
1.0570 0.9046
1.0559 0.9037
1.0524 0.9135
1.0508 0.9143
1.0644 0.9152
1.0655 0.9068
1.0553 0.9027
1.0502 0.8965
1.0468 0.8967
1.0440 0.9028
1.0464 0.9024
1.0449 0.9002
1.0581 0.8966
1.0583 0.8924
1.0691 0.8878
1.0607 0.8993
1.0582 0.8876
1.0591 0.8702
1.0541 0.8740
Sep 1.0401 0.8664
1.0401 0.8624
1.0404 0.8596
1.0388 0.8640
1.0417 0.8617
1.0401 0.8572
1.0409 0.8527
1.0462 0.8514
1.0503 0.8463
1.0416 0.8559
1.0469 0.8794
1.0432 0.8738
1.0513 0.8813
1.0616 0.8807
1.0642 0.8830
1.0717 0.8842
1.0704 0.8788
1.0692 0.8745
1.0703 0.8727
1.0722 0.8691
1.0633 0.8686
Oct 1.0737 0.8682
1.0761 0.8716
1.0803 0.8644
1.0888 0.8567
1.0864 0.8491
1.0833 0.8509
1.0764 0.8391
1.0808 0.8412
1.0679 0.8406
1.0668 0.8364
1.0578 0.8365
1.0533 0.8274
1.0519 0.8273
1.0519 0.8408
1.0495 0.8433
1.0507 0.8485
1.0487 0.8588
1.0439 0.8579
1.0402 0.8619
1.0362 0.8585
1.0402 0.8585
Nov 1.0444 0.8554
1.0315 0.8574
1.0316 0.8624
1.0319 0.8574
1.0403 0.8571
1.0306 0.8534
1.0315 0.8517
1.0329 0.8487
1.0262 0.8460
1.0177 0.8424
1.0199 0.8401
1.0138 0.8383
1.0103 0.8503
1.0077 0.8545
1.0068 0.8577
1.0026 0.8694
1.0016 0.8768
Dec 1.0253 0.8876
1.0223 0.8803
1.0262
1.0165
1.0161
1.0122
1.0068
1.0066
1.0169
1.0089
1.0068
1.0097
1.0080
1.0164
1.0132
1.0046
1.0029
1.0064
1.0070
In January 1999, the Euro was introduced with great fanfare. Originally
expected to be a strong international currency, the Euro has declined against
the Japanese yen and plummeted against the U.S. dollar.
The plunging Euro presents a threat to the U.S. economy and stock market.
Europe is by far the largest market for U.S. exports. As the dollar strengthens
against the Euro, our exports become more expensive for European and other
global consumers. Conversely, European imports become cheaper for American
consumers as well as Latin American and Asian purchasers. This is making the
already troublesome balance of trade deficit even more problematic for the U.S.
Eventually, the dollar will have to be contained. While this will help on the
balance of trade front, it may have the adverse affect of reducing foreign
investment in U.S. capital markets. This is a long-term quandary without any
easy solutions.
A secondary effect of the weak Euro--but one with a more immediate impact
on U.S. stocks--is that the earnings for U.S. multi-national companies that do a
significant amount of business in Europe are being
3
<PAGE>
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GABELLI EQUITY
INCOME FUND, THE LIPPER EQUITY INCOME FUND AVERAGE AND THE S&P 500 INDEX
<TABLE>
<CAPTION>
Gabelli Equity Lipper Equity Income
Income Fund Fund Average S&P 500 Index
-------------- -------------------- -------------
<S> <C> <C> <C>
1/2/92 $10,000 $10,000 $10,000
9/30/92 10,580 10,530 10,250
9/30/93 12,750 12,415 11,583
9/30/94 13,171 12,688 12,011
9/30/95 15,700 15,226 15,590
9/30/96 18,320 17,783 18,755
9/30/97 24,549 23,865 26,332
9/30/98 25,285 23,889 28,728
9/30/99 30,296 26,825 36,712
9/30/00 32,844 29,027 41,584
</TABLE>
penalized significantly as Euro denominated revenues and profits are
translated back into dollars for reporting purposes. This results in earnings
shortfalls for some of the U.S. market's "bellwether" stocks.
THE ECONOMY
Prior to the rapid increase in oil prices and the collapse of the Euro, the
global economic picture looked relatively bright. Asia had recovered, Europe was
gaining momentum, and after six Federal Reserve interest rate hikes, the U.S.
economy appeared headed for a soft landing. Now, this comfortable economic
scenario is threatened. Will we have a "hard landing?"
EARNINGS
The potential for slower economic growth in the U.S. has investors
questioning whether third and fourth quarter corporate 2000 earnings will meet
what may now be optimistic expectations.
Relatively high equity valuations do not leave much room for earnings
disappointments. The most richly valued sectors of the market (technology in
particular) are well above Benjamin Graham's "safety net". To wit, technology
bellwether Intel lost approximately 20% of its market value in after hours
trading following its announcement that third quarter revenues and earnings
would fall modestly short of consensus Wall Street expectations. After a sharp
decline on the opening bell the next day, stocks rebounded and ended the day
mixed. We question whether stocks will continue to be so resilient if we see
more widespread disappointments during the upcoming 2000 earnings reporting
seasons.
THE ELECTION
After this summer's relatively quiet campaigning, the political rhetoric is
heating up as we approach the November election. There are very clear
differences in the Republicans' and Democrats' positions on a number of economic
issues, in particular, what to do with the growing Federal Government budget
surplus. The Republicans favor large tax cuts. The Democrats are advocating
using the surplus to continue to reduce government debt and plug some holes in
the social safety net. The Republicans tend to view consolidation as an integral
part of global economic evolution. The Democrats are concerned that
4
<PAGE>
consolidation will reduce competition, leaving consumers vulnerable. The
Republicans do not want to interfere in the energy markets. The Democrats are
calling for action. As we write, it appears the election is up for grabs,
creating even more uncertainty in an already uncertain economic and market
environment.
OUR ADVICE
Our stock selection process is based on a "bottoms up" approach. We review
relevant economic and market issues--a list of our current hopes and fears--and
offer carefully considered opinions on their short-term investment implications.
This is a courtesy to shareholders that want to know what we are thinking. It
does not influence our investment strategy. We strive to identify and invest in
undervalued companies with favorable long-term business prospects. Over the
short-term, these stocks will be impacted by broad market trends. Over the long
term, they will be judged on their own individual merit. So, our advice to
shareholders is simply to be patient and have faith that selected businesses
purchased at reasonable prices to intrinsic value will produce long-term
rewards.
ENERGIZED BY UTILITIES
In previous shareholder letters, we have discussed the dramatic changes in
the utility industry. Since this area continues to be one of our favorite market
sectors, we want to review all the positive events occurring and comment on how
rising energy prices are likely to impact utility stocks.
The deregulation of the utility industry has spawned a wave of
consolidation. No longer monopolies, utility companies are aggressively cutting
costs to improve their competitive position. One of the fastest ways to cut
costs is by acquiring other utilities and realizing economies of scale. We have
targeted small and mid-sized utilities that we believe will attract the
attention of larger competitors. Several of our portfolio holdings have been
taken over and many more have benefited from the rising valuations inspired by
the merger and acquisition activity in the industry. We are still finding
bargains--utilities trading at low cash flow multiples and deep discounts to the
price we believe they would fetch from a potential acquirer. Appetizing yields
allow us to be patient with our utility holdings. In essence, we are being paid
well to wait until takeover lightning strikes.
Higher energy prices will have a negative impact on select utility
companies' short-term earnings. Utilities that sold their generating capacity
and are now dependent on energy wholesalers are getting squeezed. In some
instances, wholesale energy costs are higher than the prices the purchasing
utility can charge their customers. State and local utility regulators may allow
some of these utilities to recoup these losses. However, some will probably be
left out in the cold. Ironically, this may force smaller utilities into the
hands of larger competitors that either have their own generating assets or have
greater purchasing power leverage in the wholesale energy market. We believe
this will accelerate consolidation in the industry and boost valuations for many
of the "takeout" utilities in our portfolio.
INVESTMENT SCOREBOARD
Our best performers this quarter came from the financial services sector.
J.P. Morgan, which has agreed to be acquired by Chase, was at the top of our
performance list. Declining market interest rates buoyed bank stocks, and
portfolio holdings such as Bank One, Northern Trust and Bank of America also
5
<PAGE>
made our Top Ten list. As aforementioned, our utility holdings also performed
well, with stocks such as AGL Resources, Southern Union, American Electric
Power, FPL Group and El Paso Electric delivering excellent returns. Boeing took
off as orders from a recovering Asia boosted backlogs.
Our list of losers had a European flavor, with France Telecom, Deutsche
Telekom, Commerzbank and Telecom Italia declining sharply as higher energy
prices and the sinking Euro threatened economic growth on the continent. In
general, our telecommunications holdings disappointed as profit taking, a slow
down in deal activity and some high profile earnings shortfalls took a toll on
the group. We believe the outlook for quality telecommunications stocks remains
bright and that the group will rebound in the year ahead.
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 - $53.00 - NYSE) is Britain's largest company and one of the
world's top three oil companies on the basis of market capitalization and proven
reserves. The Company'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 - $82.95 - 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 - $63.8125 - NYSE) owns and operates Boston Gas
Company, Colonial Gas Company, Essex Gas Company, Midland Enterprises, and
ServicEdge Partners. Shareholders of EnergyNorth (EI - $60.6875 - 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 of 1999, Eastern announced it
had entered into an agreement to be acquired by KeySpan Corp. (KSE - $40.125 -
NYSE) for $64.00 per share in cash. The transaction is set to close sometime
later in the fourth quarter.
EXXON MOBIL CORP. (XOM - $89.125 - 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.
6
<PAGE>
GALLAHER GROUP PLC (GLH - $23.25 - NYSE) is a leading regional manufacturer of
tobacco products. The company had sales of (pound) 4.3 billion in 1999, and is
the market leader in the United Kingdom and the Republic of Ireland. Gallaher
also has operations in Western Europe, the former Soviet Union and the Pacific
Rim. GLH's brands include Benson & Hedges and Silk Cut in the U.K. and Sovereign
in the former Soviet Union. The company's ordinary shares trade on the London
Stock Exchange, and the ADRs, each of which represent four ordinary shares,
trade on the New York Stock Exchange. In August, Gallaher purchased
Liggett-Ducat, the leading cigarette manufacturer and distributor in Russia, for
$390 million.
NIAGARA MOHAWK HOLDINGS INC. (NMK - $15.75 - NYSE) is the holding company of
Niagara Mohawk Power Corporation, which is primarily a regulated electric and
gas utility, and Opinac North America, which is mainly involved in unregulated
activities in the energy business. 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. On September 5, National Grid Group plc (NGG - $43.125 - NYSE)
signed a merger agreement to acquire Niagara Mohawk in exchange for a
combination of American Depositary Shares (ADSs) and cash. Niagara Mohawk is
National Grid's third U.S. acquisition, after New England Electric System and
Eastern Utilities Association. The combination will create the ninth largest
electric utility in the U.S. with an electric customer base of approximately 3.3
million, and National Grid will own and operate the most extensive transmission
network (by miles) and be the second largest distribution business (by power
delivered) in the New England/New York market.
PHARMACIA CORP. (PHA -$60.1875 - 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. The company's core business is the development, manufacture
and sale of pharmaceutical 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.
TEXACO INC. (TX - $52.50 - NYSE) is a major international integrated oil company
which operates in more than 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 "star" is one of the most widely recognized brands on
earth. The company is well positioned to meet the world's growing demand for
energy.
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.
7
<PAGE>
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
Yields helped sustain equity income stocks in third quarter 2000's volatile
market. Should market turbulence persist, higher yielding stocks should continue
to attract investors seeking portfolio stability. As always, we will be focused
on fundamentally attractive companies with good yields and above average capital
appreciation potential.
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
November 14, 2000
----------------------------------------------------
TOP TEN HOLDINGS
SEPTEMBER 30, 2000
------------------
Eastern Enterprises Pharmacia Corp.
Bestfoods Inc. Verizon Communications
BPAmoco plc Gallaher Group plc
Texaco Inc. Deutsche Bank AG
Exxon Mobil Corp. Southwest Gas Corp.
----------------------------------------------------
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.
8
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS -- 89.0%
AEROSPACE -- 2.7%
20,000 Boeing Co. ..................... $ 777,657 $ 1,260,000
5,000 Lockheed Martin Corp. .......... 104,386 164,800
8,000 Northrop Grumman Corp. ......... 475,662 727,000
2,000 Raytheon Co., Cl. A ............ 49,835 54,750
6,000 Raytheon Co., Cl. B ............ 163,987 170,625
2,000 Rockwell International Corp. ... 41,530 60,500
----------- -----------
1,613,057 2,437,675
----------- -----------
AUTOMOTIVE -- 0.8%
4,500 Ford Motor Co. ................. 67,417 113,906
9,401 General Motors Corp. ........... 303,114 611,065
----------- -----------
370,531 724,971
----------- -----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 2.6%
4,500 ArvinMeritor Inc. .............. 121,675 66,094
31,000 Dana Corp. ..................... 1,128,173 666,500
6,000 Ethyl Corp. .................... 43,487 8,625
25,000 GenCorp Inc. ................... 228,209 203,125
65,000 Genuine Parts Co. .............. 1,736,448 1,239,062
2,500 Johnson Controls Inc. .......... 127,000 132,969
4,000 Tenneco Automotive Inc. ........ 37,073 20,750
589 Visteon Corp.+ ................. 2,808 8,909
----------- -----------
3,424,873 2,346,034
----------- -----------
AVIATION: PARTS AND SERVICES -- 2.1%
25,000 Barnes Group Inc. .............. 449,017 459,375
17,000 Curtiss-Wright Corp. ........... 249,000 802,187
9,000 United Technologies Corp. ...... 291,667 623,250
----------- -----------
989,684 1,884,812
----------- -----------
BROADCASTING -- 0.1%
17,000 Granite Broadcasting Corp.+ .... 171,154 78,094
----------- -----------
BUSINESS SERVICES -- 0.3%
7,000 Donnelley (R.H.) Corp. ......... 79,054 147,875
500 Imation Corp.+ ................. 7,150 9,312
2,000 IMS Health Inc. ................ 27,644 41,500
1,500 Landauer Inc. .................. 25,747 28,275
100 SYNAVANT Inc.+ ................. 564 669
----------- -----------
140,159 227,631
----------- -----------
COMMUNICATIONS EQUIPMENT -- 0.3%
1,500 Motorola Inc. .................. 13,631 42,375
3,000 Nortel Networks Corp. .......... 168,188 178,687
----------- -----------
181,819 221,062
----------- -----------
COMPUTER HARDWARE -- 0.1%
500 International Business
Machines Corp. ................ 6,350 56,250
4,000 Xerox Corp. .................... 77,586 60,250
----------- -----------
83,936 116,500
----------- -----------
MARKET
SHARES COST VALUE
------ ---- ------
CONSUMER PRODUCTS -- 8.9%
1,000 Avon Products Inc. ............. $ 25,237 $ 40,875
4,000 Clorox Co. ..................... 143,200 158,250
37,000 Eastman Kodak Co. .............. 1,702,854 1,512,375
2,500 Energizer Holdings Inc.+ ....... 58,376 61,250
10,000 Fortune Brands Inc. ............ 250,501 265,000
75,000 Gallaher Group plc, ADR ........ 1,614,558 1,743,750
25,000 Gillette Co. ................... 875,000 771,875
10,000 Maytag Corp. ................... 328,715 310,625
28,000 National Presto Industries Inc. 1,094,619 838,250
37,000 Philip Morris Companies Inc. ... 1,488,412 1,089,187
1,500 Procter & Gamble Co. ........... 87,731 100,500
5,000 Ralston Purina Group ........... 101,289 118,437
3,000 Rothmans Inc. .................. 44,850 33,796
50,000 Shaw Industries Inc. ........... 930,625 925,000
----------- -----------
8,745,967 7,969,170
----------- -----------
CONSUMER SERVICES -- 0.5%
30,000 Rollins Inc. ................... 580,657 444,375
----------- -----------
DIVERSIFIED INDUSTRIAL -- 2.8%
4,000 Cooper Industries Inc. ......... 149,354 141,000
29,000 GATX Corp. ..................... 871,144 1,214,375
3,000 General Electric Co. ........... 23,481 173,062
7,000 Honeywell Inc. ................. 217,510 249,375
3,000 Minnesota Mining &
Manufacturing Co. ............. 246,962 273,375
18,000 Thomas Industries Inc. ......... 141,892 364,500
3,000 Trinity Industries Inc. ........ 64,670 70,125
----------- -----------
1,715,013 2,485,812
----------- -----------
ELECTRONICS -- 0.6%
32,000 Thomas & Betts Corp. 799,205 558,000
----------- -----------
ENERGY AND UTILITIES: ELECTRIC -- 6.0%
6,600 American Electric
Power Company Inc. ............ 285,550 258,225
35,000 Conectiv Inc. .................. 655,551 625,625
105,000 El Paso Electric Co.+ .......... 834,227 1,445,850
15,000 Florida Progress Corp. ......... 657,011 794,062
7,000 FPL Group Inc. ................. 332,337 460,250
95,000 Niagara Mohawk Holdings Inc. ... 1,010,837 1,496,250
8,000 St. Joseph Light & Power Co .... 165,598 154,500
2,000 UIL Holdings Corp. ............. 91,287 102,875
----------- -----------
4,032,398 5,337,637
----------- -----------
ENERGY AND UTILITIES: INTEGRATED -- 4.1%
18,000 Burlington Resources Inc. ...... 729,865 662,625
11,000 CH Energy Group Inc. ........... 402,800 438,625
22,000 Energy East Corp. .............. 474,584 497,750
20,000 MCN Energy Group Inc. .......... 486,000 512,500
26,000 NSTAR .......................... 666,192 1,046,500
5,000 Public Service Enterprise
Group Inc. .................... 164,125 223,438
See accompanying notes to financial statements.
9
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES: INTEGRATED (CONTINUED)
5,000 RGS Energy Group Inc. .......... $ 137,423 $ 140,938
3,500 ScottishPower plc, ADR ......... 116,914 105,219
----------- -----------
3,177,903 3,627,595
----------- -----------
ENERGY AND UTILITIES: NATURAL GAS -- 8.9%
55,000 AGL Resources Inc. ............. 1,037,471 1,103,437
68,000 Eastern Enterprises ............ 2,397,636 4,339,250
8,000 KeySpan Corp. .................. 227,186 321,000
4,000 Peoples Energy Corp. ........... 138,275 133,500
13,000 Piedmont Natural Gas Co. Inc. .. 428,525 398,125
5,037 Southern Union Co. ............. 77,203 99,796
75,000 Southwest Gas Corp. ............ 1,260,525 1,570,312
----------- -----------
5,566,821 7,965,420
----------- -----------
ENERGY AND UTILITIES: OIL -- 9.3%
42,000 BP Amoco plc, ADR .............. 930,986 2,226,000
10,000 Chevron Corp. .................. 312,563 852,500
12,000 Conoco Inc., Cl. A ............. 290,925 313,500
58,000 ENI SpA ........................ 304,221 307,084
22,000 Exxon Mobil Corp. .............. 642,933 1,960,750
38,000 Texaco Inc. .................... 1,491,425 1,995,000
8,759 Total Petroleum of North
America Ltd., ADR ............. 299,550 643,239
----------- -----------
4,272,603 8,298,073
----------- -----------
ENERGY AND UTILITIES: SERVICES -- 0.9%
16,000 Halliburton Co. ................ 335,656 783,000
----------- -----------
ENTERTAINMENT -- 0.2%
3,000 Viacom Inc., Cl. A+ ............ 45,825 175,500
----------- -----------
ENVIRONMENTAL SERVICES -- 0.8%
40,000 Waste Management Inc. .......... 797,189 697,500
----------- -----------
EQUIPMENT AND SUPPLIES -- 1.6%
3,000 Caterpillar Inc. ............... 35,181 101,250
24,000 Deere & Co. .................... 382,225 798,000
5,000 Ingersoll-Rand Co. ............. 161,817 169,375
1,500 Minerals Technologies Inc. ..... 37,938 69,000
20,000 Smith (A.O.) Corp. ............. 433,200 251,250
1,000 Union Carbide Corp. ............ 16,675 37,750
----------- -----------
1,067,036 1,426,625
----------- -----------
FINANCIAL SERVICES -- 13.0%
5,000 Aegon NV, ADR .................. 89,038 185,625
3,000 American Express Co. ........... 21,218 182,250
12,000 Argonaut Group Inc. ............ 291,726 210,000
3,000 Banco Popular Espanol SA ....... 122,662 91,993
18,000 Banco Santander
Central Hispano SA, ADR ....... 64,963 196,875
2,000 Banco Santiago ................. 29,250 39,000
MARKET
SHARES COST VALUE
------ ---- ------
9,052 Bank of America Corp. .......... $ 167,810 $ 474,098
25,000 Bank One Corp. ................. 880,584 965,625
3,000 Banque Nationale de Paris ...... 212,719 264,463
10,000 Block (H&R) Inc. ............... 360,336 370,625
5,000 Chase Manhattan Corp. .......... 255,354 230,937
31,000 Commerzbank AG, ADR ............ 678,161 919,135
20,000 Deutsche Bank AG, ADR .......... 1,015,263 1,658,960
3,000 Dresdner Bank AG, ADR .......... 107,625 130,643
4,000 Dun & Bradstreet Corp. ......... 85,317 137,750
3,500 Fannie Mae ..................... 204,581 250,250
3,000 Fidelity National Corp. ........ 29,520 21,750
38,000 First Union Corp. .............. 1,520,341 1,223,125
18,000 Mellon Financial Corp. ......... 544,229 834,750
1,000 Merrill Lynch & Co. Inc. ....... 22,900 66,000
2,000 MONY Group Inc. ................ 47,000 79,750
5,000 Morgan (J.P.) & Co. Inc. ....... 309,356 816,875
3,000 Municipal Mortgage
& Equity LLC .................. 60,488 63,750
6,000 Northern Trust Corp. ........... 60,300 533,250
3,000 Pioneer Group Inc.+ ............ 66,204 131,906
3,000 Schwab (Charles) Corp. ......... 7,093 106,500
7,000 St. Paul Companies Inc. ........ 200,538 345,188
22,000 Sterling Bancorp ............... 389,741 429,000
12,000 SunTrust Banks Inc. ............ 251,737 597,750
1,500 Waddell & Reed
Financial Inc., Cl. A ......... 22,275 46,500
----------- -----------
8,118,329 11,604,323
----------- -----------
FOOD AND BEVERAGE -- 7.6%
50,000 Bestfoods Inc. ................. 3,433,091 3,637,500
22,000 Coca-Cola Amatil Ltd., ADR ..... 141,363 89,357
3,000 Coca-Cola Co. .................. 138,025 165,375
3,000 Corn Products
International Inc. ............ 86,909 68,250
33,000 Diageo plc, ADR ................ 1,257,647 1,165,312
12,000 Heinz (H.J.) Co. ............... 499,913 444,750
1,579 Hellenic Bottling Co. SA ....... 33,405 20,493
4,000 Hershey Foods Corp. ............ 181,950 216,500
14,000 Kellogg Co. .................... 414,883 338,625
10,000 Nabisco Holdings Corp.,
Cl. A ......................... 534,250 537,500
1,000 Quaker Oats Co. ................ 34,175 79,125
----------- -----------
6,755,611 6,762,787
----------- -----------
HEALTH CARE -- 3.3%
8,000 Aventis SA, ADR ................ 395,251 602,500
3,000 Bristol-Myers Squibb Co. ....... 193,463 171,375
1,000 Glaxo Wellcome plc, ADR ........ 54,024 60,437
2,000 Johnson & Johnson .............. 39,339 187,875
30,000 Pharmacia Corp. ................ 1,060,346 1,805,625
2,000 SmithKline Beecham plc, ADR .... 127,350 137,250
----------- -----------
1,869,773 2,965,062
----------- -----------
See accompanying notes to financial statements.
10
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
METALS AND MINING -- 0.2%
15,000 Freeport-McMoRan Copper &
Gold Inc., Cl. B+ ............. $ 272,350 $ 132,187
----------- -----------
PAPER AND FOREST PRODUCTS -- 0.4%
34,000 Pactiv Corp.+ .................. 643,022 380,375
----------- -----------
PUBLISHING -- 1.7%
4,000 Dow Jones & Co. Inc. ........... 185,428 242,000
3,000 Harcourt General Inc. .......... 115,638 177,000
5,000 McGraw-Hill Companies Inc. ..... 152,667 317,813
25,000 Reader's Digest Association
Inc., Cl. B ................... 692,544 789,063
----------- -----------
1,146,277 1,525,876
----------- -----------
REAL ESTATE -- 0.0%
2,500 Griffin Land & Nurseries Inc.+ . 11,716 31,563
----------- -----------
RETAIL -- 0.8%
32,000 Albertson's Inc. ............... 847,801 672,000
2,000 Sears, Roebuck & Co. ........... 51,242 64,840
----------- -----------
899,043 736,840
----------- -----------
SATELLITE -- 0.1%
1,500 General Motors Corp., Cl. H+ 35,022 55,770
----------- -----------
SPECIALTY CHEMICALS -- 1.1%
1,200 Celenese AG .................... 16,129 20,550
2,000 du Pont de Nemours
(E.I.) & Co. .................. 65,500 82,875
7,500 Ferro Corp. .................... 138,500 142,969
8,000 Grace (W.R.) & Co.+ ............ 91,915 55,000
17,000 Great Lakes Chemical Corp. ..... 580,815 498,313
1,500 IMC Global Inc. ................ 31,075 21,750
20,000 Omnova Solutions Inc. .......... 155,815 111,250
----------- -----------
1,079,749 932,707
----------- -----------
TELECOMMUNICATIONS -- 7.2%
3,000 ALLTEL Corp. ................... 121,588 156,563
5,477 AT&T Corp. ..................... 170,043 160,887
9,000 BCE Inc. ....................... 351,947 210,375
1,500 British Telecommunications
plc, ADR ...................... 84,309 160,594
19,000 Cable & Wireless plc, ADR ...... 567,936 808,688
20,000 Citizens Communications Co. .... 194,925 268,750
7,000 Deutsche Telekom AG, ADR+ ...... 149,708 239,750
1,000 France Telecom SA, ADR ......... 34,488 105,250
4,000 Pacific Century CyberWorks
Ltd., ADR+ .................... 97,140 44,002
1,729 Qwest Communications
International Inc.+ ........... 24,830 83,085
28,000 SBC Communications Inc. ........ 679,813 1,400,000
1,000 Telecom Italia SpA, ADR ........ 31,080 105,000
MARKET
SHARES COST VALUE
------ ---- ------
7,000 Telefonica SA, ADR ............. $ 93,609 $ 416,063
13,500 TELUS Corp. .................... 238,092 363,378
4,500 TELUS Corp., Non-Voting ........ 79,364 116,939
36,388 Verizon Communications ......... 1,088,225 1,762,544
----------- -----------
4,007,097 6,401,868
----------- -----------
TOTAL COMMON STOCKS ............ 62,949,475 79,334,844
----------- -----------
PREFERRED STOCKS -- 2.9%
AVIATION: PARTS AND SERVICES -- 0.3%
2,000 Coltec Capital Trust,
5.25% Cv. Pfd. ............... 86,000 96,000
3,000 Coltec Capital Trust,
5.25% Cv. Pfd. (b) ............ 129,000 144,000
----------- -----------
215,000 240,000
----------- -----------
DIVERSIFIED INDUSTRIAL -- 0.0%
2,000 WHX Corp.,
$3.75 Cv. Pfd., Ser. B ........ 75,038 13,125
----------- -----------
ENTERTAINMENT -- 0.0%
1,000 Metromedia International
Group Inc.,
7.25% Cv. Pfd. ................ 35,025 22,750
----------- -----------
EQUIPMENT AND SUPPLIES -- 0.5%
6,000 Sequa Corp.,
$5.00 Cv. Pfd. ............... 464,250 462,000
----------- -----------
METALS AND MINING -- 0.1%
5,000 Freeport-McMoRan Copper
& Gold Inc.,
7.00% Cv. Pfd. ................ 106,500 62,500
----------- -----------
PAPER AND FOREST PRODUCTS -- 1.0%
20,000 Sealed Air Corp.,
$2.00 Cv. Pfd., Ser. A ........ 831,527 900,000
----------- -----------
TELECOMMUNICATIONS -- 1.0%
17,000 Citizens Communications Co.,
5.00% Cv. Pfd. ................ 816,716 922,250
----------- -----------
TOTAL PREFERRED STOCKS ......... 2,544,056 2,622,625
----------- -----------
PRINCIPAL
AMOUNT
------
CORPORATE BONDS -- 3.1%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.6%
$1,000,000 Standard Motor Products Inc.,
Sub. Deb. Cv.
6.75%, 07/15/09 ............... 797,953 515,000
----------- -----------
BUSINESS SERVICES -- 0.1%
100,000 BBN Corp., Sub. Deb. Cv.
6.00%, 04/01/12 (a) ........... 97,242 96,750
----------- -----------
See accompanying notes to financial statements.
11
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2000
================================================================================
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- ------
CORPORATE BONDS (CONTINUED)
CONSUMER PRODUCTS -- 0.2%
$2,100,000 Pillowtex Corp.,
Sub. Deb. Cv.
6.00%, 03/15/12 ............... $ 821,611 $ 189,000
----------- -----------
ENTERTAINMENT -- 0.2%
150,000 USA Networks Inc.,
Sub. Deb. Cv.
7.00%, 07/01/03 ............... 139,431 149,813
----------- -----------
EQUIPMENT AND SUPPLIES -- 1.3%
1,200,000 Mark IV Industries Inc.,
Sub. Deb. Cv.
4.75%, 11/01/04 ............... 1,040,019 1,194,000
----------- -----------
HOTELS AND GAMING -- 0.4%
400,000 Hilton Hotels Corp.,
Sub. Deb. Cv.
5.00%, 05/15/06 ............... 346,446 337,500
----------- -----------
PUBLISHING -- 0.3%
100,000 News America Holdings Inc.,
Sub. Deb. Cv.
Zero Coupon, 03/31/97 ......... 89,256 240,625
----------- -----------
TOTAL CORPORATE BONDS 3,331,958 2,722,688
----------- -----------
U.S. GOVERNMENT OBLIGATIONS -- 5.6%
5,080,000 U S Treasury Bills,
6.12% to 6.46%++,
due 10/05/00 to 12/28/00 ...... 5,025,062 5,024,711
----------- -----------
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- ------
TOTAL
INVESTMENTS -- 100.6% $73,850,551 $89,704,868
===========
OTHER ASSETS AND
LIABILITIES (NET) -- (0.6%) ................. (540,734)
-----------
NET ASSETS -- 100.0%
(5,464,219 shares outstanding) .............. $89,164,134
===========
--------------
For Federal tax purposes:
Aggregate cost ............................... $73,874,143
===========
Gross unrealized appreciation ................ $21,638,730
Gross unrealized depreciation ................ (5,808,005)
===========
Net unrealized appreciation .................. $15,830,725
===========
--------------
(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
September 30, 2000, the market value of Rule 144A securities amounted to
$144,000 or 0.2% of total net assets.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
================================================================================
ASSETS:
Investments, at value
(Cost $73,850,551) .................. $89,704,868
Cash .................................. 1,495
Dividends and interest receivable ..... 285,561
Receivable for investments sold ....... 489,800
Receivable for capital shares sold .... 110,201
-----------
TOTAL ASSETS .......................... 90,591,925
-----------
LIABILITIES:
Payable for investments purchased ..... 1,028,457
Payable for capital shares redeemed ... 189,101
Payable for investment advisory fees .. 72,382
Payable for distribution fees ......... 18,096
Payable to custodian .................. 26,690
Other accrued expenses ................ 93,065
-----------
TOTAL LIABILITIES 1,427,791
-----------
NET ASSETS applicable to 5,453,837
shares outstanding .................. $89,164,134
===========
NET ASSETS CONSIST OF:
Capital stock, at par value ........... $ 5,454
Additional paid-in capital ............ 61,948,618
Accumulated net investment income ..... 581,037
Accumulated net realized gain
on investments and foreign
currency transactions ............... 10,774,495
Net unrealized appreciation on
investments and foreign
currency transactions ............... 15,854,530
-----------
TOTAL NET ASSETS ...................... $89,164,134
===========
NET ASSET VALUE, offering and redemption
price per share ($89,164,134
[DIVIDE] 5,453,837 shares outstanding;
unlimited number of shares authorized
of $0.001 par value) ................ $16.35
======
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
================================================================================
INVESTMENT INCOME:
Dividends (net of foreign taxes
of $10,581) ......................... $3,365,123
Interest .............................. 534,925
-----------
TOTAL INVESTMENT INCOME 3,900,048
-----------
EXPENSES:
Investment advisory fees .............. 864,523
Distribution fees ..................... 216,131
Shareholder services fees ............. 125,307
Shareholder communications expenses ... 70,982
Legal and audit fees .................. 42,132
Interest expense ...................... 40,793
Custodian fees ........................ 31,921
Registration fees ..................... 20,250
Directors' fees ....................... 14,706
Miscellaneous expenses ................ 8,434
-----------
TOTAL EXPENSES ........................ 1,435,179
-----------
NET INVESTMENT INCOME ................. 2,464,869
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments
and foreign currency transactions 11,150,052
Net change in unrealized appreciation
on investments and foreign currency
transactions (6,657,007)
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS 4,493,045
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 6,957,914
===========
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................... $ 2,464,869 $ 1,145,633
Net realized gain on investments and foreign currency transactions ........ 11,150,052 10,754,249
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions ....................................... (6,657,007) 3,127,043
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... 6,957,914 15,026,925
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ..................................................... (1,912,955) (1,106,687)
Net realized gain on investments .......................................... (10,705,825) (5,973,881)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ....................................... (12,618,780) (7,080,568)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets from capital share transactions ................ 2,714,138 4,495,622
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS ..................................... (2,946,728) 12,441,979
NET ASSETS:
Beginning of period ....................................................... 92,110,862 79,668,883
------------ ------------
End of period (Including undistributed net investment income of
$581,037 and $33,249, respectively) ..................................... $ 89,164,134 $ 92,110,862
============ ============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION. 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, each with four separate
classes of shares known as Class AAA, Class A, Class B and Class C. Currently,
only Class AAA Shares are offered to the public. 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 maturity greater than 60 days 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 Board,
with member banks of the Federal Reserve System or with other brokers or dealers
that meet credit guidelines established by the Adviser and reviewed by the Board
of 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
14
<PAGE>
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
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 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 September 30, 2000, 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
15
<PAGE>
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
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.
For the year ended September 30, 2000, reclassifications were made to decrease
accumulated undistributed net investment income for $4,126 with an offsetting
adjustment to accumulated net realized gain on investments and foreign currency
transactions.
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 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 year ended
September 30, 2000, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an affiliate of the Adviser, of $216,131, or 0.25% of average
daily net assets, the annual limitation under the Plan. Such payments are
accrued daily and paid monthly.
16
<PAGE>
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the year ended
September 30, 2000, other than short term securities, aggregated $28,071,854 and
$36,845,444, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the year ended September 30, 2000, the
Fund paid brokerage commissions of $51,451 to Gabelli & Company, Inc. and its
affiliates.
7. LINE OF CREDIT. 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 September 30, 2000.
The average daily amount of borrowings outstanding within the year ended
September 30, 2000 was $486,486, with a related weighted average interest rate
of 6.49%. The maximum amount borrowed at any time during the year ended
September 30, 2000 was $2,760,000.
8. CAPITAL STOCK TRANSACTIONS. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ....................................... 1,517,814 $ 24,616,947 1,118,588 $ 19,506,816
Shares issued upon reinvestment of dividends ...... 766,485 11,879,558 408,295 6,723,027
Shares redeemed ................................... (2,071,326) (33,782,367) (1,274,350) (21,734,221)
---------- ------------- ---------- ------------
Net increase .................................. 212,973 $ 2,714,138 252,533 $ 4,495,622
========== ============= ========== ============
</TABLE>
17
<PAGE>
THE GABELLI EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $ 17.58 $ 15.97 $ 17.39 $ 13.81 $ 12.65
------- ------- ------- ------- -------
Net investment income ...................... 0.46 0.23 0.22 0.22 0.28
Net realized and unrealized gain
on investments ........................... 0.81 2.82 0.29 4.28 1.76
------- ------- ------- ------- -------
Total from investment operations ........... 1.27 3.05 0.51 4.50 2.04
------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ...................... (0.36) (0.22) (0.26) (0.22) (0.28)
In excess of net investment income ......... -- -- -- -- (0.01)
Net realized gain on investments ........... (2.14) (1.22) (1.67) (0.70) (0.59)
------- ------- ------- ------- -------
Total distributions ........................ (2.50) (1.44) (1.93) (0.92) (0.88)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ............. $ 16.35 $ 17.58 $ 15.97 $ 17.39 $13.81
======= ======= ======= ======= =======
Total return+ .............................. 8.41% 19.82% 2.98% 33.98% 16.69%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ....... $89,164 $92,111 $79,669 $73,730 $57,006
Ratio of net investment income
to average net assets .................... 2.85% 1.32% 1.27% 1.42% 1.99%
Ratio of operating expenses
to average net assets (a) ................ 1.66% 1.60% 1.64% 1.78% 1.93%
Portfolio turnover rate .................... 33% 39% 35% 43% 20%
----------
<FN>
+ 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) The Fund incurred interest expense during the fiscal year ended September
30, 2000. If interest expense had not been incurred, the ratio of operating
expenses to average net assets would have been 1.61%.
</FN>
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
THE GABELLI EQUITY INCOME FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
================================================================================
To the Shareholders and Board of Directors of
The Gabelli Equity Income Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Gabelli Equity Income Fund (the "Fund") (a
series of Gabelli Equity Series Funds, Inc.) as of September 30, 2000, and the
related statement of operations for the year then ended, the statement of
changes in net assets for the each of the two years in the period then ended,
and the financial highlights for the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of September 30, 2000 by correspondence with
the custodian and brokers, or other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Gabelli Equity Income Fund at September 30, 2000, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States.
/S/ SIGNATURE ERNST & YOUNG LLP
New York, New York
November 3, 2000
--------------------------------------------------------------------------------
2000 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended September 30, 2000, the Fund paid to shareholders
ordinary income dividends (comprised of net investment income and short term
capital gains) totaling $0.581 per share and long term capital gains totaling
$1.926 per share. For the fiscal year ended September 30, 2000, 70.48% of the
ordinary income dividend qualifies for the dividend received deduction available
to corporations.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividend paid by the Fund during fiscal
year 2000 which was derived from U.S. Treasury securities was 2.80%. Such income
is exempt from state and local tax in all states. However, many states,
including New York and California, allow a tax exemption for a portion of the
income earned only if a mutual fund has invested at least 50% of its assets at
the end of each quarter of the Fund's fiscal year in U.S. Government securities.
The Gabelli Equity Income Fund did not meet this strict requirement in 2000. Due
to the diversity in state and local tax law, it is recommended that you consult
your personal tax advisor as to the applicability of the information provided to
your specific situation.
--------------------------------------------------------------------------------
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.
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.
--------------------------------------------------------------------------------
GAB444Q300SR
[Photo of Mario J.Gabelli omitted]
THE
GABELLI
EQUITY
INCOME
FUND
ANNUAL REPORT
SEPTEMBER 30, 2000
