-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ESgLDBCPRfqWS3FdOrzLliM95i8U1s0v+jIQa7eV0Kk7Tnp0F/lcZkKydvIKC9D3 LD2kM6JnYdwy8/YTV5VWoA== 0000950123-99-005284.txt : 19990625 0000950123-99-005284.hdr.sgml : 19990625 ACCESSION NUMBER: 0000950123-99-005284 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GABELLI EQUITY TRUST INC CENTRAL INDEX KEY: 0000794685 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 222736509 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: SEC FILE NUMBER: 001-09234 FILM NUMBER: 99638522 BUSINESS ADDRESS: STREET 1: ONE CORP CENTER CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 9149215070 N-30B-2 1 GABELLI EQUITY TRUST FUND 1 [FLAG] [THE GABELLI EQUITY TRUST INC. LOGO] FIRST-QUARTER REPORT MARCH 31, 1999 2 [THE GABELLI EQUITY TRUST INC. LOGO] Our cover icon represents the underpinnings of Gabelli. The Teton mountains in Wyoming represent what we believe in America -- that creativity, ingenuity, hard work and a global uniqueness provide enduring values. They also stand out in an increasingly complex, interconnected and interdependent economic world. [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] New Mexico New York N. Carolina N. Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Isl. S. Carolina [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] [FLAG] S. Dakota Tennessee Texas Utah Vermont Virginia West Virginia Washington Wisconsin Wyoming
INVESTMENT OBJECTIVE: The Gabelli Equity Trust Inc. is a closed-end, non-diversified management investment company whose primary objective is long-term growth of capital, with income as a secondary objective. THIS REPORT IS PRINTED ON RECYCLED PAPER. 3 TO OUR SHAREHOLDERS, [PHOTO] [THE GABELLI EQUITY TRUST INC. LOGO] The first quarter of 1999 was an up, then down, and then up again period for stocks. January's gains eroded in February as a much stronger than expected U.S. economy sparked inflationary concerns. Bonds declined, ultimately dragging stocks down with them. Then, in March, a favorable employment report coupled with positive comments on inflation from Federal Reserve Chairman Greenspan encouraged investors and, as a result, stocks and bonds rallied. The market advance continued to be uneven, strongly favoring large cap stocks over mid caps and small caps, and growth stocks over the value sector across the market capitalization spectrum. Mid cap and small cap indices closed the quarter with losses. INVESTMENT PERFORMANCE For the first quarter ended March 31, 1999, The Gabelli Equity Trust Inc.'s ("Equity Trust") net asset value (NAV) per share increased 3.7% to $11.64, after adjusting for the $0.27 per share distribution on March 29, 1999. This compares to the Value Line Composite Index's decline of 3.7%, the Russell 2000 Index's decline of 5.4% and the Standard & Poor's 500 Index (S&P 500) increase of 5.0% over the same period. Each is an unmanaged indicator of stock market performance. For the twelve months concluded March 31, 1999, the Equity Trust appreciated 2.2% after adjusting for the $1.185 per share in distributions, versus decreases of 16.3% for the Russell 2000 and 8.7% for the Value Line Composite and a gain of 18.5% for the S&P 500. For the five year period ended March 31, 1999, the Equity Trust's return averaged 15.1% annually, compared to average annual returns of 17.0%, 11.2% and 26.2% for the Value Line Composite, Russell 2000 and S&P 500. Total return includes adjustments of $7.76 per share for the reinvestment of dividends and distributions, rights offerings and the spin-off of the Gabelli Global Multimedia Trust. For the ten years ended March 31, 1999, the Equity Trust achieved a total return of 217.4%, including adjustments of $13.51 per share in distributions, which equates to an average annual return of 12.2%. This compares to 13.0%, 11.5% and 19.0% average annual returns over the same time period for the Value Line Composite, Russell 2000 and S&P 500. AVERAGE ANNUAL RETURNS - MARCH 31, 1999
NAV Average Average Annual Annual Return Investment Return (a) ------------- --------------------- 1 Year.......................................... 2.2% 6.7% 5 Year.......................................... 15.1% 13.1% 10 Year......................................... 12.2% 15.7% Life of Fund (August 21, 1986) ................. 14.1% 13.7%
(a) Based on initial offering price of $10.00 1 4 Since its inception on August 21, 1986 through March 31, 1999, the Equity Trust has had a total return of 430.2%, including adjustments of $15.39 per share in distributions, which equates to an average annual return of 14.1%. The Equity Trust's common shares ended the quarter at $11.875 per share on the New York Stock Exchange, an increase of 5.0% for the quarter. For the twelve months ended March 31, 1999, the common shares are up 6.7%, after adjusting for all distributions. Our long-term performance goal is to grow our net asset value by a real rate of return of 10% per year. In addition, our goal is to have the publicly traded market price track the net asset value. THE GABELLI EQUITY TRUST INC. ANNOUNCES PROPOSED SPIN-OFF OF THE GABELLI UTILITY FUND We recently notified you of the proposed spin-off of a new Gabelli Utility Fund from the Equity Trust. Equity Trust shareholders will vote on the proposed transaction on May 17, 1999. Please note that the proposed spin-off does not affect the Equity Trust's 10% Annual Distribution Policy. The Equity Trust will continue to pay out $0.27 per share in each of the first three quarters of the year with an adjusting distribution in the fourth quarter of a sufficient amount to pay 10% of the average net asset value of the Fund. A proxy/registration statement describing the proposed spin-off in more detail has been delivered to all shareholders. PREFERRED STOCK - AN INVESTMENT FOR THE FUTURE On June 9, 1998, the Equity Trust successfully completed its offering of 7.25% tax advantaged cumulative preferred stock which was rated 'aaa' by Moody's Investors Service, Inc. Shareholder response has been positive and we appreciate the efforts of Salomon Smith Barney Inc., Gabelli & Company, Inc., PaineWebber Incorporated and Prudential Securities Incorporated, the underwriters, and wish to thank and welcome all those investors who participated. The Equity Trust issued 5,400,000 Preferred Shares at $25 per share ($135 million) with an annual dividend rate of $1.8125 per share paying quarterly starting in September 1998. The Preferred Shares are trading on the New York Stock Exchange under the symbol "GAB Pr". Consistent with our conservative approach, the Equity Trust issued the Preferred Shares in a cost effective manner at less than $0.045 per share. How would Preferred Shares benefit Common Shareholders? The Equity Trust has earned a 13.5% average annual return from inception on August 21, 1986 through December 31, 1998. The Preferred Shares were issued with a dividend rate of 7.25%. Any return earned in excess of the stated dividend rate would directly benefit Common Shareholders; however, any shortfall from the stated rate would impact the Common Shareholder in the opposite fashion. Therefore, by taking advantage of the current relatively low interest rate environment and achieving our long-term investment objectives, the Preferred Share issuance offers what we believe is a method of 2 5 potentially adding wealth for our Common Shareholders. With the completion of the preferred offerings, the Adviser will not earn the management fee on the incremental assets during any year in which the net asset value total return on the Equity Trust does not exceed the stated dividend rate on the Preferred Shares. Furthermore, Common Shareholders stand to receive certain tax benefits as a result of the Preferred Stock offering. Since taxable income is allocated to the Preferred Shareholders before Common Shareholders, taxable distributions to Common Shareholders would not be required to the extent they would be if the Preferred Shares were not outstanding. Long-term capital gains are passed through to shareholders. In 1998, 94.49% of the common and preferred distributions was classified as long-term capital gains, taxable at a maximum rate of 20%. As a result, the Ordinary Income equivalent yield on the preferred stock, for a shareholder in the 31% tax bracket, was 8.34% 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 12 years at The Gabelli Equity Trust and for over 20 years at Gabelli Asset Management Company. In past reports, we have tried to articulate our investment philosophy and methodology. The following graphic further illustrates the interplay among the four components of our valuation approach. [GRAPHIC] 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 world-wide 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. equities market. At the margin, our new investments are focused on businesses that are well-managed and will benefit from sustainable long-term economic dynamics. These include macro trends, such as the globalization of the market in filmed entertainment and telecommunications, and micro trends, such as an increased focus on productivity enhancing goods and services. 3 6 COMMENTARY THE ECONOMY AND THE MARKET--A REVERSAL OF FORTUNES? In 1998, the drivers of the market were declining interest rates and continued liquidity as opposed to corporate earnings. For the year, S&P 500 earnings rose a modest 2.0% and if calculated on a non-weighted basis, earnings were flat. However, the 30-year Treasury bond yield dropped nearly a full percentage point from its March 1998 high, resulting in a significant expansion of equities' price/earnings multiples and a 28.7% annual gain for the S&P 500. We are faced with a mirror image situation today. We believe S&P earnings can grow in the 8.0% to 10.0% range, a terrific showing compared to 1998. If interest rates hold relatively steady near current levels, the S&P 500's current lofty price/earnings multiple could be sustained and the market could advance in line with earnings gains. The less optimistic picture would be rising inflation, materially higher interest rates, rapidly contracting equity multiples and a meaningful correction in the S&P 500. At this stage, we think either scenario is plausible and will leave market forecasting to the Wall Street gurus. AMERICAN CONSUMERS: WILL THE ENGINE OF GLOBAL ECONOMIC GROWTH CONTINUE STEAMING ALONG? In our September 30, 1998 report, we pondered the impact of our "Four M's" (Market, McGwire, Monica and Meriwether) on the American consumer. Would the American consumer stop spending because of global economic turmoil, accentuated in the U.S. and global capital markets by John Meriwether (the head of ill-fated Long Term Capital Management), and the domestic political crisis spawned by President Clinton's relationship with Monica Lewinsky? Or, would the consumer be buoyed by rising capital markets resulting from a strong domestic economy along with the heroics of baseball slugger Mark McGwire and continue to help sustain economic momentum here and overseas. We favored the latter conclusion. In retrospect, the American consumer continued to be the engine driving global economic growth. Today, we still ask the same question. Will the American consumer continue to carry the rest of the world, or will the consumer eventually run low on confidence and/or the resources required to nourish the global economy? Put another way, can the U.S. continue to run enormous balance of payment deficits that provide hope and sustenance for the other economies of the world as they attempt to emerge from their economic malaise? REFLATION VERSUS DEFLATION Another critical economic and market question is whether domestic inflation will continue to be subdued. Thus far, deflationary pressures from abroad have kept inflation in check at home. A question to keep in mind though is how long will the "price dumping" of exports from Asian and Latin American nations continue? Oil has already spiked up. Asian and European economies are in the process of being reflated--the Japanese are essentially giving money away in an attempt to revive their moribund economy while Euroland is cutting interest rates in order to accelerate economic momentum. We also wonder how much longer productivity gains will continue to offset rising wages in fully employed America. We have our fingers crossed, but suspect that at some point, inflation may once again raise its ugly head and create a headwind for the American financial markets. 4 7 We remain focused on values and individual investment opportunities. If one looks exclusively at the S&P 500, which is trading at more than 30 times trailing earnings, stocks would have to be characterized as richly valued. But in reality, the S&P 500 is a narrow gauge of the market, with the largest 25 component stocks having an enormous influence on the performance of the index. The same can be said about the Nasdaq Composite Index, which is driven by a relative handful of large technology stocks. However, there are many cheap stocks available, as reflected in the much more reasonable valuations of broader market indices. It is anyone's guess as to when the investing public will stop chasing the high priced market favorites and begin gravitating toward more realistically priced stocks. Nonetheless, we note that corporate buyers are out in force, searching for business bargains. As we have repeatedly stated over the past several years, quality companies trading at low valuations--the type of stocks we favor--should continue to attract corporate bargain hunters and provide a tailwind for our portfolio. FLOW OF FUNDS ($ Billions)
Sources 1993 1994 1995 1996 1997 1998 - ------- ---- ---- ---- ---- ---- ---- U.S. Deals $ 234 $ 340 $ 511 $ 652 $ 919 $1,620 Stock Buybacks 37 46 99 176 181 207 Equity Mutual Funds (Net) 130 119 128 222 232 159 Dividends 158 182 205 262 275 279 ----- ------ ------ ------ ------ ------ TOTAL SOURCES: 558 688 943 1,312 1,607 2,265 ----- ------ ------ ------ ------ ------ Uses - ---- IPOs 103 62 82 115 118 108 U.S./International Equity Capital Flow U.S. Purchases of Non-U.S. Equities (net) 63 48 50 60 41 (25) International Purchases of U.S. Equities (net) 21 1 17 11 64 (22) ----- ------ ------ ------ ------ ------ Net Flow: 43 47 34 49 (23) (3) ----- ------ ------ ------ ------ ------ TOTAL USES: 146 109 116 164 95 105 ----- ------ ------ ------ ------ ------ NET FLOW OF FUNDS: $ 413 $ 579 $ 827 $1,148 $1,513 $2,160 ===== ====== ====== ====== ====== ======
Sources: Securities Data Corp, Investment Company Institute, Birinyi Associates. (C) 1999 Gabelli Asset Management Inc. A FLY (OR A FLYSPECK) IN THE MERGER AND ACQUISITION OINTMENT? The accounting profession is once again meddling with the "deal" world. The pencil pushers have decided to take a hard look at "pooling of interest" accounting that minimizes the consequences on reported earnings of many corporate mergers by essentially allowing companies to merge at book value, thus eliminating goodwill charges. We suspect the rules will be changed within the next several years. In the short term, a change will likely ignite deal fervor. In the long run, we doubt it will restrain merger and acquisition activity for long, if at all. We recall that in the late 1960s and early 1970s, changes in the accounting standards for amortizing goodwill had a negative impact on reported net earnings for merging companies. In fact, that is what inspired us to begin focusing on 5 8 EBITDA ("earnings before interest, taxes, depreciation and amortization") instead of net earnings in valuing stocks. By the time the accounting rules changes were on the books, the investment bankers and financial engineers had figured out how to thwart the new rules and deals continued to be transacted. We think the same thing will happen this time. By the time the accountants develop new rules for pooling of interest in mergers, smart money will have figured out how to circumvent the new rules and structure deals so that they still make economic sense. In fact, we may see mergers and acquisitions accelerate as companies scramble to get deals done before the rules change. REST IN PEACE During the first quarter, we bid a sad (tongue firmly planted in cheek) farewell to Aeroquip-Vickers, which will be passed on to Eaton Corp., and AirTouch Communications, which succumbed to a premium bid from Vodafone. We also mourn the impending demise of Frontier Corp. to Global Crossing and MediaOne to AT&T. Amongst our foreign friends, Olivetti is preparing the last rites as an independent company for Telecom Italia. We will miss these portfolio friends, but are comforted by their generous bequests to portfolio performance this quarter. 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 activity in mergers and acquisitions contributes significantly to the solid performance of the Equity Trust. The accompanying table illustrates how deal activity surfaced value in a small sample of the portfolio holdings. FIRST QUARTER 1999 COMPLETED DEALS
NUMBER AVERAGE COST CLOSING FUND HOLDING OF SHARES (a) PER SHARE (b) PRICE (c) CLOSING DATE %RETURN (d) - ------------ ------------- -------------- --------- ------------ ----------- Tele-Communications Inc., Cl.A 265,000 10.01 67.88 3/10/99 578.34 TCI Ventures Group 361,970 5.99 28.00 3/10/99 367.52 TCI/Liberty Media Group 36,000 32.68 54.44 3/10/99 66.60 BC Telecom Inc. 87,000 17.94 26.48 2/1/99 47.58 British Petroleum Co. 85,000 23.21 90.75 1/4/99 291.06
(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. 6 9 Going forward, we expect accelerating deal activity from large companies using high price/earnings multiple stock as currency to buy smaller companies with much lower P/Es. This is accounting magic. If your stock is trading at 30 times earnings, you can pay a 100% premium for a smaller company trading at 10 times earnings and the transaction will still be accretive to earnings. This is before factoring in any potential cost savings from combining the two companies' operations. This price/earnings multiple arbitrage will be a deal too good for many savvy business buyers to pass up. FIRST QUARTER SCORECARD In addition to the aforementioned "Rest in Peace" companies, our big hits this quarter include Liberty Media Group, the former Tele-Communication Inc.'s ("TCI") cable programming subsidiary, now trading as a tracking stock of AT&T. Former TCI Chairman John Malone has been given free reign to put Liberty Media's $5.5 billion in cash to work, doing what he has always done best, investing in media companies. Our cable television ("CATV") holdings, Cablevision Systems, Comcast and Time Warner also contributed handsomely to returns. Additionally, we received a performance boost from the recovery in our Latin American telecommunications and media investments, most notably Telecomunicacoes Brasileiras, Telefonos de Mexico and Grupo Televisa. Commodity oriented holdings such as Archer-Daniels-Midland; capital goods investments such as Gerber Scientific; aerospace component suppliers such as AMETEK and SPS Technologies; and energy positions such as PennzEnergy must be scored as portfolio errors this quarter. Funeral home and cemetery owner/operator Loewen Group, which turned down an attractive takeover offer from Service Corp. International two years ago and embarked on an ill-advised acquisition rampage, deserves Hall of Shame recognition for burying more investors than clients this quarter. TUNING IN TO CABLE VALUES As aforementioned, our cable television holdings continued to contribute to portfolio returns. A flurry of smaller private acquisitions in the CATV industry, Adelphia's purchase of Century Communications and AT&T's bid for MediaOne, have resulted in the average transactional value of a cable subscriber (as measured by acquisition price) jumping from $2,500 to nearly $4,000 in the last year. Are these values economically justifiable? If you believe, as we do, that cable television will become the dominant Internet transmission pipeline and the most effective way for long distance telephone giants to enter the local telephone business, then today's cable values may look cheap compared to tomorrow's. An examination of AT&T's recent agreement with Time Warner provides an illustration. AT&T has agreed to pay Time Warner $1.50 per cable subscriber/per month for exclusive access to its cable network this year. Over the next five years, this price escalates to $6.00 per cable subscriber/per month. Theoretically, this adds $12 billion of economic value to Time Warner's cable television business five years hence! Despite the strong gains of recent years, if you plug these types of numbers into other large cable holdings such as Cablevision Systems and Comcast, these operators look dirt cheap at today's prices. We are not suggesting that AT&T will strike similar deals with these companies. However, AT&T is not the only company in the world seeking access to the cable television pipeline. 7 10 THE INTERNET--A REALITY THAT IS CHANGING OUR WORLD As the Internet becomes more firmly entrenched in our everyday lives, we would like to share with you a sampling of past technological advances that contributed to improved quality of life and productivity.
INVENTION DATE INVENTOR --------- ---- -------- Internal Combustion Engine 1860 Jean Joseph Etienne Lenoir Stock Ticker 1869 Thomas Edison Telephone 1876 Alexander Graham Bell Incandescent Electric Lamp 1879 Thomas Edison Electric Motor 1881 Thomas Edison Radio 1895 Guglielmo Marconi Talking Motion Picture 1913 Thomas Edison Television 1926 Philo Farnsworth Nylon 1935 DuPont and Co. Internet 1969 BBN Corp.
Internet stocks have dominated the business and consumer headlines. There are two widely divergent schools of thought on Internet stocks. The bulls, led by a whole new category of investors (aggressive on-line day traders), seem to believe that even the most optimistic projections fall well short of accurately reflecting the true growth potential of Internet companies. Their approach seems to be one of discounting valuations because no price is too high to pay for a stock with a "dot.com" at the end of its name. Stodgy investment traditionalists, who were brought up believing that stock prices should have some rational relationship to current as well as future value, are, of course, appalled at the notion that any young company in even the most explosive growth industry should trade at 100 times revenues. We fall somewhere in between. We think some of the current Internet stars (and perhaps a few "garage stage" companies we do not even know about), will go on to become giant, highly profitable companies. At some point down the road, we may look back and realize that a few Internet companies would have been bargains at 200 times revenues. Unfortunately, we do not know which Internet companies will end up in the S&P 500 and which will end up on the market trash heap. So, we will continue to pass on the richly priced pure Internet plays. But, we hope to continue to profit from reasonably valued companies that can benefit from the growth of the Internet. In recent years, we have reaped tremendous gains from cable television stocks, which as we anticipated, have become legitimate Internet players. More recently, we added Reader's Digest to the portfolio--remember the company that publishes the wholesome little magazine your grandparents and parents loved. Reader's Digest as an Internet company? We will see. The company has aggressive new management, which has shed money losing and marginally profitable businesses. Management also has a new business plan to capitalize on its data bank of 140 million names concentrated in the 50 year old and over demographic, which controls 70% of America's net worth. Reader's Digest will be on the Internet, selling home improvement, health care, financial and religious products--the kind of products in demand by its customer base. Over the next five years, the company's goal is to increase revenues from $2.8 billion to $5.0 billion, and profits from $100 million to $500 million. We think new Chairman and CEO Thomas Ryder, an 8 11 American Express veteran who knows a few things about leveraging sales to an existing customer base, may be able to meet these goals. Another favorite is Navistar, which has a 38% share of the medium sized trucking market. If e-commerce lives up to growth expectations, the demand for medium sized trucks to deliver smaller packages over a wider distribution network should increase. Navistar's balance sheet is now more stable, and over the last two years, earnings have exceeded consensus estimates. If e-commerce helps improve demand in the medium sized truck market that Navistar dominates, earnings may continue to surprise on the upside. There is also some potential takeover speculation with Sweden's Volvo reportedly on the prowl for an acquisition in the trucking industry. INTERNATIONAL SEGMENT A portion of the Equity Trust's portfolio continues to be managed by Caesar Bryan. Caesar also manages the Gabelli International Growth Fund and is a co-manager of the newly launched Gabelli Global Opportunity Fund. Below are Caesar's thoughts on international markets and global economies: On January 1, 1999, the Euro was born. How is it doing three months after its introduction? The answer is fine. Technically, the launch was a success, but the Euro skeptics have had the pleasure of watching the Euro slide against the dollar since the beginning of the year from a high of $1.18 to nearly $1.07 by the end of March. For reference, the Euro's current exchange rate is only slightly lower than where it was trading, on a theoretical basis, last spring. The skeptics claim this is the result of the markets' lack of confidence in the Euro. This is arguably not the case. We believe the weakness of the Euro probably reflects economic fundamentals although the currency has had to contend with the resignation of the entire European Commission and the conflict in Yugoslavia. European growth, which has been sluggish, has necessitated interest rate cuts, while the U.S. economy has powered ahead helped by a strong stock market. Indeed, looking ahead, the Euro could easily recover as the European economy strengthens relative to the U.S. The fundamentals of the Euro remain sound. Inflation is negligible at 1.0% and Euroland had a current account surplus of roughly $100 billion in 1998, or about 1.5% of Gross Domestic Product ("GDP"). By contrast, the U.S. is running a large current account deficit. A major success is that the Euro has adopted the interest rate structure of its strongest currency, the Deutschemark, as opposed to a weighted average of all the currencies in the system. This has benefited high interest rate countries such as Italy and Spain. A better measure of the Euro's success will be whether its introduction will encourage a more efficient, more liquid capital market in Europe and whether corporate restructuring and cost savings can be achieved across national borders. The early signs on both of these measures are reasonably encouraging. We believe the free movement of capital will be a major catalyst for reform in Europe. This should result in a shift of power from the politicians to the market, or if you prefer, the consumer. And how ironic that this is happening after most of Europe has recently elected left of center governments. Take Germany as an example. 9 12 The new S.P.D. government announced a series of tax increases to be paid by the insurance industry. Allianz, the giant German insurance company, reacted by threatening to move from Germany. Now the government appears to be backing down. Government interventionism was dealt a further blow when Oskar Lafontaine resigned as German Finance Minister. The more he badgered the European Central Bank ("ECB") to lower rates, the more the ECB refused to budge. Sure enough, once he was gone, Chairman Duisenberg and his colleagues lowered rates by 50 basis points, to 2.5%, a larger cut than had been expected. We expect M&A transactions will remain strong in industries currently experiencing robust activity such as health care and financial services. This indeed has occurred. Two portfolio holdings, Astra and Zeneca, have merged and Glaxo Wellcome continues to scour the dance floor for a partner. We have holdings in all of these companies as well as in the two large Swiss pharmaceutical companies, Novartis and Roche Holdings. In financial services, the consolidation process continues with France and Italy currently taking center stage. One of our large international holdings, Banca Commerciale Italiana, is currently being wooed by a variety of Italian suitors. We continue to believe that European asset managers remain attractive investments and we still hold Skandia in Sweden, Schroders in the U.K. and Safra Republic Holdings in Switzerland. The power of the market and the competition for capital should speed the pace of reform on both a macro and micro level. National governments will likely set aside ideological baggage and undertake meaningful tax harmonization and labor reform. Also, institutional reform is required in areas such as the hostile takeovers of public companies. The Telecom Italia saga and the LVMH bid for Gucci have highlighted the problem. In the latter case, Dutch law allows a target company to issue as many shares as necessary to dilute the acquirer. In a more competitive environment, European companies will have to continue in their efforts to improve returns and to better communicate objectives to investors in order to attract capital. European companies' return on equity ("ROE"), one corporate measure of performance, continues to lag significantly behind U.S. corporations. This varies by country but, for example, the average ROE in Germany is significantly less than that of the S&P 500. Can this gap be closed? If it can, we believe Europe will remain an attractive location to invest. These trends are coinciding with a major shift among savers from bonds to equities. Europeans are investing nearly $4 billion per month in equity funds. While this is well down from the inflows seen last spring, it is far greater than the average of $1 billion per month prior to 1997. So far this year, European equity markets have lagged both Japan and the emerging markets, which have rallied sharply from depressed levels. Japan has experienced six significant rallies since the market peaked in 1989. Each one has stalled after a few months. Is this one any different? Maybe. Two things have changed. First, a massive bank bailout has been implemented which will help end the credit crunch. Second, companies have now recognized that restructuring is 10 13 necessary for survival. No longer can employees be sent to majority owned subsidiaries and capacity be increased on an uneconomic basis. But there is still a long way to go. In the late 1980s era of free capital in Japan, capital investment as a percent of the economy peaked at well over 20%. It is now at 14% during the third year of economic contraction and still 2% above the U.S. level. The market is rewarding companies that announce restructuring plans, which totaled 130 in March alone. The difficulty will be in implementing these plans. The Japanese government, led by Mr. Obouchi, is now encouraging companies to be more efficient and reduce capacity. This has caused fear among consumers who have reacted by spending even less. The numbers are startling. Wages are falling at an annual rate of 4.0%, retail sales declined by 4.3% and industrial production has fallen by 7.0% in the past year. Consumer weakness has prompted the government to increase spending which has sent government debt levels soaring. Therefore, the investment case for Japan is probably not based on an economic upturn in the short term but rather on a more bottom up analysis of corporate restructuring. Indeed, if companies are successful in becoming more efficient, unemployment will probably rise further in the short term. Therefore, it is a case of short term pain for long term gain. Actually, an upturn in the economy could result in company managements collectively wiping their brow and reverting to business as usual. The Equity Trust's international portion remains heavily weighted in the European market and its largest holdings are concentrated in the health care, telecommunications, media and consumer non-durable sectors. Richemont, one of our largest international holdings, is an example of an investment that meets most of our criteria. We believe Richemont has attractive assets and the management has made value-enhancing moves over the past two years. First, they swapped their pay television assets for a 15% stake in Canal +, Europe's largest pay television company, and then they sold Rothmans for a 25% stake in B.A.T., the world's second largest tobacco company. Both businesses should perform better as part of larger groups. This leaves management free to concentrate on their luxury goods businesses, such as Cartier, which we believe trade at a significant discount to comparable companies. The market is now beginning to recognize the changes that management has undertaken. Other, better known consumer stocks that the Equity Trust holds include Nestle, Danone (the French food company) and Foster's Brewing (the Australian beer company). Less well known is KAO, the Japanese consumer products company. This holding is a fine example of a successful restructuring. KAO is Japan's largest detergent manufacturer with a brand called "Attack." In the late 1980s, the company decided to take its expertise in consumer goods and move into making floppy disks which, of course, was a disaster. The company has now retreated from this adventure and has adopted EVA management techniques. Telecommunications stocks continue to benefit from deregulation and the explosive growth in data transmission and Internet and wireless traffic. The Fund's largest international telecommunications holdings include Vodafone, Telecom Italia, NTT and Cable & Wireless. 11 14 The introduction of digital television and excitement surrounding the growth of the Internet has focused investor attention on broadcasting and media stocks. Another of the Fund's larger international holdings is Granada Group, a dominant U.K. commercial television broadcaster. The company has just launched its digital television offering called On Digital. BSkyB has also recently launched its own digital pay television offering, Sky Digital, and we continue to hold Pathe, the French company that owns 17% of BSkyB as well as other media assets in Europe. Other broadcasters that we believe are attractive include Publishing and Broadcasting in Australia and Tokyo Broadcasting System. LET'S TALK STOCKS The following are stock specifics on selected holdings (particularly SmallCap) of the Equity Trust. Favorable EBITDA prospects do not necessarily translate into higher stock prices, but they do express a positive trend which we believe will develop over time. Aeroquip-Vickers Inc. (ANV - $57.3125 - NYSE) is a leading worldwide manufacturer and distributor of components and systems to industrial, automotive and aerospace markets. Aeroquip's products include pressure hoses, fittings, adapters, couplings, fluid connectors and precision molded and extruded plastic products. Vickers' products include hydraulic pumps, motors and cylinders, electric motors and drivers, electronic controls, filters, and fluid-evaluation products and services. Eaton Corp. (ETN - $71.50 - NYSE) completed its acquisition of Aeroquip in April for $2 billion, or $58 per share. AirTouch Communications Inc. (ATI - $96.625 - NYSE), based in San Francisco, is the world's largest wireless communications provider. With more than 35 million total venture customers in 13 countries, AirTouch and its partners serve more than ten percent of the world's wireless subscribers. AirTouch will offer satellite communications in the future through its interest in the Globalstar satellite system. In April 1998, the company acquired MediaOne Group's (formerly US West Media Group) U.S. wireless interests in a deal valued at almost $6 billion. On January 15, 1999, Britain's largest cellular company, Vodafone Group plc (VOD - $187.75 - NYSE), signed a definitive merger agreement with ATI whereby Vodafone would acquire ATI for $97 per ATI share. Vodafone successfully topped Bell Atlantic's (BEL - $51.6875 - NYSE) $45 billion bid for AirTouch. Allen Telecom Inc. (ALN - $6.0625 - NYSE) is a leading supplier to the worldwide two-way wireless communications industry. The company manufactures system expansion products, site management products and antennas. Frequency planning, system engineering services and software design programs are also developed and marketed through current and emerging wireless markets. ALN should be a beneficiary of the next generation technology for wireless communications, known as 3-G (for third generation). 3-G is a broadband technology that will provide wireless applications for data, Internet and video. AMP Inc. (AMP - $53.6875 - NYSE) is the leading designer, manufacturer and marketer of a broad range of electronic, electrical and electro-optic connection devices, interconnection systems and connector-intensive assemblies. Its major markets include consumer and industrial (roughly 28% of sales), communications (25%), automotive (24%) and personal computer (20%). Approximately 50% of sales are to Europe and the Asia/Pacific region. AlliedSignal (ALD - $49.1875 - NYSE) made an unsolicited bid for AMP in August 1998, offering $44.50 12 15 per share. The AlliedSignal offer has been topped by AMP's planned merger with Tyco International (TYC - $71.75 - NYSE). Atlantic Richfield Co. (ARCO) (ARC - $73.00 - NYSE) is the leading gasoline marketer on the U.S. west coast, with 1,760 retail sites spread across California, Arizona, Nevada, Oregon and Washington. Two refineries are operated in the region. ARCO has proven oil reserves of 2.8 billion barrels, mainly in Alaska. The company's proven gas reserves total 9.8 trillion cubic feet, but gas reserves of a further 15 trillion cubic feet, mainly in Southeast Asia, are unbooked. BP Amoco (BPA - $100.9375 - NYSE) has reached an agreement to combine with ARCO in an all-share transaction valuing ARCO at almost $27 billion. The deal will give BP Amoco the largest oil output of any non-state company. Coltec Industries Inc. (COT - $18.1875 - NYSE) manufactures a diversified range of engineered aerospace and industrial products. The aerospace division is a leading producer of landing gear systems, engine fuel controls, cockpit seating, turbine blades and fuel injectors for commercial and military aircraft. The industrial division manufactures seals, gaskets, packaging products and self-lubricating bearings. The B.F. Goodrich Co. (GR - $34.3125 - NYSE) is in the process of acquiring Coltec for $2.2 billion, or $20.125 per share. Ferro Corp. (FOE - $24.75 - NYSE), established in 1919 and based in Cleveland, Ohio, is a leading producer of porcelain enamel frit, powder coating and plastic compounds. Ferro is being repositioned as a premier specialty chemical company, producing specialty materials for industry including coatings, colors, ceramics, chemicals and plastics. Ferro's major markets are building and renovation, major appliances, household furnishings, transportation, industrial products, packaging and leisure products. Frontier Corp. (FRO - $51.875 - NYSE) is a telecommunications provider operating various business segments: the nation's fifth largest long distance company, a local telephone provider in and around Rochester, NY with one million lines, a CLEC with over 200,000 lines, a nationwide network leased long term from Qwest and a high-end web hosting business. Frontier has announced plans to merge with Global Crossing (GBLX - $46.25 - Nasdaq) in a stock for stock transaction for $62 per Frontier share if GBLX trades between $34.56 and $56.78 before the transaction is completed. Hamilton, Bermuda-based GBLX also will take on $1.3 billion in FRO debt. The acquisition of FRO is the latest step by GBLX toward becoming a worldwide phone company. Mirage Resorts Inc. (MIR - $21.25 - NYSE) owns and operates casino-based entertainment resorts primarily in Las Vegas and Laughlin, Nevada. These resorts include Bellagio, Golden Nugget, The Mirage, Treasure Island and the Golden Nugget Laughlin. The $1.6 billion Bellagio hotel-casino next to Caesars Palace was opened in October. The $600 million Beau Rivage is set to open in Biloxi, Mississippi. A resort is planned for Atlantic City. Navistar International Corp. (NAV - $40.1875 - NYSE) is the leading North American producer of heavy and medium duty trucks and school buses under the International brand. The company is also the leading supplier of mid-range, 160 to 300 horsepower, diesel engines. NAV has an approximate 40% share of the medium duty truck market and 20% share of the heavy duty truck market. NAV participates in cyclical industries. Nonetheless, the company generates substantial cash flow, which is not presently taxed due to Navistar's large (nearly $1.6 billion) 13 16 tax loss carryforwards. Part of the anticipated increase in cash flow is likely to be directed to a six year, $650 million capital spending, development and production program for the company's "next generation" truck. Nortek Inc. (NTK - $24.75 - NYSE) is a leading international manufacturer and distributor of high-quality, competitively-priced building, remodeling and indoor environmental control products for the residential and commercial markets. The company's products include range hoods and other spot ventilation products, heating and air conditioning systems, wood and vinyl windows and doors, vinyl siding products, indoor air quality systems and specialty electronic products. In April, Nortek announced it had agreed to acquire three businesses from Caradon plc: Peachtree Doors and Windows, Thermal-Gard and Caradon Windows and Doors Canada. DAILY NAVS NOW DISTRIBUTED BY NASDAQ Since our inception, we have made the net asset value available on nightly recordings through 1-800-GABELLI. Now, Nasdaq is also disseminating the daily per share net asset values (NAVs) for the Equity Trust, which is traded on the New York Stock Exchange. The NAV ticker symbol via Nasdaq is "XGABX". The NAVs are available through any stock quote lookup service and on broker Nasdaq level one terminals. The dissemination of daily NAVs allows investors and brokers to better track the long-term performance of the Fund's underlying portfolios. We support Nasdaq's efforts in making closed-end funds' NAVs available on a daily basis. 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 info@gabelli.com. 10% DISTRIBUTION POLICY The Equity Trust continues to maintain its 10% Distribution Policy whereby the Equity Trust pays out 10% of its average net assets each year. Pursuant to this policy, the Equity Trust distributed $0.27 per share on March 29, 1999. The next distribution is scheduled for June 1999. 14 17 IN CONCLUSION We are pleased with our competitive returns versus the growth oriented S&P 500 and superior returns relative to broader market indices and most of our value peers. We believe the S&P 500, where valuations have been growing much faster than earnings, is vulnerable at current levels. However, we are continuing to find what we view as great values in an otherwise reasonably priced stock market. We will continue striving to provide shareholders with our long term performance goal of a real rate of return of 10% each year. Sincerely, /s/ MARIO J. GABELLI MARIO J. GABELLI President and Chief Investment Officer April 30, 1999 TOP TEN HOLDINGS MARCH 31, 1998 -------------- Cablevision Systems Corp. AMP Inc. Viacom Inc. Chris-Craft Industries Inc. Time Warner Inc. American Express Co. Telephone & Data Systems Inc. Aeroquip Vickers Inc. United Television Inc. BCE Inc. NOTE: The views expressed in this report reflect those of the portfolio managers only through the end of the period stated in this report. The managers' views are subject to change at any time based on market and other conditions. 15 18 THE GABELLI EQUITY TRUST INC. PORTFOLIO CHANGES QUARTER ENDED MARCH 31, 1999 (UNAUDITED)
OWNERSHIP AT MARCH 31, SHARES 1999 ------ ------------ NET PURCHASES COMMON STOCKS Aeroquip-Vickers Inc. ............. 40,000 400,000 AGL Resources Inc. ................ 10,000 10,000 Allen Telecom Inc. ................ 158,200 268,200 American Bankers Insurance Group, Inc. ..................... 10,000 125,000 Amgen Inc. (a)..................... 15,000 30,000 Amphenol Corp., Cl. A.............. 2,000 143,000 Archer-Daniels-Midland Co. ........ 25,000 685,000 Argonaut Group, Inc. .............. 9,000 30,000 Arnoldo Mondadori Editore SpA...... 10,000 60,000 AT&T Corp. (b)..................... 185,000 185,000 Audiofina.......................... 7,000 15,000 BA Merchant Services Inc. ......... 263,800 344,800 Banca Commerciale Italiana......... 30,000 153,000 Banca Nazionale Lavoro, ORD........ 30,000 170,000 Bankers Trust Corp. ............... 4,000 10,000 BCT.Telus Communications Inc., ADR (c).......................... 52,500 52,500 BCT.Telus Communications Inc. Cl. A, ADR (c)................... 17,500 17,500 BCT.Telus Communications Inc. Cl. A (d)........................ 4,250 4,250 Borg Warner Automotive Inc. ....... 8,302 16,302 BP Amoco plc, Sponsored ADR (e).... 75,000 75,000 BP Amoco plc, ORD (f).............. 60,000 60,000 Brylane Inc. ...................... 55,000 55,000 Cable & Wireless plc............... 32,000 95,000 Catellus Development Corp. ........ 30,000 430,000 CDnow Inc. (g)..................... 9,960 9,960 Cendant Corporation................ 30,000 130,000 Central Newspaper Cl. A (a)........ 1,500 3,000 Chris Craft Industries Inc. (h).... 10,400 357,073 Chris Craft Industries Inc. Cl. B (h).............................. 16,766 575,630 Compagnie Financiere Richemont AG, Cl. A............................ 300 1,400 COMSAT............................. 50,000 150,000 Convergys Corp. ................... 25,000 25,000 Corn Products International, Inc. ............................ 3,000 45,250 Dana Corp. ........................ 195,000 300,223 Dexter Corp. ...................... 20,000 20,000 Diageo plc, Sponsored ADR.......... 15,000 40,000 Eastern Enterprises................ 13,000 48,000
OWNERSHIP AT MARCH 31, SHARES 1999 ------ ------------ El Paso Electric Co. .............. 70,000 70,000 Ferro Corp. ....................... 6,000 250,000 Florida Panthers Holdings Inc. .... 20,000 20,000 Flowserve.......................... 55,000 100,000 Fortune Brands..................... 22,000 190,000 Frontier Corp. .................... 5,000 80,000 Gabelli Utility Fund............... 10,000 10,000 Gaylord Entertainment Co., Cl. A... 17,800 180,000 GC Companies Inc. ................. 7,000 72,000 GenCorp Inc. ...................... 16,600 210,000 General Chemical Group Inc. ....... 5,000 5,000 General Cigar Holdings Inc. ....... 60,000 160,000 General Mills Inc. ................ 20,480 65,000 Genuine Parts Co. ................. 15,000 70,000 Glaxo Wellcome ORD................. 5,000 50,000 Granada Group plc ORD.............. 5,000 95,000 Group Danone SA.................... 2,500 2,500 H&R Block Inc. .................... 10,000 110,000 Hilton Hotels Corp. ............... 45,000 545,000 Hong Kong Telecomm Ltd Spon ADR.... 23,000 55,000 Independent Newspapers Ltd., ORD... 30,000 308,000 Instituto Nazionale Delle Assicurazio...................... 265,000 390,000 Invik & Co. AB, Cl. B.............. 425 19,116 Ito Yokado Co. Ltd. ............... 7,000 11,000 KAO Corp. ......................... 16,000 30,000 Kadowkawa Shoten Publishing Co., Ltd. ............................ 3,500 3,500 King World Productions............. 3,000 3,000 Liberty Corp. ..................... 15,000 140,000 Liberty Media Group (i)............ 188,224 224,224 Life Technologies Inc. ............ 2,000 2,000 Loewen Group Inc. ................. 10,000 310,000 LucasVarity plc, Spon ADR.......... 160,000 160,000 Mark IV Industries Inc. ........... 15,000 195,000 Mattel Inc. ....................... 10,000 10,000 Matsushita Electrical Industrial... 10,000 45,000 McGraw Hill Cos. Inc. (a).......... 50,000 100,000 Modine Manufacturing Co. .......... 27,200 330,000 Morton International Inc. ......... 175,000 175,000 Nintendo Co. ...................... 3,000 9,500 Nippon Telegraph and Telephone Corp. ........................... 28 150 Nortek Inc. ....................... 12,000 150,000 Northern Telecom Ltd. ............. 11,000 11,000
16 19 THE GABELLI EQUITY TRUST INC. PORTFOLIO CHANGES (CONTINUED) QUARTER ENDED MARCH 31, 1999 (UNAUDITED)
OWNERSHIP AT MARCH 31, SHARES 1999 ------ ------------ NET PURCHASES (CONTINUED) COMMON STOCKS (CONTINUED) Northrop Grumman Corp. ............ 28,000 70,000 Park-Ohio Holding Corp. ........... 2,000 52,715 Park Place Entertainment Corp. (j).............................. 550,000 550,000 PennzEnergy Co. ................... 71,200 240,000 Pepsi Bottling Group Inc. ......... 5,000 5,000 Pioneer Hi-Bred International Inc. ............................ 20,000 20,000 PLATINUM Tech International Inc. ............................ 11,000 11,000 Public Service Co. of North Carolina Inc. ................... 6,000 6,000 Pulitzer Inc. ..................... 2,500 2,500 Republic Industries, Inc. ......... 74,000 274,000 Rogers Communications Inc., Cl. B, Sponsored ADR.................... 20,000 20,000 Rogers Communications Inc., Cl. B............................ 150,000 150,000 Sanofi SA.......................... 5,000 5,000 Schroders, plc..................... 9,000 40,000 Sekisui House Ltd. ................ 25,000 52,500 SMH AG............................. 300 1,500 SmithKline Beecham plc............. 55,000 55,000 Softbank Corp. .................... 9,000 9,000 St. Joseph Light & Power Co. ...... 15,000 15,000 Superior Industries International, Inc. ............................ 10,000 40,000 Swisscom AG........................ 500 1,800 Telecom Italia SpA................. 73,800 550,040 Telefonica SA...................... 16,000 16,000 Telephone & Data Systems Inc. ..... 47,300 520,000 Telstra Corp. Ltd. ................ 90,000 90,000 Telewest Communications plc........ 200,000 200,000 Tenneco Inc. ...................... 355,000 455,000 Thomas Nelson Inc. ................ 12,000 62,000 TI Group ORD....................... 15,000 27,000 Tokyo Broadcasting System Inc. .... 13,000 60,000 Tootsie Roll Industries Inc. (h)... 2,711 93,101 Toyo Seikan Kaisha Ltd. ........... 15,000 30,000 Tribune Co. ....................... 2,000 17,000 T. Rowe Price Associates Inc. ..... 60,000 60,000 Unilever plc....................... 5,000 79,200 United Television Inc. ............ 800 269,009 Unitrin Inc. (a)................... 25,000 50,000 USA Networks, Inc. ................ 70,000 300,000 US Filter Corp. ................... 462,500 500,000 Vivendi............................ 1,550 5,050
OWNERSHIP AT MARCH 31, SHARES 1999 ------ ------------ Waddell & Reed Financial Inc., Cl. A............................ 29,900 29,900 Watts Industries Inc., Cl. A....... 45,000 85,000 Weir Group (The) plc............... 100,000 100,000 Xylan Corp. ....................... 100,000 100,000 NET SALES COMMON STOCKS AirTouch Communications Inc. ...... (47,000) 78,000 Alltel Corp. ...................... (15,000) 50,000 American Express Co. .............. (28,000) 220,000 AMP Inc. .......................... (65,000) 515,000 AMP Ltd. .......................... (25,000) -- Banco Santander SA, ADR............ (14,640) 120,000 BCE Inc. .......................... (30,000) 515,000 BC TELECOM Inc. (d)................ (4,250) 12,750 BC TELECOM Inc. ADR (c)............ (70,000) -- BJ Services Co. ................... (120,000) -- British Petroleum Co. plc, Sponsored ADR (e)................ (85,000) -- British Petroleum Co. plc, ORD (f).............................. (60,000) -- Cablevision Systems Corp., Cl. A... (32,000) 610,000 CalMat Co. (k)..................... (510,000) -- Century Telephone Enterprises Inc. ............................ (12,000) 170,000 CheckFree Holdings Corp. .......... (7,000) 18,000 Church & Dwight Co. Inc. .......... (2,000) 68,000 Cincinnati Bell Inc. .............. (15,000) 30,000 Coltec Industries Inc. ............ (20,000) 390,000 Comcast Corp., Cl. A Special....... (10,800) 29,200 Corporacion Mapfre SA New.......... (14,400) -- DDI Corp. ......................... (70) -- Deutsche Babcock AG................ (7,000) -- Donaldson, Lufkin & Jenrette Inc. ............................ (6,000) -- Flo (Groupe)....................... (10,500) -- General Motors Corp. .............. (4,000) 188,000 Golden Books Family Entertainment Inc. ............................ (350,000) -- Grupo Televisa S.A., GDR........... (15,000) 240,000 Honda Motor Co., Ltd. ............. (8,500) -- Infinity Broadcasting Corp. ....... (3,000) -- Kuhlman Corp. ..................... (200,000) -- Lehman Brothers Holdings Inc. ..... (2,000) 38,000 Manitowoc Co. Inc. ................ (2,000) 6,000 MediaOne Group Inc. ............... (10,000) 250,000 Midland Co. ....................... (1,300) 110,000 N2K Inc. (g)....................... (12,000) --
17 20 THE GABELLI EQUITY TRUST INC. PORTFOLIO CHANGES (CONTINUED) QUARTER ENDED MARCH 31, 1999 (UNAUDITED)
OWNERSHIP AT MARCH 31, SHARES 1999 ------ ------------ NET SALES (CONTINUED) COMMON STOCKS (CONTINUED) Navistar International Corp. ...... (7,000) 490,000 Pennzoil-Quaker State Inc. ........ (10,000) 158,800 Petersen Cos. Inc. ................ (105,400) -- Pheonix AG......................... (10,335) -- Pittway Corp., Cl. A............... (15,000) 115,000 RCN Corporation.................... (10,000) 270,000 Readers Digest Association Inc. Class A.......................... (20,000) -- Reckitt & Colman plc............... (30,000) -- Renault SA......................... (20,000) -- Simint SpA......................... (100,000) -- Sony Corp. ........................ (9,000) -- Sprint Corp. ...................... (5,000) 230,000 Sprint Corp. (PCS Group)........... (5,000) 120,000 TCI Ventures Group (i)............. (361,970) -- Telecom Italia SpA, Sponsored ADR.............................. (5,500) 151,500 Telecom Italia Mobile SpA.......... (35,000) 1,360,000 Tele-Communications Inc., Cl A (b).............................. (270,000) -- Telefonica de Espana, Sponsored ADR.............................. (1,960) 47,000 Time Warner Inc. .................. (11,500) 472,000 Viacom Inc., Cl. A................. (2,000) 475,000 PREFERRED STOCKS ProSieben Media AG................. (3,750) -- CORPORATE BONDS Thomas Nelson Inc., Conv. Sub. Note, 5.750% due 11/30/99 144A (l).............................. (1,000,000) --
- ---------------- (a) 2 for 1 stock split (b) Merger -- 0.7757 shares of AT&T Corp. for every share of Tele-Communications Inc., Cl. A (c) Spinoff -- 0.25 shares of BCT.Telus Communications Inc. Cl. A ADR and 0.75 shares of BCT.Telus Communications Inc. ADR for every 1 share of BC Telecom Inc. ADR (d) Spinoff -- 0.25 shares of BCT.Telus Communuications Inc. Cl. A for every 1 share BC Telecom Inc. (e) Merger -- 1 share of BP Amoco plc, Sponsored ADR for every 1 share of British Petroleum Co. plc, Sponsored ADR. (f) Merger -- 1 share of BP Amoco plc, ORD for every 1 share of British Petroleum Co. plc, ORD. (g) Merger -- 0.83 CDnow Inc. shares for every 1 share of N2K Inc. (h) 3% stock dividend (i) Merger -- 0.52 shares of Liberty Media Group for every 1 share of TCI Ventures Group (j) Spinoff -- 1 share of Park Place Entertainment Corp. for every 1 share of Hilton Hotels Corp. (k) Tender offer at $31.00 per share. (l) Call -- Thomas Nelson Inc. Conv. Sub. Note, 5.750% due 11/30/99 144A called at $100.82 effective 3/1/99 18 21 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS MARCH 31, 1999 (UNAUDITED)
MARKET SHARES VALUE ------ ------ COMMON STOCKS -- 94.0% EQUIPMENT AND SUPPLIES -- 12.2% 400,000 Aeroquip-Vickers Inc. ......... $ 22,925,000 90,000 AMETEK Inc. ................... 1,642,500 515,000 AMP Inc. ...................... 27,649,063 195,000 Ampco-Pittsburgh Corp. ........ 1,925,625 143,000 Amphenol Corp., Cl. A +........ 5,469,750 10,000 Caterpillar Inc. .............. 459,375 107,000 CLARCOR Inc. .................. 1,825,687 345,000 Deere & Co. ................... 13,325,625 280,400 Donaldson Co. Inc. ............ 5,047,200 100,000 Flowserve Corp. ............... 1,556,250 6,500 Franklin Electric Co. ......... 422,500 107,500 Gerber Scientific Inc. ........ 2,170,156 250,000 Hussmann International, Inc. ......................... 3,671,875 340,000 IDEX Corp. .................... 8,011,250 50,000 Lufkin Industries Inc. ........ 828,125 6,000 Manitowoc Co. Inc. ............ 251,250 195,000 Mark IV Industries Inc. ....... 2,547,188 490,000 Navistar International Corp. +....................... 19,691,875 20,000 PACCAR Inc. ................... 823,750 410,000 Pittway Corp. ................. 10,762,500 115,000 Pittway Corp., Cl. A........... 3,047,500 85,000 Sequa Corp., Cl. A +........... 4,271,250 75,000 Sequa Corp., Cl. B +........... 5,081,250 168,000 SPS Technologies Inc. +........ 6,594,000 30,000 Toyo Seikan Kaisha Ltd. ....... 647,300 500,000 US Filter Corp. +.............. 15,312,500 85,000 Watts Industries Inc., Cl. A... 1,152,813 -------------- 167,113,157 -------------- TELECOMMUNICATIONS -- 11.8% 42,000 Aliant Communications Inc. .... 1,719,375 5,000 Allegiance Telecom Inc. +...... 125,000 50,000 Alltel Corp. .................. 3,118,750 185,001 AT&T Corp. .................... 14,765,352 515,000 BCE Inc. ...................... 22,820,937 12,750 BCT.Telus Communications Inc. ......................... 312,521 52,500 BCT.Telus Communications Inc., Sponsored ADR................. 1,286,850 4,250 BCT.Telus Communications Inc. Cl. A......................... 100,654 17,500 BCT.Telus Communications Inc. Cl. A, Sponsored ADR.......... 414,458 95,000 Cable & Wireless plc........... 1,186,774
MARKET SHARES VALUE ------ ------ 75,000 Cable & Wireless plc, Sponsored ADR........................... $ 2,770,312 2,448,000 Cable & Wireless Jamaica Ltd. ......................... 83,501 30,000 Cincinnati Bell Inc. .......... 673,125 255,466 Commonwealth Telephone Enterprises, Inc. +........... 9,404,342 20,000 Commonwealth Telephone Enterprises, Inc. Cl. B +..... 720,000 35,000 Compania de Telecomunicaciones de Chile SA, Sponsored ADR.... 824,687 167,000 Embratel Participacoes SA +.... 2,786,813 80,000 Frontier Corp. ................ 4,150,000 265,000 GTE Corp. ..................... 16,032,500 55,000 Hong Kong Telecommunications Ltd., Sponsored ADR........... 1,075,937 10,000 Maritime Telegraph and Telephone Co. Ltd. ........... 266,645 10,000 Motorola Inc. ................. 732,500 150 Nippon Telegraph and Telephone Corp. ........................ 1,469,408 270,000 RCN Corporation................ 9,061,875 170,000 Rogers Communications Inc., Cl. B +, Sponsored ADR............ 3,081,784 5,000 SBC Communications Inc. ....... 235,625 230,000 Sprint Corp. .................. 22,568,750 1,800 Swisscom AG.................... 704,162 33,400 Tele Centro Sul Participacoes SA +.......................... 1,542,663 167,000 Tele Norte Leste Participacoes SA +.......................... 2,567,625 10,000 Telecom Argentina -- Stet France Telecom S.A., Sponsored ADR........................... 274,375 550,040 Telecom Italia SpA............. 5,848,094 151,500 Telecom Italia SpA, Sponsored ADR........................... 15,812,813 167,000 Telecomunicacoes Brasileiras SA (Telebras), Sponsored ADR..... 23,484 16,000 Telefonica S.A. ............... 679,246 10,000 Telefonica de Argentina S.A., ADR, Cl. B.................... 302,500 47,000 Telefonica de Espana, Sponsored ADR........................... 6,004,250 18,000 Telefonos De Mexico SA, Cl. L, ADR........................... 1,179,000 167,000 Telesp Participacoes SA........ 3,444,375
19 22 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) MARCH 31, 1999 (UNAUDITED)
MARKET SHARES VALUE ------ ------ COMMON STOCKS (CONTINUED) TELECOMMUNICATIONS (CONTINUED) 90,000 Telstra Corp. Ltd. +........... $ 471,142 7,000 U.S. West Inc. +............... 385,438 -------------- 161,027,642 -------------- ENTERTAINMENT -- 7.8% 105,768 Ascent Entertainment Group Inc. ......................... 1,156,838 40,000 CANAL +, Sponsored ADR......... 2,011,484 23,288 EMI Group plc.................. 166,228 118,000 EMI Group plc, Sponsored ADR... 1,637,250 20,000 Florida Panthers Holdings Inc. +........................ 155,000 20,000 Fox Entertainment Group Inc. ......................... 542,500 72,000 GC Companies Inc. +............ 2,263,500 3,000 King World Productions Inc. ... 91,687 224,224 Liberty Media Group Cl. A +.... 11,799,809 472,000 Time Warner Inc. .............. 33,541,500 65,000 Todd-AO Corp., Cl. A........... 511,875 300,000 USA Networks, Inc. +........... 10,743,750 475,000 Viacom Inc., Cl. A +........... 39,573,438 90,000 Walt Disney Co. ............... 2,801,250 -------------- 106,996,109 -------------- FINANCIAL SERVICES -- 7.7% 220,000 American Express Co. (d)....... 25,850,000 30,000 Argonaut Group, Inc. .......... 770,625 344,800 BA Merchant Services Inc. ..... 7,025,300 153,000 Banca Commerciale Italiana..... 1,256,406 18,500 Banca Nazionale del Lavoro, ORD +......................... 986,070 120,000 Banco Pastor SA................ 2,415,000 10,000 Banco Santander SA, ADR........ 882,500 170,000 Bankers Trust Corp. ........... 595,140 300,000 Bankgesellschaft Berlin AG..... 4,457,065 42,001 Bank of Ireland................ 880,407 56,000 Bank of Scotland............... 743,860 260 Berkshire Hathaway Inc., Cl. A +....................... 18,564,000 284,979 Colonial Limited Inc. +........ 1,133,111 50,000 Commerzbank AG, Sponsored ADR........................... 1,462,500 150,000 Deutsche Bank AG, Sponsored ADR........................... 7,612,500 25,000 Hibernia Corp. ................ 328,125 110,000 H&R Block Inc. ................ 5,211,250
MARKET SHARES VALUE ------ ------ 38,000 Lehman Brothers Holdings Inc. ......................... $ 2,270,500 10,000 Leucadia National Corporation................... 302,500 30,000 Mellon Bank Corporation........ 2,111,250 50,000 Merrill Lynch & Co. ........... 4,421,875 110,000 Midland Co. ................... 2,653,750 20,000 Morgan (J.P.) & Co. Inc. ...... 2,467,500 60,000 Riggs National Corp. .......... 1,012,500 14,000 Safra Republic Holdings SA..... 581,000 40,000 Schroders, plc................. 926,436 40,000 State Street Corp. ............ 3,287,500 20,000 SunTrust Banks Inc. ........... 1,245,000 60,000 T. Rowe Price Associates Inc. ......................... 2,062,500 50,000 Unitrin Inc. .................. 1,562,500 29,900 Waddell & Reed Financial Inc., Cl. A......................... 612,950 -------------- 105,691,620 -------------- BROADCASTING -- 6.8% 50,000 Ackerley Group Inc. ........... 846,875 15,000 Audiofina...................... 599,678 357,073 Chris-Craft Industries Inc. +........................ 16,291,464 575,630 Chris-Craft Industries Inc. Cl. B + (a)................... 26,263,115 95,000 Granada Group plc ORD.......... 1,924,291 37,500 Gray Communications Systems Inc. ......................... 623,437 240,000 Grupo Televisa S.A., GDR +..... 7,530,000 140,000 Liberty Corp. ................. 7,341,250 3,750 NRJ SA......................... 753,649 3,500 Pathe SA....................... 900,057 120,000 Paxson Communications Corp. Cl. A......................... 1,027,500 85,000 Publishing & Broadcasting Ltd. ......................... 485,125 100,000 Television Broadcasting Ltd. ORD........................... 364,540 60,000 Tokyo Broadcasting System Inc. ......................... 762,572 269,009 United Television Inc. ........ 27,976,936 -------------- 93,690,489 -------------- WIRELESS COMMUNICATIONS -- 6.6% 78,000 AirTouch Communications Inc. +........................ 7,536,750 133,000 Associated Group Inc., Cl. A +........................... 6,591,812 133,000 Associated Group Inc., Cl. B +........................... 6,450,500 170,000 Century Telephone Enterprises Inc. ......................... 11,942,500 150,000 COMSAT Corp., Series 1......... 4,340,625 100,000 Loral Space & Communications Ltd. ......................... 1,443,750
20 23 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) MARCH 31, 1999 (UNAUDITED)
MARKET SHARES VALUE ------ ------ COMMON STOCKS (CONTINUED) WIRELESS COMMUNICATIONS (CONTINUED) 5,000 NEXTEL Communications Inc., Cl. A +........................... $ 183,125 250,000 Securicor Group plc ORD........ 2,201,091 120,000 Sprint Corp. (PCS Group)....... 5,317,500 350,000 TCI Satellite Entertainment Inc., Cl. A +................. 229,687 16,700 Tele Celular Sul Participacoes SA............................ 319,387 55,666 Tele Centro Oeste Celular Participacoes SA +............ 205,268 3,340 Tele Leste Celular Participacoes SA.............. 106,880 8,350 Tele Nordeste Celular Participacoes SA.............. 185,788 3,340 Tele Norte Celular Participacoes SA +............ 99,365 33,400 Tele Sudeste Celular Participacoes SA +............ 676,350 8,350 Telemig Celular Participacoes SA +.......................... 218,666 66,800 Telesp Celular Participacoes SA +.......................... 1,398,625 1,360,000 Telecom Italia Mobile SpA...... 9,154,865 520,000 Telephone and Data Systems Inc. ......................... 29,315,000 115,813 Vodafone Group plc ORD......... 2,151,473 -------------- 90,069,007 -------------- CABLE -- 5.0% 610,000 Cablevision Systems Corp., Cl. A +........................... 45,216,250 40,000 Comcast Corp., Cl. A........... 2,460,000 29,200 Comcast Corp., Cl. A Special... 1,837,775 250,000 MediaOne Group Inc. +.......... 15,875,000 40,000 Shaw Communications Inc. +..... 1,287,500 10,000 Shaw Communications Inc., Cl. B, Conv....................... 321,298 200,000 TeleWest Communications plc +......................... 866,718 -------------- 67,864,541 -------------- FOOD AND BEVERAGE -- 4.7% 30,108 Advantica Restaurant Group, Inc. +........................ 150,540 30,000 Bestfoods Inc. ................ 1,410,000 18,000 Brau und Brunnen +............. 1,320,588 45,250 Corn Products International, Inc. +........................ 1,083,172 40,000 Diageo plc, Sponsored ADR...... 1,830,000 450,000 Foster's Brewing Group Ltd. ... 1,324,391 65,000 General Mills Inc. ............ 4,911,562
MARKET SHARES VALUE ------ ------ 2,500 Groupe Danone SA............... $ 629,662 4,000 Keebler Foods Co. +............ 146,000 115,000 Kellogg Co. ................... 3,888,437 11,000 LVHM Moet Hennessy Louis Vuitton, Sponsored ADR........ 540,375 700 Nestle SA...................... 1,273,976 5,000 Pepsi Bottling Group Inc. +.... 108,437 350,000 PepsiCo Inc. .................. 13,715,625 122,000 Quaker Oats Co. ............... 7,632,625 60,000 Ralcorp Holdings Inc. +........ 1,140,000 120,000 Seagram Co. Ltd. .............. 6,000,000 93,102 Tootsie Roll Industries Inc. ......................... 4,288,497 356,000 Whitman Corp. ................. 6,118,750 73,000 Wrigley (Wm.) Jr. Co. ......... 6,601,938 -------------- 64,114,575 -------------- PUBLISHING -- 4.0% 60,000 Arnoldo Mondadori Editore SpA +......................... 897,896 3,000 Central Newspapers Inc., Cl. A......................... 93,375 40,000 Dow Jones & Co. Inc. .......... 1,887,500 50,000 Harcourt General Inc. ......... 2,215,625 308,000 Independent Newspapers Ltd., ORD........................... 1,397,735 3,500 Kadokawa Shoten Publishing Co., Ltd. ......................... 467,002 100,000 McGraw-Hill Companies Inc. .... 5,450,000 345,000 Media General Inc., Cl. A...... 16,042,500 130,000 Meredith Corp. ................ 4,086,875 140,000 New York Times Co., Cl. A...... 3,990,000 140,000 News Corp. Ltd. ............... 1,036,252 5,000 News Corp. Ltd., ADR........... 147,500 70,000 Pearson plc ORD................ 1,594,147 300,000 Penton Media Inc. ............. 6,750,000 2,500 Pulitzer Inc. ................. 101,094 160,000 Reader's Digest Association Inc., Class B................. 4,400,000 65,000 Schibsted A/A.................. 774,310 1,500,000 Seat Pagine Gialle SpA +....... 1,758,515 200,000 South China Morning Post Holdings ORD.................. 110,975 62,000 Thomas Nelson Inc. ............ 620,000 17,000 Tribune Co. ................... 1,112,437 -------------- 54,933,738 --------------
21 24 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) MARCH 31, 1999 (UNAUDITED)
MARKET SHARES VALUE ------ ------ COMMON STOCKS (CONTINUED) CONSUMER PRODUCTS -- 4.0% 530,000 Carter-Wallace Inc. ........... $ 9,606,250 10,750 Christian Dior SA.............. 1,381,069 68,000 Church & Dwight Co. Inc. ...... 2,771,000 1,400 Compagnie Financiere Richemont AG, Cl. A..................... 2,330,964 10,000 Department 56 Inc. +........... 304,375 190,000 Fortune Brands Inc. (e)........ 7,350,625 220,000 Gallaher Group plc............. 5,170,000 160,000 General Cigar Holdings Inc. ... 1,490,000 105,000 General Cigar Holdings Inc. Class B + (a)................. 977,812 52,000 Harley Davidson Inc. .......... 2,990,000 30,000 KAO Corp. ..................... 662,501 45,000 Matsushita Electric Industrial Co. Ltd., ORD................. 877,845 1,500 Matsushita Electric Industrial Co. Ltd., ADR................. 290,062 10,000 Mattel Inc. ................... 248,750 35,000 National Presto Industries Inc. ......................... 1,240,313 9,500 Nintendo Co. Ltd. ............. 822,320 422,000 Ralston Purina Co. ............ 11,262,125 5,000 Sanofi SA...................... 842,790 20,000 Sony Corp., ADR................ 1,826,250 1,500 Swatch Group AG, Bearer........ 954,315 10,425 Syratech Corp. +............... 166,800 79,200 Unilever plc................... 735,654 -------------- 54,301,820 -------------- AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.5% 16,302 Borg Warner Automotive Inc. ... 779,439 300,223 Dana Corp. .................... 11,408,474 210,000 GenCorp Inc. .................. 3,780,000 70,000 Genuine Parts Co. ............. 2,016,875 118,000 Johnson Controls Inc. ......... 7,360,250 160,000 LucasVarity plc, Sponsored ADR........................... 7,400,000 330,000 Modine Manufacturing Co. ...... 9,260,625 6,500 SPX Corp. ..................... 327,844 160,000 Standard Motor Products Inc. ......................... 3,310,000 40,000 Superior Industries International, Inc. .......... 930,000
MARKET SHARES VALUE ------ ------ 110,000 TransPro Inc. ................. $ 474,375 60,000 Wynn's International Inc. ..... 1,046,250 -------------- 48,094,132 -------------- DIVERSIFIED INDUSTRIAL -- 2.9% 12,000 Cooper Industries Inc. ........ 511,500 140,000 Crane Co. ..................... 3,386,250 105,000 GATX Corp. .................... 3,458,437 60,000 Honeywell Inc. ................ 4,548,750 10,000 Indus Holding AG............... 324,150 10,000 ITT Industries Inc. +.......... 353,750 416,300 Lamson & Sessions Co. +........ 2,055,481 100,000 Lawter International Inc. ..... 700,000 105,000 National Service Industries Inc. ......................... 3,576,562 9,000 Oerlikon-Buhrle Holding AG..... 1,309,645 52,715 Park-Ohio Holding Corp. +...... 738,010 455,000 Tenneco Inc. .................. 12,711,562 75,000 Thomas Industries Inc. ........ 1,406,250 27,000 TI Group plc................... 175,510 50,000 Trinity Industries Inc. ....... 1,468,750 26,000 Tyco International Ltd. ....... 1,865,500 95,000 Tyler Corp. +.................. 415,625 100,000 Weir Group plc................. 397,851 -------------- 39,403,583 -------------- ENERGY AND UTILITIES -- 2.1% 10,000 AGL Resources Inc. ............ 175,625 34,000 Apache Corp. .................. 886,125 70,000 Atlantic Richfield Co. ........ 5,110,000 75,000 BP Amoco plc, Sponsored ADR.... 7,570,312 60,000 BP Amoco plc, ORD.............. 1,015,367 70,000 Burlington Resources Inc. ..... 2,795,625 48,000 Eastern Enterprises............ 1,746,000 70,000 El Paso Electric Company +..... 533,750 10,000 Energy East Corporation........ 525,625 55,000 Halliburton Co. ............... 2,117,500 25,000 New England Electric System.... 1,212,500 240,000 PennzEnergy Co. +.............. 2,520,000 158,800 Pennzoil-Quaker State Inc. +... 1,965,150 6,000 Public Service Co. of North Carolina Inc. ................ 170,250 15,000 St. Joseph Light & Power Co. .......................... 306,562 11,000 Veba AG........................ 578,824 -------------- 29,229,215 --------------
22 25 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) MARCH 31, 1999 (UNAUDITED)
MARKET SHARES VALUE ------ ------ COMMON STOCKS (CONTINUED) HOTELS/GAMING -- 1.7% 110,000 Aztar Corp. +.................. $ 529,375 180,000 Gaylord Entertainment Co., Cl. A......................... 4,365,000 5,000 GTECH Holdings Corp. +......... 121,875 545,000 Hilton Hotels Corp. ........... 7,664,062 1,016,949 Ladbroke Group plc............. 4,649,138 100,000 Mirage Resorts Inc. ........... 2,125,000 950 Moevenpick Holding AG.......... 501,523 550,000 Park Place Entertainment Corp. +....................... 4,159,375 -------------- 24,115,348 -------------- HEALTH CARE -- 1.6% 30,000 Amgen Inc. +................... 2,246,250 69,666 Astra AB, Cl. A................ 1,598,934 13,000 Biogen Inc. +.................. 1,486,062 50,000 Glaxo Wellcome plc ORD......... 1,675,331 4,000 Glaxo Wellcome plc ADR......... 267,750 2,000 Life Technologies, Inc. ....... 77,125 1,150 Novartis AG, Registered........ 1,868,799 54,000 Novartis AG, ADR +............. 4,401,000 15,000 Pfizer Inc. ................... 2,081,250 140 Roche Holding AG............... 1,710,321 7,000 Schering AG.................... 815,724 55,000 SmithKline Beecham plc......... 793,160 35,000 Zeneca Group plc +............. 1,654,026 -------------- 20,675,732 -------------- AUTOMOTIVE -- 1.2% 188,000 General Motors Corp. (f)....... 16,332,500 -------------- RETAIL -- 1.2% 55,000 Brylane Inc. +................. 1,333,750 20,500 Coldwater Creek Inc. +......... 235,750 80,000 Earl Scheib Inc. +............. 400,000 140,000 Food Lion Inc., Cl A........... 1,288,437 11,000 Ito Yokado Co. Ltd. ........... 707,850 100,000 Lillian Vernon Corp. .......... 1,200,000 340,000 Neiman Marcus Group Inc. +..... 7,692,500 274,000 Republic Industries, Inc. +.... 3,390,750 -------------- 16,249,037 --------------
MARKET SHARES VALUE ------ ------ SPECIALTY CHEMICAL -- 1.0% 5,400 Ciba Specialty Chemicals, ADR 144A (c) +.................... $ 207,814 20,000 Dexter Corp. .................. 630,000 20,000 E.I. du Pont de Nemours Co. ... 1,161,250 250,000 Ferro Corp. ................... 6,187,500 5,000 General Chemical Group Inc. ... 65,625 175,000 Morton International Inc. ..... 6,431,250 105,000 Sybron Chemicals Inc. ......... 1,338,750 -------------- 16,022,189 -------------- AVIATION: PARTS AND SERVICES -- 0.9% 390,000 Coltec Industries Inc. +....... 7,093,125 100,000 Curtiss-Wright Corp. .......... 3,106,250 130,000 Fairchild Corporation, Cl. A... 1,324,375 145,000 Hi-Shear Industries Inc. +..... 371,563 23,000 Precision Castparts Corp. ..... 925,750 -------------- 12,821,063 -------------- PAPER AND FOREST PRODUCTS -- 0.9% 252,000 Greif Bros. Corp., Cl. A....... 5,544,000 3,400 Greif Bros. Corp., Cl. B....... 109,650 255,000 St. Joe Company................ 6,183,750 -------------- 11,837,400 -------------- FINANCIAL SERVICES: INSURANCE -- 0.8% 125,000 American Bankers Insurance Group, Inc. .................. 6,500,000 75,342 CGU plc........................ 1,173,459 390,000 Istitute Nazionale delle Assicurazioni................. 1,179,907 20,000 SCOR SA........................ 1,007,026 84,000 Skandia Forsakrings AB......... 1,564,836 -------------- 11,425,228 -------------- AGRICULTURE -- 0.8% 685,000 Archer-Daniels-Midland Co. .... 10,060,938 20,000 Pioneer Hi-Bred International Inc. ......................... 752,500 -------------- 10,813,438 -------------- COMMUNICATIONS EQUIPMENT -- 0.8% 268,200 Allen Telecom Inc. +........... 1,625,963 60,000 Dynatech Corporation +......... 206,250 33,000 Lucent Technologies Inc. ...... 3,555,750 11,000 Northern Telecom Ltd. ......... 683,375
23 26 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) MARCH 31, 1999 (UNAUDITED)
MARKET SHARES VALUE ------ ------ COMMON STOCKS (CONTINUED) COMMUNICATIONS EQUIPMENT (CONTINUED) 22,000 Scientific-Atlanta Inc. ....... $ 599,500 100,000 Xylan Corp. +.................. 3,681,250 -------------- 10,352,088 -------------- CONSUMER SERVICES -- 0.7% 310,000 Loewen Group Inc. ............. 561,875 30,000 Midas, Inc. ................... 1,001,261 510,000 Rollins Inc. .................. 8,574,375 -------------- 10,137,511 -------------- BUSINESS SERVICES -- 0.6% 130,000 Cendant Corporation............ 2,047,500 18,000 CheckFree Holdings Corp. +..... 766,125 25,000 Convergys Corp. +.............. 428,125 100,000 Landauer Inc. ................. 2,412,500 10,833 Reuters Holdings plc, Cl. B, Sponsored ADR................. 941,117 5,050 Vivendi........................ 1,243,543 -------------- 7,838,910 -------------- REAL ESTATE -- 0.6% 430,000 Catellus Development Corp. +... 5,751,250 44,000 Florida East Coast Industries Inc. ......................... 1,317,250 55,000 Griffin Land & Nurseries Inc. +........................ 508,750 -------------- 7,577,250 -------------- TRANSPORTATION -- 0.4% 79,000 AMR Corp. +.................... 4,626,438 15,000 Kansas City Southern Industries, Inc. ............. 855,000 31,273 MIF Ltd. +..................... 550,709 -------------- 6,032,147 -------------- AEROSPACE/DEFENSE -- 0.3% 70,000 Northrop Grumman Corp. ........ 4,191,250 -------------- CLOSED-END FUNDS -- 0.3% 59,000 Central European Equity Fund Inc. ......................... 711,688 70,000 Dresdner RCM Europe Fund....... 840,000 25,000 France Growth Fund Inc. ....... 339,062 10,000 Gabelli Utility Fund (a)....... 100,000 40,250 Italy Fund Inc. ............... 606,266
MARKET SHARES VALUE ------ ------ 68,000 New Germany Fund............... $ 811,750 45,942 Royce Value Trust Inc. ........ 519,719 -------------- 3,928,485 -------------- HOUSING RELATED -- 0.3% 150,000 Nortek Inc. +.................. 3,712,500 5,000 Nortek Inc., Special Common +(a)................... 123,750 -------------- 3,836,250 -------------- BUILDING AND CONSTRUCTION -- 0.2% 90,000 CRH plc ORD.................... 1,554,948 15,000 Martin Marietta Materials Inc. ......................... 855,937 52,500 Sekisui House Ltd. ............ 558,629 -------------- 2,969,514 -------------- ELECTRONICS -- 0.2% 3,000 Hitachi Ltd., ADR.............. 218,250 12,000 Koninklijke Philips Electronics N.V........................... 989,250 1,500 NEC Corp., ADR................. 89,437 90,000 Ucar International Inc. +...... 1,271,250 -------------- 2,568,187 -------------- METALS AND MINING -- 0.2% 10,000 Anglogold Ltd.-Spon ADR........ 201,250 70,909 Antofagasta Holdings plc....... 293,557 10,000 Barrick Gold Corp. ............ 170,625 60,000 Harmony Gold Mining Co Ltd. ... 281,414 150,000 Lihir Gold Ltd. ............... 132,601 38,000 Newmont Mining Corp. .......... 665,000 844,000 Pegasus Gold Inc. +............ 16,880 40,000 Placer Dome Inc. .............. 447,500 -------------- 2,208,827 -------------- COMPUTER SOFTWARE AND SERVICES -- 0.1% 9,960 CDnow Inc. +................... 160,605 11,000 PLATINUM Technology International Inc. +.......... 280,500 9,000 Softbank Corp. +............... 1,009,332 -------------- 1,450,437 -------------- CONGLOMERATES -- 0.1% 19,116 Invik & Co. AB, Cl. B.......... 1,245,228 -------------- TOTAL COMMON STOCKS............ 1,287,157,647 --------------
24 27 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) MARCH 31, 1999 (UNAUDITED)
MARKET SHARES VALUE ------ ------ PREFERRED STOCKS -- 0.4% TELECOMMUNICATIONS -- 0.3% 10,000 Citizens Utilities Co., 5.000% Conv. Pfd. (EPPICS)........... $ 402,500 40,000 Sprint Corp., 8.250%, Conv. Pfd........................... 2,920,000 2,223,575 Telecomunicacoes de Sao Paulo (Telesp), Pfd., Registered.... 272,923 -------------- 3,595,423 -------------- PUBLISHING -- 0.1% 43,500 News Corp. Ltd., Sponsored ADR, Pfd........................... 1,196,250 -------------- CABLE -- 0.0% 8,000 Tele-Communications Inc., Cl. B, 6.000%, Ex. Jr. Pfd.... 796,000 -------------- WIRELESS COMMUNICATIONS -- 0.0% 2,223,575 Telecomunicacoes de Sao Paulo Celular, Pfd., B.............. 82,979 -------------- TOTAL PREFERRED STOCKS......... 5,670,652 -------------- COMMON STOCK WARRANTS AND RIGHTS -- 0.0% FOOD AND BEVERAGE -- 0.0% 62,463 Advantica Restaurant Group, Inc., Warrants, expires 01/07/2005 +.................. 72,223 -------------- PRINCIPAL AMOUNT --------- CORPORATE BONDS -- 0.0% PUBLISHING -- 0.0% 200,000 News American Holdings Inc., Gtd. Ex. Sub. Note, Zero Coupon due 03/31/2002................ 250,500 --------------
PRINCIPAL MARKET AMOUNT VALUE --------- ------ TELECOMMUNICATIONS -- 0.0% 200,000(g) Rogers Communications, Inc., 7.50% due 09/01/1999.......... $ 174,230 -------------- TOTAL CORPORATE BONDS.......... 424,730 -------------- U.S. TREASURY BILLS -- 5.6% 77,000,000 U.S. Treasury Bills, 5.16% ++ due 04/22/1999 (f)............ 76,789,790 -------------- TOTAL INVESTMENTS (b) -- 100.0%........................ $1,370,115,042 ============== OTHER ASSETS, LIABILITIES AND LIQUIDATION VALUE OF CUMULATIVE PREFERRED STOCK -- (10.1%)............................ (134,667,089) -------------- NET ASSETS -- COMMON STOCK (106,116,347 common shares outstanding) -- 89.9%...... $1,235,447,953 -------------- NET ASSETS -- PREFERRED STOCK (5,400,000 preferred shares outstanding) -- 10.1%...... 135,000,000 -------------- TOTAL NET ASSETS -- 100.0%............................. $1,370,447,953 -------------- NET ASSET VALUE PER COMMON SHARE ($1,235,447,953 / 106,116,347 shares outstanding) $11.64 ======
FUTURES CONTRACTS -- SHORT POSITION
NUMBER OF UNREALIZED CONTRACTS APPRECIATION --------- ------------ (380) S&P 500 Index Futures, June 1999................................ $ 2,391,150 =============
25 28 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) MARCH 31, 1999 (UNAUDITED)
UNREALIZED SETTLEMENT APPRECIATION/ DATE (DEPRECIATION) ---------- -------------- SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS FORWARD FOREIGN EXCHANGE CONTRACTS TO DELIVER 4,608,000(h) British Pounds in $29,229 exchange for USD $7,436,250......... 04/15/99 9,794,862(i) Hong Kong Dollars in ($2,412) exchange for USD $1,262,412......... 05/24/99 ------- $26,817 =======
- --------------- (a) Security fair valued under procedures established by the Board of Directors. (b) For Federal tax purposes: Aggregate cost $838,717,785 ============ Gross unrealized appreciation $570,383,467 Gross unrealized depreciation (38,986,210) ------------ Net unrealized appreciation $531,397,257 ============ (c) 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. The market value of these securities at March 31, 1999 was $207,814 representing 0.71% of total net assets. (d) At March 31, 1999, 204,000 shares were pledged as collateral for futures contracts. (e) At March 31, 1999, 100,000 shares were pledged as collateral for futures contracts. (f) Security was pledged as collateral for futures contracts. (g) Principal amount denoted in Canadian Dollars. (h) Principal amount denoted in British Pounds. (i) Principal amount denoted in Hong Kong Dollars. + Non-income producing security. ++ Represents annualized yield at date of purchase. ADR -- American Depositary Receipt USD -- United States Dollar CAD -- Canadian Dollar ORD -- Ordinary Share GDR -- Global Depositary Receipt
26 29 AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN ENROLLMENT IN THE PLAN It is the policy of The Gabelli Equity Trust Inc. ("Equity Trust") to automatically reinvest dividends. As a "registered" shareholder you automatically become a participant in the Equity Trust's Automatic Dividend Reinvestment Plan (the "Plan"). The Plan authorizes the Equity Trust to issue shares to participants upon an income dividend or a capital gains distribution regardless of whether the shares are trading at a discount or a premium to net asset value. All distributions to shareholders whose shares are registered in their own names will be automatically reinvested pursuant to the Plan in additional shares of the Equity Trust. Plan participants may send their stock certificates to State Street Bank and Trust Company ("State Street") to be held in their dividend reinvestment account. Registered shareholders wishing to receive their distribution in cash must submit this request in writing to: The Gabelli Equity Trust Inc. c/o State Street Bank and Trust Company P.O. Box 8200 Boston, MA 02266-8200 Shareholders requesting this cash election must include the shareholder's name and address as they appear on the share certificate. Shareholders with additional questions regarding the Plan may contact State Street at 1 (800) 336-6983. Shareholders wishing to liquidate reinvested shares held at State Street Bank must do so in writing or by telephone. Please submit your request to the above mentioned address or telephone number. Include in your request your name, address and account number. The cost to liquidate shares is $2.50 per transaction as well as the brokerage commission incurred. Brokerage charges are expected to be less than the usual brokerage charge for such transactions. If your shares are held in the name of a broker, bank or nominee, you should contact such institution. If such institution is not participating in the Plan, your account will be credited with a cash dividend. In order to participate in the Plan through such institution, it may be necessary for you to have your shares taken out of "street name" and re-registered in your own name. Once registered in your own name your dividends will be automatically reinvested. Certain brokers participate in the Plan. Shareholders holding shares in "street name" at participating institutions will have dividends automatically reinvested. Shareholders wishing a cash dividend at such institution must contact their broker to make this change. The number of shares of Common Stock distributed to participants in the Plan in lieu of cash dividends is determined in the following manner. Under the Plan, whenever the market price of the Equity Trust's Common Stock is equal to or exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash dividends or capital gains distribution, participants are issued shares of Common Stock valued at the greater of (i) the net asset value as most recently determined or (ii) 95% of the then current market price of the Equity Trust's Common Stock. The valuation date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange trading day, the next trading day. If the net asset value of the Common Stock at the time of valuation exceeds the market price of the Common Stock, participants will receive shares from the Equity Trust valued at market price. If the Equity Trust should declare a dividend or capital gains distribution payable only in cash, State Street will buy Common Stock in the open market, or on the New York Stock Exchange or elsewhere, for the participants' accounts, except that State Street will endeavor to terminate purchases in the open market and cause the Equity Trust to issue shares at net asset value if, following the commencement of such purchases, the market value of the Common Stock exceeds the then current net asset value. The automatic reinvestment of dividends and capital gains distributions will not relieve participants of any income tax which may be payable on such distributions. A participant in the Plan will be treated for Federal income tax purposes as having received, on a dividend payment date, a dividend or distribution in an amount equal to the cash the participant could have received instead of shares. The Equity Trust reserves the right to amend or terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of the Plan at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by State Street on at least 90 days' written notice to participants in the Plan. 27 30 VOLUNTARY CASH PURCHASE PLAN The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders to increase their investment in the Equity Trust. In order to participate in the Voluntary Cash Purchase Plan, shareholders must have their shares registered in their own name. Participants in the Voluntary Cash Purchase Plan have the option of making additional cash payments to State Street for investments in the Equity Trust's shares at the then current market price. Shareholders may send an amount from $250 to $10,000. State Street will use these funds to purchase shares in the open market on or about the 15th of each month. Beginning June 1, 1999, purchase will be made on or about the 1st and 15th of each month. State Street will charge each shareholder who participates $0.75, plus a pro rata share of the brokerage commissions. Brokerage charges for such purchases are expected to be less than the usual brokerage charge for such transactions. It is suggested that any voluntary cash payments be sent to State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-8200 such that State Street receives such payments approximately 10 days before the 15th of the month. Funds not received at least five days before the investment date shall be held for investment in the following month. A payment may be withdrawn without charge if notice is received by State Street at least 48 hours before such payment is to be invested. For more information regarding the Dividend Reinvestment Plan and Voluntary Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by writing directly to the Equity Trust. 28 31 DIRECTORS AND OFFICERS THE GABELLI EQUITY TRUST INC. ONE CORPORATE CENTER, RYE, NY 10580-1434 DIRECTORS Mario J. Gabelli, CFA Chairman & Chief Investment Officer, Gabelli Funds, Inc. Dr. Thomas E. Bratter President, John Dewey Academy Bill Callaghan President, Bill Callaghan Associates Felix J. Christiana Former Senior Vice President, Dollar Dry Dock Savings Bank James P. Conn Former Managing Director and Chief Investment Officer, Financial Security Assurance Holdings Ltd. Frank J. Fahrenkopf, Jr. President and Chief Executive Officer, American Gaming Association Karl Otto Pohl Former President, Deutsche Bundesbank Anthony R. Pustorino Certified Public Accountant Professor, Pace University Salvatore J. Zizza Chairman The Bethlehem Corp. OFFICERS Mario J. Gabelli, CFA President & Chief Investment Officer Bruce N. Alpert Vice President & Treasurer Marc S. Diagonale Vice President James E. McKee Secretary INVESTMENT ADVISOR Gabelli Funds, LLC One Corporate Center Rye, New York 10580-1434 CUSTODIAN Boston Safe Deposit and Trust Company COUNSEL Willkie Farr & Gallagher TRANSFER AGENT AND REGISTRAR State Street Bank and Trust Company STOCK EXCHANGE LISTING
Common 7.25% Preferred ------ --------------- NYSE-Symbol: GAB GAB Pr Shares Outstanding: 106,116,347 5,400,000
The Net Asset Value appears in the Publicly Traded Funds column, under the heading "General Equity Funds," in Sunday's The New York Times and in Monday's The Wall Street Journal. It is also listed in Barron's Mutual Funds/Closed End Funds section under the heading "General Equity Funds". The Net Asset Value may be obtained each day by calling (914) 921-5071. For general information about the Gabelli Funds, call 1-800-GABELLI (1-800-422-3554), fax us at 914-921-5118, visit Gabelli Funds' Internet homepage at: HTTP://WWW.GABELLI.COM or e-mail us at: closedend@gabelli.com Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Equity Trust may from time to time purchase shares of its capital stock in the open market when the Equity Trust shares are trading at a discount of 10% or more from the net asset value of the shares. 32 THE GABELLI EQUITY TRUST INC. ONE CORPORATE CENTER RYE, NY 10580-1434 (914) 921-5070 HTTP://WWW.GABELLI.COM FIRST-QUARTER REPORT MARCH 31, 1999 GAB 03/99 -----END PRIVACY-ENHANCED MESSAGE-----