THE GABELLI EQUITY INCOME FUND
FIRST QUARTER REPORT
DECEMBER 31, 1999(A)
TO OUR SHAREHOLDERS,
The market was not very generous to higher yielding stocks in 1999.
Technology stocks, which generally have low yields or none at all, were
responsible for much of the gains in the Standard & Poor's 500 Index during the
fourth quarter and the full year. Rising interest rates through the year also
tended to restrain higher yielding stocks, in particular interest rate-sensitive
utility stocks.
INVESTMENT PERFORMANCE
For the quarter ended December 31, 1999, The Gabelli Equity Income Fund's
(the "Fund") total return was 2.84% after adjusting for the $2.21 per share
dividend paid on December 20, 1999. The Standard & Poor's ("S&P") 500 Index and
Lipper Equity Income Fund Average had total returns of 14.87% and 3.81%,
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 9.33% for 1999. The S&P 500 Index and Lipper Equity Income Fund Average rose
21.03% and 3.35%, respectively, over the same twelve-month period.
For the five-year period ended December 31, 1999, the Fund's total return
averaged 18.95% annually versus average annual total returns of 28.54% and
17.27% for the S&P 500 Index and Lipper Equity Income Fund Average,
respectively. Since inception on January 2, 1992 through December 31, 1999, the
Fund had a cumulative total return of 211.51%, which equates to an average
annual total return of 15.26%.
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 of pyramid omitted--text as follows]
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
[End of Pyramid text]
- --------------------------------------------------------------------------------
(a) The Fund's fiscal year ends September 30.
<PAGE>
INVESTMENT RESULTS (a)(c)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Calendar Quarter
------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1999: Net Asset Value ....................... $16.39 $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 - December 31, 1999 (a)
- ----------------------------------------------
1 Year .......................... 9.33%
5 Year .......................... 18.95%
Life of Fund (b) ................ 15.26%
- ----------------------------------------------
(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
2
<PAGE>
to the company itself that will surface value. In the case of the independent
telephone stocks, the catalyst is a regulatory change. In the agricultural
equipment business, it is the increasing worldwide demand for American food and
feed crops. In other instances, it may be a change in management, sale or
spin-off of a division or the development of a profitable new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long term
method for preserving and enhancing wealth in the U.S. 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 TORTOISE AND THE HARE
Companies in more mature, stable industries tend to pay a greater
percentage of their earnings to shareholders in the form of dividends. Companies
in faster growth industries such as technology, generally reinvest all or most
of their earnings in their businesses. Higher yielding stocks generally deliver
respectable returns in strong stock markets and better relative returns in flat
and down markets. Growth stocks usually outperform in vibrant markets and
underperform in more difficult market environments.
- --------------------------------------------------------------------------------
Dividend History
----------------
Rate Reinvestment
Payment (ex) Date Per Share Price
----------------- --------- ------------
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
- --------------------------------------------------------------------------------
These "tortoise and hare" performance characteristics were clearly
demonstrated in the last four months of 1999. During the sharp September/October
stock market correction, higher yielding stocks held up quite well, with their
yields providing some shelter from the market storm. With growth stocks, and
particularly leading technology stocks, rallying again in November/December,
higher yielding stocks were left in the market dust.
3
<PAGE>
In the fable, the tortoise ends up winning the race. In the stock market
marathon, we think the tortoise and hare will likely hit the tape at about the
same time. In other words, we think investors are well served by having exposure
to growth stocks and higher yielding stocks. The former will produce more
exciting short and intermediate term gains. However, the latter will provide
income, help diminish overall portfolio volatility, and help investors sleep
more soundly.
THE ECONOMY AND THE MARKET
The long term bull market in U.S. stocks has been fueled by low inflation,
declining interest rates, strong corporate profit growth, and very favorable
supply/demand dynamics for equities. As we write, two of the four ingredients
that have been propelling the market remain in place. Corporate profits are
expanding at an attractive rate, and demand for equities continues to outpace
supply. However, inflation has moved modestly higher and market interest rates
are at two-year peaks.
Will inflation remain in the current comfort zone? That depends on whether
the Federal Reserve can effectively restrain the economy and whether increased
productivity can continue to offset rising wages in a tight labor market. At
present, nobody (including us) can answer these questions. However, we suspect
that if the economy continues to expand at a rate in excess of 5.0% and the job
market continues to tighten, there will be more serious inflationary
implications and interest rates will move even higher. If this economic scenario
unfolds, stocks will likely stall or perhaps correct. If the Federal Reserve
succeeds in cooling down the economy and inflation and interest rates stabilize
around current levels, stocks could advance in line with corporate earnings
growth.
Higher yielding stocks should perform better on a relative basis in either
scenario. If the market does encounter trouble in the year ahead, the defensive
characteristics of higher yielding stocks will surface. If the market advances
in line with corporate earnings growth, higher yielding stock returns should be
more competitive with growth stock gains.
THIS YEAR'S SCORECARD
Our best performers this year were concentrated in telecommunications
(BCE, Deutsche Telekom, Telefonica de Espana, British Telecom, and France
Telecom); communications equipment (Motorola); media (Granite Broadcasting,
Viacom, News America Holdings, and Dow Jones); and financial services (American
Express, Deutsche Bank, and Northern Trust).
Our utilities holdings were mixed, with Providence Energy, Citizens
Utilities, United Water Resources, and Eastern Enterprises posting excellent
gains, and Peoples Energy, Southwest Gas, Public Service Enterprise Group, and
Energy East declining substantially. We are not surprised that some of our
utility holdings struggled in the face of rising interest rates. Interest
rate-sensitive utilities tend to perform poorly when rates are rising. However,
lower utility stock prices may accelerate the already robust merger and
acquisition activity in the group. We believe most of the Fund's utility
holdings are potential takeover candidates.
A component of our investment methodology is to identify industry and
sector trends and themes ahead of the curve and position ourselves to take
advantage of these developments. Industry consolidation is one such trend. As we
have discussed in previous letters, the continued high level of
4
<PAGE>
activity in mergers and acquisitions contributed significantly to the solid
performance of the Equity Income Fund. The accompanying table illustrates how
deal activity surfaced value in a small sample of the portfolio holdings.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1999 COMPLETED DEALS
NUMBER AVERAGE COST CLOSING
FUND HOLDING OF SHARES (a) PER SHARE (b) PRICE (c) CLOSING DATE %RETURN (d)
------------ -------------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Honeywell Inc. 2,000 $43.01 $114.19 12/02/99 165.49%
Nielsen Media Research 20,000 34.66 37.75 10/25/99 8.90%
Commonwealth Energy 40,000 25.05 43.34 09/21/99 73.04%
COMSAT Corp. 15,000 19.40 45.50 09/18/99 134.54%
Transamerica Corp. 4,400 25.35 74.67 07/22/99 194.56%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Number of shares held by the Fund on the final day of trading for the
issuer. (b) Average purchase price of issuer's shares held by the Fund on the
final day of trading for the issuer. (c) Closing price on the final day of
trading for the issuer or the tender price on the closing date of the tender
offer. (d) Represents average estimated return based on average cost per share
and closing price per share.
NOTE: SEE THE PORTFOLIO OF INVESTMENTS FOR A COMPLETE LISTING OF HOLDINGS.
- --------------------------------------------------------------------------------
Branded consumer goods companies including Hershey Foods and H. J. Heinz
disappointed, as did industrial cyclicals such as Maytag, GenCorp, Dana Corp,
Barnes Group. In our opinion, these holdings continue to represent good long
term value.
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 - $90.1875 - NYSE) is Canada's global communications company. BCE
recently completed a major transaction with Ameritech (AIT - $67.1875 - NYSE).
Under the agreement, BCE sold 20% of Bell Canada, its wholly-owned Canadian
telecommunications subsidiary, to Ameritech. BCE also owns strategic stakes in
Nortel Networks (NT - $101.00 - NYSE), Teleglobe (TGO - $22.6875 - NYSE), BCE
Emergis and CGI Group. One share of BCE provides ownership of 0.84 shares of
Nortel Networks. The company's positions in satellites, network operations,
information technology, media and e-commerce are expected to provide growth for
the company.
DEUTSCHE BANK AG (DBKG.F - $84.77 - FRANKFURT STOCK EXCHANGE) is the leading
publicly quoted bank in Germany with total assets of DM 1.2 trillion at year end
1998. 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
5
<PAGE>
Global Technology and Services. Deutsche Bank has a strong market position in
Germany and is expanding throughout Europe where its is the biggest foreign bank
in Italy and Spain. Deutsche Bank's presence in the U.S. has been expanded by
the acquisition Bankers Trust.
GENUINE PARTS CO. (GPC - $24.8125 - NYSE) distributes automotive replacement
parts, industrial replacement parts and office products. The company offers
approximately 200,000 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 S.P. 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.
SPRINT CORP. (FON.A - $74.25 - NYSE) is the third largest long distance carrier
and the second largest independent local telephone company in the U.S. Sprint
has positioned itself globally through a joint venture called GlobalOne. Its
joint venture partners, France Telecom and Deutsche Telekom, also have a direct
20% stake in Sprint. FON faces risks from prospective new entrants in its long
distance business which may be offset by the "ION" high bandwidth network that
the company is developing, and by other new services. On October 5, 1999, MCI
WorldCom announced plans to acquire Sprint for $125 billion in stock and cash.
The transaction is expected to close in about 12 months upon regulatory
approval. Sprint PCS group is the leading all digital personal communications
services ("PCS") carrier in the U.S. with over four million customers and
licenses covering over 230 million people. Sprint PCS will be acquired as part
of MCI WorldCom's (WCOM - $53.0625 - Nasdaq) acquisition of Sprint Corp.
WICOR INC. (WIC - $29.1875 - NYSE), headquartered in Milwaukee, is a diversified
holding company whose subsidiaries provide natural gas distribution and
manufacture pumps and fluid processing equipment, including filtration
equipment. WICOR is the parent of Wisconsin Gas Company, which is the state's
largest gas utility serving about 530,000 customers. In June, WICOR agreed to be
acquired by Wisconsin Energy Corporation (WEC - $19.25 - NYSE) for approximately
$1.275 billion plus the assumption of $230 million of WICOR debt. The combined
companies will serve over one million electric customers in Wisconsin and
Michigan's Upper Peninsula and serve more than 920,000 gas customers.
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.
6
<PAGE>
SHAREHOLDER MEETING
We are pleased to report that the shareholders of The Gabelli Equity
Income Fund overwhelmingly approved the proposal to create additional classes of
shares for the Fund. The creation of new classes of shares provides the Fund
with distribution alternatives that address the needs of various types of
investors. The offering of new classes of shares should also enhance the
potential for the Fund to attract additional investors in a manner that could
provide added benefits for all shareholders of the Fund. The existing class of
shares have been redesignated as Class AAA shares. Presently, no introduction
date has been established for the new classes of shares. The offering of new
classes of shares will not diminish the ability of current shareholders to
purchase and redeem Class AAA shares at net asset value.
IN CONCLUSION
The Fund delivered respectable returns in a market that showed little
appreciation for higher yielding stocks. We are not surprised or disheartened
with this year's performance relative to market index benchmarks that rode
soaring technology stocks to new highs. We continue to work towards our
objective of steady performance in volatile equity markets.
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 /s/ signature
MARIO J. GABELLI, CFA JAMES FOUNG, CFA
Portfolio Manager and Associate Portfolio Manager
Chief Investment Officer
January 31, 2000
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TOP TEN HOLDINGS
DECEMBER 31, 1999
-----------------
Eastern Enterprises Southwest Gas Corp.
BCE Inc. GTE Corp.
Wicor Inc. Deutsche Bank
Genuine Parts Co. Sprint Corp.
Exxon Mobil Corp. NStar
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
7
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 92.6%
AEROSPACE -- 1.7%
15,000 Boeing Co. ......................... $ 623,437
15,000 Northrop Grumman Corp. ............. 810,937
1,000 Raytheon Co., Cl. A ................ 24,812
2,000 Rockwell International Corp. ....... 95,750
-----------
1,554,936
-----------
AUTOMOTIVE -- 1.3%
4,500 Ford Motor Co. ..................... 240,469
12,500 General Motors Corp. ............... 908,594
-----------
1,149,063
-----------
AUTOMOTIVE: PARTS AND ACCESSORIES-- 3.6%
30,000 Dana Corp. ......................... 898,125
6,000 Ethyl Corp. ........................ 23,625
25,000 GenCorp Inc. ....................... 246,875
75,000 Genuine Parts Co. .................. 1,860,937
4,000 Meritor Automotive Inc. ............ 77,500
8,000 Tenneco Automotive Inc. ............ 74,500
-----------
3,181,562
-----------
AVIATION: PARTS AND SERVICES-- 1.8%
25,000 Barnes Group Inc. .................. 407,812
19,000 Curtiss-Wright Corp. ............... 700,625
8,000 United Technologies Corp. .......... 520,000
-----------
1,628,437
-----------
BROADCASTING -- 0.2%
17,000 Granite Broadcasting Corp.+ ........ 172,125
-----------
BUSINESS SERVICES -- 0.4%
7,000 Donnelley (R.H.) Corp. ............. 132,125
4,000 Dun & Bradstreet Corp. ............. 118,000
1,000 Imation Corp.+ ..................... 33,562
2,000 IMS Health Inc. .................... 54,375
1,500 Landauer Inc. ...................... 32,812
-----------
370,874
-----------
CABLE -- 0.6%
7,000 MediaOne Group Inc.+ ............... 537,694
-----------
COMMUNICATIONS EQUIPMENT-- 0.2%
1,000 Motorola Inc. ...................... 147,250
-----------
COMPUTER HARDWARE -- 0.1%
2,000 Xerox Corp. ........................ 45,375
-----------
COMPUTER SOFTWARE AND SERVICES-- 0.1%
1,000 International Business Machines Corp. 108,000
-----------
MARKET
SHARES VALUE
------ ------
CONSUMER PRODUCTS -- 6.3%
2,000 Avon Products Inc. ................. $ 66,000
6,000 Clorox Co. ......................... 302,250
9,000 Eastman Kodak Co. .................. 596,250
5,000 Fortune Brands Inc. ................ 165,312
75,000 Gallaher Group plc, ADR ............ 1,153,125
5,000 General Cigar Holdings Inc., Cl. B+ (a) 41,562
25,000 Gillette Co. ....................... 1,029,687
5,500 Maytag Corp. ....................... 264,000
25,000 National Presto Industries Inc. .... 887,500
42,000 Philip Morris Companies Inc. ....... 973,875
3,000 Ralston Purina Group ............... 83,625
200 Rothmans Inc. ...................... 22,099
-----------
5,585,285
-----------
CONSUMER SERVICES -- 0.5%
30,000 Rollins Inc. ....................... 450,000
-----------
DIVERSIFIED INDUSTRIAL-- 2.3%
30,000 GATX Corp. ......................... 1,012,500
1,000 General Electric Co. ............... 154,750
3,000 Honeywell Inc. ..................... 173,063
3,000 Minnesota Mining & Manufacturing Co. 293,625
18,000 Thomas Industries Inc. ............. 367,875
1,000 Trinity Industries Inc. ............ 28,437
-----------
2,030,250
-----------
ELECTRONICS -- 0.7%
20,000 Thomas & Betts Corp. ............... 637,500
-----------
ENERGY AND UTILITIES: ELECTRIC-- 6.0%
10,000 CMP Group Inc. ..................... 275,625
30,000 Conectiv Inc. ...................... 504,375
12,000 DPL Inc. ........................... 207,750
120,000 El Paso Electric Co.+ .............. 1,177,500
15,000 Florida Progress Corp. ............. 634,687
8,000 FPL Group Inc. ..................... 342,500
10,000 New England Electric System ........ 517,500
95,000 Niagara Mohawk Holdings Inc. ....... 1,324,062
8,000 St. Joseph Light & Power Co. ....... 164,000
2,000 TNP Enterprises Inc. ............... 82,500
2,000 United Illuminating Co. ............ 102,750
-----------
5,333,249
-----------
ENERGY AND UTILITIES: INTEGRATED-- 6.0%
16,000 Burlington Resources Inc. .......... 529,000
10,000 Central & South West Corp. ......... 200,000
12,000 CH Energy Group Inc. ............... 396,000
22,000 Energy East Corp. .................. 457,875
42,200 Florida Public Utilities Co. ....... 717,400
20,000 MCN Energy Group Inc. .............. 475,000
8
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES: INTEGRATED (CONTINUED)
20,000 MidAmerican Energy Holdings Co.+ ... $ 673,750
40,000 Nstar .............................. 1,620,000
5,000 Public Service Enterprise Group Inc. 174,063
4,640 ScottishPower plc, ADR ............. 129,920
-----------
5,373,008
-----------
ENERGY AND UTILITIES: NATURAL GAS-- 12.7%
55,000 AGL Resources Inc. ................. 935,000
74,000 Eastern Enterprises ................ 4,250,362
10,000 Fall River Gas Co. ................. 212,500
31,000 KeySpan Corp. ...................... 718,813
4,000 Peoples Energy Corp. ............... 134,000
12,000 Piedmont Natural Gas Co. Inc. ...... 363,000
4,000 Providence Energy Corp. ............ 148,500
2,000 Public Service Co. of North Carolina 64,625
1,050 Southern Union Co.+ ................ 20,081
75,000 Southwest Gas Corp. ................ 1,725,000
70,000 WICOR Inc. ......................... 2,043,125
15,000 Yankee Energy Systems Inc. ......... 659,063
-----------
11,274,069
-----------
ENERGY AND UTILITIES: OIL-- 8.7%
13,000 Atlantic Richfield Co. ............. 1,124,500
24,000 BP Amoco plc, ADR .................. 1,423,500
10,000 Chevron Corp. ...................... 866,250
2,000 Conoco Inc., Cl. A ................. 49,500
1,500 Devon Energy Corp. ................. 49,313
58,000 ENI SpA ............................ 318,976
22,000 Exxon Mobil Corp. .................. 1,772,375
28,000 Texaco Inc. ........................ 1,520,750
8,759 Total Petroleum of North
America Ltd., ADR ................. 606,561
-----------
7,731,725
-----------
ENERGY AND UTILITIES: SERVICES-- 0.7%
16,000 Halliburton Co. .................... 644,000
-----------
ENERGY AND UTILITIES: WATER-- 1.3%
35,000 United Water Resources Inc. ........ 1,196,563
-----------
ENTERTAINMENT -- 0.2%
3,000 Viacom Inc., Cl. A+ ................ 181,313
-----------
ENVIRONMENTAL SERVICES-- 0.6%
30,000 Waste Management Inc. .............. 515,625
-----------
EQUIPMENT AND SUPPLIES-- 2.5%
3,000 Caterpillar Inc. ................... 141,188
2,000 Cooper Industries Inc. ............. 80,875
25,000 Deere & Co. ........................ 1,084,375
1,000 Ingersoll-Rand Co. ................. 55,063
15,000 Mark IV Industries Inc. ............ 265,313
MARKET
SHARES VALUE
------ ------
1,500 Minerals Technologies Inc. ......... $ 60,094
1,000 PerkinElmer Inc. ................... 41,688
18,000 Smith (A.O.) Corp., Cl. B .......... 393,750
1,000 Union Carbide Corp. ................ 66,750
-----------
2,189,096
-----------
FINANCIAL SERVICES-- 13.1%
3,159 Aegon NV, ADR ...................... 301,685
3,500 American Express Co. ............... 581,875
11,000 Argonaut Group Inc. ................ 218,625
1,500 Banco Popular Espanol .............. 97,829
18,000 Banco Santander Central Hispano SA, ADR 210,375
2,000 Banco Santiago ..................... 42,750
9,052 Bank of America Corp. .............. 454,297
23,000 Bank One Corp. ..................... 737,438
3,000 Banque Nationale de Paris .......... 276,792
4,000 Block (H&R) Inc. ................... 175,000
4,000 Chase Manhattan Corp. .............. 310,750
31,000 Commerzbank AG, ADR ................ 1,131,500
20,000 Deutsche Bank AG, ADR .............. 1,690,000
3,000 Dresdner Bank AG, ADR .............. 166,196
2,000 Fannie Mae ......................... 124,875
2,000 Fidelity National Corp. ............ 15,125
38,000 First Union Corp. .................. 1,246,875
20,000 Mellon Financial Corp. ............. 681,250
1,500 Merrill Lynch & Co. Inc. ........... 125,250
2,000 MONY Group Inc. .................... 58,375
7,500 Morgan (J.P.) & Co. Inc. ........... 949,688
3,000 Municipal Mortgage & Equity LLC .... 55,500
6,000 Northern Trust Corp. ............... 318,000
3,000 Pioneer Group Inc.+ ................ 47,250
8,000 St. Paul Companies Inc. ............ 269,500
6,300 Sterling Bancorp ................... 100,800
12,000 SunTrust Banks Inc. ................ 825,750
4,000 U.S. Trust Corp. ................... 320,750
3,000 Waddell & Reed Financial Inc., Cl. A 81,375
-----------
11,615,475
-----------
FOOD AND BEVERAGE -- 1.9%
4,000 Bestfoods Inc. ..................... 210,250
6,000 Coca-Cola Amatil Ltd., ADR ......... 32,772
12,000 Coca-Cola Beverages plc+ ........... 23,066
1,000 Coca-Cola Co. ...................... 58,250
3,000 Corn Products International Inc. ... 98,250
14,000 Diageo plc, ADR .................... 448,000
6,000 Heinz (H.J.) Co. ................... 238,875
1,000 Hershey Foods Corp. ................ 47,500
15,000 Kellogg Co. ........................ 462,188
1,000 Quaker Oats Co. .................... 65,625
-----------
1,684,776
-----------
9
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
HEALTH CARE -- 2.0%
9,002 Aventis SA, ADR .................... $ 512,003
3,000 Bristol-Meyers Squibb Co. .......... 192,563
1,000 Glaxo Wellcome plc, ADR ............ 55,875
3,000 Johnson & Johnson .................. 279,375
10,000 Pharmacia & Upjohn Inc. ............ 450,000
4,000 SmithKline Beecham plc, ADR ........ 257,750
-----------
1,747,566
-----------
METALS AND MINING -- 0.4%
15,000 Freeport-McMoRan Copper
& Gold Inc., Cl. B ................ 316,875
-----------
PAPER AND FOREST PRODUCTS-- 0.4%
34,000 Pactiv Corp.+ ...................... 361,250
-----------
PUBLISHING -- 2.1%
8,000 Dow Jones & Co. Inc. ............... 544,000
3,000 Harcourt General Inc. .............. 120,750
5,000 McGraw-Hill Companies Inc. ......... 308,125
33,000 Reader's Digest Association Inc., Cl. B 874,500
-----------
1,847,375
-----------
REAL ESTATE -- 0.0%
2,500 Griffin Land & Nurseries Inc.+ ..... 28,750
-----------
RETAIL -- 0.8%
21,000 Albertson's Inc. ................... 677,250
2,000 Sears, Roebuck & Co. ............... 60,875
-----------
738,125
-----------
SATELLITE -- 0.1%
5,000 COMSAT Corp. ....................... 99,375
-----------
SPECIALTY CHEMICALS-- 2.6%
1,200 Celenese AG ........................ 21,750
5,000 Dexter Corp. ....................... 198,750
2,000 du Pont de Nemours (E.I.) & Co. .... 131,750
7,500 Ferro Corp. ........................ 165,000
8,000 Grace (W.R.) & Co.+ ................ 111,000
12,000 Great Lakes Chemical Corp. ......... 458,250
1,500 IMC Global Inc. .................... 24,563
30,000 Monsanto Co. ....................... 1,068,750
20,000 Omnova Solutions Inc. .............. 155,000
-----------
2,334,813
-----------
TELECOMMUNICATIONS-- 10.7%
1,500 Alltel Corp. ....................... 124,031
1,000 AT&T Corp. ......................... 50,750
28,000 BCE Inc. ........................... 2,525,250
13,500 BCT.Telus Communications Inc. ...... 328,732
MARKET
SHARES VALUE
------ ------
4,500 BCT.Telus Communications Inc., Cl. A $ 108,642
7,108 Bell Atlantic Corp. ................ 437,586
1,500 British Telecommunications plc, ADR 357,000
20,000 Cable & Wireless plc, ADR .......... 1,058,750
15,000 Cable & Wireless HKT Ltd., ADR ..... 436,875
44,000 Citizens Utilities Co., Cl. B+ ..... 624,250
7,000 Deutsche Telekom AG, ADR+ .......... 497,000
1,000 France Telecom SA, ADR ............. 133,500
24,000 GTE Corp. .......................... 1,693,500
4,000 SBC Communications Inc. ............ 195,000
2,000 Telecom Italia SpA, ADR ............ 280,000
8,000 Telefonica SA, ADR ................. 630,500
1,000 US West Inc. ....................... 72,000
-----------
9,553,366
-----------
TOTAL COMMON STOCKS ................ 82,364,745
-----------
PREFERRED STOCKS -- 5.1%
AVIATION: PARTS AND SERVICES -- 0.2%
2,000 Coltec Capital Trust,
5.25% Cv. Pfd. .................... 96,500
3,000 Coltec Capital Trust,
5.25% Cv. Pfd. (b) ................ 110,250
-----------
206,750
-----------
DIVERSIFIED INDUSTRIAL -- 0.1%
2,000 WHX Corp.,
$3.75 Cv. Pfd., Ser. B ............ 51,625
-----------
ENTERTAINMENT-- 0.0%
1,000 Metromedia International Group Inc.,
7.25% Cv. Pfd. .................... 30,000
-----------
EQUIPMENT AND SUPPLIES -- 0.6%
6,000 Sequa Corp.,
$5.00 Cv. Pfd. .................... 540,000
-----------
METALS AND MINING -- 0.1%
5,000 Freeport-McMoRan Copper & Gold Inc.,
7.00% Cv. Pfd. .................... 95,313
-----------
PAPER AND FOREST PRODUCTS -- 1.2%
20,000 Sealed Air Corp.,
$2.00 Cv. Pfd., Ser. A ............ 1,010,000
-----------
TELECOMMUNICATIONS-- 2.9%
17,000 Citizens Utilities Co.,
5.00% Cv. Pfd. .................... 958,375
22,000 Sprint Corp.,
8.25% Cv. Pfd. .................... 1,633,500
-----------
2,591,875
-----------
TOTAL PREFERRED STOCKS ............. 4,525,563
-----------
10
<PAGE>
THE GABELLI EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
CORPORATE BONDS -- 3.5%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.5%
$ 520,000 Standard Motor Products Inc.,
Sub. Deb. Cv.
6.75%, 07/15/09 ................... $ 415,025
-----------
BUSINESS SERVICES -- 0.1%
100,000 BBN Corp.,
Sub. Deb. Cv.
6.00%, 04/01/12 ................... 96,750
-----------
ENTERTAINMENT -- 0.2%
150,000 USA Networks Inc.
7.00%, 07/01/03 ................... 156,000
-----------
EQUIPMENT AND SUPPLIES -- 0.9%
356,000 Kollmorgen Corp.,
Sub. Deb. Cv.
8.75%, 05/01/09 ................... 359,115
500,000 Mark IV Industries Inc.,
Sub. Deb. Cv.
4.75%, 11/01/04 ................... 408,125
-----------
767,240
-----------
HOME FURNISHINGS-- 1.4%
3,600,000 Pillowtex Corp.,
Sub. Deb. Cv.
6.00%, 03/15/12 ................... 1,296,000
-----------
HOTELS AND GAMING-- 0.2%
300,000 Hilton Hotels Corp.,
Sub. Deb. Cv.
5.00%, 05/15/06 ................... 227,250
-----------
PUBLISHING-- 0.2%
100,000 News America Holdings Inc.,
Sub. Deb. Cv.
Zero Coupon, 03/31/02 ............ 165,000
-----------
TOTAL CORPORATE BONDS .............. 3,123,265
-----------
TOTAL
INVESTMENTS -- 101.2%
(Cost $69,077,237) ............... 90,013,573
OTHER ASSETS AND
LIABILITIES (NET)-- (1.2)% ....... (1,101,399)
-----------
NET ASSETS -- 100.0%
(5,626,781 shares outstanding) ... $88,912,174
===========
NET ASSET VALUE,
OFFERING AND REDEMPTION
PRICE PER SHARE .................. $15.80
======
PRINCIPAL SETTLEMENT UNREALIZED
AMOUNT DATE DEPRECIATION
--------- ---------- ------------
FORWARD FOREIGN EXCHANGE CONTRACTS
6,874,651 (c) Deliver Hong Kong Dollars
in exchange for
USD 356,586 ........ 08/24/00 $(3,770)
=======
- ------------------------
(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 December
31, 1999, the market value of Rule 144A securities amounted to $110,250 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.
11
<PAGE>
Gabelli Equity Series Funds, Inc.
THE GABELLI EQUITY INCOME FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily
by calling 1-800-GABELLI after 6:00 P.M.)
BOARD OF DIRECTORS
Mario J. Gabelli, CFA Robert J. Morrissey
CHAIRMAN AND CHIEF ATTORNEY-AT-LAW
INVESTMENT OFFICER MORRISSEY, HAWKINS & LYNCH
GABELLI ASSET MANAGEMENT INC.
Felix J. Christiana Karl Otto Pohl
FORMER SENIOR VICE PRESIDENT FORMER PRESIDENT
DOLLAR DRY DOCK SAVINGS BANK DEUTSCHE BUNDESBANK
Anthony J. Colavita Anthony R. Pustorino
ATTORNEY-AT-LAW CERTIFIED PUBLIC ACCOUNTANT
ANTHONY J. COLAVITA, P.C. PROFESSOR, PACE UNIVERSITY
Vincent D. Enright Anthonie C. van Ekris
FORMER SENIOR VICE PRESIDENT MANAGING DIRECTOR
AND CHIEF FINANCIAL OFFICER BALMAC INTERNATIONAL, INC.
KEYSPAN ENERGY CORP.
John D. Gabelli
SENIOR VICE PRESIDENT
GABELLI & COMPANY, INC.
OFFICERS
Mario J. Gabelli, CFA Bruce N. Alpert
PRESIDENT AND CHIEF VICE PRESIDENT AND TREASURER
INVESTMENT OFFICER
James E. McKee
SECRETARY
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli Equity Income Fund. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
GAB444Q499SR
[PHOTO OF MARIO GABELLI OMITTED]
THE
GABELLI
EQUITY
INCOME
FUND
FIRST QUARTER REPORT
DECEMBER 31, 1999
