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SEMI-ANNUAL REPORT
JUNE 30, 2002
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Our cover icon represents the underpinnings of Gabelli.
The Teton mountains in Wyoming represent what we believe in
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.
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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.
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TO OUR SHAREHOLDERS,
Ongoing uncertainty over the strength of the economic and corporate profit
recovery, turmoil in the Middle East, renewed fear of terrorism at home,
accounting scandals, and revelations about conflicts of interest on Wall Street
combined to undermine equities in the second quarter. At the close of the
quarter, the Standard and Poor's ("S&P") 500 Index and Nasdaq Composite Index
were re-testing their post-9/11 intra-day lows of 944.75 and 1,387.06,
respectively.
In general, the Gabelli Equity Trust's (the "Trust's") industrial holdings
held up relatively well in this uncompromising market. However, the dismal
performance of our media and telecommunications investments, which comprise
about 26% of our Trust, penalized overall returns.
COMPARATIVE RESULTS
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 2002 (A)
SINCE YEAR TO
QUARTER INCEPTION (B) 10 YEAR 5 YEAR 3 YEAR 1 YEAR DATE
------- ------------- ------- ------ ------ ------ ------
Gabelli Equity Trust NAV Return (c) ...........(12.67)% 11.31% 10.78% 6.22% (1.58)% (12.82)% (9.70)%
Gabelli Equity Trust Investment Return (d) .... (6.31)% 12.79% 13.67% 13.30% 7.86% (2.12)% (1.33)%
Dow Jones Industrial Average ..................(10.74)% 10.56% 13.20% 5.59% (3.94)% (10.34)% (6.91)%
S&P 500 Index .................................(13.39)% 9.07% 11.42% 3.67% (9.17)% (17.98)% (13.15)%
Nasdaq Composite Index ........................(20.71)% 8.85% 10.01% 0.29% (18.33)% (32.30)% (24.98)%
(a) Returns represent past performance and do not guarantee future results.
Investment returns and the principal value of an investment will fluctuate.
When shares are sold, they may be worth more or less than their original
cost. The Dow Jones Industrial Average is an unmanaged index of 30 large
industrial stocks. The S&P 500 and the Nasdaq Composite Indices are
unmanaged indicators of stock market performance. Dividends are considered
reinvested (except for the Nasdaq Composite Index). Performance for periods
less than one year are not annualized.
(b) From commencement of investment operations on August 21, 1986.
(c) Total returns and average annual returns reflect changes in net asset value
("NAV"), reinvestment of distributions, adjustments for rights offerings,
spin-offs and taxes paid on undistributed long-term capital gains, and are
net of expenses. Since Inception return based on initial net asset value of
$9.34.
(d) Total returns and average annual returns reflect changes in closing market
values on the New York Stock Exchange, reinvestment of distributions,
adjustments for rights offerings, spin-offs and taxes paid on undistributed
long-term capital gains. Since Inception return based on an initial offering
price of $10.00.
PREMIUM/DISCOUNT DISCUSSION
As a refresher to our shareholders, the price of a closed-end mutual fund
is determined in the open market by willing buyers and sellers. Shares of the
Trust trade on the New York Stock Exchange and may trade at a premium to (higher
than) net asset value ("NAV") (the market value of the Trust's underlying
portfolio) or a discount to (lower than) net asset value. Of the 502
publicly-traded closed-end funds in the U.S., approximately 37% currently trade
at premiums to NAV versus 26% five years ago and 61% ten years ago. For general
equity funds such as the Trust, approximately 31% currently trade at premiums to
NAV versus 33% five years and 14% ten years ago.
Ideally, the Trust's market price will generally track the NAV. The
Trust's premium or discount to NAV fluctuates over time. Over our Trust's
15-year history, the range fluctuated from a 38% premium in June 2002 to a 27%
discount in December 1987. The average variance from NAV for the Trust since
inception is a 0.3% discount to
NAV. Beginning in early 2001, the market price of the Trust exceeded the NAV and
this premium has gradually increased since. The previous extended period in
which a premium existed occurred during a 20-month period from August 1993 to
March 1995.
"Mr. Market" often provides opportunities to invest at a discount. The
Trust has undertaken various initiatives to narrow the discount when appropriate
through distribution policies, rights offerings, share repurchase programs and
use of leverage.
The Trust's long-term investment goal is to generate a real rate of return
of 10%. We believe that our stock selection process adds to the investment
equation. We have a successful history of investment providing shareholders
average annual returns of 11% since inception. However, it is important to
remember that "Mr. Market" is a pendulum that swings both ways. As the market
moves away from momentum investing and back to basics, we believe that an
excessive premium for the Trust is not likely to be sustainable.
PREMIUM/DISCOUNT SINCE INCEPTION
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JUNE 30, 2002
Net Asset Value $ 7.59
Market Price $10.03
Premium 32.15%
8/21/86 0
9/30/86 0.0067
10/31/86 0.0046
11/30/86 -0.039
12/31/86 -0.0661
1/31/87 -0.1363
2/28/87 -0.1323
3/31/87 -0.1555
4/30/87 -0.1393
5/31/87 -0.1788
6/30/87 -0.2028
7/31/87 -0.2
8/31/87 -0.2052
9/30/87 -0.2128
10/31/87 -0.2074
11/30/87 -0.2154
12/31/87 -0.2061
1/31/88 -0.2235
2/29/88 -0.1145
3/31/88 -0.1523
4/30/88 -0.1477
5/31/88 -0.1906
6/30/88 -0.0819
7/31/88 -0.0984
8/31/88 -0.0942
9/30/88 -0.1097
10/31/88 -0.1256
11/30/88 -0.1104
12/31/88 -0.1113
1/31/89 -0.1214
2/28/89 -0.1108
3/31/89 -0.1006
4/30/89 -0.0925
5/31/89 -0.0699
6/30/89 -0.0468
7/31/89 -0.0854
8/31/89 -0.0243
9/30/89 -0.0385
10/31/89 -0.0257
11/30/89 -0.0217
12/31/89 0.0076
1/31/90 0.0534
2/28/90 -0.0156
3/31/90 0.0242
4/30/90 0.0033
5/31/90 -0.0056
6/30/90 -0.0049
7/31/90 -0.0176
8/31/90 -0.018
9/30/90 -0.0348
10/31/90 -0.1187
11/30/90 -0.0327
12/31/90 0.029
1/31/91 -0.0091
2/28/91 0.0269
3/31/91 0.015
4/30/91 -0.0257
5/31/91 -0.01
6/30/91 0.0138
7/31/91 -0.0032
8/31/91 -0.0009
9/30/91 -0.0298
10/31/91 -0.0083
11/30/91 -0.1014
12/31/91 -0.0366
1/31/92 -0.0077
2/29/92 0.0141
3/31/92 0.0045
4/30/92 0.0069
5/31/92 0.0092
6/30/92 0.0032
7/31/92 0.0165
8/31/92 0.0309
9/30/92 0.0427
10/31/92 -0.0068
11/30/92 -0.0461
12/31/92 -0.0257
1/31/93 -0.0312
2/28/93 -0.0046
3/31/93 0.0265
4/30/93 0.0436
5/31/93 0.012
6/30/93 -0.0207
7/31/93 -0.0093
8/31/93 -0.0358
9/30/93 0.0088
10/31/93 0.0601
11/30/93 0.0659
12/31/93 0.0573
1/31/94 0.0797
2/28/94 0.0673
3/31/94 0.0733
4/30/94 -0.027
5/31/94 0.0524
6/30/94 0.0542
7/31/94 0.0233
8/31/94 0.0597
9/30/94 0.0185
10/31/94 0.0375
11/30/94 0.0622
12/31/94 0.0121
1/31/95 0.0047
2/28/95 0.03
3/31/95 0.017
4/30/95 -0.0122
5/31/95 -0.024
6/30/95 -0.0081
7/31/95 -0.044
8/31/95 -0.0697
9/30/95 -0.0845
10/31/95 -0.1206
11/30/95 -0.075
12/31/95 -0.0578
1/31/96 -0.0625
2/29/96 -0.0821
3/31/96 -0.0385
4/30/96 -0.0732
5/31/96 -0.0916
6/30/96 -0.047
7/31/96 -0.0576
8/31/96 -0.0708
9/30/96 -0.0474
10/31/96 -0.0405
11/30/96 -0.0644
12/31/96 -0.0394
1/31/97 -0.0741
2/28/97 -0.0644
3/31/97 -0.0424
4/30/97 -0.0077
5/31/97 -0.0688
6/30/97 -0.0613
7/31/97 -0.0693
8/31/97 -0.0676
9/30/97 -0.0397
10/31/97 -0.0636
11/30/97 -0.0175
12/31/97 0.0316
1/31/98 0.0119
2/28/98 -0.0088
3/31/98 -0.022
4/30/98 -0.0788
5/31/98 -0.0885
6/30/98 -0.04
7/31/98 -0.042
8/31/98 -0.0814
9/30/98 -0.0091
10/31/98 0.0025
11/30/98 0.0216
12/31/98 0.0026
1/31/99 0.0103
2/28/99 0.0264
3/31/99 0.0202
4/30/99 -0.0068
5/31/99 -0.006
6/30/99 -0.0163
7/31/99 0.007
8/31/99 0.0159
9/30/99 0.0126
10/31/99 -0.0045
11/30/99 -0.0178
12/31/99 -0.0147
1/31/00 -0.0331
2/29/00 -0.0835
3/31/00 -0.0438
4/30/00 -0.078
5/31/00 -0.046
6/30/00 0.0097
7/31/00 -0.0093
8/31/00 0.0073
9/30/00 -0.0179
10/31/00 -0.0298
11/30/00 0.0332
12/31/00 0.0493
1/31/01 -0.045
2/28/01 -0.0067
3/31/01 0.1048
4/30/01 0.0937
5/31/01 0.1453
6/30/01 0.1596
7/31/01 0.1107
8/31/01 0.1614
9/30/01 0.2041
10/31/01 0.2241
11/30/01 0.2314
12/31/01 0.2029
1/31/02 0.2497
2/28/02 0.2463
3/31/02 0.2311
4/30/02 0.248
5/30/02 0.2955
6/30/02 0.3215
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
On June 27, 2002, the Trust successfully completed its offering of Series
C Auction Rate Cumulative Preferred Stock ("Preferred Shares") which was rated
'Aaa' by Moody's Investors Service, Inc. and 'AAA' by Standard & Poor's Rating
Services. Shareholder response has been positive and we appreciate the efforts
of Salomon Smith Barney Inc. and Gabelli & Company, Inc., the underwriters, and
wish to thank and welcome all those investors who participated.
The Trust issued 5,200 Preferred Shares at $25,000 per share ($130
million) with an initial annualized dividend rate of 1.85% payable on July 3,
2002. Dividend rates for the Preferred Shares are cumulative at a rate that may
be reset every seven days based on the results of an auction. The Preferred
Shares are redeemable at the option of the Trust, in whole or in part, following
any dividend payment date with not less than 15 days and not more than 40 days
2
notice at $25,000 per share plus any accumulated or unpaid dividends. These
Preferred Shares do not trade on an exchange. Consistent with our conservative
approach, the Trust issued the Preferred Shares in a cost-effective manner at
less than an estimated $0.013 per share.
How do the additional Preferred Shares benefit Common Shareholders? The
Trust has earned an 11.31% average annual total return from inception on August
21, 1986 through June 30, 2002. The Preferred Shares were issued with an initial
annualized dividend rate of 1.85%. Going forward, the dividend rate will
fluctuate weekly based on market conditions. Additionally, the Trust was able to
leverage the current low interest rate environment and protect the Trust from
increases in such interest rates by entering into a five-year interest rate swap
agreement with Citibank at a rate of 4.494%. Any return earned in excess of the
stated 4.494% swap rate would benefit Common Shareholders; however, any
shortfall from the stated swap rate would have an adverse effect on the Common
Shareholder. Therefore, by taking advantage of the historically low interest
rate environment and achieving our long-term investment objectives, the
Preferred Share issuance offers what we believe is a method of potentially
adding wealth for our Common Shareholders. Similar to the Trust's previous
preferred offerings, the Adviser will not earn any management fee on the
incremental assets during any year in which the net asset value total return on
the Trust does not exceed the stated five-year swap rate related to the
Preferred Shares. Following the expiration of the swap agreement, the variable
dividend rate on the Preferred Shares will serve as the hurdle rate for the
Adviser to earn any management fee on the incremental assets, unless the Trust
enters into a new swap agreement. Coupled with the Trust's existing Preferred
Stock outstanding, the effective dividend rate for the Trust's three classes of
Preferred Stock is 6.40%.
Realized long-term capital gains of the Trust are passed through to all
shareholders. In 2001, 87.89% of the common and preferred distributions was
classified as long-term capital gains, taxable at a maximum rate of 20%.
Accordingly, the ordinary income equivalent yield on the preferred stock at the
initial dividend rate of 1.85%, for a shareholder in the 38.6% tax bracket,
would be 2.35%.
COMMENTARY
THE ECONOMY: THE RECOVERY IS FOR REAL
Although consumer confidence readings and retail sales softened in May,
most other economic data has been encouraging. Industrial production and
productivity continued to trend higher, new housing starts approached record
levels, and there was a modest up-tick in business investment. Importantly,
inflation remained dormant, most likely postponing any Federal Reserve Board
("Fed") interest rate hikes. We believe full year 2002 Gross Domestic Product
("GDP") growth will be above the 3% to 3.5% range we expected at the beginning
of the year and that capital spending plus a recovery in Europe and Japan in
2003 will help sustain economic growth in the year ahead.
Presently, investors appear to be questioning whether corporate earnings
will meet expectations in the coming quarters. We believe profits will be up
sharply this year as a result of the economic expansion, increased productivity,
cost cutting, financial re-engineering, and big decline in the "everything
including the kitchen sink" write-offs taken in 2001. Financial Accounting
Standards Board ("FASB") Rule 142, which does not require companies to amortize
goodwill, will also help earnings for many companies. In addition, a gradual
weakening of the dollar will boost profits for the large U.S.-based
multinationals in the S&P 500 Index. Although stocks are still not cheap by
historical standards, rising earnings will make equity valuations considerably
more reasonable.
3
THE MARKET: A CRISIS IN CONFIDENCE
Unfortunately, over the short term, a recovering economy, a rebound in
corporate profits, and more reasonable equity valuations may not do much to
improve investor psychology, which has been battered by geopolitical tensions
and a crisis in confidence in the integrity of corporate America and Wall
Street.
It has become apparent that our quick victory over the Taliban in
Afghanistan has not eliminated the threat of terrorism at home or abroad. The
seemingly never-ending cycle of violence in the Middle East has further unnerved
investors. For a few tense weeks, investors also worried about a nuclear
confrontation between Pakistan and India over Kashmir. Clearly, it's a dangerous
world out there.
Investors have come to believe the stock market is a dangerous place as
well. Not only have they lost a pile of money over the last two years, but
"Enronitis," "Tycosis," "Marthritis" (the insider trading investigation of
Martha Stewart), and most recently "WorldCon" have many investors wondering what
malady will strike their portfolios next. Following the revelations (to some)
that Wall Street research is not what it's cracked up to be, investors are
reluctant to go to their broker for a portfolio check-up, fearing the cure may
be worse than the disease.
REALITY CHECK
At this stage, some perspective on the recent scandals in corporate
America and Wall Street is in order. I've spent nearly 40 years grilling
corporate managers about their businesses. Most have been honest, albeit with a
tendency to "accentuate the positives and de-centuate the negatives." Some have
been disingenuous, doing their best to sweep the bad news under the rug. While
I've seen many incompetent managements run good companies into the ground, I've
only encountered a few who have been outright crooks.
Unfortunately, corporate skullduggery was on the rise, in part due to
"momentum" investing, which focuses on short-term earnings dynamics, as well as
the widespread use of stock options -- the cocaine of the corporate elite --
that reward managements on the basis of their companies' stock prices rather
than improving business fundamentals. It is little wonder that some managements
are willing to cook the books to enhance and/or protect the value of these
enormous options packages.
We are a little more cynical regarding Wall Street's improprieties. We
have always been wary of Wall Street research, primarily because we feel most
sell-side analysts do not do as thorough a job as we do. Also, although the
conflict of interest between investment banking and equity research may be
front-page news to the investor public, it is old hat to investment
professionals. Writing a negative research report on the stock of one of your
firm's investment banking clients has always been a sure-fire way for sell-side
analysts to end up on the unemployment line.
Although corporate accounting has never been transparent -- we have been
fighting our way through pages of footnotes attached to corporate financial
statements for years -- we would welcome reform in this area as well. We expect
a certain amount of accounting gimmickry will always be the norm, as the bean
counters figure out how to skirt whatever new rules are put in place. However,
separation of auditors from management consultants would be the first step in
resolving potential conflicts of interest.
Hopefully, we will make some progress on all these fronts. In the coming
quarters, we may continue to see negative headlines further denting investor
confidence. However, we believe that as the economic recovery unfolds and
corporate earnings meet or beat consensus expectations, investors will refocus
on an expanding number of excellent opportunities in the stock market.
4
BACK TO BASICS
In an economic dynamic and stock market turmoil like this we want to go
back to basics. The stock market is a function of several inter-related
elements:
o Earnings/Economy
o Inflation/Interest Rates
o Mr. Market/Psychology
DOUBLE-DIGIT RETURNS - ARE THEY ACHIEVABLE?
Many corporate sponsors (public companies tied to liabilities with plan
assets) have made certain assumptions about inflation. In the 1990s, stocks
returned 18.2% and in the 1980s, 17.5%. Those lofty returns were not sustainable
and the past couple years have proved that premise. Expectations for returns in
the future should be more in line with the historical numbers. 9% to 9.5% is the
number that most have migrated to over the past several years. Is this
sustainable? What portfolio mix is necessary to achieve these results if rates
on fixed income instruments are under 6%? To help guide us on a going-forward
basis, below is a road map of returns over the last seventy-five years prepared
by Ibbotson Associates, a data services firm that provides historical research
information.
Chart I compares the returns by decade of three separate asset classes and
the rate of inflation. The "Stocks" category consists of the S&P 500 Composite
Index with dividends reinvested. The "Bonds" consist of Long Term Government
Bonds with a maturity of 20 years. The "Bills" represent the total return of
30-day Treasury bills. "Inflation" reflects the Consumer Price Index of all
Urban consumers and is not seasonally adjusted.
CHART I: A CENTURY OF INVESTING
COMPOUNDED ANNUAL RATES OF RETURN
STOCKS BONDS BILLS INFLATION
----------------------------------------------------------------------
02 (YTD) -13.2% 3.6% 0.9% 1.8%
01 -11.9 3.6 4.1 2.0
00 -9.1 21.5 5.9 3.4
90's 18.2 8.8 4.9 2.9
80's 17.5 12.6 8.9 5.1
70's 5.9 5.5 6.3 7.4
60's 7.8 1.4 3.9 2.5
50's 19.4 -0.1 1.9 2.2
40's 9.2 3.2 0.4 5.4
30's 0.0 4.9 0.6 -2.0
---------------------------------------------------------------------
1926-2002 10.6% 5.9% 3.8% 3.0%
SOURCE: IBBOTSON ASSOCIATES AS OF 6/30/2002
5
Chart II details returns on the S&P 500 Index. Note the number of
declines.
S&P 500 TOTAL RETURNS
ONLY TWICE HAS THE S&P 500 HAD TOTAL RETURN DOWN THREE OR MORE YEARS. IT LOOKS
LIKE WE'RE POISED FOR THE THIRD, BUT NOTE THE MARKET GAINS IN THE YEARS
FOLLOWING CONSECUTIVE DECLINES.
[GRAPHIC OMITTED]
[GRAPHIC OF ARROWS OMITTED]
YEAR TOTAL RETURNS
2001 -11.9%
2000 -9.1
1999 21.0
1998 28.6
1997 33.4
1996 23.1
1995 37.4
1994 1.3
1993 10.0
1992 7.7
1991 30.6
1990 -3.2
1989 31.5
1988 16.8
1987 5.2
1986 18.5
1985 32.2
1984 6.3
1983 22.5
1982 21.4
1981 -4.9
1980 32.4
1979 18.4
1978 6.6
1977 -7.2
1976 23.8
1975 37.2
1974 -26.5
1973 -14.7
1972 19.0
1971 14.3
1970 4.0
1969 -8.5
1968 11.1
1967 24.0
1966 -10.1
1965 12.5
1964 16.5
YEAR TOTAL RETURNS
1963 22.8%
1962 -8.7
1961 26.9
1960 0.1
1959 12.0
1958 43.3
1957 -10.8
1956 6.6
1955 31.6
1954 52.6
1953 -1.0
1952 18.4
1951 24.0
1950 31.7
1949 18.8
1948 5.5
1947 5.7
1946 -8.1
1945 36.4
1944 19.8
1943 25.9
1942 20.3
1941 -11.6
1940 -9.8
1939 -0.4
1938 31.1
1937 -35.0
1936 33.9
1935 47.7
1934 -1.4
1933 54.0
1932 -8.2
1931 -43.3
1930 -24.9
1929 -8.4
1928 43.6
1927 37.5
1926 11.6
SOURCE: ISI GROUP
As we have said in our previous shareholder reports, we believe that the
economy in the decade of the aughts will grow at 3% to 3.5% and that inflation
will be about 3% (don't get concerned with our country's ability to deal with
guns and Guccis). As a result, the overall markets should return 6% to 8% to
investors. We believe that our Trust will be able to continue to generate
double-digit returns.
6
CORPORATE GOVERNANCE
It has become fashionable for institutional investors to talk about
corporate governance. Some are focusing on compensation, some are focusing on
stock options. We want to share with you the following table labeled "The Magna
Carta of Shareholder Rights," which we published in 1988. In it, we indicated
what we believe as ombudsman for our shareholders -- we are not for management
or against management, we are for shareholders. This is our long-standing tenet.
655 Third Ave. Gabelli & Company, Inc.
New York, N.Y. 10017 May 16, 1988
MAGNA CARTA
OF
SHAREHOLDER RIGHTS
There has been a great deal of dialogue among fund sponsors, especially among
corporate sponsors, about the voting of proxies. The U.S. Department of Labor
has focused on this as well. We thought it timely to share with you our thought
process on the voting of proxies.
THE MAGNA CARTA (A) OF SHAREHOLDER RIGHTS
As we have stated in the past, we are neither for nor against management. We are
for shareholders.
As security analysts we are best informed (sic!) to make the decisions on
matters that will affect the economic value of investments. We believe a Magna
Carta of Shareholder Rights should exist. What do you as a professional in the
investment business think?
We feel there are issues that affect corporate governance. The following list
outlines our position on these issues:
WE ARE IN FAVOR OF: WE WILL VOTE AGAINST:
------------------- ---------------------
o Cumulative Voting o Greenmail
o Golden Parachutes o Poison Pills
o One Share: One Vote o Supermajority Voting
o Cash Incentives o Blank Check Preferreds
o Pre-emptive Rights o Super-Dilutive Stock Options
This is our policy. We will make exceptions when we encounter management that
demonstrates superior sensitivity to the needs of shareholders. What are you
doing?
---------------
(a) The MAGNA CARTA (L. great charter) was signed in June 1215 at Runnymede on
the Thames. It was the decisive step forward in the establishment of
constitutional government in England.
Mario J. Gabelli, C.F.A. [COPYRIGHT] GAMCO Investors, Inc.
7
Where art thou now, White Knight? Today our focus is to suggest that we
need to eliminate the poison pill. Why? We believe in an old maxim, that "power
corrupts and absolute power corrupts absolutely."
The introduction of the poison pill weakened a discipline to management's
errant activities -- a takeover by someone who could marshal and energize the
assets better. The second part was that with all of us desiring to align
management's interests with shareholders, we want to reframe that with this
premise: Management's responsibility is to grow the intrinsic value of the
enterprise as well as to make sure that the public price tracks that intrinsic
value. Another basic premise of the free market system is that capital has to
move to its highest returns. Lazy assets and lazy managements have to be
energized. A takeover that attempts to narrow the spread acts as a powerful
cleansing tool and a powerful catalyst to stimulate management.
Poison pills are major deterrents that have to be eliminated. Our adviser
and its affiliate, Gabelli Asset Management Company, are initiating actions to
have companies remove their poison pills.
We will again refocus our energies, as we have identified in our Magna
Carta, on stock options. If companies want to issue them in lieu of cash, then
account for them as an expense! We will also echo comments of other observers
that the accounting for these options has to be reexamined, namely they should
flow through the P&L (profit and loss statement) as opposed to just the balance
sheet. Obviously, the issues with stock options will be resolved.
THE BEAUTY AND THE BEAST
Many of the shares in our portfolio, which we view as princely, turned out
to be beasts because they weren't capable of making love (i.e. nobody would make
love to them).
In other words, the consolidation we thought would occur in broadcasting,
cable, wireless and telecom did not unfold. The culprit: constraints were not
lifted as readily as we anticipated at the Federal Communications Commission
("FCC").
8
FEDERAL COMMUNICATIONS COMMISSION DEEP SIXING THE BIG 6?
On September 17th, 2001, we published a report entitled REGULATORY CHANGE =
CATALYST. In it, we laid out our bullish case for a sweeping near-term media and
telecommunications regulatory overhaul, led by FCC Chairman Michael Powell (See
Exhibit 1 below and our September report).
EXHIBIT 1: SEPTEMBER 2001 BULL CASE
---------------------------------------------------------------------------------------------------------------------------
REGULATION CURRENT STATUS "BULL CASE"
---------------------------------------------------------------------------------------------------------------------------
- Cable Ownership Cap 30% of pay TV subscribers Above 50% or no cap
- Affiliated Programming Cap Affiliated content < 40% of first 75 No cap
channels
- Cable/Broadcast Cross- No cable and broadcast TV in same Removal of ban
ownership Designated Market Area (DMA)
- Cable Dual Must Carry Must carry analog broadcast signal Not forced to carry both broadcast
digital and analog
- Cable Open Access Notice of Inquiry No forced open access
- Satellite Must Carry Must carry all local analog broadcasts DBS Co. chooses which broadcast
if carry one stations to carry
- Broadcast/Newspaper Cross- No newspaper and broadcast station in Removal of ban
ownership same DMA
- National TV Ownership Cap 35% of television audience Above 50% or no cap
- TV Duopolies Can own two stations in one market if Eliminate rating and voice tests
only one is in top four and eight
independent voices exist
- Wireless Spectrum Cap 45 MHz in urban and 55 MHz in rural No cap
markets
- Wireline - Section 271 Regional Bell Operating Companies (RBOCs) RBOCs can offer in-region LD
cannot offer in-region Long Distance (LD)
While the deregulation roadmap we laid out for the media and telecom industries
in our report (see the "Bull Case" above) is still valid, progress is taking
longer than we had originally expected. Whether this delay is political or due
to a cautious FCC is a subject of debate. Considerable friction has developed
between Michael Powell and vocal Democratic Senator Fritz Hollings. The facts
are that on June 17th, 2002, the FCC announced that it was combining the rule
making proceedings of six key media rules that were moving along separate tracks
into one. According to the FCC, the new universal rule should be ready by Spring
2003.
THE "BIG 6"
The six rules to be reviewed together are as follows (The first four we
addressed in September - see Exhibit 1.):
o 35% National TV Ownership Cap
o TV Duopoly Rule
o Newspaper/Broadcast Cross-Ownership Rule
o Cable/Broadcast Cross Ownership
o Radio Concentration Rule (limited to eight stations within the largest
markets)
o Dual Network Rule (No company can own two of the top four national
broadcast networks.)
9
KEY POINTS
- THE OPTIMIST: STRONGER THEORETICAL UNDERPINNINGS. There will now be one
coherent, well thought out rule that should stand the test of intense judicial
scrutiny. A series of rulings by the United States Court of Appeals for the
District of Columbia Circuit have brought into focus the underpinnings of the
FCC rules. We specifically refer to the Court's comments on the 35% TV
Ownership Cap, Cable/Broadcast Cross-Ownership and the Local TV Ownership
Rules (Duopoly). In general, the court felt the rules were arbitrary. We
believe the new merger rule will require a rational market analysis of the
broad competitive landscape in each specific media market, similar to what
takes place today in an FTC anti-trust review. There will be one fabric, as
opposed to six rules.
- THE PESSIMIST: DEEP SIX? Again, it remains open for debate what is being
driven by politics and what is being driven by the theoretical underpinnings.
The cynical side in us tells us that Powell is pushing off the tough decisions
until after the 2002 election. If the Republicans take control of the Senate,
he may be able to push through the rules without having to joust with
Hollings.
- OVERALL MOMENTUM REMAINS POSITIVE. Regardless of what the real driver may be,
we believe change is still coming and that remains evident. Given the Court's
recent decisions severely criticizing the FCC's rules, we continue to expect
more than ever that the industry will be deregulated. (See our Broadcast
Deregulation reports dated 3/11/02 and 4/5/02.)
- CONCLUSION OF ENTIRE REVIEW POSSIBLY MOVED FORWARD. Though new regulatory
rules were expected to be promulgated in 2002, most industry watchers did not
expect all six of the above issues to be addressed this year. Thus, instead of
several relatively smaller catalysts hitting the market over the next several
years, we believe the unified rule will provide one powerful catalyst in 2003.
- UNCERTAINTY. There still exists a level of uncertainty in the media mergers
and acquisitions marketplace.
CONCLUSION
Since a notice of proposed rule making (NPRM) was initiated by the FCC in
September 2001 for the Newspaper/Broadcast Cross-Ownership rule and the comment
periods have ended, we believe that this rule was the furthest along in the FCC
review process and therefore slowed down the most by this event. However, we
think that this new process will speed up the time frame for a wider-ranging
review of media rules. We note that the rule making process on the 30% cable
ownership cap is unaffected here.
More importantly, we believe that this decision by the FCC may have little to no
effect on companies' long-term acquisition strategies. The powerful need for
consolidation to achieve economies of scale for the global marketplace remains
the driver behind the propensity to merge. Several companies have indicated that
when faced with an attractive acquisition opportunity they may very well go
ahead with it and challenge the rules instead of waiting for the FCC. The FCC's
rule changes will provide more fuel to drive natural consolidation. Deals should
surface asset value and should therefore drive higher valuations for many
companies in the media space.
Evan Carpenter Andrew Rittenberry
(914) 921-6595 (914) 921-6592
[COPYRIGHT]Gabelli & Company, Inc. 2002
ONE CORPORATE CENTER RYE, NY 10580 GABELLI & COMPANY, INC.
TEL (914) 921-3700 FAX (914) 921-5098
--------------------------------------------------------------------------------
This report has been prepared as a matter of general information. It is not
intended to be a complete description of any security or company mentioned and
is not an offer to buy or sell any security. Unless otherwise noted, stock
prices for 2002 reflect the closing price through the business day immediately
prior to the date of this report. All facts and statistics are from sources
believed reliable, but are not guaranteed as to accuracy. The firm and its
affiliates, employees, and clients may have recently established or disposed of,
or may be establishing or disposing of, positions in securities mentioned in
this report. Since portfolio managers make individual investment decisions in
the accounts under their supervision, transactions in such accounts may be
inconsistent with research reports. Additional information on these securities
and companies is available upon request. [COPYRIGHT]Gabelli & Company, Inc. 2002
10
On top of that, the Beast got particularly ugly as Adelphia and WorldCom,
not to mention the Winstars, Teligents, Global Crossings and Qwests,
over-impacted on the market. Indeed, instead of positive developments out of the
FCC we had negative ones -- for example Senator Feingold from Wisconsin recently
introduced legislation to curtail the ability of radio companies to expand their
ownership.
INVESTMENT SCORECARD
Defense contractors (Curtiss-Wright, Lockheed Martin and Northrup
Grumman), food and beverage stocks (Coca-Cola Enterprises, Kellogg Co. and Kerry
Group), manufacturers (Nortek and Watts Industries) and industrial companies
(Acuity Brands, Nashua and ITT Industries) finished this quarter at the top of
our performance list.
Media and telecommunications stocks dominated our laggard's list with
portfolio holdings such as Cablevision Systems, UnitedGlobalCom, Vivendi
Universal, AT&T, Sprint and Broadwing giving substantial ground.
THE MEDIA STOCK MASSACRE
Media stocks, with the exception of newspaper publishers, were clobbered
in the second quarter, with some of our favorite companies near the bottom of
the Trust's performance list. Several factors -- investor concern over
relatively high debt levels in the media industry (especially in cable
television), heavy institutional ownership and an absence of deals despite
regulatory changes that should promote further consolidation in the industry --
were responsible for the media stock massacre.
We believe these three factors will work in media stocks' favor in the
year ahead. Ad spending should improve as the economic recovery and "political
spending" unfolds. In fact, "up-front" advertising sales for broadcasters have
already firmed considerably. The implication is that corporations believe ad
prices will rise in the spot market in the coming quarters. As media company
cash flows improve, investor concern over debt will diminish. Finally, we think
it is simply a matter of time before we see more deals resulting from new rules
that permit ownership of broadcast and cable television properties in the same
markets and that allow broadcasters to increase their national "footprint." As
regulatory barriers continue to come down -- we expect rules currently
preventing companies from owning television stations and newspapers in the same
market to be modified or eliminated this year -- deal activity should resume,
helping to surface values in the beaten down media sector.
LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Trust.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend that we believe will develop over
time.
AMERICAN EXPRESS CO. (AXP - $36.32 - NYSE), one of the most widely recognized
brands around the world, is focused on increasingly cross-selling financial
products and services to its customers. The company consists of three segments:
its Travel Related Services business, which contributes 80% of revenues,
provides charge cards, credit cards, travelers cheques, and travel services to
corporations and consumers; American Express Financial Advisors, which
contributes 17% of revenues, provides investment advisory services and financial
products such as mutual funds, insurance, and annuities; finally, American
Express Bank, which accounts for 3% of revenues, offers banking services to
other financial institutions, wholesale banking for corporations, and private
banking for high net worth
11
individuals. The company's long-term goal is to deliver revenue growth of at
least 8% and earnings per share ("EPS") growth between 12% and 15%.
AT&T CORP. (T - $10.70 - NYSE) provides voice, data and video communications
services to large and small businesses, as well as consumers and government
entities. AT&T and its subsidiaries furnish domestic and international long
distance, regional and local telecommunications, cable television and Internet
services. The company is in the process of splitting itself into four separate
entities. As part of the restructuring, AT&T has converted AT&T Wireless (AWE -
$5.85 - NYSE) from a tracking stock to an asset-based stock and spun it off to
AT&T shareholders. AT&T Broadband, which includes cable, is in the process of
being acquired by Comcast Corp. (CMCSK - $23.84 - Nasdaq) in a $70 billion
transaction that will form the largest cable operator in the country with about
22 million subscribers. The deal has recently received shareholder approval and
pending regulatory approvals is expected to close by the end of 2002. As a
result of the Comcast merger, AT&T will be left with a significantly
de-leveraged balance sheet and two businesses: business services catering to
large corporations and consumer operations providing long distance services to
about 50 million households.
BERKSHIRE HATHAWAY INC. (BRK'A - $66,800 - NYSE) is Warren Buffett. The company
has interests in insurance (notably GEICO and General Re), publishing, aviation,
retailing, and manufacturing. Its investment portfolio includes over $28 billion
of marketable equity securities. Berkshire has grown rapidly through
acquisitions over the past 15 years, including Kirby vacuum cleaners; World Book
encyclopedias; H. H. Brown, Dexter and Justin footwear; Executive Jet aviation;
Dairy Queen restaurants and snack treats; Johns Manville building products;
Benjamin Moore paints; Shaw Industries carpets; MiTek steel connectors; XTRA
transportation leasing; GEICO insurance; and General Re reinsurance. GEICO, the
sixth largest auto insurer in the U.S., contributes 17% of revenues while
General Re, the fourth largest reinsurer globally, contributes 23% of revenues.
GENUINE PARTS CO. (GPC - $34.87 - NYSE), a Georgia corporation incorporated in
1928, is the premier service organization engaged in the traditional
distribution of automotive and industrial replacement parts, office products and
electrical/electronic materials. The company's NAPA automotive parts
distribution centers distribute replacement parts (other than body parts) for
substantially all motor vehicle makes and models in service in the United
States, including imported vehicles, trucks, buses, motorcycles, recreational
vehicles and farm vehicles. The Industrial Parts Group distributes a wide
variety of products to its customers, primarily industrial concerns, to maintain
and operate plants, machinery and equipment. The Office Products Group (S. P.
Richards Company), is engaged in the wholesale distribution of a broad line of
office and other products that are used in the daily operation of businesses,
schools, offices and institutions. The financially troublesome
Electrical/Electronic Materials Group ("EIS") distributes materials for the
manufacture and repair of electrical and electronic apparatus.
LIBERTY MEDIA CORP. (L - $10.00 - NYSE), run by savvy deal maker and media
investor John Malone, is engaged in businesses that provide programming services
(including production, acquisition and distribution through all media formats)
as well as businesses engaged in electronic retailing, direct marketing and
other services. Liberty Media holds interests in globally branded entertainment
networks such as the Discovery Channel, USA Interactive, QVC, Encore and STARZ!.
Liberty's investment portfolio also includes interests in international video
distribution businesses, international telephony and domestic wireless
companies, plant and equipment manufacturers, and other businesses related to
broadband services.
12
PEPSICO INC. (PEP - $48.20 - NYSE) is a $25 billion food and beverage company
after the acquisition of Quaker Oats was completed on August 2, 2001. PepsiCo
added several products to its existing portfolio of the Pepsi-Cola and Frito Lay
brands, such as Gatorade and the Quaker Oat snack and food businesses. The
company is focused on the faster growing convenience category, improving their
distribution systems and extracting the synergies expected from the merger.
PepsiCo is also benefiting from the introduction of new products such as
Mountain Dew Code Red, Pepsi Twist, Pepsi Blue, Starbucks Doubleshot, Bistro
chips and the continued robust growth of Aquafina.
SCRIPPS (E.W.) CO. (SSP - $77.00 - NYSE), headquartered in Cincinnati, Ohio, is
a diversified media company with operations throughout the United States
combining traditional and new media. The company is the tenth largest newspaper
publisher in the U.S. with 21 daily newspapers. Scripps also has 10 television
stations, reaching one in every ten homes in America. Additionally, Scripps
Networks includes four national cable networks: Home & Garden Television, Food
Network, Do It Yourself and Fine Living. Lastly, the company has a global
licensing and syndication business which syndicates more than 150 comic strips
and editorial features, including PEANUTS and DILBERT. Scripps is focused on
growing and strengthening its cable television business.
SPS TECHNOLOGIES INC. (ST - $38.17 - NYSE) is a leading manufacturer of
fasteners, superalloys and magnetic materials for the aerospace, automotive and
industrial markets. The Precision Fasteners and Components group produces high
strength fasteners for the aerospace, automotive and machinery markets. The
Specialty Materials and Alloys group makes superalloys for the aerospace and
industrial gas turbine markets and the Magnetic Products group produces magnetic
materials used in automotive, electronics and other specialty applications. SPS
has made 18 acquisitions since 1996 and has positioned the nearly $1 billion
company to be a strategic global supplier in the fastener and component
industry. We believe the company will continue to use its strong cash flow to
augment internal revenue and earnings growth with acquisitions.
TELEPHONE & DATA SYSTEMS INC. (TDS - $60.55 - AMEX) provides mobile and local
phone services to 3.6 million customers in 35 states. TDS conducts its cellular
operations through 81%-owned United States Cellular (USM - $25.45 - AMEX) and
its wireline telephone operations through its wholly owned TDS
Telecommunications ("TDS Telecom") subsidiary, a full-service local exchange
carrier. Having completed a merger of its 82%-owned PCS subsidiary Aerial
Communications with VoiceStream Wireless, which was acquired by Deutsche Telekom
(DT - $9.31 - NYSE), a former German phone monopoly, TDS owns 131.6 million
shares of Deutsche Telekom, representing 2.25 shares of DT per share of TDS. As
part of the VoiceStream/Deutsche Telekom deal, TDS also received $570 million in
cash.
VIACOM INC. (VIA - $44.46 - NYSE) is a diversified media company with businesses
across many media platforms. The firm operates cable networks (including VH1,
MTV, Showtime and Nickelodeon), television networks and stations (including the
CBS and UPN Television networks and numerous affiliated TV stations in major
markets), major market radio stations and outdoor advertising (through Infinity
Broadcasting), a movie studio (Paramount), a publishing house (Simon and
Schuster), amusement parks (Paramount Parks) and video rental operations
(Blockbuster). The company focuses on high growth businesses and aims to deliver
cash flow growth that is above the industry average.
13
SHAREHOLDER MEETING - MAY 20, 2002 - FINAL RESULTS
The Annual Meeting of Shareholders was held on May 20, 2002 at the Bruce
Museum in Greenwich, Connecticut. At that meeting, common shareholders and
preferred shareholders voting as a single class elected Frank J. Fahrenkopf,
Jr., Arthur V. Ferrara and Salvatore J. Zizza as Directors of the Trust. A total
of 120,975,558 votes, 121,385,966 votes and 121,266,291 votes were cast in favor
of each Director and 1,106,598 votes, 1,026,191 votes and 805,865 votes were
withheld for each Director, respectively. Preferred shareholders voting as a
separate class elected Anthony J. Colavita as a Director of the Trust. A total
of 11,564,422 votes were cast in favor of this Director and 72,412 votes were
withheld for this Director.
Mario J. Gabelli, Thomas E. Bratter, James P. Conn, Karl Otto Pohl and
Anthony R. Pustorino continue to serve in their capacities as Directors of the
Trust.
We thank you for you participation and appreciate your continued support.
COMMON STOCK 10% DISTRIBUTION POLICY
The Trust continues to maintain its 10% Distribution Policy whereby the
Trust pays to common stock shareholders 10% of its average net assets each year.
Pursuant to this policy, the Trust distributed $0.27 per share on June 24, 2002.
Under the policy, distributions are made at the annual rate of 10% of the
average of the calendar quarter-end net assets of the Trust's common stock at
December 2001 and March, June, and September 2002. The Trust normally
distributes $0.27 per share to common stock shareholders in March, June, and
September. The fourth quarter distribution is a variable adjusting distribution
in December. The adjusting distribution is the greater of the remaining portion
of 10% of the average net assets to be distributed (10% of the average net
assets less the cumulative amount paid in March, June, and September) or the
minimum distribution required by IRS regulations.
Using June quarter-end net asset figures in place of September quarter-end
net asset figures for discussion purposes, 10% of the Trust's average net assets
equates to $0.81 per share. Under the existing policy, a distribution of $0.27
per share in September would bring the total distribution for 2002 to $0.81 per
share ($0.27 per share per quarter x 3 quarters = $0.81 per share), satisfying
the Trust's 10% Distribution Policy projected required amount.
Each quarter, the Board of Directors reviews the amount of any potential
distribution based on the income, capital gains or capital available. As of June
30, 2002, the Trust has approximately $366 million ($2.78 per common share) of
gross unrealized appreciation on portfolio securities which could be realized
through the sale of portfolio securities and distributed to shareholders. In any
event, the Trust will continue to make every effort to provide our common stock
shareholders with consistent distributions throughout the year pursuant to our
policy.
7.25% TAX ADVANTAGED CUMULATIVE PREFERRED STOCK - DIVIDENDS
The Trust's 7.25% Tax Advantaged Cumulative Preferred Stock paid a cash
distribution on June 26, 2002 of $0.453125 per share. For the twelve months
ended June 30, 2002, Preferred Stock shareholders received distributions
totaling $1.8125, the annual dividend rate per share of Preferred Stock. The
next distribution is scheduled for September 2002.
14
7.20% TAX ADVANTAGED SERIES B CUMULATIVE PREFERRED STOCK - DIVIDENDS
The Trust's 7.20% Tax Advantaged Series B Cumulative Preferred Stock paid
a cash distribution on June 26, 2002 of $0.45 per share. The Series B Preferred
Shares were issued on June 20, 2001 at $25.00 per share and will pay
distributions quarterly at an annual dividend rate of $1.80 per share. The next
distribution is scheduled for September 2002.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage at http://www.gabelli.com
contains information about Gabelli Asset Management Inc., the Gabelli Mutual
Funds, IRAs, 401(k)s, quarterly reports, closing prices and other current news.
You can send us e-mail at closedend@gabelli.com.
In our efforts to bring our shareholders more timely portfolio
information, Gabelli Fund's portfolio managers regularly participate in chat
sessions at www.gabelli.com as reflected below.
WHO WHEN
--- ----
Special Chats: Mario J. Gabelli First Monday of each month
Howard Ward First Tuesday of each month
In addition, every Wednesday will feature a different portfolio manager.
The upcoming Wednesday chat schedule is as follows:
AUGUST SEPTEMBER OCTOBER
------ --------- -------
1st Wednesday Susan Byrne Caesar Bryan Walter Walsh & Laura Linehan
2nd Wednesday Lynda Calkin Hart Woodson Caesar Bryan
3rd Wednesday Walter Walsh & Laura Linehan Charles Minter & Martin Weiner Henry Van der Eb
4th Wednesday Barbara Marcin Barbara Marcin Lynda Calkin
5th Wednesday Barbara Marcin
All chat sessions start at 4:15 PM (Eastern Time). Please arrive early, as
participation is limited.
You may sign up for our e-mail alerts at www.gabelli.com and receive early
notice of chat sessions, closing mutual fund prices, news events and media
sightings.
15
IN CONCLUSION
As the old saying goes, "the darkest hour is just before dawn." We are not
suggesting the stock market is about to take off in the coming quarters.
However, the fundamental picture -- an expanding economy, low interest rates,
rising earnings and more reasonable equity valuations -- raises the floor under
equities.
Sincerely,
/S/ Mario J. Gabelli
MARIO J. GABELLI, CFA
Portfolio Manager and Chief Investment Officer
August 1, 2002
--------------------------------------------------------------------------------
SELECTED HOLDINGS
JUNE 30, 2002
American Express Co. PepsiCo Inc.
AT&T Corp. Scripps (E.W.) Co.
Berkshire Hathaway Inc. SPS Technologies Inc.
Genuine Parts Co. Telephone & Data Systems Inc.
Liberty Media Corp. Viacom 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.
16
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
QUARTER ENDED JUNE 30, 2002
(UNAUDITED)
OWNERSHIP AT
JUNE 30,
SHARES 2002
------ ------------
NET PURCHASES
COMMON STOCKS
Abbott Laboratories .................... 20,000 20,000
Adelphia Communications Corp., Cl. A ... 120,000 120,000
AES Corp. .............................. 52,000 52,000
Agere Systems Inc., Cl. B (a) .......... 134,393 134,393
Allegiance Telecom Inc. ................ 1,500 9,000
AOL Time Warner Inc. ................... 45,000 620,000
AT&T Wireless Services Inc. ............ 50,000 550,170
Bank Of Ireland, Ireland ............... 11,000 110,000
Boots Co. pl ........................... 60,000 60,000
Bristol-Meyers Squibb Co. .............. 110,000 110,000
Broadwing Inc. ......................... 40,000 850,000
BT Group plc, ADR ...................... 5,000 34,000
Cablevision Systems Corp., Cl. A ....... 20,000 535,000
Campbell Soup Co. ...................... 5,000 70,000
Charter Communications Inc., Cl. A ..... 30,000 30,000
Cheung Kong (Holdings) Ltd. - Rts. (b) . 3,000 3,000
Clear Channel Communications Inc. (c ) . 15,015 15,015
Coca-Cola Hellenic Bottling Co. SA ..... 20,000 20,000
Cooper Industries Ltd., Cl. A .......... 120,000 120,000
Corning Inc. ........................... 50,000 510,000
Curtiss-Wright Corp. Cl. B ............. 3,000 101,320
DQE Inc. ............................... 50,000 100,000
Dreyer's Grand Ice Cream Inc. .......... 20,000 20,000
El Paso Corp ........................... 80,000 80,000
Ferro Corp. ............................ 25,000 340,000
Ford Motor Co. ......................... 5,000 20,000
Gas Natural SDG SA ..................... 25,000 25,000
Gemstar-TV Guide International Inc. .... 110,000 140,432
Genuity Inc. (d) ....................... 30,000 30,000
GrafTech International Ltd. ............ 75,000 75,000
Greek Organization Of Football
Prognostics ......................... 30,000 30,000
Grupo Bimbo SA de CV, Ser. A ........... 89,000 440,000
Grupo TMM SA de CV, Cl. A, ADR ......... 20,000 20,000
GTECH Holdings Corp. (e) ............... 4,000 8,000
HBOS plc ............................... 10,000 66,000
Heinz (H.J.) Co. ....................... 29,000 114,000
Hilton Group plc ....................... 810,000 2,460,000
IVAX Corp. ............................. 15,000 15,000
Knight-Ridder Inc. ..................... 15,900 15,900
Leap Wireless International Inc. ....... 20,000 160,000
Liberty Media Corp., Cl. A ............. 40,000 1,840,000
Liberty Satellite & Technology
Inc., Cl. A (f) ..................... 34,000 34,000
Lin TV Corp., Cl. A .................... 5,000 5,000
Mellon Financial Corp. ................. 1,900 85,000
Merck & Co. Inc. ....................... 5,000 40,000
Mirant Corp. ........................... 30,000 90,000
mm02 plc ADR ........................... 10,800 140,800
Muenchener Rueckversicherungs-
Gesellschaft AG ..................... 5,000 5,000
OWNERSHIP AT
JUNE 30,
SHARES 2002
------ ------------
NTT DoCoMo Inc. ........................ 800 1,000
PACCAR Inc. (g) ........................ 10,000 30,000
Parmalat Finanziaria SpA ............... 150,000 150,000
Pennzoil-Quaker State Co. .............. 144,800 358,200
Pernod-Ricard SA ....................... 7,000 7,000
PRIMEDIA Inc. .......................... 50,000 350,000
Qwest Communications
International Inc. .................. 180,000 200,000
Rainbow Media Group, Cl. A ............. 10,000 560,000
Regal Entertainment Group, Cl. A ....... 15,000 15,000
SBC Communications Inc. ................ 90,000 205,000
Sequa Corp., Cl. B ..................... 3,000 78,000
Smucker (J.M.) Co. (h) ................. 2,000 2,000
Texas Instruments Inc. ................. 70,000 110,000
Tod's SpA .............................. 7,750 7,750
TotalFinaElf SA ........................ 1,000 7,907
Tsakos Energy Navigation Ltd. .......... 29,273 29,273
Tyco International Ltd. ................ 35,000 35,000
Unitrin Inc. ........................... 8,500 58,500
Verizon Communications Inc. ............ 45,000 340,000
Vivendi Universal SA ................... 5,000 35,900
Vivendi Universal SA, ADR .............. 20,000 230,000
Westar Energy Inc. ..................... 260,000 260,000
Worldcom Inc. - MCI Group .............. 20,000 120,000
PREFERRED STOCKS
Gray Communications Systems Inc.,
8.000% Cv. Pfd., Ser. C ............. 90 90
Hercules Trust I, 9.420% Pfd. .......... 21,700 21,700
PRINCIPAL
CORPORATE BONDS AMOUNT
---------
Agere Systems Inc.,
Sub. Dev. Cv., 6.500%, 12/15/09 .....$3,500,000 $3,500,000
Charter Communications Inc.,
Cv., 4.750%, 06/01/06 ............... 400,000 900,000
NET SALES SHARES
COMMON STOCKS ------
Ackerley Group Inc. (c ) ............... (42,900) --
Aegon NV ............................... (26,000) --
Allianz AG ............................. (4,100) --
AT&T Canada Inc., Cl. B ................ (50,000) --
BAE Systems plc ........................ (50,000) 100,000
Bank of Ireland, London ................ (11,000) --
Bank One Corp. ......................... (20,000) 85,000
Compass Group plc ...................... (150,940) --
Cooper Industries Inc. ................. (120,000) --
Dominion Resources Inc. ................ (2,500) 2,500
Donaldson Co. Inc. ..................... (3,000) 216,000
See accompanying notes to financial statements.
17
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES (CONTINUED)
QUARTER ENDED JUNE 30, 2002
(UNAUDITED)
OWNERSHIP AT
JUNE 30,
SHARES 2002
------ ------------
NET SALES (CONTINUED)
COMMON STOCKS (CONTINUED)
Embratel Participacoes SA, ADR .......... (15,000) 200,000
EMC Corp. ............................... (10,000) 160,000
Energizer Holdings Inc. ................. (5,000) 345,001
Flowserve Corp. ......................... (15,000) 135,000
Genuity Inc. (d) ........................ (180,000) --
Gerber Scientific Inc. .................. (5,000) 100,000
Halliburton Co. ......................... (20,000) 280,000
Hilton Hotels Corp. ..................... (10,000) 650,000
IDEX Corp. .............................. (38,700) 211,300
Independent News & Media plc, Dublin .... (215,000) 196,000
ITT Industries Inc. ..................... (5,000) 120,000
Japan Telecom Co. Ltd. .................. (35) 230
Liberty Satellite & Technology
Inc., Cl. A (f) ...................... (340,000) --
MGM Mirage .............................. (30,000) 60,000
Midland Co. ............................. (300) 99,700
National Service Industries Inc. ........ (500) 34,500
Neiman Marcus Group Inc., Cl. B ......... (14,500) 90,000
Northrop Grumman Corp. .................. (6,978) 91,000
NTL Inc. ................................ (20,000) 20,000
NTT DoCoMo Inc.-W/I ..................... (800) --
Obic Co. Ltd. ........................... (1,500) --
PepsiCo Inc. ............................ (25,000) 500,000
RCN Corp. ............................... (20,000) 110,000
Reader's Digest Association
Inc., Cl. B .......................... (45,000) 140,000
Reuters Group plc, ADR .................. (10,833) --
Rohm and Haas Co. ....................... (80,000) 20,000
Rohm Co. Ltd. ........................... (1,400) 6,000
Sprint Corp. - PCS Group ................ (20,000) 230,000
Superior Industries International Inc. .. (35,000) 25,000
Swiss Re ................................ (6,000) 4,200
Telefonica SA, ADR ...................... (13,884) 265,140
THK Co. Ltd. ............................ (11,000) 33,000
Tokyo Electron Ltd ...................... (1,000) 8,400
Tsakos Energy Navigation Ltd. (31,273) --
Tyson Foods Inc., Cl. A ................. (90,000) --
OWNERSHIP AT
JUNE 30,
SHARES 2002
------ ------------
UCAR International Inc. ................. (75,000) --
USA Interactive ......................... (5,000) 490,000
Vodafone Group plc ...................... (100,000) 453,888
Western Resources Inc. .................. (250,000) --
Winn-Dixie Stores Inc. .................. (10,000) 40,000
------------------
(a) Spinoff - 0.2646 shares of Agere Systems Inc., Cl. B for every 1 share of
Lucent Technologies Inc.
(b) Spinoff - 0.0400 shares of Cheung Kong (Holdings) Ltd. - Rts for every 1
share of Cheung Kong (Holdings) Ltd.
(c) Merger - 0.3500 shares of Clear Channel Communications Inc. for every 1
share of Ackerley Group Inc
(d) 1 for 20 stock split
(e) 2 for 1 stock split
(f) 1 for 10 stock split
(g) 3 for 2 stock split
(h) Spinoff - 0.0200 shares of Smucker (J.M.) Co. for every 1 share of Procter &
Gamble Co.
See accompanying notes to financial statements.
18
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
------ ---- -------
COMMON STOCKS -- 82.6%
FINANCIAL SERVICES -- 7.6%
90,000 Allstate Corp. .......... $ 2,376,366 $ 3,328,200
550,000 American Express Co. .... 19,230,623 19,976,000
36,400 Argonaut Group Inc. ..... 977,772 779,688
90,000 Banco Santander Central
Hispano SA, ADR ....... 322,130 701,100
110,000 Bank of Ireland ......... 635,101 1,366,676
80,000 Bank of New York Co. Inc. 2,960,687 2,700,000
85,000 Bank One Corp. .......... 2,606,390 3,270,800
282,000 Bankgesellschaft
Berlin AG+ ............ 5,606,801 523,599
260 Berkshire Hathaway
Inc., Cl. A+ .......... 824,299 17,368,000
5,000 Block (H&R) Inc. ........ 97,625 230,750
190,000 Commerzbank AG, ADR ..... 3,839,967 2,880,400
160,000 Deutsche Bank AG, ADR ... 6,917,270 11,121,600
20,000 Dun and Bradstreet Corp.+ 333,130 661,000
66,000 HBOS plc ................ 472,591 714,296
25,000 Hibernia Corp., Cl. A ... 198,750 494,750
20,000 Invik & Co. AB, Cl. B ... 936,800 587,584
100,000 Irish Life & Permanent
plc, Dublin ........... 781,432 1,446,871
60,000 John Hancock Financial
Services Inc. ......... 2,322,590 2,112,000
50,000 JP Morgan Chase & Co. ... 1,334,283 1,696,000
64,000 Leucadia National Corp. . 2,040,082 2,026,240
85,000 Mellon Financial Corp. .. 2,750,640 2,671,550
99,700 Midland Co. ............. 1,114,894 5,031,859
30,000 Moody's Corp. ........... 666,995 1,492,500
5,000 Muenchener
Rueckversicherungs-
Gesellschaft AG ....... 1,219,733 1,185,150
186,500 Nikko Cordial Corp. ..... 1,436,073 941,400
185,000 Phoenix Companies Inc. .. 2,981,430 3,394,750
2,500 Prudential Financial Inc.+ 68,750 83,400
50,000 Prudential plc .......... 754,035 457,296
60,000 RAS SpA ................. 660,245 805,309
60,000 Riggs National Corp. .... 552,538 894,600
50,000 Schwab (Charles) Corp. .. 730,625 560,000
80,000 State Street Corp. ...... 1,417,370 3,576,000
30,000 Stilwell Financial Inc. . 470,955 546,000
20,000 SunTrust Banks Inc. ..... 419,333 1,354,400
4,200 Swiss Re ................ 434,171 410,644
100,000 T. Rowe Price Group Inc. 3,379,425 3,288,000
7,000 Travelers Property
Casualty Corp., Cl. A+ 129,500 123,900
58,500 Unitrin Inc. ............ 1,073,500 2,092,545
130,000 Wachovia Corp. .......... 4,051,382 4,963,400
MARKET
SHARES COST VALUE
------ ---- -------
55,100 Waddell & Reed Financial
Inc., Cl. A ........... $ 1,150,377 $ 1,262,892
------------ -------------
80,276,660 109,121,149
------------ -------------
TELECOMMUNICATIONS -- 7.4%
8,132 Aliant Inc. ............. 72,479 149,499
9,000 Allegiance Telecom Inc.+ 75,638 16,470
30,000 ALLTEL Corp. ............ 617,209 1,410,000
1,500,000 AT&T Corp. .............. 25,512,207 16,050,000
3,333 Avaya Inc.+ ............. 26,540 16,498
320,000 BCE Inc. ................ 8,524,049 5,574,400
33,400 Brasil Telecom
Participacoes SA, ADR . 1,940,826 945,554
850,000 Broadwing Inc.+ ......... 8,374,257 2,210,000
1,775,000 BT Group plc+ ........... 7,339,812 6,818,284
34,000 BT Group plc, ADR+ ...... 1,326,152 1,296,080
3,338,192 Cable & Wireless Jamaica
Ltd. .................. 101,642 113,500
173,000 Cable & Wireless plc, ADR 4,035,260 1,344,210
130,000 CenturyTel Inc. ......... 2,760,538 3,835,000
100,000 Citizens Communications
Co.+ .................. 1,226,788 836,000
255,466 Commonwealth Telephone
Enterprises Inc.+ ..... 4,424,217 10,279,952
20,000 Commonwealth Telephone
Enterprises Inc., Cl. B+ 128,902 820,000
45,000 Compania de
Telecomunicaciones de
Chile SA, ADR ......... 721,724 551,250
1,577,000 CoreComm Ltd.+ .......... 238,320 63,080
240,278 Deutsche Telekom AG,
ADR ................... 4,091,422 2,236,988
200,000 Embratel Participacoes SA,
ADR ................... 3,112,869 80,000
27,000 France Telecom SA, ADR .. 1,024,124 253,260
230 Japan Telecom Co. Ltd. .. 801,311 658,206
100,000 KPN NV+ ................. 232,728 468,134
200,000 Qwest Communications
International Inc.+ ... 1,048,965 560,000
110,000 RCN Corp.+ .............. 780,983 150,700
9,655 Rogers Communications
Inc., Cl. B+ .......... 137,424 86,336
110,345 Rogers Communications
Inc., Cl. B, ADR+ ..... 1,537,198 1,008,553
205,000 SBC Communications Inc. . 6,853,475 6,252,500
350,000 Sprint Corp. - FON Group 8,833,016 3,713,500
186,554 Tele Norte Leste
Participacoes SA, ADR . 2,554,387 1,856,212
See accompanying notes to financial statements.
19
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
------ ---- -------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
40,000 Telecom Argentina Stet
France Telecom SA,
ADR+ .................. $ 349,211 $ 26,000
400,040 Telecom Italia SpA ...... 839,903 3,133,060
123,000 Telecom Italia SpA, ADR . 2,585,208 9,606,300
135,000 Telecom Italia SpA, RNC . 517,495 715,979
265,140 Telefonica SA, ADR+ ..... 9,182,548 6,588,729
16,912 Telefonica SA, BDR+ ..... 206,521 140,023
36,000 Telefonos de Mexico SA,
Cl. L, ADR ............ 389,422 1,154,880
12,750 TELUS Corp. ............. 222,542 90,623
52,500 TELUS Corp., ADR ........ 950,397 373,153
4,250 TELUS Corp., Non-Voting . 74,181 28,280
27,500 TELUS Corp., Non-Voting,
ADR ................... 557,547 182,985
340,000 Verizon Communications
Inc. .................. 12,761,426 13,651,000
120,000 WorldCom Inc. - MCI
Group ................. 1,339,033 108,000
------------ -------------
128,429,896 105,453,178
------------ -------------
FOOD AND BEVERAGE -- 6.9%
10,108 Advantica Restaurant
Group Inc.+ ........... 14,357 9,400
10,800 Cadbury Schweppes plc,
ADR ................... 271,368 325,944
70,000 Campbell Soup Co. ....... 2,012,307 1,936,200
30,000 Coca-Cola Co. ........... 1,389,563 1,680,000
50,000 Coca-Cola Enterprises Inc. 773,534 1,104,000
20,000 Coca-Cola Hellenic
Bottling Co. SA ....... 320,189 338,558
100,000 Corn Products
International Inc. .... 2,916,387 3,112,000
100,000 Diageo plc .............. 1,037,393 1,298,721
224,000 Diageo plc, ADR ......... 8,642,745 11,569,600
20,000 Dreyer's Grand Ice
Cream Inc. ............ 1,345,682 1,372,000
41,600 Flowers Foods Inc.+ ..... 1,055,628 1,075,360
90,000 General Mills Inc. ...... 3,178,115 3,967,200
440,000 Grupo Bimbo SA de CV,
Ser. A ................ 949,109 983,118
20,000 Hain Celestial Group Inc.+ 267,663 370,000
114,000 Heinz (H.J.) Co. ........ 4,571,694 4,685,400
30,000 Interbrew SA ............ 845,071 861,308
350,000 Kellogg Co. ............. 9,771,694 12,551,000
75,000 Kerry Group plc, Cl. A .. 860,877 1,120,375
60,500 LVMH Moet Hennessy
Louis Vuitton, ADR .... 416,625 610,445
MARKET
SHARES COST VALUE
------ ---- -------
41,300 Mondavi (Robert) Corp.,
Cl. A+ ................ $ 1,286,495 $ 1,413,699
150,000 Parmalat Finanziaria SpA 442,418 463,690
600,595 PepsiAmericas Inc. ...... 8,073,962 8,972,889
500,000 PepsiCo Inc. ............ 14,253,072 24,100,000
7,000 Pernod-Ricard SA ........ 606,722 685,807
60,000 Ralcorp Holdings Inc.+ .. 940,903 1,875,000
20,000 Sara Lee Corp. .......... 398,414 412,800
2,000 Smucker (J.M.) Co. ...... 52,993 68,260
103,854 Tootsie Roll
Industries Inc. ....... 1,580,957 4,004,610
150,000 Wrigley (Wm.) Jr. Co. ... 3,610,220 8,302,500
------------ -------------
71,886,157 99,269,884
------------ -------------
ENTERTAINMENT -- 6.0%
620,000 AOL Time Warner Inc.+ ... 14,622,091 9,120,200
160,000 Canal Plus, ADR ......... 34,010 114,400
220,000 Disney (Walt) Co. ....... 4,846,732 4,158,000
100,000 EMI Group plc, ADR ...... 1,189,467 762,150
120,000 Fox Entertainment Group
Inc., Cl. A+ .......... 2,783,871 2,610,000
50,000 GC Companies Inc.+ ...... 54,500 12,500
140,432 Gemstar-TV Guide
International Inc.+ ... 2,061,073 756,928
24,000 Liberty Livewire Corp.,
Cl. A+ ................ 93,109 70,560
1,840,000 Liberty Media Corp.,
Cl. A+ ................ 9,279,598 18,400,000
300,000 Metro-Goldwyn-Mayer
Inc.+ ................. 4,962,381 3,510,000
160,000 Publishing &
Broadcasting Ltd. ..... 893,720 812,871
15,000 Regal Entertainment
Group, Cl. A+ ......... 285,000 349,800
100,000 Six Flags Inc.+ ......... 1,387,850 1,445,000
850,000 Viacom Inc., Cl. A+ ..... 9,373,638 37,791,000
35,900 Vivendi Universal SA .... 2,294,754 775,772
230,000 Vivendi Universal SA,
ADR ................... 8,896,712 4,945,000
------------ -------------
63,058,506 85,634,181
------------ -------------
DIVERSIFIED INDUSTRIAL -- 5.2%
220,000 Acuity Brands Inc. ...... 3,801,308 4,004,000
195,000 Ampco-Pittsburgh Corp. .. 2,627,873 2,340,000
120,000 Cooper Industries Ltd.,
Cl. A ................. 5,953,705 4,716,000
270,000 Crane Co. ............... 5,062,737 6,852,600
110,000 GATX Corp. .............. 1,748,853 3,311,000
200,000 GenTek Inc. ............. 1,587,121 44,000
260,000 Greif Bros. Corp., Cl. A 4,845,131 8,673,860
See accompanying notes to financial statements.
20
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
------ ---- -------
COMMON STOCKS (CONTINUED)
DIVERSIFIED INDUSTRIAL (CONTINUED)
3,400 Greif Bros. Corp., Cl. B $ 69,825 $ 112,200
380,000 Honeywell International
Inc. .................. 13,367,461 13,387,400
120,000 ITT Industries Inc. ..... 3,650,453 8,472,000
400,600 Lamson & Sessions Co.+ .. 2,458,185 1,562,340
34,500 National Service Industries
Inc. .................. 457,454 310,500
83,715 Park-Ohio Holdings Corp.+ 1,009,737 376,718
213,800 Sensient Technologies
Corp. ................. 3,865,929 4,866,088
10,000 Smiths Group plc ........ 171,257 129,872
6,000 Sulzer AG+ .............. 1,275,079 1,274,065
100,000 Thomas Industries Inc. .. 1,388,525 2,880,000
50,000 Trinity Industries Inc. . 945,000 1,036,000
170,000 TRW Inc. ................ 8,590,646 9,686,600
35,000 Tyco International Ltd. . 599,534 472,850
------------ -------------
63,475,813 74,508,093
------------ -------------
EQUIPMENT AND SUPPLIES -- 5.2%
120,000 AMETEK Inc. ............. 1,873,494 4,470,000
2,000 Amphenol Corp., Cl. A+ .. 29,550 72,000
10,000 Caterpillar Inc. ........ 136,559 489,500
95,000 CIRCOR International Inc. 981,440 1,629,250
320,000 Deere & Co. ............. 3,134,721 15,328,000
216,000 Donaldson Co. Inc. ...... 1,449,454 7,568,640
135,000 Flowserve Corp.+ ........ 2,468,412 4,023,000
13,000 Franklin Electric Co. Inc. 210,022 611,910
100,000 Gerber Scientific Inc.+ . 1,060,701 351,000
75,000 GrafTech International
Ltd.+ ................. 1,008,428 922,500
211,300 IDEX Corp. .............. 1,377,232 7,078,550
20,000 Ingersoll-Rand Co., Cl. A 844,600 913,200
60,000 Lufkin Industries Inc. .. 1,105,223 1,732,200
1,000 Manitowoc Co. Inc. ...... 25,450 35,490
425,000 Navistar International
Corp.+ ................ 6,419,191 13,600,000
28,000 Olympus Optical Co. Ltd. 418,424 391,069
30,000 PACCAR Inc. ............. 450,000 1,331,700
170,000 SPS Technologies Inc.+ .. 2,963,443 6,488,900
60,000 Sybron Dental Specialties
Inc.+ ................. 1,140,669 1,110,000
33,000 THK Co. Ltd. ............ 790,476 634,636
250,000 Watts Industries Inc.,
Cl. A ................. 3,331,739 4,962,500
100,000 Weir Group plc .......... 420,789 432,907
------------ -------------
31,640,017 74,176,952
------------ -------------
MARKET
SHARES COST VALUE
------ ---- -------
ENERGY AND UTILITIES -- 5.2%
52,000 AES Corp.+ .............. $ 283,977 $ 281,840
70,000 AGL Resources Inc. ...... 1,259,271 1,624,000
37,400 Apache Corp. ............ 844,013 2,149,752
120,000 BP plc .................. 725,215 1,007,880
248,800 BP plc, ADR ............. 5,313,984 12,561,912
150,000 Burlington Resources Inc. 6,384,591 5,700,000
115,000 CH Energy Group Inc. .... 4,749,282 5,663,750
20,000 Cinergy Corp. ........... 609,845 719,800
210,000 Conoco Inc. ............. 5,050,835 5,838,000
10,000 Constellation Energy
Group Inc. ............ 237,177 293,400
2,500 Dominion Resources Inc. . 152,000 165,500
15,000 DPL Inc. ................ 355,513 396,750
100,000 DQE Inc. ................ 1,744,412 1,400,000
30,366 DTE Energy Co. .......... 1,344,098 1,355,538
80,000 El Paso Corp. ........... 1,980,239 1,648,800
400,000 El Paso Electric Co.+ ... 3,236,625 5,540,000
20,000 Energy East Corp. ....... 429,788 452,000
9,400 FPL Group Inc. .......... 507,682 563,906
25,000 Gas Natural SDG SA ...... 460,652 481,467
280,000 Halliburton Co. ......... 4,123,915 4,463,200
38,632 Kerr-McGee Corp. ........ 2,281,548 2,068,744
90,000 Mirant Corp.+ ........... 1,000,720 657,000
100,000 NiSource Inc.+ .......... 200,000 208,000
250,000 Northeast Utilities ..... 4,834,797 4,702,500
358,200 Pennzoil-Quaker State Co. 6,836,957 7,712,046
100,000 Progress Energy Inc.+ ... 52,000 30,000
10,400 SJW Corp. ............... 931,126 842,400
14,000 Southwest Gas Corp. ..... 289,625 346,500
7,907 Total Fina Elf SA ....... 1,114,624 1,283,825
260,000 Westar Energy Inc. ...... 4,407,757 3,991,000
------------ -------------
61,742,268 74,149,510
------------ -------------
PUBLISHING -- 4.8%
20,000 Dow Jones & Co. Inc. .... 1,030,036 969,000
196,000 Independent News &
Media plc, Dublin ..... 316,913 387,149
15,900 Knight-Ridder Inc. ...... 1,066,095 1,000,905
5,000 McClatchy Co., Cl. A .... 240,250 321,250
105,000 McGraw-Hill Companies
Inc. .................. 2,621,025 6,268,500
400,000 Media General Inc., Cl. A 9,832,031 24,000,000
125,000 Meredith Corp. .......... 2,091,314 4,793,750
115,000 New York Times Co., Cl. A 790,115 5,922,500
120,000 News Corp. Ltd. ......... 696,029 652,093
See accompanying notes to financial statements.
21
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
------ ---- -------
COMMON STOCKS (CONTINUED)
PUBLISHING (CONTINUED)
11,016 News Corp. Ltd., ADR .... $ 195,892 $ 252,597
400,000 Penton Media Inc.+ ...... 4,849,118 860,000
350,000 PRIMEDIA Inc.+ .......... 1,806,479 427,000
33,000 Pulitzer Inc. ........... 1,483,667 1,712,700
140,000 Reader's Digest
Association Inc., Cl. B 3,371,358 3,220,000
400,000 SCMP Group Ltd. ......... 273,726 232,060
70,000 Scripps (E.W.) Co., Cl. A 4,559,387 5,390,000
91,842 Seat-Pagine Gialle SpA+ . 204,007 67,304
75,000 Thomas Nelson Inc. ...... 908,325 792,000
250,000 Tribune Co. ............. 8,604,264 10,875,000
------------ -------------
44,940,031 68,143,808
------------ -------------
CONSUMER PRODUCTS -- 4.4%
70,000 Altadis SA .............. 1,030,995 1,444,896
43,000 Christian Dior SA ....... 1,514,055 1,656,247
10,000 Church & Dwight Co. Inc. 99,536 313,300
110,000 Compagnie Financiere
Richemont AG, Cl. A ... 1,550,184 2,502,100
50,000 Department 56 Inc.+ ..... 524,317 814,000
345,001 Energizer Holdings Inc.+ 5,324,935 9,459,927
90,000 Fortune Brands Inc. ..... 2,401,342 5,040,000
250,000 Gallaher Group plc, ADR . 4,342,521 9,337,500
300,000 Gillette Co. ............ 9,680,864 10,161,000
2,000 Givaudan SA ............. 550,742 806,370
60,000 Harley-Davidson Inc. .... 151,125 3,076,200
15,000 Matsushita Electric Industrial
Co. Ltd., ADR ......... 178,325 207,450
100,000 Mattel Inc. ............. 1,549,565 2,108,000
30,000 Maytag Corp. ............ 913,036 1,279,500
50,000 National Presto Industries
Inc. .................. 1,768,883 1,600,000
9,500 Nintendo Co. Ltd. ....... 784,763 1,398,970
20,000 Philip Morris Companies
Inc. .................. 600,935 873,600
100,000 Procter & Gamble Co. .... 6,919,810 8,930,000
32,000 Shimano Inc. ............ 521,107 434,121
15,000 Swatch Group AG, Cl. B .. 868,351 1,335,551
10,425 Syratech Corp.+ (a) ..... 333,704 4,691
------------ -------------
41,609,095 62,783,423
------------ -------------
WIRELESS COMMUNICATIONS -- 3.4%
95,000 America Movil SA de CV,
Cl. L, ADR ............ 1,235,397 1,273,000
550,170 AT&T Wireless Services
Inc.+ ................. 7,186,094 3,218,494
160,000 Leap Wireless International
Inc.+ ................. 3,115,240 172,800
1,775,000 mm02 plc+ ............... 1,980,584 1,136,381
MARKET
SHARES COST VALUE
------ ---- -------
140,800 mm02 plc, ADR+ .......... $ 1,649,378 $ 887,040
240,000 Nextel Communications
Inc., Cl. A+ .......... 3,841,367 770,400
1,000 NTT DoCoMo Inc. ......... 2,437,994 2,461,286
250,000 Rogers Wireless
Communications Inc.,
Cl. B+ ................ 3,494,025 1,927,500
230,000 Sprint Corp. - PCS
Group+ ................ 533,587 1,028,100
16,700 Tele Celular Sul
Participacoes SA, ADR . 266,992 184,034
55,666 Tele Centro Oeste Celular
Participacoes SA, ADR . 166,868 246,600
3,340 Tele Leste Celular
Participacoes SA, ADR+ 89,340 35,070
8,350 Tele Nordeste Celular
Participacoes SA, ADR . 123,227 160,320
3,340 Tele Norte Celular
Participacoes SA, ADR+ 51,601 17,535
1,400,000 Telecom Italia Mobile
SpA ................... 2,244,688 5,738,102
8,350 Telemig Celular
Participacoes SA, ADR . 241,320 172,845
450,000 Telephone & Data
Systems Inc. .......... 37,059,011 27,247,500
66,800 Telesp Celular
Participacoes SA, ADR+ 2,135,936 264,528
453,888 Vodafone Group plc ...... 817,567 622,683
100,000 Vodafone Group plc, ADR . 927,768 1,365,000
------------ -------------
69,597,984 48,929,218
------------ -------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.4%
20,000 ArvinMeritor Inc. ....... 387,543 480,000
36,802 BorgWarner Inc. ......... 1,669,649 2,125,684
100,000 CLARCOR Inc. ............ 1,266,455 3,165,000
320,061 Dana Corp. .............. 5,237,799 5,930,730
65,000 Delphi Corp. ............ 766,915 858,000
260,000 GenCorp Inc. ............ 2,470,673 3,718,000
210,000 Genuine Parts Co. ....... 5,500,492 7,322,700
114,000 Johnson Controls Inc. ... 1,890,245 9,303,540
110,000 Midas Inc.+ ............. 1,575,679 1,364,000
335,000 Modine Manufacturing Co. 4,388,179 8,234,300
20,000 O'Reilly Automotive Inc.+ 579,199 551,200
70,800 Scheib (Earl) Inc.+ ..... 608,339 212,400
163,000 Standard Motor Products
Inc. .................. 1,748,388 2,762,850
25,000 Superior Industries
International Inc. .... 626,663 1,156,250
105,000 TransPro Inc.+ .......... 936,808 656,250
------------ -------------
29,653,026 47,840,904
------------ -------------
See accompanying notes to financial statements.
22
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
------ ---- -------
COMMON STOCKS (CONTINUED)
HOTELS AND GAMING -- 2.4%
110,000 Aztar Corp.+ ............ $ 772,707 $ 2,288,000
90,000 Boca Resorts Inc., Cl. A+ 787,000 1,192,500
240,000 Gaylord Entertainment
Co.+ .................. 6,198,540 5,292,000
30,000 Greek Organization of
Football Prognostics .. 288,232 275,547
8,000 GTECH Holdings Corp.+ ... 69,219 204,320
2,460,000 Hilton Group plc ........ 8,307,399 8,558,981
650,000 Hilton Hotels Corp. ..... 6,542,136 9,035,000
60,000 MGM Mirage+ ............. 1,588,260 2,025,000
430,000 Park Place Entertainment
Corp.+ ................ 2,424,893 4,407,500
50,000 Starwood Hotels & Resorts
Worldwide Inc. ........ 1,075,717 1,644,500
------------ -------------
28,054,103 34,923,348
------------ -------------
HEALTH CARE -- 2.4%
20,000 Abbott Laboratories ..... 743,000 753,000
60,000 Amgen Inc.+ ............. 256,894 2,512,800
40,000 Apogent Technologies Inc.+ 803,368 822,800
10,000 AstraZeneca plc, London . 385,298 414,005
35,146 AstraZeneca plc,
Stockholm ............. 1,255,532 1,460,882
12,000 Aventis SA .............. 899,375 850,345
26,000 Biogen Inc.+ ............ 181,025 1,077,180
110,000 Bristol-Myers Squibb Co. 2,938,465 2,827,000
23,000 Centerpulse AG+ ......... 1,394,669 3,836,811
75,036 GlaxoSmithKline plc ..... 1,817,378 1,621,893
4,000 GlaxoSmithKline plc,
ADR ................... 216,096 172,560
56,011 Invitrogen Corp.+ ....... 2,678,982 1,792,912
40,000 Merck & Co. Inc. ........ 2,380,606 2,025,600
46,000 Novartis AG ............. 1,431,247 2,023,116
108,000 Novartis AG, Registered . 948,510 4,733,640
65,000 Pfizer Inc. ............. 1,077,000 2,275,000
17,900 Roche Holding AG ........ 1,644,702 1,353,190
20,000 Sanofi-Synthelabo SA .... 967,750 1,216,754
10,000 Schering-Plough Corp. ... 354,700 246,000
14,000 Takeda Chemical
Industries Ltd. ....... 782,347 614,404
38,000 Wyeth ................... 1,819,180 1,945,600
------------ -------------
24,976,124 34,575,492
------------ -------------
RETAIL -- 2.1%
200,000 Albertson's Inc. ........ 5,669,538 6,092,000
300,000 AutoNation Inc.+ ........ 3,354,597 4,350,000
60,000 Boots Co. plc ........... 617,609 594,942
10,000 Coldwater Creek Inc.+ ... 181,517 244,000
MARKET
SHARES COST VALUE
------ ---- -------
16,000 Delhaize Le Lion SA,
ADR ................... $ 908,672 $ 745,280
33,000 Gucci Group NV, ADR ..... 2,709,049 3,122,130
100,000 Lillian Vernon Corp. .... 1,362,258 712,500
90,000 Neiman Marcus Group Inc.,
Cl. A+ ................ 2,800,847 3,123,000
320,000 Neiman Marcus Group Inc.,
Cl. B+ ................ 7,741,769 10,329,600
7,750 Tod's SpA ............... 387,822 336,780
40,000 Winn-Dixie Stores Inc. .. 482,476 623,600
------------ -------------
26,216,154 30,273,832
------------ -------------
AEROSPACE -- 1.7%
100,000 BAE Systems plc ......... 560,593 510,647
115,000 Boeing Co. .............. 3,847,934 5,175,000
100,000 Lockheed Martin Corp. ... 2,641,248 6,950,000
91,000 Northrop Grumman Corp. .. 6,452,792 11,375,000
------------ -------------
13,502,567 24,010,647
------------ -------------
CONSUMER SERVICES -- 1.5%
40,000 Loewen Group Inc.+ ...... 48,700 1,200
505,000 Rollins Inc. ............ 5,690,722 10,271,700
490,000 USA Interactive Inc.+ ... 5,149,626 11,490,500
------------ -------------
10,889,048 21,763,400
------------ -------------
BROADCASTING -- 1.5%
15,015 Clear Channel
Communications Inc.+ .. 481,784 480,780
16,666 Corus Entertainment Inc.,
Cl. B+ ................ 62,036 294,772
28,000 Gray Communications
Systems Inc. .......... 376,900 506,800
25,000 Gray Communications
Systems Inc., Cl. B ... 355,780 332,500
195,000 Grupo Televisa SA, ADR+ . 5,116,358 7,289,100
200,000 Liberty Corp. ........... 8,528,905 7,970,000
5,000 Lin TV Corp., Cl. A+ .... 110,000 135,200
4,000 Nippon Broadcasting
System Inc. ........... 161,709 146,843
40,375 NRJ Group ............... 384,806 732,112
131,000 Paxson Communications
Corp.+ ................ 1,311,348 720,500
14,700 RTL Group (Brussels) .... 649,036 580,723
3,000 RTL Group (New York) .... 126,100 118,515
100,000 Television Broadcasts Ltd. 396,239 425,657
110,000 Young Broadcasting Inc.,
Cl. A+ ................ 2,713,685 1,955,800
------------ -------------
20,774,686 21,689,302
------------ -------------
See accompanying notes to financial statements.
23
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
------ ---- -------
COMMON STOCKS (CONTINUED)
REAL ESTATE -- 1.5%
450,000 Catellus Development
Corp.+ ................ $ 6,751,839 $ 9,189,000
75,000 Cheung Kong (Holdings)
Ltd. .................. 871,487 625,023
44,000 Florida East Coast
Industries Inc., Cl. A 523,108 1,113,200
58,451 Florida East Coast
Industries Inc., Cl. B 964,977 1,391,134
55,000 Griffin Land & Nurseries
Inc.+ ................. 513,143 760,375
4,753 HomeFed Corp.+ .......... 851 4,325
253,000 St. Joe Co. ............. 1,873,208 7,595,060
------------ -------------
11,498,613 20,678,117
------------ -------------
AVIATION: PARTS AND SERVICES -- 1.4%
101,320 Curtiss-Wright Corp.,
Cl. B ................. 5,582,889 7,659,792
90,000 Fairchild Corp., Cl. A+ . 1,111,343 283,500
60,000 Precision Castparts Corp. 1,113,468 1,980,000
84,500 Sequa Corp., Cl. A+ ..... 3,371,578 5,525,455
78,000 Sequa Corp., Cl. B+ ..... 4,068,661 5,109,000
------------ -------------
15,247,939 20,557,747
------------ -------------
SPECIALTY CHEMICALS -- 1.1%
5,400 Ciba Specialty Chemicals,
ADR (b) ............... 21,140 216,324
10,000 du Pont de Nemours
(E.I.) and Co. ........ 327,500 444,000
340,000 Ferro Corp. ............. 7,268,003 10,251,000
40,000 Fuller (H.B.) Co. ....... 968,437 1,171,600
120,000 Hercules Inc.+ .......... 1,543,119 1,392,000
15,000 IVAX Corp.+ ............. 170,441 162,000
210,000 Omnova Solutions Inc.+ .. 1,767,940 1,764,000
20,000 Rohm and Haas Co. ....... 618,875 809,800
11,697 Syngenta AG, ADR ........ 22,129 142,236
------------ -------------
12,707,584 16,352,960
------------ -------------
CABLE -- 1.1%
120,000 Adelphia Communications
Corp., Cl. A+ ......... 890,183 19,200
535,000 Cablevision Systems
Corp., Cl. A+ ......... 8,190,256 5,061,100
30,000 Charter Communications
Inc., Cl. A+ .......... 138,876 122,400
40,000 Comcast Corp., Cl. A+ ... 341,837 968,000
85,000 Comcast Corp., Cl. A,
Special+ .............. 756,584 2,026,400
20,000 NTL Inc.+ ............... 80,402 640
MARKET
SHARES COST VALUE
------ ---- -------
560,000 Rainbow Media Group,
Cl. A+ ................ $ 8,588,016 $ 4,900,000
20,000 Shaw Communications
Inc., Cl. B ........... 52,983 220,266
80,000 Shaw Communications Inc.,
Cl. B, Non-Voting ..... 329,197 896,000
370,000 UnitedGlobalCom Inc.,
Cl. A+ ................ 2,499,253 1,017,500
------------ -------------
21,867,587 15,231,506
------------ -------------
AGRICULTURE -- 0.9%
1,050,000 Archer-Daniels-
Midland Co. ........... 13,728,377 13,429,500
5,000 Delta & Pine Land Co. ... 84,396 100,500
------------ -------------
13,812,773 13,530,000
------------ -------------
ELECTRONICS -- 0.9%
134,393 Agere Systems Inc.,
Cl. B+ ................ 499,373 201,589
3,000 Hitachi Ltd., ADR ....... 218,796 192,510
16,000 Molex Inc., Cl. A ....... 504,206 438,880
7,500 NEC Corp., ADR .......... 43,625 52,125
38,800 Philips Electronics
NV, ADR ............... 53,456 1,070,880
6,000 Rohm Co. Ltd. ........... 994,112 895,574
47,000 Sony Corp., ADR ......... 1,554,214 2,495,700
110,000 Texas Instruments Inc. .. 3,370,837 2,607,000
250,000 Thomas & Betts Corp.+ ... 4,581,748 4,650,000
8,400 Tokyo Electron Ltd. ..... 483,190 547,357
------------ -------------
12,303,557 13,151,615
------------ -------------
AUTOMOTIVE -- 0.7%
20,000 Ford Motor Co. .......... 490,840 320,000
167,942 General Motors Corp. .... 5,307,581 8,976,500
------------ -------------
5,798,421 9,296,500
------------ -------------
BUILDING AND CONSTRUCTION -- 0.6%
112,500 CRH plc ................. 1,363,025 1,883,278
32,222 Huttig Building Products
Inc.+ ................. 81,163 173,032
15,000 Martin Marietta Materials
Inc. .................. 322,687 585,000
140,000 Nortek Inc.+ ............ 1,892,737 6,314,000
5,000 Nortek Inc., Special
Common+ (a) ........... 72,155 225,500
------------ -------------
3,731,767 9,180,810
------------ -------------
ENVIRONMENTAL SERVICES -- 0.6%
65,000 Republic Services Inc.+ . 875,761 1,239,550
300,000 Waste Management Inc. ... 5,314,129 7,815,000
------------ -------------
6,189,890 9,054,550
------------ -------------
See accompanying notes to financial statements.
24
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
------ ---- -------
COMMON STOCKS (CONTINUED)
BUSINESS SERVICES -- 0.6%
60,000 ANC Rental Corp.+ ....... $ 578,273 $ 10,800
180,000 Cendant Corp.+ .......... 2,573,002 2,858,400
1,000 CheckFree Corp.+ ........ 9,040 15,640
98,000 Landauer Inc. ........... 634,307 3,805,340
70,000 Nashua Corp.+ ........... 634,027 497,000
7,000 Secom Co. Ltd. .......... 481,862 343,412
250,000 Securicor plc ........... 0 452,532
3,500 SYNAVANT Inc.+ .......... 27,506 4,935
------------ -------------
4,938,017 7,988,059
------------ -------------
PAPER AND FOREST PRODUCTS -- 0.6%
100,000 MeadWestvaco Corp. ...... 2,806,203 3,356,000
170,000 Pactiv Corp.+ ........... 1,775,756 4,046,000
10,000 Rayonier Inc. ........... 465,432 491,300
------------ -------------
5,047,391 7,893,300
------------ -------------
COMMUNICATIONS EQUIPMENT -- 0.4%
68,000 Acterna Corp.+ .......... 245,121 27,948
290,000 Allen Telecom Inc.+ ..... 2,191,165 1,247,000
510,000 Corning Inc.+ ........... 5,161,032 1,810,500
130,000 Lucent Technologies Inc.+ 952,294 215,800
110,000 Motorola Inc. ........... 1,553,319 1,586,200
100,000 Nortel Networks Corp.+ .. 725,285 145,000
44,000 Scientific-Atlanta Inc. . 355,750 723,800
------------ -------------
11,183,966 5,756,248
------------ -------------
METALS AND MINING -- 0.4%
72,500 Harmony Gold Mining
Co. Ltd. .............. 347,738 998,579
15,000 Harmony Gold Mining
Co. Ltd., ADR ......... 79,800 202,950
125,000 Newmont Mining Corp.
Holding Co. ........... 2,501,633 3,291,250
50,000 Placer Dome Inc. ........ 487,169 560,500
------------ -------------
3,416,340 5,053,279
------------ -------------
CLOSED END FUNDS -- 0.2%
59,000 Central European Equity
Fund Inc. ............. 740,735 814,200
18,592 France Growth Fund Inc.+ 184,694 129,214
54,150 Italy Fund Inc. ......... 450,250 370,928
68,000 New Germany Fund Inc.+ .. 750,658 343,400
70,000 Pimco RCM Europe
Fund Inc. ............. 512,662 495,600
40,000 Royce Value Trust Inc. .. 466,533 662,000
------------ -------------
3,105,532 2,815,342
------------ -------------
MARKET
SHARES COST VALUE
------ ---- -------
TRANSPORTATION -- 0.2%
100,000 AMR Corp.+ .............. $ 1,924,248 $ 1,686,000
20,000 Grupo TMM SA de CV,
Cl. A, ADR+ ........... 203,300 138,000
7,500 Kansas City Southern+ ... 13,986 127,500
29,273 Tsakos Energy
Navigation Ltd.+ 421,218 409,822
------------ -------------
2,562,752 2,361,322
------------ -------------
SATELLITE -- 0.2%
180,323 General Motors Corp.,
Cl. H+ ................ 2,584,089 1,875,359
34,000 Liberty Satellite &
Technology Inc., Cl. A+ 900,012 76,500
190,000 Loral Space &
Communications Ltd.+ .. 614,954 188,100
------------ -------------
4,099,055 2,139,959
------------ -------------
COMPUTER SOFTWARE AND SERVICES -- 0.1%
20,000 Capcom Co. Ltd. ......... 684,260 517,287
10,000 Computer Associates
International Inc. .... 254,407 158,900
160,000 EMC Corp.+ .............. 2,749,056 1,208,000
30,000 Genuity Inc., Cl. A+ .... 617,929 114,000
------------ -------------
4,305,652 1,998,187
------------ -------------
COMPUTER HARDWARE -- 0.0%
26,000 Hewlett-Packard Co. ..... 839,290 397,280
10,000 Xerox Corp.+ ............ 108,625 69,700
------------ -------------
947,915 466,980
------------ -------------
TOTAL COMMON
STOCKS ................ 953,486,886 1,180,752,802
------------ -------------
PREFERRED STOCKS -- 1.6%
PUBLISHING -- 1.1%
770,499 News Corp. Ltd., Pfd.,
ADR ................... 20,918,811 15,217,352
------------ -------------
TELECOMMUNICATIONS -- 0.3%
60,000 Allen Telecom Inc.,
7.750% Cv. Pfd., Ser. D 3,000,000 2,139,000
31,000 Broadwing Inc.,
6.750% Cv. Pfd., Ser. B 986,633 523,900
20,000 Citizens Communications Co.,
5.000% Cv. Pfd. ....... 986,648 808,000
500 Lucent Technologies
Capital Trust I,
7.750% Cv. Pfd. (b) ... 500,000 240,114
------------ -------------
5,473,281 3,711,014
------------ -------------
See accompanying notes to financial statements.
25
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
------ ---- -------
COMMON STOCKS (CONTINUED)
AEROSPACE -- 0.1%
14,021 Northrop Grumman Corp.,
7.000% Cv. Pfd.,
Ser. B ................ $ 1,633,727 $ 2,033,045
------------ -------------
BROADCASTING -- 0.1%
90 Gray Communications
Systems Inc.,
8.000% Cv. Pfd.,
Ser. C (b) ............ 900,000 900,000
100,000 ProSieben Sat.1 Media
AG, Pfd. .............. 1,043,352 1,014,291
------------ -------------
1,943,352 1,914,291
------------ -------------
SPECIALTY CHEMICALS -- 0.0%
21,700 Hercules Trust I,
9.420% Pfd. ........... 502,980 507,780
------------ -------------
AVIATION: PARTS AND SERVICES -- 0.0%
3,000 Sequa Corp.,
$5.00 Cv. Pfd. ........ 239,700 282,000
------------ -------------
WIRELESS COMMUNICATIONS -- 0.0%
10,760,547 Telesp Celular
Participacoes SA, Pfd.+ 82,623 16,875
------------ -------------
TOTAL PREFERRED
STOCKS ................ 30,794,474 23,682,357
------------ -------------
PRINCIPAL
AMOUNT
--------
CORPORATE BONDS -- 0.5%
ELECTRONICS -- 0.2%
$3,500,000 Agere Sysyems Inc.,
Sub. Deb. Cv.,
6.500%, 12/15/09 ...... 3,500,000 2,681,875
------------ -------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.1%
1,500,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 ...... 1,433,621 1,218,750
------------ -------------
AVIATION: PARTS AND SERVICES -- 0.1%
933,000 Kaman Corp.,
Sub. Deb. Cv.,
6.000%, 03/15/12 ...... 881,491 910,841
------------ -------------
ENERGY AND UTILITIES -- 0.1%
1,000,000 Mirant Corp.,
Sub. Deb. Cv.,
2.500%, 06/15/21 ...... 754,164 731,250
------------ -------------
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- -------
CABLE -- 0.0%
$ 900,000 Charter Communications Inc., Cv.,
4.750%, 06/01/06 ...... $ 640,718 $ 410,625
------------ -------------
HOTELS AND GAMING -- 0.0%
400,000 Hilton Hotels Corp.,
Sub. Deb. Cv.,
5.000%, 05/15/06 ...... 354,000 377,500
------------ -------------
WIRELESS COMMUNICATIONS -- 0.0%
500,000 Nextel Communications Inc.,
9.500%, 02/01/11 ...... 347,402 247,500
------------ -------------
CONSUMER PRODUCTS -- 0.0%
1,000,000 Pillowtex Corp.,
Sub. Deb. Cv.,
6.000%, 03/15/12+ (e) . 406,180 0
------------ -------------
TOTAL CORPORATE
BONDS ................. 8,317,576 6,578,341
------------ -------------
SHARES
------
RIGHTS -- 0.0%
REAL ESTATE -- 0.0%
3,000 Cheung Kong Life Science
International Inc.
Rights+ ............... 0 0
------------ -------------
WARRANTS -- 0.0%
FOOD AND BEVERAGE -- 0.0%
62,463 Advantica Restaurant Group
Inc., expires
01/07/05+ ............. 105,603 187
------------ -------------
METALS AND MINING -- 0.0%
5,000 Harmony Gold Mining Co.
Ltd., ADR,
expires 06/29/03+ ..... 0 44,850
------------ -------------
TOTAL WARRANTS .......... 105,603 45,037
------------ -------------
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT OBLIGATIONS -- 3.5%
$50,000,000 U.S. Treasury Bill,
1.770%++, 07/11/02 .... 49,970,500 49,970,500
------------ -------------
See accompanying notes to financial statements.
26
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- -------
REPURCHASE AGREEMENTS -- 12.1%
$ 32,458,000 Agreement with State
Street Bank & Trust Co.,
1.870%, dated 06/28/02,
due 07/01/02,
proceeds at maturity
$32,463,058 (c) ...... $32,458,000 $ 32,458,000
140,000,000 Agreement with Warburg
Dillon Reed, 1.920%,
dated 06/28/02,
due 07/01/02,
proceeds at maturity
$140,022,400 (c) ..... 140,000,000 140,000,000
-------------- --------------
TOTAL REPURCHASE
AGREEMENTS .......... 172,458,000 172,458,000
-------------- --------------
TOTAL INVESTMENTS -- 100.3% .........$1,215,133,039 1,433,487,037
==============
OTHER ASSETS, LIABILITIES
AND LIQUIDATION VALUE OF
CUMULATIVE PREFERRED STOCK -- (30.3)% ............. (433,327,225)
--------------
NET ASSETS -- COMMON STOCK -- 70.0%
(131,771,904 common shares outstanding) ........... 1,000,159,812
--------------
NET ASSETS -- PREFERRED STOCK -- 30.0%
(11,973,100 preferred shares outstanding) ......... 429,197,500
--------------
TOTAL NET ASSETS -- 100.0% .......................... $1,429,357,312
==============
NET ASSET VALUE PER COMMON SHARE
($1,000,159,812 / 131,771,904
shares outstanding) ............................... $ 7.59
=======
----------------
For Federal tax purposes:
Aggregate cost ........................ $1,215,133,039
==============
Gross unrealized appreciation ......... $ 366,171,067
Gross unrealized depreciation ......... (147,817,069)
--------------
Net unrealized appreciation ........... $ 218,353,998
--------------
PRINCIPAL SETTLEMENT NET UNREALIZED
AMOUNT DATE DEPRECIATION
--------- ---------- --------------
FORWARD FOREIGN EXCHANGE CONTRACTS -- 0.0%
$ 4,992,000(d) Deliver Hong Kong Dollars in
exchange for
USD 639,820 ........ 08/01/02 $(204)
=====
NOTIONAL
AMOUNT
--------
INTEREST RATE SWAP AGREEMENT -- 0.0%
130,000,000 Receive floating rate from Citibank, NA
based on the 1-month LIBOR and pay
a fixed rate equal to 4.494%
Terminates 07/01/07 ...................... $(69,000)
========
------------------------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At June 30,
2002, the market value of Rule 144A securities amounted to $1,356,438 or
0.1% of total net assets.
(c) Collateralized by U.S. Treasury Notes, 5.50% to 8.00%, due 02/28/02 to
11/15/21, market value $173,112,736.
(d) Principal amount denoted in Hong Kong Dollars.
(e) Bond in default.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
BDR - Brazilian Depositary Receipt.
RNC - Non-Convertible Savings Shares.
USD - U.S. Dollars.
W/I - When Issued.
% OF
MARKET MARKET
VALUE VALUE
------ -----------
GEOGRAPHIC DIVERSIFICATION
United States ................. 84.6% $1,212,360,665
Europe ........................ 11.1 159,910,293
Asia/Pacific Rim .............. 2.3 32,494,212
Latin America ................. 1.1 15,981,271
Canada ........................ 0.8 11,539,066
South Africa .................. 0.1 1,201,530
----- --------------
Total Investments ............. 100.0% $1,433,487,037
===== ==============
See accompanying notes to financial statements.
27
THE GABELLI EQUITY TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2002 (UNAUDITED)
ASSETS:
Investments, at value (cost $1,215,133,039) ..... $ 1,433,487,037
Cash and foreign currency, at value (cost $1,490) 2,063
Dividends and interest receivable ............... 1,591,769
---------------
TOTAL ASSETS .................................... 1,435,080,869
---------------
LIABILITIES:
Payable for investments purchased ............... 3,938,549
Dividends payable ............................... 193,438
Unrealized depreciation on swap contract ........ 69,000
Unrealized depreciation on forward foreign
exchange contracts ........................... 204
Payable for investment advisory fees ............ 794,434
Payable to custodian ............................ 28,402
Other accrued expenses and liabilities .......... 699,530
---------------
TOTAL LIABILITIES ............................... 5,723,557
---------------
PREFERRED STOCK:
Series A Cumulative Preferred Stock (7.25%,
$25 liquidation value, $0.001 par
value, 8,000,000 shares authorized with
5,367,900 shares issued and outstanding) ..... 134,197,500
Series B Cumulative Preferred Stock (7.20%,
$25 liquidation value, $0.001 par value,
8,000,000 shares authorized with
6,600,000 shares issued and outstanding) ..... 165,000,000
Series C Cumulative Preferred Stock (Auction
Rate, $25,000 liquidation value,
$0.001 par value, 6,000 shares authorized
with 5,200 shares issued and
outstanding) ................................. 130,000,000
---------------
TOTAL PREFERRED STOCK ........................... 429,197,500
---------------
NET ASSETS ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS ................................. $ 1,000,159,812
===============
NET ASSETS ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS CONSIST OF:
Capital stock, at par value ..................... $ 131,772
Additional paid-in capital ...................... 783,748,484
Accumulated distributions in excess of net
investment income ............................ (47,836)
Accumulated distributions in excess of net
realized gain on investments, futures
contracts and foreign currency transactions .. (1,972,803)
Net unrealized appreciation on investments and
foreign currency transactions ................ 218,300,195
---------------
TOTAL NET ASSETS ................................ $ 1,000,159,812
===============
NET ASSET VALUE PER COMMON SHARE
($1,000,159,812 / 131,771,904 shares
outstanding; 184,000,000 shares
authorized of $0.001 par value) .............. $7.59
=====
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign taxes of $418,277) ......... $ 9,059,362
Interest ............................................. 1,769,640
-------------
TOTAL INVESTMENT INCOME .............................. 10,829,002
-------------
EXPENSES:
Investment advisory fees ............................. 5,512,313
Shareholder communications expenses .................. 181,508
Payroll .............................................. 148,204
Shareholder services fees ............................ 118,025
Custodian fees ....................................... 75,830
Directors' fees ...................................... 71,482
Legal and audit fees ................................. 55,612
Miscellaneous expenses ............................... 79,994
-------------
TOTAL EXPENSES ....................................... 6,242,968
-------------
LESS: CUSTODIAN FEE CREDIT ........................... (4,814)
-------------
NET EXPENSES ......................................... 6,238,154
-------------
NET INVESTMENT INCOME ................................ 4,590,848
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES CONTRACTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain on investments ..................... 13,307,995
Net realized gain on foreign currency transactions ... 17,470
Net realized gain on futures contracts ............... 555,625
-------------
Net realized gain on investments, futures
contracts and foreign currency transactions ....... 13,881,090
-------------
Net change in net unrealized appreciation/depreciation
on investments and foreign currency transactions .. (118,600,995)
-------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS, FUTURES CONTRACTS
AND FOREIGN CURRENCY TRANSACTIONS ................. (104,719,905)
-------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................... (100,129,057)
-------------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ................................ (10,998,098)
-------------
TOTAL DISTRIBUTIONS TO PREFERRED STOCK
SHAREHOLDERS ...................................... (10,998,098)
-------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS RESULTING
FROM OPERATIONS ................................... $(111,127,155)
=============
See accompanying notes to financial statements.
28
THE GABELLI EQUITY TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
SIX MONTHS ENDED
JUNE 30, 2002 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2001
--------------- -----------------
OPERATIONS:
Net investment income ................................................ $ 4,590,848 $ 9,816,147
Net realized gain on investments, options, futures contracts
and foreign currency transactions ................................. 13,881,090 144,016,946
Net change in unrealized appreciation/depreciation on investments
and foreign currency transactions ................................. (118,600,995) (171,507,313)
--------------- ---------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................. (100,129,057) (17,674,220)
--------------- ---------------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ................................................ (2,733,027) (1,001,064)
Net realized gain on investments, options,
futures contracts and foreign currency transactions ............... (8,265,071) (14,867,161)
--------------- ---------------
TOTAL DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS .................. (10,998,098) (15,868,225)
--------------- ---------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS
RESULTING FROM OPERATIONS ............................................ (111,127,155) (33,542,445)
--------------- ---------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income ................................................ (1,857,821) (8,582,562)
Net realized gain on investments, options,
futures contracts and foreign currency transactions ............... (5,616,019) (129,877,560)
Paid-in capital ...................................................... (62,605,925) --
--------------- ---------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ..................... (70,079,765) (138,460,122)
--------------- ---------------
FUND SHARE TRANSACTIONS:
Net increase in net assets from common shares issued upon reinvestment
of dividends and distributions and rights offering ................ 16,995,721 160,303,359
Underwriting discount for preferred shares charged to paid-in capital (1,300,000) (5,670,695)
Offering costs for preferred shares charged to paid-in capital ....... (500,000) (500,000)
--------------- ---------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS .............. 15,195,721 154,132,664
--------------- ---------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS . (166,011,199) (17,869,903)
NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS:
Beginning of period .................................................. 1,166,171,011 1,184,040,914
--------------- ---------------
End of period ........................................................ $ 1,000,159,812 $ 1,166,171,011
=============== ===============
See accompanying notes to financial statements.
29
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION. The Gabelli Equity Trust Inc. (the "Equity Trust") is a
closed-end, non-diversified management investment company organized as a
Maryland corporation on May 20, 1986 and registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), whose primary objective is long-term
growth of capital. The Equity Trust had no operations until August 11, 1986,
when it sold 10,696 shares of common stock to Gabelli Funds, LLC (the "Adviser")
for $100,008. Investment operations commenced on August 21, 1986.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Equity Trust in the preparation of its financial statements.
SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded in the U.S.
over-the-counter market for which market quotations are readily available are
valued at the last quoted sale price on that exchange or market as of the close
of business on the day the securities are being valued. If there were no sales
that day, the security is valued at the average of the closing bid and asked
prices or, if there were no asked prices quoted on that day, then the security
is valued at the closing bid price on that day. If no bid or asked prices are
quoted on such day, the security is valued at the most recently available price
or, if the Board of Directors so determines, by such other method as the Board
of Directors shall determine in good faith, to reflect its fair market value.
Portfolio securities traded on more than one national securities exchange or
market are valued according to the broadest and most representative market, as
determined by Gabelli Funds, LLC (the "Adviser"). Portfolio securities primarily
traded in foreign markets are generally valued at the preceding closing values
of such securities on their respective exchanges or markets. Securities and
assets for which market quotations are not readily available are valued at their
fair value as determined in good faith under procedures established by and under
the general supervision of the Board of Directors. Short term debt securities
with remaining maturities of 60 days or less are valued at amortized cost,
unless the Board of Directors determines such does not reflect the securities
fair value, in which case these securities will be valued at their fair value as
determined by the Board of Directors. Debt instruments having a maturity greater
than 60 days for which market quotations are readily available are valued at the
latest average of the bid and asked prices. If there were no asked prices quoted
on such day, the security is valued using the closing bid price on that day.
Options are valued at the last sale price on the exchange on which they are
listed. If no sales of such options have taken place that day, they will be
valued at the mean between their closing bid and asked prices.
REPURCHASE AGREEMENTS. The Equity Trust may enter into repurchase
agreements with primary government securities dealers recognized by the Federal
Reserve Bank of New York, with member banks of the Federal Reserve System or
with other brokers or dealers that meet credit guidelines established by the
Adviser and reviewed by the Board of Directors. Under the terms of a typical
repurchase agreement, the Equity Trust takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and the Equity
Trust to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Equity Trust's holding period. The Equity Trust
will always receive and maintain securities as collateral whose market value,
including accrued interest, will be at least equal to 100% of the dollar amount
invested by the Equity Trust in each agreement. The Equity Trust will make
payment for such securities only upon physical delivery or upon evidence of book
entry transfer of the collateral to the account of the custodian. To the extent
that any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to maintain the adequacy
30
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
of the collateral. If the seller defaults and the value of the collateral
declines or if bankruptcy proceedings are commenced with respect to the seller
of the security, realization of the collateral by the Equity Trust may be
delayed or limited.
SWAP AGREEMENTS. The Equity Trust may enter into interest rate swap or cap
transactions. The use of interest rate swaps and caps is a highly specialized
activity that involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. In an interest rate
swap, the Equity Trust would agree to pay to the other party to the interest
rate swap (which is known as the "counterparty") periodically a fixed rate
payment in exchange for the counterparty agreeing to pay to the Equity Trust
periodically a variable rate payment that is intended to approximate the Equity
Trust's variable rate payment obligation on the Series C Preferred. In an
interest rate cap, the Equity Trust would pay a premium to the interest rate cap
to the counterparty and, to the extent that a specified variable rate index
exceeds a predetermined fixed rate, would receive from the counterparty payments
of the difference based on the notional amount of such cap. Interest rate swap
and cap transactions introduce additional risk because the Equity Trust would
remain obligated to pay preferred stock dividends when due in accordance with
the Articles Supplementary even if the counterparty defaulted. Depending on the
general state of short-term interest rates and the returns on the Equity Trust's
portfolio securities at that point in time, such a default could negatively
affect the Equity Trust's ability to make dividend payments for the Series C
Preferred. In addition, at the time an interest rate swap or cap transaction
reaches its scheduled termination date, there is a risk that the Equity Trust
will not be able to obtain a replacement transaction or that the terms of the
replacement will not be as favorable as on the expiring transaction. If this
occurs, it could have a negative impact on the Equity Trust's ability to make
dividend payments on the Series C Preferred.
FUTURES CONTRACTS. The Equity Trust may engage in futures contracts for
the purpose of hedging against changes in the value of its portfolio securities
and in the value of securities it intends to purchase. Such investments will
only be made if they are economically appropriate to the reduction of risks
involved in the management of the Equity Trust's investments. Upon entering into
a futures contract, the Equity Trust is required to deposit with the broker an
amount of cash or cash equivalents equal to a certain percentage of the contract
amount. This is known as the "initial margin." Subsequent payments ("variation
margin") are made or received by the Equity Trust each day, depending on the
daily fluctuation of the value of the contract. The daily changes in the
contract are included in unrealized appreciation/depreciation on investments and
futures contracts. The Equity Trust recognizes a realized gain or loss when the
contract is closed. There were no open futures contracts at June 30, 2002.
There are several risks in connection with the use of futures contracts as
a hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk the
Equity Trust may not be able to enter into a closing transaction because of an
illiquid secondary market.
FORWARD FOREIGN EXCHANGE CONTRACTS. The Equity Trust may engage in forward
foreign exchange contracts for hedging a specific transaction with respect to
either the currency in which the transaction is denominated or another currency
as deemed appropriate by the Adviser. Forward foreign exchange contracts are
valued at the forward rate and are marked-to-market daily. The change in market
value is included in unrealized appreciation/depreciation on investments and
foreign currency transactions. When the contract is closed, the Equity Trust
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
31
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
The use of forward foreign exchange contracts does not eliminate
fluctuations in the underlying prices of the Equity Trust's portfolio
securities, but it does establish a rate of exchange that can be achieved in the
future. Although forward foreign exchange contracts limit the risk of loss due
to a decline in the value of the hedged currency, they also limit any potential
gain/(loss) that might result should the value of the currency increase. In
addition, the Equity Trust could be exposed to risks if the counterparties to
the contracts are unable to meet the terms of their contracts.
FOREIGN CURRENCY TRANSLATION. The books and records of the Equity Trust
are maintained in United States (U.S.) dollars. Foreign currencies, investments
and other assets and liabilities are translated into U.S. dollars at the
exchange rates prevailing at the end of the period, and purchases and sales of
investment securities, income and expenses are translated at the exchange rate
prevailing on the respective dates of such transactions. Unrealized gains and
losses, which result from changes in foreign exchange rates and/or changes in
market prices of securities, have been included in unrealized
appreciation/depreciation on investments and foreign currency transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency
transactions and the difference between the amounts of interest and dividends
recorded on the books of the Equity Trust and the amounts actually received. The
portion of foreign currency gains and losses related to fluctuation in exchange
rates between the initial trade date and subsequent sale trade date is included
in realized gain/(loss) on investments.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for as of the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders
are recorded on the ex-dividend date. Distributions to shareholders of the
Equity Trust's 7.25% Tax Advantaged Series A Cumulative Preferred Stock, 7.20%
Tax Advantaged Series B Cumulative Preferred Stock and Series C Auction Rate
Cumulative Preferred Stock ("Cumulative Preferred Stock") are accrued on a daily
basis and are determined as described in Note 5.
Income distributions and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from accounting
principles generally accepted in the United States. These differences are
primarily due to differing treatments of income and gains on various investment
securities held by the Equity Trust, timing differences and differing
characterization of distributions made by the Equity Trust.
PROVISION FOR INCOME TAXES. The Equity Trust intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.
Dividends and interest from non-U.S. sources received by the Equity Trust
are generally subject to non-U.S. withholding taxes at rates ranging up to 30%.
Such withholding taxes may be reduced or eliminated under the terms of
applicable U.S. income tax treaties, and the Equity Trust intends to undertake
any procedural steps required to claim the benefits of such treaties. If the
value of more than 50% of the Equity Trust's total net assets at the close of
any taxable year consists of stocks or securities of non-U.S. corporations, the
Equity Trust is permitted and may elect to treat any non-U.S. taxes paid by it
as paid by its shareholders.
32
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES. The Equity Trust has entered
into an investment advisory agreement (the "Advisory Agreement") with the
Adviser which provides that the Equity Trust will pay the Adviser a fee,
computed weekly and paid monthly, equal on an annual basis to 1.00% of the value
of the Equity Trust's average weekly net assets. In accordance with the Advisory
Agreement, the Adviser provides a continuous investment program for the Equity
Trust's portfolio and oversees the administration of all aspects of the Equity
Trust's business and affairs. The Adviser has agreed to reduce the management
fee on the incremental assets attributable to the Cumulative Preferred Stock if
the total return of the net asset value of the common shares of the Equity
Trust, including distributions and advisory fee subject to reduction, does not
exceed the stated dividend rate or corresponding swap rate of the Cumulative
Preferred Stock. For the six months ended June 30, 2002, the Equity Trust's
total return on the net asset value of the common shares did not exceed the
stated dividend rate of the Cumulative Preferred Stock. Thus, such management
fees were not earned on the incremental assets.
During the six months ended June 30, 2002, Gabelli & Company, Inc. and its
affiliates received $226,776 in brokerage commissions as a result of executing
agency transactions in portfolio securities on behalf of the Equity Trust.
4. PORTFOLIO SECURITIES. Cost of purchases and proceeds from sales of
securities, other than short-term securities, for the six months ended June 30,
2002 aggregated $139,275,810 and $93,129,622, respectively.
5. CAPITAL. The Articles of Incorporation, dated May 19, 1986, permit the Equity
Trust to issue 184,000,000 shares of common stock (par value $0.001). The Board
of Directors of the Equity Trust has authorized the repurchase of its shares on
the open market when the shares are trading at a discount of 10% or more (or
such other percentage as the Board of Directors may determine from time to time)
from the net asset value of the shares. During the six months ended June 30,
2002, the Equity Trust did not repurchase any shares of its common stock in the
open market.
On January 10, 2001, the Equity Trust distributed one transferable right
for each of the 108,688,408 common shares outstanding to shareholders of record
on that date. Six rights were required to purchase one additional common share
at the subscription price of $7.00 per share. The subscription period expired on
February 13, 2001. The rights offering was fully subscribed resulting in the
issuance of 18,114,735 common shares and proceeds of $126,803,145 to the Equity
Trust, prior to the deduction of estimated expenses of $500,000. The net asset
value per share of the Equity Trust common shareholders was reduced by
approximately $0.62 per share as a result of the issuance.
Transactions in common stock were as follows:
SIX MONTHS ENDED
JUNE 30, 2002 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2001
----------------------- ----------------------
Shares Amount Shares Amount
--------- ----------- ---------- -----------
Shares issued in rights offering ... -- $ -- 18,114,735 $126,303,145
Shares issued upon reinvestment
of dividends and distributions ... 1,704,105 16,995,721 3,264,654 33,500,214
--------- ----------- ---------- ------------
Net increase ....................... 1,704,105 $16,995,721 21,379,389 $159,803,359
========= =========== ========== ============
33
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
The holders of Cumulative Preferred Stock have voting rights equivalent to
those of the holders of common stock (one vote per share) and will vote together
with holders of shares of common stock as a single class. In addition, the 1940
Act requires that along with approval of a majority of the holders of common
stock, approval of a majority of the holders of any outstanding shares of
Cumulative Preferred Stock, voting separately as a class, would be required to
(a) adopt any plan of reorganization that would adversely affect the Cumulative
Preferred Stock, and (b) take any action requiring a vote of security holders,
including, among other things, changes in the Trust's subclassification as a
closed-end investment company or changes in its fundamental investment
restrictions. The Equity Trust's Articles of Incorporation, as amended,
authorize the issuance of up to 16,000,000 shares of $0.001 par value Cumulative
Preferred Stock. The Cumulative Preferred Stock is senior to the common stock
and results in the financial leveraging of the common stock. Such leveraging
tends to magnify both the risks and opportunities to common shareholders.
Dividends on shares of the Cumulative Preferred Stock are cumulative. The Equity
Trust is required to meet certain asset coverage tests as required by the 1940
Act and by the Shares' Articles Supplementary with respect to the Cumulative
Preferred Stock. If the Equity Trust fails to meet these requirements and does
not correct such failure, the Equity Trust may be required to redeem, in part or
in full, the 7.25% Series A, 7.20% Series B and Series C Auction Rate Cumulative
Preferred Stock at a redemption price of $25, $25 and $25,000, respectively, per
share plus an amount equal to the accumulated and unpaid dividends whether or
not declared on such shares in order to meet these requirements. Additionally,
failure to meet the foregoing asset requirements could restrict the Equity
Trust's ability to pay dividends to common shareholders and could lead to sales
of portfolio securities at inopportune times. The income received on the Equity
Trust's assets may vary in a manner unrelated to the fixed and variable rates,
which could have either a beneficial or detrimental impact on net investment
income and gains available to common shareholders.
Under Emerging Issues Task Force (EITF) promulgating Topic D-98,
CLASSIFICATION AND MEASUREMENT OF REDEEMABLE SECURITIES, which was issued on
July 19, 2001, preferred securities that are redeemable for cash or other assets
are to be classified outside of permanent equity to the extent that the
redemption is at a fixed or determinable price and at the option of the holder
or upon the occurrence of an event that is not solely within the control of the
issuer. Subject to the guidance of the EITF, the Equity Trust's Cumulative
Preferred Stock, which was previously classified as a component of net assets,
has been reclassified outside of permanent equity (net assets attributable to
common stock shareholders) in the accompanying financial statements. Prior year
amounts have also been reclassified to conform with this presentation. The
impact of this reclassification creates no change to the net assets available to
common shareholders.
Commencing June 9, 2003 and thereafter, the Equity Trust, at its option,
may redeem the 7.25% Series A Cumulative Preferred Stock in whole or in part at
the redemption price. During the six months ended June 30, 2002, the Equity
Trust did not repurchase any shares of 7.25% Series A Cumulative Preferred
Stock. During the year ended December 31, 2001, the Equity Trust repurchased
1,000 shares of 7.25% Series A Cumulative Preferred Stock at a cost of $24,870
and at an average price of $24.87 per share. At June 30, 2002, 5,367,900 shares
of the 7.25% Series A Cumulative Preferred Stock were outstanding at the fixed
dividend rate of 7.25 percent per share and accrued dividends amounted to
$81,077.
34
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
On June 20, 2001, the Equity Trust received net proceeds of $159,329,175
(after underwriting discounts of $5,197,500 and estimated offering expenses of
$473,325) from the public offering of 6,600,000 shares of 7.20% Series B
Cumulative Preferred Stock. Commencing June 20, 2006 and thereafter, the Equity
Trust, at its option, may redeem the 7.20% Series B Cumulative Preferred Stock
in whole or in part at the redemption price. During the six months ended June
30, 2002 and the year ended December 31, 2001, the Equity Trust did not
repurchase any shares of 7.20% Series B Cumulative Preferred Stock. At June 30,
2002, 6,600,000 shares of the 7.20% Series B Cumulative Preferred Stock were
outstanding at the fixed rate of 7.20 percent per share and accrued dividends
amounted to $99,000.
On June 27, 2002, the Equity Trust received net proceeds of $128,200,000
(after underwriting discounts of $1,300,000 and estimated offering expenses of
$500,000) from the public offering of 5,200 shares of Series C Auction Rate
Cumulative Preferred Stock. The dividend rate, as set by the auction process,
which is generally held every 7 days, is expected to vary with short-term
interest rates. Existing shareholders may submit an order to hold, bid or sell
such shares on each auction date. Series C Auction Rate Cumulative Preferred
Stock shareholders may also trade shares in the secondary market. The Equity
Trust, at its option, may redeem the Series C Auction Rate Cumulative Preferred
Stock in whole or in part at the redemption price at any time. During the six
months ended June 30, 2002, the Equity Trust did not repurchase any shares of
Series C Auction Rate Cumulative Preferred Stock. At June 30, 2002, 5,200 shares
of the Series C Auction Rate Cumulative Preferred Stock were outstanding at the
annual rate of 1.85 percent per share and accrued dividends amounted to $13,361.
6. SUBSEQUENT EVENT. Effective August 1, 2002, the Equity Trust modified its
non-fundamental investment policy to increase, from 65% to 80%, the portion of
its assets that it will invest, under normal market conditions in equity
securities (the "80% Policy").
The 80% Policy may be changed without shareholder approval. However, the
Equity Trust has adopted a policy to provide shareholders with at least 60 days'
notice of the implementation of any change in the 80% Policy.
35
THE GABELLI EQUITY TRUST INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR AN EQUITY TRUST COMMON SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
SHARE OUTSTANDING THROUGHOUT EACH PERIOD: JUNE 30, 2002(A) -----------------------------------------------------------------
OPERATING PERFORMANCE: (UNAUDITED) 2001(A) 2000(A) 1999(A) 1998(A) 1997(A)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ......... $ 8.97 $ 10.89 $ 12.75 $ 11.47 $ 11.56 $ 9.77
---------- ---------- ---------- ---------- ---------- ----------
Net investment income ........................ 0.04 0.08 0.05 0.04 0.07 0.08
Net realized and unrealized gain
(loss) on investments ...................... (0.78) (0.16) (0.51) 3.25 1.09 2.75
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations ............. (0.74) (0.08) (0.46) 3.29 1.16 2.83
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ........................ (0.02) (0.01) (0.00)(c) (0.00)(c) (0.00)(c) --
Net realized gain on investments ............. (0.06) (0.11) (0.09) (0.09) (0.05) --
---------- ---------- ---------- ---------- ---------- ----------
Total distributions to preferred
stock shareholders ..................... (0.08) (0.12) (0.09) (0.09) (0.05) --
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS
RESULTING FROM OPERATIONS ..................... (0.82) (0.20) (0.55) 3.20 1.11 2.83
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income ........................ (0.02) (0.06) (0.04) (0.03)(b) (0.06) (0.08)
Net realized gain on investments ............. (0.04) (1.02) (1.27) (1.21)(b) (1.10) (0.93)
Paid-in capital .............................. (0.48) -- -- (0.68)(b) -- (0.03)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions to common
stock shareholders ........................ (0.54) (1.08) (1.31) (1.92) (1.16) (1.04)
---------- ---------- ---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net asset
value from common stock share
transactions and rights offering ........... (0.01) 0.03 -- -- -- --
Underwriting discount for preferred shares
charged to paid-in capital ................. (0.01) (0.62) -- -- -- --
Offering costs for preferred shares
charged to paid-in capital ................. -- (0.05) -- -- (0.04) --
---------- ---------- ---------- ---------- ---------- ----------
Total capital share transactions ............. (0.02) (0.64) -- -- (0.04) --
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE ATTRIBUTABLE
TO COMMON STOCK
SHAREHOLDERS, END OF PERIOD ................ $ 7.59 $ 8.97 $ 10.89 $ 12.75 $ 11.47 $ 11.56
========== ========== ========== ========== ========== ==========
Net asset value total return + ............... (9.70)% (3.68)% (4.39)% 29.49% 9.55% 30.46%
========== ========== ========== ========== ========== ==========
Market value, end of period .................. $ 10.03 $ 10.79 $ 11.44 $ 12.56 $ 11.56 $ 11.69
========== ========== ========== ========== ========== ==========
Total investment return ++ ................... (1.33)% 10.32% 1.91% 26.57% 9.23% 37.46%
========== ========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net assets including
liquidation value of
preferred shares, end of
period (in 000's) .......................... $1,429,357 $1,465,369 $1,318,263 $1,503,641 $1,352,190 $1,210,570
Net assets attributable to
common shares,
end of period (in 000's) ................... $1,000,160 $1,166,171 $1,184,041 $1,368,981 $1,217,190 $1,210,570
Ratio of net investment income
to average net assets
attributable to common shares .............. 0.82%(g) 0.81% 0.42% 0.34% 0.60% 0.76%
Ratio of operating expenses to
average net assets
attributable to common shares (e) .......... 1.11%(g) 1.12% 1.14% 1.27% 1.15% 1.14%
Ratio of operating expenses to
average total net assets
including liquidation value
of preferred shares (e) .................... 0.88%(g) 0.95% 1.03% 1.15% 1.09% 1.14%
Portfolio turnover rate ...................... 7.3% 23.9% 32.1% 38.0% 39.8% 39.2%
--------------------------
+ Based on net asset value per share, adjusted for reinvestment of
distributions, including the effect of shares issued pursuant to rights
offering, assuming full subscription by shareholders. Total return for the
period of less than one year is not annualized.
++ Based on market value per share, adjusted for reinvestment of distributions,
including the effect of shares issued pursuant to rights offering, assuming
full subscription by shareholders. Total return for the period of less than
one year is not annualized.
(a) Per share amounts have been calculated using the monthly average shares
outstanding method.
(b) A distribution equivalent to $0.75 per share for The Gabelli Utility Trust
spin-off from net investment income, realized short-term gains, realized
long-term gains, and paid-in-capital were $0.01029, $0.07453, $0.34218 and
$0.32300, respectively.
(c) Amount represents less than $0.005 per share.
(d) Based on weekly prices.
(e) The ratios do not include a reduction of expenses for custodian fee credits
on cash balances maintained with the custodian. Including such custodian fee
credits for the period ended June 30, 2002 and the years ended December 31,
2001 and 2000, the expense ratios of operating expenses to average net
assets attributable to common stock would be 1.11%, 1.11% and 1.14%,
respectively, and the expense ratios of operating expenses to average total
net assets including liquidation value of preferred shares would be 0.88%,
0.94% and 1.03%, respectively.
(f) Asset coverage is calculated by combining all series of preferred stock.
(g) Annualized.
See accompanying notes to financial statements.
36
THE GABELLI EQUITY TRUST INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2002(A) -----------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA: (UNAUDITED) 2001(A) 2000(A) 1999(A) 1998(A) 1997(A)
---------- -------- -------- --------- -------- -------
PREFERRED STOCK:
7.25% CUMULATIVE PREFERRED STOCK
Liquidation value,
end of period (in 000's) ............... $ 134,198 $ 134,198 $ 134,223 $ 134,660 $ 135,000 --
Total shares outstanding (in 000's) ...... 5,368 5,368 5,369 5,386 5,400 --
Liquidation preference per share ......... $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 --
Average market value (d) ................. $ 25.86 $ 25.39 $ 22.62 $ 24.43 $ 25.63 --
7.20% CUMULATIVE PREFERRED STOCK
Liquidation value,
end of period (in 000's) ............... $ 165,000 $ 165,000 -- -- -- --
Total shares outstanding (in 000's) ...... 6,600 6,600 -- -- -- --
Liquidation preference per share ......... $ 25.00 $ 25.00 -- -- -- --
Average market value (d) ................. $ 26.20 $ 25.60 -- -- -- --
AUCTION RATE CUMULATIVE PREFERRED STOCK
Liquidation value, end of
period (in 000's) ...................... $ 130,000 -- -- -- -- --
Total shares outstanding (in 000's) ...... 5 -- -- -- -- --
Liquidation preference per share ......... $ 25,000 -- -- -- -- --
Average market value (d) ................. $ 25,000 -- -- -- -- --
ASSET COVERAGE (f) .......................... 333% 490% 982% 1,117% 1,001% --
ASSET COVERAGE PER SHARE (f) ................ $ 119.38 $ 122.44 $ 245.54 $ 279.16 $ 250.41 --
--------------------------
+ Based on net asset value per share, adjusted for reinvestment of
distributions, including the effect of shares issued pursuant to rights
offering, assuming full subscription by shareholder. Total return for the
period of less than one year is not annualized.
++ Based on market value per share, adjusted for reinvestment of distributions,
including the effect of shares issued pursuant to rights offering, assuming
full subscription by shareholder. Total return for the period of less than
one year is not annualized.
(a) Per share amounts have been calculated using the monthly average shares
outstanding method.
(b) A distribution equivalent to $0.75 per share for The Gabelli Utility Trust
spin-off from net investment income, realized short-term gains, realized
long-term gains, and paid-in-capital were $0.01029, $0.07453, $0.34218 and
$0.32300, respectively.
(c) Amount represents less than $0.005 per share.
(d) Based on weekly prices.
(e) The ratios do not include a reduction of expenses for custodian fee credits
on cash balances maintained with the custodian. Including such custodian fee
credits for the period ended June 30, 2002 and the years ended December 31,
2001 and 2000, the expense ratios of operating expenses to average net
assets attributable to common stock would be 1.11%, 1.11% and 1.14%,
respectively, and the expense ratios of operating expenses to average total
net assets including liquidation value of preferred shares would be 0.88%,
0.94% and 1.03%, respectively.
(f) Asset coverage is calculated by combining all series of preferred stock.
(g) Annualized.
See accompanying notes to financial statements.
37
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 EquiServe Trust Company ("EquiServe") 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 EquiServe
P.O. Box 43011
Providence, RI 02940-3011
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 EquiServe at 1 (800)
336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at EquiServe 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
38
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, EquiServe will
buy Common Stock in the open market, or on the New York Stock Exchange or
elsewhere, for the participants' accounts, except that EquiServe 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 EquiServe on at least 90 days' written
notice to participants in the Plan.
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 EquiServe for investments in the Equity Trust's
shares at the then current market price. Shareholders may send an amount from
$250 to $10,000. EquiServe will use these funds to purchase shares in the open
market on or about the 1st and 15th of each month. EquiServe 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 EquiServe, P.O. Box 43011, Providence,
RI02940-3011 such that EquiServe receives such payments approximately 10 days
before the investment date. 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 EquiServe 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.
39
DIRECTORS AND OFFICERS
THE GABELLI EQUITY TRUST INC.
ONE CORPORATE CENTER, RYE, NY 10580-1422
DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN & CHIEF INVESTMENT OFFICER,
GABELLI ASSET MANAGEMENT INC.
Dr. Thomas E. Bratter
PRESIDENT, JOHN DEWEY ACADEMY
Anthony J. Colavita
ATTORNEY-AT-LAW,
ANTHONY J. COLAVITA, P.C.
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
Arthur V. Ferrara
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
GUARDIAN LIFE INSURANCE COMPANY OF AMERICA
Karl Otto Pohl
FORMER PRESIDENT, DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT,
PROFESSOR EMERITUS, PACE UNIVERSITY
Salvatore J. Zizza
CHAIRMAN, HALLMARK ELECTRICAL SUPPLIES CORP.
OFFICERS
Mario J. Gabelli, CFA
PRESIDENT & CHIEF INVESTMENT OFFICER
Bruce N. Alpert
VICE PRESIDENT & TREASURER
Carter W. Austin
VICE PRESIDENT
James E. McKee
SECRETARY
INVESTMENT ADVISER
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
CUSTODIAN
Boston Safe Deposit and Trust Company
COUNSEL
Willkie Farr & Gallagher
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company
STOCK EXCHANGE LISTING
7.25% 7.20%
COMMON PREFERRED PREFERRED
------ --------- ---------
NYSE-
Symbol: GAB GAB Pr GAB PrB
Shares
Outstanding: 131,771,904 5,367,900 6,600,000
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 common 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. The Equity Trust may also, from time to time, purchase shares of
its Cumulative Preferred Stock in the open market when the shares are trading
at a discount to the Liquidation Value of $25.00.
--------------------------------------------------------------------------------
THE GABELLI EQUITY TRUST INC.
ONE CORPORATE CENTER
RYE, NY 10580-1422
(914) 921-5070
HTTP://WWW.GABELLI.COM
SEMI-ANNUAL REPORT
JUNE 30, 2002
GBFCM 06/02