THE GABELLI EQUITY INCOME FUND
SEMI-ANNUAL REPORT
MARCH 31, 2000(A)
TO OUR SHAREHOLDERS,
With low or no-yielding technology stocks fueling the market in the first
quarter of 2000, income oriented equity portfolios struggled to keep pace with
the S&P 500. In the equity income arena, telecommunications, media, and selected
financial services companies performed well. Utilities were mixed, and in
general, industrial cyclical and branded consumer goods stocks under-performed.
INVESTMENT PERFORMANCE
For the first quarter ended March 31, 2000, the Gabelli Equity Income
Fund's (the "Fund") total return was 0.76% after adjusting for the $0.06 per
share dividend paid on March 20, 2000. The Standard & Poor's ("S&P") 500 Index
and Lipper Equity Income Fund Average had total returns of 2.29% and (0.79)%,
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 11.84% for the trailing twelve-month period. The S&P 500 and Lipper U.S.
Equity Income Fund Average rose 17.93% and 3.04%, respectively, over the same
twelve-month period.
For the five-year period ended March 31, 2000, the Fund's total return
averaged 17.20% annually versus average annual returns of 26.75% and 15.37% for
the S&P 500 and the Lipper Equity Income Fund Average, respectively. Since
inception on January 2, 1992 through March 31, 2000, the Fund had a cumulative
total return of 213.89%, which equates to an average annual total return of
14.87%.
WHAT WE DO
The success of momentum investing in recent years and investors' desire
for instant gratification have combined to make value investing appear dull. At
the risk of being dull, we will once again describe the "boring" value approach
that has seen us through both good and bad markets over the last eight years at
The Gabelli Equity Income Fund and for over 23 years at Gabelli Asset Management
Company. In past reports, we have tried to articulate our investment philosophy
and methodology.
[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)
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Calendar Quarter
--------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
2000: Net Asset Value $16.86 -- -- -- --
Total Return 0.8% -- -- -- --
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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%
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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%
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1997: Net Asset Value $14.27 $16.03 $17.39 $16.12 $16.12
Total Return 1.2% 12.7% 8.8% 3.0% 27.9%
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1996: Net Asset Value $13.47 $13.54 $13.81 $14.16 $14.16
Total Return 5.5% 1.0% 2.5% 8.0% 17.9%
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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%
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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%
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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)
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Average Annual Returns - March 31, 2000 (a)
-------------------------------------------
1 Year .................................... 11.84%
5 Year .................................... 17.20%
Life of Fund (b) .......................... 14.87%
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(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.
- --------------------------------------------------------------------------------
Our focus is on free cash flow: earnings before interest, taxes,
depreciation and amortization ("EBITDA") minus the capital expenditures
necessary to grow the business. We believe free cash flow is the best barometer
of a business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to, or detract from, our private market value ("PMV") estimates.
Finally, we look for a catalyst: something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing worldwide demand for
American food and feed
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Dividend History
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Rate Reinvestment
Payment (ex) Date Per Share Price
----------------- --------- ------------
March 29, 2000 $0.06 $15.75
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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
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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
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December 29, 1997 $1.78 $15.94
September 30, 1997 $0.05 $17.39
June 30, 1997 $0.05 $16.03
March 31, 1997 $0.06 $14.27
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December 27, 1996 $0.76 $14.28
September 30, 1996 $0.07 $13.81
June 28, 1996 $0.06 $13.54
March 31, 1996 $0.07 $13.47
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December 29, 1995 $0.68 $12.84
September 29,1995 $0.07 $12.65
June 30, 1995 $0.07 $11.99
March 31, 1995 $0.07 $11.56
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December 30, 1994 $0.74 $10.72
September 30, 1994 $0.08 $11.54
June 30, 1994 $0.09 $11.08
March 31, 1994 $0.06 $11.26
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December 31, 1993 $0.76 $11.57
September 30, 1993 $0.06 $12.15
June 30, 1993 $0.06 $11.72
March 31, 1993 $0.08 $11.35
- --------------------------------------------------
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
- --------------------------------------------------
crops. In other instances, it may be a change in management, sale or spin-off of
a division or the development of a profitable new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long term
method for preserving and enhancing wealth in the U.S. equity markets. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
COMMENTARY
THE PERILS OF PAULINE
In each episode of the old movie serial, "The Perils of Pauline", the
heroine faced certain doom until a hero suddenly appeared to save the day.
Through most of the first quarter 2000, equities were imperiled by rising
short-term interest rates and the perception that Federal Reserve Chairman Alan
Greenspan was determined to restrain the stock market as well as the economy.
With equities dangling from a cliff, a hero in the form of declining market
interest rates (bond yields) rescued stocks from a sharp correction that
appeared ready to turn into a full scale bear market.
Of course, in the old movie shorts, as soon as Pauline escaped from one
life-threatening predicament, she was thrust into another. Over the short term,
we suspect the stock market will also face a series of new dangers. The Federal
Reserve should continue to hike short term rates, eventually killing the nascent
bond market rally and putting pressure back on stocks. Valuations in the
technology sector also present a risk to the market. If some of the technology
"bell weathers" fall short of rather grand earnings expectations, we could see a
sharp correction that would drag down the market indices. There is also the
uncertainty of an election year. Will a Bush victory lead to tax cuts that will
help sustain consumer spending or will a Gore triumph dash the hopes of
consumers counting on tax relief?
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There are plenty of potential heroes that could once again rescue the
market. Corporate earnings growth is strong and, with synchronized global
growth, may get stronger. If we see evidence of economic deceleration in the
second half of the year, the Fed may take its foot off the monetary brakes and
market interest rates could come down further. We should continue to see deals,
particularly in out-of-favor industries where some great companies have become
irresistible business bargains. This may finally prop up the value sector of the
market and have a positive impact on higher yielding stocks. Finally, investors
love happy endings. Over the last several years, whenever stocks have stumbled,
investors have rushed in to lift them to safety.
OLD ECONOMY, NEW ECONOMY
The financial press and market observers are good at developing simplistic
theories to explain market trends. Recently, the pundits have divided the market
into "old economy" and "new economy" stocks. The former are thought to be
worthless and the latter are perceived as almost priceless. A closer look at the
situation reveals the flaws in this current logic.
The so-called "new economy" stocks are primarily technology companies
developing new ways to distribute information, products, and services. Some are
fine companies with exceptional growth prospects. But, the "new economy"
superstars don't drill for oil, process chemicals, make household goods, or
manufacture automobiles. They don't knit sweaters or make shoes. They don't
build houses. They don't produce motion pictures or television programs. They
are simply building systems that make it possible for "old economy" companies to
provide these essential products and services more efficiently and cost
effectively. Will the best of the "new economy" companies make money and over
the long term enrich investors? Yes. Will "old economy" companies that harness
the power of new technologies prosper and also reward shareholders? Yes.
Presently, you can pay sky-high valuations for "new economy" companies with
little or no yield or pick up deeply discounted "old economy" stocks providing
very attractive yields.
AN APPETITE FOR FOOD STOCKS
There is a degree of economic logic in the poor recent performance of many
cyclical industrial companies. The Federal Reserve is committed to slowing the
economy, and if it succeeds, we may be seeing peak earnings for economically
sensitive companies. We are of the opinion that earnings will be better than
anticipated and that the sell-off in cyclical companies is overdone. That's why
we continue to own high quality, high yielding cyclical stocks.
We see no economic justification for the poor performance of food stocks.
High quality brand name franchises including Coca-Cola, Hershey Foods, H. J.
Heinz, Kellogg, and Quaker Oats all declined this quarter, and some quite
sharply. We doubt that if economic growth slows from 5% to 3.5%, consumers are
going to reduce spending on food or switch from brand name products to cheaper
private label goods. "Honey, Gross Domestic Product growth is now down to 3.5%,
we better cut back on the cereal and ketchup, and instead of buying Coke, let's
get that generic cola."
Historically, food company earnings have not been particularly sensitive
to modestly slower economic growth, and in general, earnings for food companies
have been relatively stable and should
4
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stay that way. Food stocks are not down because of any fundamental change in the
business or disappointing earnings. In our opinion, food stocks are simply a
casualty of investors' general disregard for any industry group lacking the
rapid growth potential of technology stocks. Now you can buy some of the best
companies in the food business at very attractive valuations. Food for thought
for value investors.
THIS QUARTER'S REPORT CARD
A distinguished group of financial services stocks including U.S. Trust,
Merrill Lynch, Northern Trust, and Chase Manhattan provided grade A performance
this quarter. Telecommunications holdings such as BCE (Bell Canada), France
Telecom, Cable & Wireless, Deutsche Telekom, and AT&T also made the honor roll.
Cyclical holdings were mixed, with Monsanto, GATX, General Motors, and
Mark IV Industries performing well and stalwarts such as Minnesota Mining and
Manufacturing, Honeywell, and DuPont losing ground. Our utility investments were
also mixed, with Scottish Power plc and Florida Progress Corp. posting good
gains and Peoples Energy and Florida Public Utilities retreating. Branded
consumer goods and, in particular, food companies disappointed.
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.
BCE INC. (BCE - $125.4375 - NYSE) is Canada's global communications company. BCE
has announced a series of transactions in recent months. The company plans to
spin off the majority of its stake in Nortel Networks Corp. (NT - $126.00 -
NYSE) to BCE shareholders. BCE shareholders will receive 0.78 shares of NT per
BCE share. Other pending transactions include the acquisition of CTV, a Canadian
broadcaster, and Teleglobe, a provider of global network services.
CITIZENS UTILITIES CO. (CZN - $16.375 - NYSE) provides telecommunications
services and public services to approximately 1.9 million customers in 22
states. Citizens owns 83% of Electric Lightwave (ELIX - $23.875 - Nasdaq), a
competitive local exchange carrier ("CLEC") serving primarily the western U.S.
Management has authorized the separation of Citizens' telecommunications
businesses and public services businesses into two stand-alone, publicly traded
companies. Recently, CZN announced agreements to acquire about one million rural
access lines in 11 states for $2.8 billion. CZN intends to finance these
transactions by divesting its public services operations. Its water and waste
water operations have been sold for $835 million. The company has an agreement
to sell all its electric and waste water utility operations to Cap Rock Energy
and Kauai Island Electric Company for an aggregate purchase price of $535
million. The company has sold its 16% stake in Centennial Communications for
approximately $205 million. Citizens monetized its ownership of Century
Communications' (CTYA - $45.625 - Nasdaq) stock and cable operations through a
sale to Adelphia Communications for approximately $220 million.
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EASTERN ENTERPRISES (EFU - $59.875 - NYSE) owns and operates Boston Gas Company,
Colonial Gas Company, Essex Gas Company, Midland Enterprises, and ServicEdge
Partners. Upon completion of the pending merger with EnergyNorth (EI - $58.25 -
NYSE), Eastern will 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
- - $27.625 - NYSE) for $64.00 per share in cash.
EXXON MOBIL CORP. (XOM - $77.8125 - NYSE), headquartered in Irving, Texas, is a
worldwide leader in the petroleum and petrochemical businesses. The company was
formed on November 30, 1999 when Exxon Corp. and Mobil Corp. formally merged.
Exxon Mobil Corp. conducts business in nearly 200 countries around the world,
whether it's 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.
GALLAHER GROUP PLC (GLH - $19.6875 - NYSE) is a leading regional manufacturer of
tobacco products. The company, which had sales of (pound)4.3 billion in 1999, 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. This U.K.-based company was spun-off from American Brands (now Fortune
Brands) in May 1997. Its 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.
GENUINE PARTS CO. (GPC - $23.875 - NYSE), founded in 1928, is a service
organization engaged in the distribution of automotive replacement parts,
industrial replacement parts and office products. The company offers access to
over 225,000 automotive replacement parts and, in conjunction with NAPA,
inventory, accounting, cataloging, marketing, training and other programs. The
company's NAPA automotive parts distribution centers distribute replacement
parts (other than body parts) for virtually all motor vehicle makes and models
in service in the United States, including imported vehicles, trucks, buses,
motorcycles, recreational vehicles and farm vehicles. Genuine Parts distributes
industrial replacement parts used in fluid transmission and irrigation,
including pumps, pulleys, valves, hoses and belts. Through SP Richards Company,
Genuine Parts also distributes office products including diskettes, telephones,
furniture and copiers. Through EIS Inc., Genuine Parts is a wholesale
distributor of materials and supplies to the electrical and electronic
industries.
GTE CORP. (GTE - $71.00 - NYSE) is one of the largest publicly held
telecommunications companies in the world. GTE's domestic and international
operations serve 26 million access lines in the United States and over 9.3
million in Canada, the Dominican Republic and Venezuela. GTE is a leading
cellular operator in the U.S., with the potential to serve 72 million cellular
and personal communications services ("PCS") customers. Outside the U.S., GTE
operates cellular networks covering more than 34 million people. GTE is also a
leader in government and defense communications systems and equipment, aircraft
passenger
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telecommunications, directories and telecommunications-based information
services and systems. In September 1999, Bell Atlantic (BEL - $61.125 - NYSE)
and GTE announced a $100 billion wireless joint venture with Vodafone AirTouch
(VOD - $55.5625 - NYSE) by contributing BEL's and GTE's wireless assets to the
new partnership. Upon completion of the BEL/GTE merger, expected in the second
quarter of 2000, the combined company will be the largest domestic wireless
provider with over 25 million subscribers.
SBC COMMUNICATIONS INC. (SBC - $42.00 - NYSE) is currently the largest regional
Bell operating company in the U.S., with over 60 million domestic and seven
million proportionate international access lines. SBC also serves over 11
million domestic and over three million proportionate international wireless
customers. SBC has a strong presence in Europe through its ownership of
TeleDanmark (TLD - $46.4375 - NYSE), Belgacom, Cegetel and other companies as
well as in Canada through ownership of Bell Canada (BCICF - $28.75 - Nasdaq) and
in Mexico through Telemex. In April, SBC announced the formation of a joint
venture with BellSouth (BLS - $47.00 - NYSE). The companies will combine their
domestic wireless operations forming the second largest wireless carrier in the
U.S. behind the BE/GTE/Vodafone AirTouch joint venture.
TEXACO INC. (TX - $53.625 - NYSE) is a major international integrated oil
company which operates in some 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 positioned to help meet the world's growing demand for
energy.
WICOR INC. (WIC - $31.00 - NYSE), the largest gas distributor in Wisconsin, has
agreed to be bought by Wisconsin Energy Corp. (WEC - $19.938 - NYSE), a
Milwaukee electric and natural gas utility, for $1.27 billion in cash and stock.
WIC shareholders will receive $31.50 per share in cash. The merger needs
approval from the Wisconsin Utilities Commission, the SEC and the FTC. Although
WEC had to terminate an agreement to merge three years ago with Northern States
Power because of regulatory concerns in Wisconsin, this deal is not expected to
raise objections because it does not create a dominant presence in the electric
industry. The combined company will have 921,000 gas customers and more than 1
million electric customers in Wisconsin and Michigan. In addition to its gas
distribution business, WICOR obtains about 50% of its revenues from its pumps
business.
MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Additionally, The Gabelli Equity Income Fund and other Gabelli Funds are
available through the no-transaction fee programs at many major discount
brokerage firms.
INTERNET
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Asset Management Inc.,
the Gabelli Mutual Funds, IRAs, 401(k)s, quarterly reports, closing prices and
other current news. You can send us e-mail at [email protected].
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IN CONCLUSION
Why own high yielding stocks when everyone knows the real action is in
technology stocks with no dividends? The answer is simple: income and reduced
volatility. As we have repeated frequently in our letters to you, over the long
term, dividend yield has contributed substantially to the total returns from
equities. We also remind you that higher yielding stocks usually hold up much
better during adverse market environments. We don't know what the market has in
store for us in the future. We do know, however, that investors who throw away
their umbrellas in sunny weather get wet when it rains.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's Nasdaq symbol is GABEX. Please call us during the
business day for further information.
Sincerely,
/S/ MARIO J. GABELLI
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
April 14, 2000
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TOP TEN HOLDINGS
MARCH 31, 2000
--------------
Eastern Enterprises Exxon Mobil Corp.
BCE Inc. GTE Corp.
WICOR Inc. Texaco Inc.
Genuine Parts Co. Gallaher Group plc
Citizens Utilities Co. SBC Communications Inc.
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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.
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THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2000 (UNAUDITED)
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MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS -- 93.6%
AEROSPACE -- 1.9%
18,000 Boeing Co. .................... $ 702,057 $ 682,875
15,000 Northrop Grumman Corp. ........ 1,004,757 794,062
2,000 Raytheon Co., Cl. A ........... 49,835 37,625
2,000 Rockwell International Corp. .. 41,530 83,625
----------- -----------
1,798,179 1,598,187
----------- -----------
AUTOMOTIVE -- 1.5%
4,500 Ford Motor Co. ................ 70,226 206,719
12,500 General Motors Corp. .......... 401,922 1,035,156
----------- -----------
472,148 1,241,875
----------- -----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.7%
31,000 Dana Corp. .................... 1,128,173 873,812
6,000 Ethyl Corp. ................... 43,487 18,375
25,000 GenCorp Inc. .................. 228,209 193,750
75,000 Genuine Parts Co. ............. 1,974,436 1,790,625
6,000 Meritor Automotive Inc. ....... 121,675 94,875
8,000 Tenneco Automotive Inc. ....... 97,926 63,500
----------- -----------
3,593,906 3,034,937
----------- -----------
AVIATION: PARTS AND SERVICES -- 1.8%
25,000 Barnes Group Inc. ............. 449,017 362,500
18,000 Curtiss-Wright Corp. .......... 264,046 659,250
8,000 United Technologies Corp. ..... 226,617 505,500
----------- -----------
939,680 1,527,250
----------- -----------
BROADCASTING -- 0.2%
17,000 Granite Broadcasting Corp.+ ... 171,154 121,125
----------- -----------
BUSINESS SERVICES -- 0.2%
7,000 Donnelley (R.H.) Corp. ........ 79,054 119,000
500 Imation Corp.+ ................ 7,150 13,344
2,000 IMS Health Inc. ............... 28,208 33,875
1,500 Landauer Inc. ................. 25,747 27,375
----------- -----------
140,159 193,594
----------- -----------
CABLE -- 0.5%
5,000 MediaOne Group Inc.+ .......... 132,734 405,006
----------- -----------
COMMUNICATIONS EQUIPMENT -- 0.1%
500 Motorola Inc. ................. 13,631 71,187
----------- -----------
COMPUTER HARDWARE -- 0.1%
500 International Business
Machines Corp. ............... 6,350 59,000
2,000 Xerox Corp. ................... 47,100 52,000
----------- -----------
53,450 111,000
----------- -----------
CONSUMER PRODUCTS -- 6.6%
2,000 Avon Products Inc. ............ 50,475 58,125
6,000 Clorox Co. .................... 228,187 195,000
9,000 Eastman Kodak Co. ............. 541,684 488,812
MARKET
SHARES COST VALUE
------ ---- ------
12,000 Fortune Brands Inc. ........... $ 319,038 $ 300,000
75,000 Gallaher Group plc, ADR ....... 1,614,558 1,476,562
5,000 General Cigar Holdings Inc.,
Cl. B+ (a) ................... 44,132 75,312
21,000 Gillette Co. .................. 750,800 791,437
10,000 Maytag Corp. .................. 328,715 331,250
25,000 National Presto Industries Inc. 1,000,907 815,625
38,000 Philip Morris Companies Inc. .. 1,532,044 802,750
5,000 Ralston Purina Group .......... 140,562 136,875
1,200 Rothmans Inc. ................. 27,296 11,686
----------- -----------
6,578,398 5,483,434
----------- -----------
CONSUMER SERVICES -- 0.5%
30,000 Rollins Inc. .................. 580,657 446,250
----------- -----------
DIVERSIFIED INDUSTRIAL -- 2.5%
2,000 Cooper Industries Inc. ........ 84,754 70,000
29,000 GATX Corp. .................... 871,144 1,102,000
1,000 General Electric Co. .......... 23,481 155,187
2,500 Honeywell Inc. ................ 57,347 131,719
3,000 Minnesota Mining &
Manufacturing Co. ............ 246,962 265,687
18,000 Thomas Industries Inc. ........ 141,892 337,500
1,000 Trinity Industries Inc. ....... 26,570 23,687
----------- -----------
1,452,150 2,085,780
----------- -----------
ELECTRONICS -- 0.6%
18,000 Thomas & Betts Corp. .......... 518,400 508,500
----------- -----------
ENERGY AND UTILITIES: ELECTRIC -- 5.6%
10,000 CMP Group Inc. ................ 267,437 291,250
35,000 Conectiv Inc. ................. 655,551 612,500
105,000 El Paso Electric Co.+ ......... 834,227 1,089,375
15,000 Florida Progress Corp. ........ 657,011 688,125
8,000 FPL Group Inc. ................ 360,950 368,500
95,000 Niagara Mohawk Power Corp. .... 1,010,837 1,282,500
8,000 St. Joseph Light & Power Co. .. 165,598 162,500
2,000 TNP Enterprises Inc. .......... 76,475 87,625
2,000 United Illuminating Co. ....... 91,287 78,500
----------- -----------
4,119,373 4,660,875
----------- -----------
ENERGY AND UTILITIES: INTEGRATED -- 4.9%
16,000 Burlington Resources Inc. ..... 661,765 592,000
11,000 Central & South West Corp. .... 285,550 187,687
12,000 CH Energy Group Inc. .......... 444,537 364,500
22,000 Energy East Corp. ............. 474,584 435,875
42,200 Florida Public Utilities Co. .. 640,304 553,875
20,000 MCN Energy Group Inc. ......... 486,000 500,000
28,000 NSTAR ......................... 703,264 1,176,000
5,000 Public Service Enterprise
Group Inc. ................... 164,125 148,125
3,000 ScottishPower plc, ADR ........ 102,608 95,062
----------- -----------
3,962,737 4,053,124
----------- -----------
See accompanying notes to financial statements.
9
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- MARCH 31, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES: NATURAL GAS -- 12.5%
55,000 AGL Resources Inc. ............ $ 1,037,470 $ 1,010,625
68,000 Eastern Enterprises ........... 2,397,636 4,071,500
10,000 Fall River Gas Co. ............ 160,250 215,000
31,000 KeySpan Corp. ................. 880,344 856,375
4,000 Peoples Energy Corp. .......... 138,275 109,750
13,000 Piedmont Natural Gas Co. Inc. . 428,525 338,812
4,000 Providence Energy Corp. ....... 84,825 151,750
1,500 Southern Union Co.+ ........... 26,604 27,094
75,000 Southwest Gas Corp. ........... 1,260,525 1,429,687
70,000 WICOR Inc. .................... 1,711,419 2,170,000
----------- -----------
8,125,873 10,380,593
----------- -----------
ENERGY AND UTILITIES: OIL -- 9.0%
13,000 Atlantic Richfield Co. ........ 703,893 1,105,000
22,000 BP Amoco plc, ADR ............. 241,587 1,167,375
10,000 Chevron Corp. ................. 312,562 924,375
4,000 Conoco Inc., Cl. A ............ 94,025 98,500
58,000 ENI SpA ....................... 304,221 290,463
22,000 Exxon Mobil Corp. ............. 642,933 1,711,875
28,000 Texaco Inc. ................... 993,425 1,501,500
8,759 Total Petroleum of North
America Ltd., ADR ............ 299,550 644,881
----------- -----------
3,592,196 7,443,969
----------- -----------
ENERGY AND UTILITIES: SERVICES -- 0.8%
16,000 Halliburton Co. ............... 335,656 656,000
----------- -----------
ENERGY AND UTILITIES: WATER -- 1.5%
35,000 United Water Resources Inc. ... 804,188 1,216,250
----------- -----------
ENTERTAINMENT -- 0.2%
3,000 Viacom Inc., Cl. A+ ........... 45,825 160,312
----------- -----------
ENVIRONMENTAL SERVICES -- 0.5%
30,000 Waste Management Inc. ......... 645,178 410,625
----------- -----------
EQUIPMENT AND SUPPLIES -- 2.2%
3,000 Caterpillar Inc. .............. 35,181 118,313
24,000 Deere & Co. ................... 382,225 912,000
1,000 Ingersoll-Rand Co. ............ 25,117 44,250
15,000 Mark IV Industries Inc. ....... 219,188 330,938
1,500 Minerals Technologies Inc. .... 37,938 66,844
18,000 Smith (A.O.) Corp. ............ 401,225 324,000
1,000 Union Carbide Corp. ........... 16,675 58,313
----------- -----------
1,117,549 1,854,658
----------- -----------
FINANCIAL SERVICES -- 13.1%
2,500 Aegon NV, ADR ................. 89,038 201,406
1,000 American Express Co. .......... 21,218 148,938
11,000 Argonaut Group Inc. ........... 275,976 220,688
MARKET
SHARES COST VALUE
------ ---- ------
3,000 Banco Popular Espanol SA ...... $ 122,662 $ 91,925
18,000 Banco Santander
Central Hispano SA, ADR ...... 64,963 192,375
2,000 Banco Santiago ................ 29,250 39,500
9,052 Bank of America Corp. ......... 167,810 474,664
22,000 Bank One Corp. ................ 794,175 756,250
3,000 Banque Nationale de Paris ..... 212,719 236,994
4,000 Block (H&R) Inc. .............. 171,388 179,000
4,000 Chase Manhattan Corp. ......... 282,388 348,750
31,000 Commerzbank AG, ADR ........... 678,161 1,170,250
20,000 Deutsche Bank AG, ADR ......... 1,015,263 1,327,500
3,000 Dresdner Bank AG, ADR ......... 107,625 123,495
4,000 Dun & Bradstreet Corp. ........ 85,317 114,500
3,000 Fannie Mae .................... 176,900 169,313
2,000 Fidelity National Corp. ....... 22,958 11,750
38,000 First Union Corp. ............. 1,520,341 1,415,500
20,000 Mellon Financial Corp. ........ 598,279 590,000
1,000 Merrill Lynch & Co. Inc. ...... 45,800 105,000
2,000 MONY Group Inc. ............... 47,000 64,625
7,000 Morgan (J.P.) & Co. Inc. ...... 430,706 922,250
3,000 Municipal Mortgage
& Equity LLC ................. 60,488 58,500
6,000 Northern Trust Corp. .......... 60,300 405,375
3,000 Pioneer Group Inc.+ ........... 66,204 69,750
8,000 St. Paul Companies Inc. ....... 231,963 273,000
10,000 Sterling Bancorp .............. 190,985 150,000
12,000 SunTrust Banks Inc. ........... 251,737 693,000
1,000 U.S. Trust Corp. .............. 12,154 189,000
2,000 Waddell & Reed
Financial Inc., Cl. A ........ 44,550 84,625
----------- -----------
7,878,318 10,827,923
----------- -----------
FOOD AND BEVERAGE -- 2.2%
4,000 Bestfoods Inc. ................ 181,328 187,250
20,000 Coca-Cola Amatil Ltd., ADR .... 133,363 99,474
12,000 Coca-Cola Beverages plc+ ...... 28,750 22,454
3,000 Coca-Cola Co. ................. 138,025 140,813
3,000 Corn Products
International Inc. ........... 86,909 72,188
14,000 Diageo plc, ADR ............... 591,461 421,750
10,000 Heinz (H.J.) Co. .............. 426,974 348,750
1,000 Hershey Foods Corp. ........... 49,738 48,750
15,000 Kellogg Co. ................... 453,164 384,375
1,000 Quaker Oats Co. ............... 34,175 60,625
----------- -----------
2,123,887 1,786,429
----------- -----------
HEALTH CARE -- 1.9%
8,000 Aventis SA, ADR ............... 395,251 432,000
3,000 Bristol-Myers Squibb Co. ...... 193,463 173,250
1,000 Glaxo Wellcome plc, ADR ....... 54,024 57,313
See accompanying notes to financial statements.
10
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- MARCH 31, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
HEALTH CARE (CONTINUED)
2,000 Johnson & Johnson ............. $ 39,339 $ 140,125
10,000 Pharmacia & Upjohn Inc. ....... 290,500 592,500
3,000 SmithKline Beecham plc, ADR ... 189,963 198,188
----------- -----------
1,162,540 1,593,376
----------- -----------
METALS AND MINING -- 0.2%
15,000 Freeport-McMoRan Copper &
Gold Inc., Cl. B+ ............ 272,350 180,938
----------- -----------
PAPER AND FOREST PRODUCTS -- 0.4%
34,000 Pactiv Corp.+ ................. 643,022 297,500
----------- -----------
PUBLISHING -- 1.8%
4,000 Dow Jones & Co. Inc. .......... 185,428 287,250
3,000 Harcourt General Inc. ......... 115,638 111,750
5,000 McGraw-Hill Companies Inc. .... 152,667 227,500
30,000 Reader's Digest Association
Inc., Cl. B .................. 812,013 858,750
----------- -----------
1,265,746 1,485,250
----------- -----------
REAL ESTATE -- 0.0%
2,500 Griffin Land & Nurseries Inc.+ 11,716 27,500
----------- -----------
RETAIL -- 0.9%
23,000 Albertson's Inc. .............. 688,209 713,000
2,000 Sears, Roebuck & Co. .......... 51,242 61,750
----------- -----------
739,451 774,750
----------- -----------
SATELLITE -- 0.1%
5,000 COMSAT Corp. .................. 104,386 103,125
----------- -----------
SPECIALTY CHEMICALS -- 3.1%
1,200 Celenese AG ................... 16,129 24,600
5,000 Dexter Corp. .................. 158,443 265,000
2,000 du Pont de Nemours
(E.I.) & Co. ................. 65,500 105,750
7,500 Ferro Corp. ................... 138,500 133,594
8,000 Grace (W.R.) & Co.+ ........... 91,915 101,500
12,000 Great Lakes Chemical Corp. .... 442,944 408,000
1,500 IMC Global Inc. ............... 31,075 22,031
27,000 Monsanto Co. .................. 987,111 1,390,500
20,000 Omnova Solutions Inc. ......... 155,815 112,500
----------- -----------
2,087,432 2,563,475
----------- -----------
TELECOMMUNICATIONS -- 12.5%
1,500 ALLTEL Corp. .................. 36,200 94,594
1,000 AT&T Corp. .................... 37,325 56,250
18,000 BCE Inc. ...................... 524,488 2,257,875
13,500 BCT.Telus Communications Inc. . 238,092 399,518
MARKET
SHARES COST VALUE
------ ---- ------
4,500 BCT.Telus Communications
Inc., Cl. A .................. $ 79,364 $ 133,173
7,108 Bell Atlantic Corp. ........... 277,025 434,477
1,500 British Telecommunications
plc, ADR ..................... 84,309 282,188
19,000 Cable & Wireless plc, ADR ..... 567,936 1,064,000
10,000 Cable & Wireless HKT Ltd., ADR 155,896 257,500
44,000 Citizens Utilities Co., Cl. B+ 458,696 720,500
7,000 Deutsche Telekom AG, ADR+ ..... 149,708 561,750
1,000 France Telecom SA, ADR ........ 34,488 176,938
24,000 GTE Corp. ..................... 811,200 1,704,000
34,999 SBC Communications Inc. ....... 836,949 1,469,956
1,000 Telecom Italia SpA, ADR ....... 31,080 152,000
7,000 Telefonica SA, ADR ............ 93,609 522,375
1,000 US West Inc. .................. 24,839 72,625
----------- -----------
4,441,204 10,359,719
----------- -----------
TOTAL COMMON STOCKS ........... 59,923,273 77,664,516
----------- -----------
PREFERRED STOCKS -- 3.4%
AVIATION: PARTS AND SERVICES -- 0.2%
2,000 Coltec Capital Trust,
5.25% Cv. Pfd. ............... 86,000 71,500
3,000 Coltec Capital Trust, .........
5.25% Cv. Pfd. (b) ........... 129,000 107,250
----------- -----------
215,000 178,750
----------- -----------
DIVERSIFIED INDUSTRIAL -- 0.1%
2,000 WHX Corp.,
$3.75 Cv. Pfd., Ser. B ....... 75,038 46,000
----------- -----------
ENTERTAINMENT -- 0.0%
1,000 Metromedia International Group Inc.,
7.25% Cv. Pfd. ............... 35,025 32,000
----------- -----------
EQUIPMENT AND SUPPLIES -- 0.5%
6,000 Sequa Corp.,
$5.00 Cv. Pfd. ............... 464,250 444,000
----------- -----------
METALS AND MINING -- 0.1%
5,000 Freeport-McMoRan Copper
& Gold Inc.,
7.00% Cv. Pfd. ............... 106,500 74,063
----------- -----------
PAPER AND FOREST PRODUCTS -- 1.2%
20,000 Sealed Air Corp.,
$2.00 Cv. Pfd., Ser. A ....... 831,527 1,038,750
----------- -----------
TELECOMMUNICATIONS -- 1.3%
17,000 Citizens Utilities Co.,
5.00% Cv. Pfd. ............... 816,716 1,062,500
----------- -----------
TOTAL PREFERRED STOCKS ........ 2,544,056 2,876,063
----------- -----------
See accompanying notes to financial statements.
11
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- MARCH 31, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COST VALUE
------ ---- ------
CORPORATE BONDS -- 4.0%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.5%
$ 520,000 Standard Motor Products Inc.,
Sub. Deb. Cv.
6.75%, 07/15/09 .............. $ 517,469 $ 373,750
----------- -----------
BUSINESS SERVICES -- 0.1%
100,000 BBN Corp.,
Sub. Deb. Cv. (a)
6.00%, 04/01/12 .............. 97,196 96,750
----------- -----------
CONSUMER PRODUCTS -- 1.2%
3,600,000 Pillowtex Corp.,
Sub. Deb. Cv.
6.00%, 03/15/12 .............. 1,673,444 1,008,000
----------- -----------
ENTERTAINMENT -- 0.2%
150,000 USA Networks Inc.,
Sub. Deb. Cv.
7.00%, 07/01/03 .............. 137,861 153,563
----------- -----------
EQUIPMENT AND SUPPLIES -- 1.4%
356,000 Kollmorgen Corp.,
Sub. Deb. Cv.
8.75%, 05/01/09 .............. 308,763 348,880
1,000,000 Mark IV Industries Inc.,
Sub. Deb. Cv.
4.75%, 11/01/04 .............. 868,766 852,500
----------- -----------
1,177,529 1,201,380
----------- -----------
HOTELS AND GAMING -- 0.3%
300,000 Hilton Hotels Corp.,
Sub. Deb. Cv.
5.00%, 05/15/06 .............. 266,862 227,250
----------- -----------
PUBLISHING -- 0.3%
100,000 News America Holdings Inc.,
Sub. Deb. Cv.
Zero Coupon, 03/31/02 ........ 85,908 240,375
----------- -----------
TOTAL CORPORATE BONDS 3,956,269 3,301,068
----------- -----------
TOTAL
INVESTMENTS -- 101.0% ........ $66,423,598 83,841,647
===========
OTHER ASSETS AND
LIABILITIES (NET) -- (1.0)% ................ 82,973,181
-----------
NET ASSETS -- 100.0%
(5,232,455 shares outstanding) ............. $82,973,181
===========
PRINCIPAL SETTLEMENT NET UNRELAIZED
AMOUNT DATE DEPRECIATION
------ ---- ------------
FORWARD FOREIGN EXCHANGE CONTRACTS
2,808,830(c) Deliver Hong Kong Dollars
in exchange for
USD $360,835 ................. 08/24/00 $(4,248)
------------------------
For Federal tax purposes:
Aggregate cost .............................. $66,423,598
===========
Gross unrealized appreciation ............... $22,856,882
Gross unrealized depreciation ............... (5,438,833)
-----------
Net unrealized appreciation ................. $17,418,049
===========
- ------------------------
(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 March
31, 2000, the market value of Rule 144A securities amounted to $107,250 or
0.1% of total net assets.
(c) Principal amount denoted in Hong Kong Dollars.
+ Non-income producing security.
ADR - American Depositary Receipt.
USD - U.S. Dollars.
See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value
(Cost $66,423,598) ................... $83,841,647
Dividends and interest receivable ...... 341,359
Receivable for capital shares sold ..... 163,522
-----------
TOTAL ASSETS ........................... 84,346,528
-----------
LIABILITIES:
Payable for capital shares redeemed .... 48,258
Payable for investment advisory fees ... 67,621
Payable for distribution fees .......... 16,905
Payable to custodian ................... 1,152,131
Unrealized depreciation on forward
foreign exchange contracts ........... 4,248
Distributions payable .................. 21,092
Other accrued expenses ................. 63,092
-----------
TOTAL LIABILITIES ...................... 1,373,347
-----------
NET ASSETS applicable to 5,232,455
shares outstanding ................... $82,973,181
===========
NET ASSETS CONSIST OF:
Capital stock, at par value ............ $ 5,232
Additional paid-in capital ............. 58,384,867
Accumulated net investment income ...... 118,065
Accumulated net realized gain
on investments and foreign currency
transactions ......................... 7,051,482
Net unrealized appreciation on investments
and foreign currency transactions .... 17,413,535
-----------
TOTAL NET ASSETS ....................... $82,973,181
===========
NET ASSET VALUE, offering and redemption
price per share ($82,973,181 / 5,232,455
shares outstanding; unlimited number of
shares authorized of $0.001 par value) $15.86
======
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign taxes
of $2,882) ........................... $1,279,367
Interest ............................... 166,519
----------
TOTAL INVESTMENT INCOME ................ 1,445,886
----------
EXPENSES:
Investment advisory fees ............... 433,509
Distribution fees ...................... 108,377
Shareholder services fees .............. 60,574
Shareholder report expenses ............ 40,430
Interest expense ....................... 25,765
Legal and audit fees ................... 16,815
Custodian fees ......................... 15,007
Directors' fees ........................ 13,236
Registration fees ...................... 12,056
Miscellaneous expenses ................. 2,373
----------
TOTAL EXPENSES ......................... 728,142
----------
NET INVESTMENT INCOME .................. 717,744
----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments
and foreign currency transactions .... 7,431,165
Net change in unrealized appreciation
on investments and foreign currency
transactions ......................... (5,098,022)
----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS ......................... 2,333,163
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ...................... $3,050,907
==========
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 2000 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1999
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................... $ 717,744 $ 1,145,633
Net realized gain on investments and foreign currency transactions ....... 7,431,165 10,754,249
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions ...................................... (5,098,002) 3,127,043
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................... 3,050,907 15,026,925
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income .................................................... (632,928) (1,106,687)
Net realized gain on investments ......................................... (10,705,825) (5,973,881)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ...................................... (11,338,753) (7,080,568)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets from capital share transactions .... (849,835) 4,495,622
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS .................................... (9,137,681) 12,441,979
NET ASSETS:
Beginning of period ...................................................... 92,110,862 79,668,883
----------- -----------
End of period ............................................................ $82,973,181 $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 Bank of
New York, with member banks of the Federal Reserve System or with other brokers
or dealers that meet credit guidelines established by the Directors. Under the
terms of a typical repurchase agreement, the Fund takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. The Fund will always
receive and maintain securities as collateral whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement. The Fund will make payment for such securities
only
14
<PAGE>
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
upon physical delivery or upon evidence of book entry transfer of the collateral
to the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to maintain the adequacy of the collateral. If the seller defaults
and the value of the collateral declines or if bankruptcy proceedings are
commenced with respect to the seller of the security, realization of the
collateral by the Fund may be delayed or limited.
FUTURES CONTRACTS. The Fund may engage in futures contracts for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin". Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract. The daily changes in the contract are included in
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. At March 31, 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
15
<PAGE>
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
transactions, foreign currency transactions and the difference between the
amounts of interest and dividends recorded on the books of the Fund and the
amounts actually received. The portion of foreign currency gains and losses
related to fluctuation in exchange rates between the initial trade date and
subsequent sale trade date is included in realized gain/(loss) on investments.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
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 six months
ended March 31, 2000, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an affiliate of the Adviser, of $108,377, or 0.25% of average
daily net assets, the annual limitation under the Plan. Such payments are
accrued daily and paid monthly.
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the six months
ended March 31, 2000, other than short term securities, aggregated $12,774,245
and $20,520,241, respectively.
16
<PAGE>
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
6. TRANSACTIONS WITH AFFILIATES. During the six months ended March 31, 2000, the
Fund paid brokerage commissions of $8,708 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 $1,147,000 of borrowings outstanding at March 31, 2000.
The average daily amount of borrowings outstanding within the six months ended
March 31, 2000 was $916,273, with a related weighted average interest rate of
6.46%. The maximum amount borrowed at any time during the six months ended March
31, 2000 was $2,760,000.
8. CAPITAL STOCK TRANSACTIONS. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ...................................... 517,947 $ 8,420,302 1,118,588 $ 19,506,816
Shares issued upon reinvestment of dividends ..... 698,375 10,693,478 408,295 6,723,027
Shares redeemed .................................. (1,224,731) (19,963,616) (1,274,350) (21,734,221)
---------- ------------ ---------- ------------
Net increase (decrease) ...................... (8,409) $ (849,836) 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>
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2000 ----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ......... $ 17.58 $ 15.97 $ 17.39 $ 13.81 $ 12.65 $ 11.54
------- ------- ------- ------- ------- -------
Net investment income ........................ 0.14 0.23 0.22 0.22 0.28 0.29
Net realized and unrealized gain
on investments ............................. 0.41 2.82 0.29 4.28 1.76 1.77
------- ------- ------- ------- ------- -------
Total from investment operations ............. 0.55 3.05 0.51 4.50 2.04 2.06
------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ........................ (0.13) (0.22) (0.26) (0.22) (0.28) (0.29)
In excess of net investment income ........... -- -- -- -- (0.01) --
Net realized gain on investments ............. (2.14) (1.22) (1.67) (0.70) (0.59) (0.66)
------- ------- ------- ------- ------- -------
Total distributions .......................... (2.27) (1.44) (1.93) (0.92) (0.88) (0.95)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ............... $ 15.86 $ 17.58 $ 15.97 $ 17.39 $ 13.81 $ 12.65
======= ======= ======= ======= ======= =======
Total return+ ................................ 3.62% 19.82% 2.98% 33.98% 16.69% 19.20%
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ......... $82,973 $92,111 $79,669 $73,730 $57,006 $54,806
Ratio of net investment income
to average net assets ...................... 1.66%(b) 1.32% 1.27% 1.42% 1.99% 2.50%
Ratio of operating expenses
to average net assets (a) .................. 1.68%(b) 1.60% 1.64% 1.78% 1.93% 1.83%
Portfolio turnover rate ...................... 15% 39% 35% 43% 20% 30%
</TABLE>
- --------------------------------
+ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends. Total return for the period of less
than one year is not annualized.
(a) The Fund incurred interest expense during the six months ended March 31,
2000. If interest expense had not been incurred, the ratio of operating
expenses to average net assets would have been 1.62%.
(b) Annualized.
See accompanying notes to financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
GABELLI FAMILY OF FUNDS
- --------------------------------------------------------------------------------
GABELLI ASSET FUND--------------------------------------------------------------
Seeks to invest primarily in a diversified portfolio of common stocks selling at
significant discounts to their private market value. The Fund's primary
objective is growth of capital. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI GROWTH FUND-------------------------------------------------------------
Seeks to invest primarily in large cap stocks believed to have favorable, yet
undervalued, prospects for earnings growth. The Fund's primary objective is
capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: HOWARD F. WARD, CFA
GABELLI WESTWOOD EQUITY FUND----------------------------------------------------
Seeks to invest primarily in the common stock of seasoned companies believed to
have proven records and above average historical earnings growth. The Fund's
primary objective is capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: SUSAN M. BYRNE
GABELLI SMALL CAP GROWTH FUND---------------------------------------------------
Seeks to invest primarily in common stock of smaller companies (market
capitalizations less than $500 million) believed to have rapid revenue and
earnings growth potential. The Fund's primary objective is capital appreciation.
(NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI BLUE CHIP VALUE FUND----------------------------------------------------
Seeks long-term growth of capital through investment primarily in the common
stocks of well-established, high quality companies that have market
capitalizations of greater than $5 billion. (NO-LOAD)
PORTFOLIO MANAGER: BARBARA MARCIN, CFA
GABELLI WESTWOOD SMALLCAP EQUITY FUND-------------------------------------------
Seeks to invest primarily in smaller capitalization equity securities - market
caps of $1 billion or less. The Fund's primary objective is long-term capital
appreciation. (NO-LOAD)
PORTFOLIO MANAGER: LYNDA CALKIN, CFA
GABELLI WESTWOOD INTERMEDIATE BOND FUND-----------------------------------------
Seeks to invest in a diversified portfolio of bonds with various maturities. The
Fund's primary objective is total return. (NO-LOAD)
PORTFOLIO MANAGER: PATRICIA FRAZE
GABELLI EQUITY INCOME FUND------------------------------------------------------
Seeks to invest primarily in equity securities with above market average yields.
The Fund pays quarterly dividends and seeks a high level of total return with an
emphasis on income. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI WESTWOOD BALANCED FUND--------------------------------------------------
Seeks to invest in a balanced and diversified portfolio of stocks and bonds. The
Fund's primary objective is both capital appreciation and current income.
(NO-LOAD)
PORTFOLIO MANAGERS: SUSAN M. BYRNE & PATRICIA FRAZE
GABELLI WESTWOOD MIGHTY MITES[SERVICE MARK] FUND--------------------------------
Seeks to invest in micro-cap companies that have market capitalizations of $300
million or less. The Fund's primary objective is long-term capital appreciation.
(NO-LOAD)
TEAM MANAGED: MARIO J. GABELLI, CFA,
MARC J. GABELLI, LAURA K. LINEHAN AND
WALTER K. WALSH
GABELLI VALUE FUND--------------------------------------------------------------
Seeks to invest in securities of companies believed to be undervalued. The
Fund's primary objective is long-term capital appreciation. MAX. SALES CHARGE:
5 1/2%
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI UTILITIES FUND----------------------------------------------------------
Seeks to provide a high level of total return through a combination of capital
appreciation and current income. (NO-LOAD)
PORTFOLIO MANAGER: TIMOTHY O'BRIEN, CFA
GABELLI ABC FUND----------------------------------------------------------------
Seeks to invest in securities with attractive opportunities for appreciation or
investment income. The Fund's primary objective is total return in various
market conditions without excessive risk of capital loss. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI MATHERS FUND------------------------------------------------------------
Seeks long-term capital appreciation in various market conditions without
excessive risk of capital loss. (NO-LOAD)
PORTFOLIO MANAGER: HENRY VAN DER EB, CFA
GABELLI U.S. TREASURY MONEY MARKET FUND-----------------------------------------
Seeks to invest exclusively in short-term U.S. Treasury securities. The Fund's
primary objective is to provide high current income consistent with the
preservation of principal and liquidity. (NO-LOAD)
PORTFOLIO MANAGER: JUDITH A. RANERI
GABELLI CASH MANAGEMENT SHARES OF
THE TREASURER'S FUND------------------------------------------------------------
Three money market portfolios designed to generate superior returns without
compromising portfolio safety. U.S. Treasury Money Market seeks to invest in
U.S. Treasury bills, notes and bonds. Tax Exempt Money Market seeks to invest in
municipal securities. Domestic Prime Money Market seeks to invest in prime
quality, domestic money market instruments. (NO-LOAD)
PORTFOLIO MANAGER: JUDITH A. RANERI
AN INVESTMENT IN THE ABOVE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENT AGENCY. ALTHOUGH
THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
GLOBAL SERIES
GABELLI GLOBAL TELECOMMUNICATIONS FUND
Seeks to invest in telecommunications companies throughout the world -
targeting undervalued companies with strong earnings and cash flow dynamics.
The Fund's primary objective is capital appreciation. (NO-LOAD)
TEAM MANAGED: MARIO J. GABELLI, CFA,
MARC J. GABELLI AND IVAN ARTEAGA, CFA
GABELLI GLOBAL CONVERTIBLE SECURITIES FUND
Seeks to invest principally in bonds and preferred stocks which are
convertible into common stock of foreign and domestic companies. The Fund's
primary objective is total return through a combination of current income and
capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: HART WOODSON
GABELLI GLOBAL GROWTH FUND
Seeks capital appreciation through a disciplined investment program focusing
on the globalization and interactivity of the world's marketplace. The Fund
invests in companies at the forefront of accelerated growth. The Fund's
primary objective is capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: MARC J. GABELLI
GABELLI GLOBAL OPPORTUNITY FUND
Seeks to invest in common stock of companies which have rapid growth in
revenues and earnings and potential for above average capital appreciation or
are undervalued. The Fund's primary objective is capital appreciation.
(NO-LOAD)
PORTFOLIO MANAGERS: MARC J. GABELLI
AND CAESAR BRYAN
GABELLI GOLD FUND---------------------------------------------------------------
Seeks to invest in a global portfolio of equity securities of gold mining and
related companies. The Fund's objective is long-term capital appreciation.
Investment in gold stocks is considered speculative and is affected by a variety
of world-wide economic, financial and political factors. (NO-LOAD)
PORTFOLIO MANAGER: CAESAR BRYAN
GABELLI INTERNATIONAL GROWTH FUND-----------------------------------------------
Seeks to invest in the equity securities of foreign issuers with long-term
capital appreciation potential. The Fund offers investors global
diversification. (NO-LOAD)
PORTFOLIO MANAGER: CAESAR BRYAN
THE SIX FUNDS ABOVE INVEST IN FOREIGN SECURITIES WHICH INVOLVES RISKS NOT
ORDINARILY ASSOCIATED WITH INVESTMENTS IN DOMESTIC ISSUES, INCLUDING CURRENCY
FLUCTUATION, ECONOMIC AND POLITICAL RISKS. THE FUNDS LISTED ABOVE ARE
DISTRIBUTED BY GABELLI & COMPANY, INC.
- --------------------------------------------------------------------------------
TO RECEIVE A PROSPECTUS, CALL 1-800-GABELLI (422-3554). THE
PROSPECTUS GIVES A MORE COMPLETE DESCRIPTION OF THE FUND,
INCLUDING FEES AND EXPENSES. READ THE PROSPECTUS CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
VISIT OUR WEBSITE AT:
WWW.GABELLI.COM
OR, CALL:
1-800-GABELLI
1-800-422-3554 [BULLET] 914-921-5100 [BULLET]
FAX: 914-921-5118 [BULLET] [email protected]
ONE CORPORATE CENTER, RYE, NEW YORK 10580
<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.
- --------------------------------------------------------------------------------
GAB444Q100SR
[Photo of Mario J.Gabelli omitted]
THE
GABELLI
EQUITY
INCOME
FUND
SEMI-ANNUAL REPORT
MARCH 31, 2000
