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AMERICAN FLAG
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THE GABELLI
EQUITY TRUST INC.
THIRD QUARTER REPORT
SEPTEMBER 30, 2002
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THE GABELLI
EQUITY TRUST INC.
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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ALABAMA ALASKA ARIZONA ARKANSAS CALIFORNIA COLORADO CONNECTICUT DELAWARE FLORIDA GEORGIA
HAWAII IDAHO ILLINOIS INDIANA IOWA KANSAS KENTUCKY LOUISIANA MAINE MARYLAND
MASSACHUSETTS MICHIGAN MINNESOTA MISSISSIPPI MISSOURI MONTANA NEBRASKA NEVADA NEW HAMPSHIRE NEW JERSEY
NEW MEXICO NEW YORK N. CAROLINA N. DAKOTA OHIO OKLAHOMA OREGON PENNSYLVANIA RHODE ISLAND S. CAROLINA
S. DAKOTA TENNESSEE TEXAS UTAH VERMONT VIRGINIA WASHINGTON WEST VIRGINIA WISCONSIN WYOMING
INVESTMENT OBJECTIVE:
The Gabelli Equity Trust Inc. is a closed-end,
non-diversified management investment company whose primary
objective is long-term growth of capital, with income as a
secondary objective.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
TO OUR SHAREHOLDERS,
In the third quarter of 2002, ongoing economic uncertainty in part
reflecting oil prices over $30 per barrel, a crisis in confidence in the
integrity of corporate America and the increasing probability of military action
against Iraq weighed heavily on the stock market. Near panic selling in July
pushed market indices to multi-year lows. A brief rally in August gave way to
another wave of selling in September, and at the close of the quarter, the
leading market indices were re-testing July lows. Although the Gabelli Equity
Trust (the "Trust") declined a disappointing 20.15%, positive returns from
selected consumer goods, industrial, cable television and media stocks, which
were hurt in the second quarter, buoyed performance. Notwithstanding that, we
believe we can continue to provide returns over the long term outpacing those
achieved in unmanaged baskets of securities by doing what we do best -- picking
stocks.
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MARIO GABELLI
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THE GABELLI
EQUITY TRUST INC.
TABLE I
COMPARATIVE RESULTS
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AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2002 (A)
-----------------------------------------------------
YEAR TO SINCE
QUARTER DATE INCEPTION (B) 10 YEAR 5 YEAR 3 YEAR 1 YEAR
------- ---- ------------- ------- ------ ------ ------
Gabelli Equity Trust:
NAV Return (c) ....................... (20.15)% (27.89)% 9.59% 7.75% (0.28)% (7.34)% (19.00)%
Investment Return (d) ................ (26.56)% (27.53)% 10.45% 9.97% 4.41% (2.19)% (19.04)%
S&P 500 Index .......................... (17.27)% (28.15)% 10.31% 8.99% (1.62)% (12.88)% (20.47)%
Dow Jones Industrial Average ........... (17.40)% (23.11)% 12.00% 11.13% 0.83% (8.19)% (12.49)%
Nasdaq Composite Index ................. (19.90)% (39.91)% 7.22% 7.23% (7.01)% (24.71)% (21.80)%
(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.
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COMMON STOCK 10% DISTRIBUTION POLICY
The Trust continues to maintain its 10% Distribution Policy whereby the
Trust pays out to common stock shareholders 10% of its average net assets each
year. Pursuant to this policy, the Trust distributed $0.27 per share on
September 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 currently
distributes $0.27 per share to common stock shareholders at quarter-end 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 $0.81 per share ($0.27 x 3) paid in
March, June, and September) or the distribution required by IRS regulations.
As of September 30, 2002, there would be no requirement for a fourth
quarter distribution to common stock shareholders. 10% of the Trust's average
net assets using calendar quarter-end net assets of the Trust's common stock for
the past four quarters equates to $0.78 per share. The distribution of $0.27 per
share paid in September brought the total distribution for 2002 to $0.81 per
share, thus satisfying the Trust's 10% Distribution Policy for 2002. The Board
of Directors will determine the amount of any potential distribution of income,
capital gains or capital (non-taxable return of principal) to be made at the end
of the fourth quarter at a meeting in late November. 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.
On November 20, 2002, the Board of Directors declared a $0.14 per share
cash distribution payable on December 24, 2002 to common stock shareholders of
record on December 16, 2002. Additionally, the Board of Directors declared a
$0.27 per share cash distribution payable on March 25, 2003 to common stock
shareholders of record on March 17, 2003, pursuant to the Trust's 10%
Distribution Policy. The Board of Directors will continue to monitor the Trust's
10% Distribution Policy in light of the net asset value and the current low
interest rate environment.
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 519
publicly-traded closed-end funds in the U.S., approximately 27% currently trade
at premiums to NAV versus 26% five years ago and 58% ten years ago. For general
equity funds such as the Trust, approximately 13% currently trade at premiums to
NAV versus 22% five years ago and 29% 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
16-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 0.2% 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 10% 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.
2
September 30, 2002
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Net Asset Value $ 5.79
Market Price $7.06
Premium 21.93%
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EDGAR REPRESENTATION OF PLOT POINTS:
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
3/30/02 0.2311
4/30/02 0.248
5/30/02 0.2955
6/30/02 0.3215
7/31/02 0.3318
8/31/02 0.3392
9/30/02 0.2193
COMMENTARY
THE ECONOMY: A RECOVERY
Economic growth was quite good in the third quarter. Federal Reserve Board
("Fed") Chairman Alan Greenspan is confident the economy is still on a moderate
growth path. Investors aren't so sure. On balance, economic data has been mixed.
Consumer spending has remained buoyant. Housing starts, existing home sales and
auto sales are still quite healthy. Retail sales have held up well, despite the
drag from rising unemployment and the toxic impact of the wealth effect.
Why is the economy treading water? The business sector is acting like a
deer caught in headlights. A dearth of capital spending continues to drag on the
economy and uncertainty regarding Iraq is also probably having an impact. Oil
hovering over $30 a barrel is taking its toll on all. We saw impressive Gross
Domestic Product ("GDP") growth in the first half as companies began rebuilding
inventories depleted during the recession and in the aftermath of 9/11. Then the
re-stocking of shelves was put on hold as corporate managers devoted much of
their time, energy and resources making sure their companies' books were in good
order and/or shoring up balance sheets. As these tasks are completed, we should
see the inventory rebuilding cycle resume and the economy make more meaningful
progress, though the West Coast dock lock-out will mute results. As corporate
managers gain confidence that the recovery is for real, we should also see a
modest up-tick in capital spending take some of the economic burden off the
American consumer's broad shoulders. However, in order for the world economies
to gain traction oil would need to be plentiful and priced below $25 per barrel.
3
Higher energy prices are essentially a tax on virtually every business and
consumer. At around $30 per barrel, oil appears to be discounting a serious
disruption in supply resulting from a potential war in Iraq, and, closer to
home, a threatened strike by Mexican oil workers. It is impossible to predict
what will happen in the coming months. However, should the supply lines remain
open, we believe oil prices will come down from current levels and no longer
pose a serious threat to a global economic recovery. Longer term, the U.S. must
consume less and find alternative ways to power our ubiquitous automobile.
The corporate earnings picture remains cloudy. In our second quarter 2002
letter to shareholders, we opined that given steady economic progress, increased
productivity, cost cutting, financial re-engineering, a decline in the
"everything including the kitchen sink" write-offs taken in 2001 and a weakening
dollar, the result would be a favorable impact on 2002 earnings. We went on to
say that although stocks did not yet look cheap, rising earnings would make
valuations appear more reasonable. Second half 2002 earnings growth will likely
provide help to battered stocks. It appears that the earnings recovery is good
but not as vigorous as assumed. Equity valuations, however, have come down. Once
the economy gains traction, we believe the aforementioned factors will
contribute to more substantial earnings growth in 2003 and provide a foundation
for equity returns over the balance of this decade.
THE STOCK MARKET: WHERE IS THE BOTTOM?
When and where will the stock market bottom out? We wish we knew. At this
juncture, stock prices appear to be discounting most if not all of the bad news.
In July and again in September, we witnessed the kind of near panic selling that
usually foreshadows market bottoms. We believe the old adage that "bull markets
climb a wall of worry," and it is apparent that investors have plenty to worry
about. We also echo our observation that the two ingredients for a stock market
recovery -- low interest rates and a better earnings environment -- are in
place.
SOME PERSPECTIVE
We have experienced one of the deepest and most prolonged bear markets in
history. At the end of the quarter, the S&P 500 Index was off 47% and the
technology-heavy Nasdaq Composite Index was down 77% from their respective
highs. The S&P 500 Index appears headed for the third straight year of negative
returns, the first time this has happened since 1939-41. The causes of this bear
market are obvious. Grossly inflated equity valuations ran head on into a
rapidly decelerating economy. The tragic events of 9/11 and massive frauds at
Enron, Adelphia and WorldCom (among others) further damaged investor psychology.
The excessive exuberance Fed Chairman Greenspan warned about in 1996 has given
way to despair. Investors who couldn't pay too much for Internet start-ups in
the fourth quarter of 1999 and early 2000 are now shunning well established,
financially strong companies with dominant positions in their industries. Market
cheerleaders forecasting a doubling of the Dow Jones Industrial Average by 2005
have been replaced by doomsayers predicting an extended period of flat to
negative equity returns.
We have experienced such periods, most recently from 1966 through 1981,
during which the annualized return for the Dow Jones Industrial Average was
negative (minus 0.6%). Indeed, in the late 1970s, BUSINESSWEEK heralded "the
death of equities" in one of its weekly issues. But, that time period was
characterized by high inflation, economic contraction and rising prices,
creating a new economic term, stagflation. Inflation, as represented by the
Consumer Price Index, averaged nearly 7% a year. At its peak, inflation reached
the mid-teens. Long-term interest rates made
4
it to the high-teens. In addition, that period also included the final years of
the disastrous Vietnam War, a tripling of oil prices imposed by the Organization
of Petroleum Exporting Countries ("OPEC") following the 1973 Arab/Israeli War,
the Watergate Scandal and President Richard Nixon's resignation. Despite today's
economic and political uncertainties, it is difficult to imagine this kind of
catastrophic market backdrop developing during the next decade. But, since our
economic underpinnings are fragile, the risk of an external event could cause a
total collapse in investor confidence. Should this occur, we would find even
more bargains.
What do we expect from equity markets over the next five years? Based on
an economic model with 3.5% Gross World Product ("GWP") growth (3% in the U.S.)
and 3% inflation, we expect after-tax corporate earnings to grow by
approximately 6% annually. In addition, now that investors recognize the
benefits of dividends, we could see dividends grow by as much as 2% annually.
Multiples are unlikely to expand. Under this scenario, ownership of U.S.
equities should return close to 8% annually -- hardly inspiring by Roaring 90s
standards and below the long-term average, but still a significantly better
return than can be expected from most other asset classes.
Of course, through diligent fundamental research focused on identifying
high quality companies trading at attractive valuations relative to the "real
world" economic value of assets and/or earnings growth prospects, we plan to do
better than the market.
PUTTING HUMPTY DUMPTY BACK TOGETHER
When past market bubbles burst, lots of debris washed ashore. This time,
the bubble was bigger and the debris was more hideous and more widespread.
Accountants, analysts and investment bankers (among others) lost their checks
and balances and did not act as safety nets and buffers.
We are in a camp that believes that securities analysts do a terrific job.
Beginning in May of 1975, a payment mechanism for research was removed with the
collapse of fixed price commissions. The conflicts in the late 1990s are
directly traceable to "May Day." Where next? When we joined Wall Street in 1967,
research that was performed on a brokerage firm's investment banking client was
identified as such. To get back there is an easy fix. Regulation Fair Disclosure
("FD") already put analysts back on the fundamental research track.
Accountants should not perform services beyond audit functions, except
where the fee is small relative to the audit engagement.
Perhaps we need to revisit the Glass-Steagall Act. The safeguards put in
place by that Act were there for a reason.
All in all, we believe that most corporate managers we see come to work
every day to grow the intrinsic value of their enterprise and work hard to have
the public stock track the underlying value of the business.
Our job remains the same -- to ferret out those companies that Mr. Market
puts on the bargain counter.
5
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WHAT IS RESEARCH?
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CONGRATULATIONS
TO THE
2002 ALL AMERICAN
INSTITUTIONAL INVESTOR
RESEARCH TEAM
THE FIRM WHERE RESEARCH IS KING.
GABELLI & COMPANY, INC., ONE CORPORATE CENTER, RYE, NY 10580
914-921-5130 o FAX 914-921-5098 o RESEARCH@GABELLI.COM
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Research (ri' surch)
Careful or Diligent Research
Studious inquiry or examination, esp: investigation or experimentation
aimed at the discovery or interpretation of facts, revisions of
accepted theories or laws in the light of new facts, or practical
application of such new or revised theories or laws.
INDEPENDENT RESEARCH FOR OVER 25 YEARS
GABELLI & COMPANY, INC., ONE CORPORATE CENTER, RYE, NY 10580
914-921-5130 o FAX 914-921-5098 o RESEARCH@GABELLI.COM
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SECURITY ANALYSIS
OBJECTIVES:
1) Seek to present the important facts regarding a publicly held
corporate stock or bond issue in a manner most informing and useful to
an actual or potential owner.
2) Seek to reach a dependable conclusion based upon the facts and
applicable standard as to the safety and attractiveness of a given
security at the current market price or at some assured price.
SECURITY ANALYSIS PRINCIPLES AND TECHNIQUE, GRAHAM, DODD, COTTLE.
INDEPENDENT RESEARCH FOR OVER 25 YEARS
GABELLI & COMPANY, INC., ONE CORPORATE CENTER, RYE, NY 10580
914-921-5130 o FAX 914-921-5098 o RESEARCH@GABELLI.COM
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SECURITY ANALYST
o Deals with the past, present and future
o Describes the business
o Sets forth strong and weak points
o Estimates future earnings power
o Makes elaborate comparisons
o Finally, expresses an opinion
INDEPENDENT RESEARCH FOR OVER 25 YEARS
GABELLI & COMPANY, INC., ONE CORPORATE CENTER, RYE, NY 10580
914-921-5130 o FAX 914-921-5098 o RESEARCH@GABELLI.COM
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GABELLI ASSET MANAGEMENT INC.
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6
INVESTMENT SCORECARD
We had a few winners in an awful market. Positions in the consumer
products sector such as J.M. Smucker, Givaudan and Gallaher Group posted
respectable gains. Publishing companies Meredith Corp., PRIMEDIA and McGraw-Hill
also buoyed performance. Telecommunications stocks, the worst performing
industry sector in recent years, rebounded with wireless operator Nextel
Communications and AT&T making our top-ten performance list.
There was no particular industry theme to our laggards list. Amusement
park operator Six Flags, telecom equipment manufacturers Lucent Technologies and
Corning, cable television provider UnitedGlobalCom and industrial manufacturer
Flowserve were among our biggest portfolio disappointments.
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.
AUTONATION INC. (AN - $11.52 - NYSE) is the largest automotive retailer in the
U.S., with over $20 billion in annual sales generated from 280 locations
covering nearly 400 franchises. In addition to retailing new and used vehicles,
the company sells vehicle finance and insurance products from third parties such
as GMAC, and provides parts and repair services covered by factory warranties.
The company aims to use its enormous size to spread overhead and interest costs
over many locations to generate margins in excess of industry averages.
BERKSHIRE HATHAWAY INC. (BRK'A - $73,900 - 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.
CENTURYTEL INC. (CTL - $22.43 - NYSE), based in Monroe, Louisiana, is the eighth
largest local telephone company in the U.S., with over 2.5 million access lines
in the South and Midwest including recently closed acquisitions of 676,000
access lines from Verizon for $2.16 billion. Through acquisitions, CTL has
created clusters of rural telephone and cellular companies within commuting
distance of metropolitan areas in states including Wisconsin, Michigan, Ohio,
Louisiana and Arkansas. In July 2001, the company received an unsolicited bid
from Alltel Corp. (AT - $40.13 - NYSE) to acquire CenturyTel for $43 per share
in cash and Alltel stock. CenturyTel management has rejected Alltel's initial
offer. CenturyTel recently completed a sale of its wireless operations to Alltel
Corp. for $1.6 billion in cash. The sale of the wireless business to Alltel and
acquisition of lines from Verizon has repositioned CenturyTel as a premiere
pure-play rural local exchange carrier with over 2.5 million access lines.
CH ENERGY GROUP INC. (CHG - $46.93 - NYSE) is the last small electric utility in
New York State, now that RGS Energy has been acquired by Energy East (EAS -
$19.81 - NYSE). CH Energy serves the territory directly north of New York City
that is mainly rural and suburban. There are several potential buyers for whom
CH Energy would be a good fit, including Consolidated Edison (ED - $40.22 -
NYSE), Energy East, KeySpan (KSE - $33.50 - NYSE),
7
National Grid (NGG - $35.60 - NYSE) or Public Service Enterprise Group (PEG -
$30.50 - NYSE). The buyer could create significant savings by rationalizing
outside plant operations and eliminating all of the corporate, finance,
regulatory and public company overhead, for the benefit of shareholders and
customers. Although it is tough to predict when a deal might happen, we would
point out that National Grid completed its takeover of Niagara Mohawk several
months ago and Grid has typically waited less than a year between takeovers in
the U.S. where it has already bought three utilities. Con Edison meanwhile,
having done a terrific job in the aftermath of September 11 and with a strong
balance sheet and premium stock price valuation, might be ready to make an offer
for CH Energy.
CRANE CO. (CR - $19.76 - NYSE) is a diversified industrial company that focuses
on proprietary engineered products in aerospace, fiberboard panels, vending
machines, pumps and valves, and industrial controls. CEO Eric Fast is focusing
on improving operations by leveraging the firm's intellectual capital by
creating a culture where different business groups share experience, improve
customer focus and improve operational performance. The company has a strong
balance sheet, with a 29% net debt to capital ratio, and generates about $100
million of free cash flow a year. Crane has $1 billion available to spend on
acquisitions of which half comes from free cash flow and the other half from
debt. Acquisitions will focus on strengthening the existing businesses and
enhancing earnings growth.
FLOWSERVE CORP. (FLS - $10.00 - NYSE) is a manufacturer of engineered pumps,
control valves and mechanical seals for the petroleum, chemical, power, water
and other general industries. After integrating the operations of
Ingersoll-Dresser Pump, Flowserve purchased the flow control business from
Invensys. Invensys Flow Control (IFC) is a manufacturer of valves and valves
automation products, with $500 million of revenues. The transaction gives
Flowserve a better balance of end markets, greater geographical reach, economies
of scale and plant consolidation opportunities. Already the second largest
global pump company, IFC makes Flowserve the second largest global valve
company. The critical mass should allow the company to gain market share as
customers are reducing their suppliers and moving to one stop shopping.
Consistent with the company's acquisition strategy, the transaction is expected
to be accretive in the first year of ownership.
IRISH LIFE & PERMANENT PLC (IPM.I - $11.36 - DUBLIN STOCK EXCHANGE) is the third
largest financial institution in Ireland. The company offers a broad array of
financial products to consumers in Ireland. Expansion into overseas markets has
been reversed, making Irish Life & Permanent a pure play on the exciting growth
prospects for the Irish economy.
KELLOGG CO. (K - $33.25 - NYSE), a producer of cereal and convenience foods,
completed its largest acquisition in company history in March 2001 with the
purchase of Keebler Foods Company. Keebler is the number two cookie and cracker
producer in the United States. Along with Keebler's top brands, Kellogg acquired
their direct store door (DSD) delivery system, which is now being utilized for
its own snack brands. This year Kellogg is focused on the integration of Keebler
and has placed a renewed emphasis on profitable sales growth and cash flow.
Kellogg's other food brands include Special K, Rice Krispies, Pop-Tarts,
Nutri-Grain, Eggo, Cheez-It, Carr's, Morningstar Farms, Famous Amos and Kashi.
SCRIPPS (E.W.) CO. (SSP - $69.30 - 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.
8
STARWOOD HOTELS & RESORTS WORLDWIDE INC. (HOT - $22.30 - NYSE) is one of the
world's largest hotel and leisure companies with 745 hotels, 225,208 rooms and
14 timeshare resorts in its system. The company's brands primarily compete in
the upper-upscale segment of the lodging industry and include St. Regis, The
Luxury Collection, Sheraton, Westin, W and Four Points by Sheraton.
7.25% TAX ADVANTAGED CUMULATIVE PREFERRED STOCK - DIVIDENDS
The Trust's 7.25% Tax Advantaged Cumulative Preferred Stock paid a cash
distribution on September 26, 2002 of $0.453125 per share. For the twelve months
ended September 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 December 2002. The Preferred Shares will be
callable at any time at the liquidation value of $25.00 per share plus accrued
dividends following the expiration of the five-year call protection on June 9,
2003.
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 September 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 December 2002.
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
On June 27, 2002, the Trust successfully completed its offering of 5,200
Shares of Series C Auction Rate Cumulative Preferred Stock at $25,000 per share.
The dividend rates for the Series C Preferred Shares ranged from 1.80% to 1.95%
during the third quarter. 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 do not trade on an exchange.
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:
NOVEMBER DECEMBER JANUARY
-------- -------- -------
1st Wednesday Charles Minter & Martin Weiner Charles Minter & Martin Weiner Ivan Arteaga
2nd Wednesday Caesar Bryan Walter Walsh & Laura Linehan Charles Minter & Martin Weiner
3rd Wednesday Walter Walsh & Laura Linehan Hart Woodson Walter Walsh & Laura Linehan
4th Wednesday Barbara Marcin Barbara Marcin
9
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.
IN CONCLUSION
The great irony is that investors' appetite for stocks is always strongest
near market tops and weakest near market bottoms. It is important to remember
that like bull markets, bear markets always end, usually when least expected. We
do not know when the market will bottom. However, we believe low interest rates
and increasingly attractive equity valuations point to more fertile days for
firms that have focused research efforts.
The goal of every portfolio manager and every analyst is to find well
managed, growing companies that are selling at a discount to their intrinsic
value, particularly where a catalyst is in place. We have long argued that in a
world of rapid change, Mr. Market will provide us with many opportunities to
load up our portfolios with these "stock picks." The events of the third quarter
will again prove a fertile ground for the type of analysis that Graham and Dodd
heralded in the 1930s.
Sincerely,
/S/ MARIO J. GABELLI
MARIO J. GABELLI, CFA
Portfolio Manager and Chief Investment Officer
November 1, 2002
--------------------------------------------------------------------------------
SELECTED HOLDINGS
SEPTEMBER 30, 2002
------------------
AutoNation Inc. Flowserve Corp.
Berkshire Hathaway Inc. Irish Life & Permanent plc
CenturyTel Inc. Kellogg Co.
CH Energy Group Inc. Scripps (E.W.) Co.
Crane Co. Starwood Hotels & Resorts Worldwide 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.
10
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
QUARTER ENDED SEPTEMBER 30, 2002
(UNAUDITED)
OWNERSHIP AT
SEPTEMBER 30,
SHARES 2002
--------- ------------
NET PURCHASES
COMMON STOCKS
ATX Communications Inc. (a) ............ 40,540 40,540
Aventis SA ............................. 3,000 15,000
BAE Systems plc ........................ 25,000 125,000
Boots Co. plc .......................... 15,000 75,000
BorgWarner Inc. ........................ 1,000 37,802
Cablevision Systems Corp., Cl. A (b) ... 1,016,443 1,551,443
Cadbury Schweppes plc, ADR ............. 4,200 15,000
Campbell Soup Co. ...................... 10,000 80,000
Carlsberg AS, Cl. B .................... 11,000 11,000
ConocoPhillips (c) ..................... 98,217 98,217
Denny's Corp. .......................... 62,463 62,463
Denny's Corp., warrants,
expires 01/07/05 .................... 10,108 10,108
Disney (Walt) Co. ...................... 40,000 260,000
DPL Inc. ............................... 5,000 20,000
Duke Energy Corp. ...................... 580,000 580,000
El Paso Corp. .......................... 40,000 120,000
EMI Group plc .......................... 110,000 110,000
Energy East Corp. ...................... 10,000 30,000
Exxon Mobile Corp. ..................... 40,000 40,000
Fast Retailing Co. Ltd. ................ 10,000 10,000
FleetBoston Financial Corp. ............ 50,000 50,000
Gas Natural SDG SA ..................... 5,000 30,000
Gemstar-TV Guide International Inc. .... 100,000 240,432
Gray Television Inc. ................... 25,000 25,000
Gray Television Inc., Cl. A ............ 28,000 28,000
Hershey Foods Corp. .................... 15,000 15,000
Honeywell International Inc. ........... 20,000 400,000
Ito-Yokado Co. Ltd. .................... 8,000 8,000
Mellon Financial Corp. ................. 15,000 100,000
Midland Co. (d) ........................ 99,700 199,400
Nestle SA .............................. 1,000 1,000
Nikko Cordial Corp. .................... 21,000 207,500
NTL Inc., rights (e) ................... 298 298
Qwest Communications
International Inc. .................. 500,000 700,000
Royal Dutch Petroleum Co. .............. 7,500 7,500
SBC Communications Inc. ................ 20,000 225,000
Six Flags Inc. ......................... 125,000 225,000
TELUS Corp., Non-Voting ................ 4,250 4,250
Terumo Corp. ........................... 20,000 20,000
Texas Instruments Inc. ................. 90,000 200,000
Tyco International Ltd. ................ 20,000 55,000
Vivendi Universal SA ................... 5,000 40,900
Vivendi Universal SA, ADR .............. 80,000 310,000
Wrigley (Wm.) Jr. Co. .................. 27,000 177,000
Wyeth .................................. 17,000 55,000
Xcel Energy Inc. ....................... 60,000 60,000
OWNERSHIP AT
SEPTEMBER 30,
SHARES 2002
--------- ------------
PREFERRED STOCKS
Citizens Communications Co.,
5.000% Cv. Pfd. ..................... 1,000 21,000
Hercules Trust I, 9.420% Pfd. .......... 251,800 273,500
PRINCIPAL
AMOUNT
CORPORATE BONDS ---------
Charter Communications Inc.,
Cv., 4.750%, 06/01/06 ............... $ 400,000 $1,300,000
SHARES
NETSALES ---------
COMMON STOCKS
Acterna Corp. .......................... (8,000) 60,000
Adelphia Communications Corp.,
Cl. A ............................... (20,000) 100,000
Advantica Restaurant Group Inc. ........ (10,108) --
Advantica Restaurant Group Inc.,
warrants, expires 01/07/05 .......... (62,463) --
Allegiance Telecom Inc. ................ (3,000) 6,000
Cheung Kong Life Science
International Inc., rights .......... (3,000) --
Compagnie Financiere Richemont AG,
Cl. A ............................... (10,000) 100,000
Conoco Inc. (c) ........................ (210,000) --
CoreComm Ltd. (a) ...................... (1,577,000) --
CRH plc ................................ (20,000) 92,500
Energizer Holdings Inc. (f) ............ (345,001) --
Ferro Corp. ............................ (10,000) 330,000
France Telecom SA, ADR ................. (3,000) 24,000
Gray Communications Systems Inc. ....... (28,000) --
Gray Communications Systems Inc.,
Cl. B ............................... (25,000) --
HBOS plc ............................... (66,000) --
Leap Wireless International Inc. ....... (17,100) 142,900
Midas Inc. ............................. (5,000) 105,000
mm02 plc, ADR .......................... (15,200) 125,600
Muenchener Rueckversicherungs-
Gesellschaft AG ..................... (5,000) --
Nortek Inc. ............................ (2,200) 137,800
Novartis AG ............................ (5,000) 41,000
Prudential plc ......................... (50,000) --
Rainbow Media Group, Cl. A (b) ......... (560,000) --
Rohm and Haas Co. ...................... (5,000) 15,000
Superior Industries International Inc. . (1,000) 24,000
Swiss Re ............................... (4,200) --
Syratech Corp. ......................... (10,425) --
TELUS Corp., Non-Voting, ADR ........... (4,250) 27,500
THK Co. Ltd. ........................... (33,000) --
Viacom Inc., Cl. A ..................... (10,000) 840,000
Winn-Dixie Stores Inc. ................. (15,000) 25,000
11
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES (CONTINUED)
QUARTER ENDED SEPTEMBER 30, 2002
(UNAUDITED)
OWNERSHIP AT
PRINCIPAL SEPTEMBER 30,
AMOUNT 2002
--------- ------------
CORPORATE BONDS
Standard Motor Products Inc.,
Sub. Deb. Cv., 6.750%,
07/15/09 ............................ $ (100,000) $1,400,000
---------------
(a) Merger - 0.0257 shares of ATX Communications Inc. for every 1 share of
CoreComm Ltd.
(b) Merger - 1.1909 shares of Cablevision Systems Corp., Cl. A for every 1 share
of Rainbow Media Group, Cl. A
(c) Merger - 0.4677 shares of ConocoPhillips for every 1 share of Conoco Inc.
(d) 2 for 1 stock split
(e) Spinoff - 0.0149 shares of NTL Inc., rights for every 1 share of NTL Inc.
(f) Tender Offer at $29.00 per share
12
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2002 (UNAUDITED)
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 84.2%
FINANCIAL SERVICES -- 7.7%
90,000 Allstate Corp. .............................. $ 3,199,500
550,000 American Express Co. ........................ 17,149,000
36,400 Argonaut Group Inc. ......................... 627,900
90,000 Banco Santander Central Hispano
SA, ADR ................................... 466,200
110,000 Bank of Ireland ............................. 1,070,769
80,000 Bank of New York Co. Inc. ................... 2,299,200
85,000 Bank One Corp. .............................. 3,179,000
282,000 Bankgesellschaft Berlin AG+ ................. 501,636
260 Berkshire Hathaway Inc., Cl. A+ ............. 19,214,000
5,000 Block (H&R) Inc. ............................ 210,050
190,000 Commerzbank AG, ADR ......................... 1,248,661
160,000 Deutsche Bank AG, ADR ....................... 7,267,200
20,000 Dun and Bradstreet Corp.+ ................... 672,200
50,000 FleetBoston Financial Corp. ................. 1,016,500
25,000 Hibernia Corp., Cl. A ....................... 499,750
20,000 Invik & Co. AB, Cl. B ....................... 314,911
100,000 Irish Life & Permanent plc, Dublin .......... 1,136,487
60,000 John Hancock Financial Services Inc. ........ 1,668,000
50,000 JP Morgan Chase & Co. ....................... 949,500
64,000 Leucadia National Corp. ..................... 2,176,000
100,000 Mellon Financial Corp. ...................... 2,593,000
199,400 Midland Co. ................................. 3,355,902
30,000 Moody's Corp. ............................... 1,455,000
207,500 Nikko Cordial Corp. ......................... 986,877
185,000 Phoenix Companies Inc. ...................... 2,519,700
2,500 Prudential Financial Inc.+ .................. 71,400
60,000 RAS SpA ..................................... 705,017
60,000 Riggs National Corp. ........................ 857,400
50,000 Schwab (Charles) Corp. ...................... 435,000
80,000 State Street Corp. .......................... 3,091,200
30,000 Stilwell Financial Inc. ..................... 362,100
20,000 SunTrust Banks Inc. ......................... 1,229,600
100,000 T. Rowe Price Group Inc. .................... 2,496,000
7,000 Travelers Property Casualty Corp.,
Cl. A+ .................................... 92,400
58,500 Unitrin Inc. ................................ 1,795,950
130,000 Wachovia Corp. .............................. 4,249,700
55,100 Waddell & Reed Financial Inc., Cl. A ........ 973,066
--------------
92,135,776
--------------
TELECOMMUNICATIONS -- 7.6%
8,132 Aliant Inc. ................................. 152,415
6,000 Allegiance Telecom Inc.+ .................... 4,980
30,000 ALLTEL Corp. ................................ 1,203,900
1,500,000 AT&T Corp. .................................. 18,015,000
40,540 ATX Communications Inc.+ .................... 15,000
3,333 Avaya Inc.+ ................................. 4,766
320,000 BCE Inc. .................................... 5,664,000
33,400 Brasil Telecom Participacoes SA, ADR ........ 741,814
850,000 Broadwing Inc.+ ............................. 1,683,000
MARKET
SHARES VALUE
------ ------
1,775,000 BT Group plc ................................ $ 4,591,863
34,000 BT Group plc, ADR ........................... 878,560
3,338,192 Cable & Wireless Jamaica Ltd. ............... 86,087
173,000 Cable & Wireless plc, ADR ................... 934,200
130,000 CenturyTel Inc. ............................. 2,915,900
100,000 Citizens Communications Co.+ ................ 678,000
255,466 Commonwealth Telephone
Enterprises Inc.+ ......................... 8,882,553
20,000 Commonwealth Telephone
Enterprises Inc., Cl. B+ .................. 695,800
45,000 Compania de Telecomunicaciones de
Chile SA, ADR ............................. 393,300
240,278 Deutsche Telekom AG, ADR .................... 1,987,099
200,000 Embratel Participacoes SA, ADR+ ............. 120,000
24,000 France Telecom SA, ADR ...................... 167,520
230 Japan Telecom Holdings Co. Ltd. ............. 572,449
100,000 KPN NV+ ..................................... 518,831
700,000 Qwest Communications
International Inc.+ ....................... 1,596,000
110,000 RCN Corp.+ .................................. 56,100
9,655 Rogers Communications Inc., Cl. B+ .......... 60,868
110,345 Rogers Communications Inc.,
Cl. B, ADR+ ............................... 692,967
225,000 SBC Communications Inc. ..................... 4,522,500
350,000 Sprint Corp. - FON Group .................... 3,192,000
186,554 Tele Norte Leste Participacoes
SA, ADR ................................... 988,736
40,000 Telecom Argentina Stet France
Telecom SA, ADR+ .......................... 32,800
400,040 Telecom Italia SpA .......................... 2,850,397
123,000 Telecom Italia SpA, ADR ..................... 8,776,050
135,000 Telecom Italia SpA, RNC ..................... 671,071
265,139 Telefonica SA, ADR+ ......................... 5,923,205
16,912 Telefonica SA, BDR+ ......................... 121,262
36,000 Telefonos de Mexico SA, Cl. L, ADR .......... 1,013,400
12,750 TELUS Corp. ................................. 94,366
52,500 TELUS Corp., ADR ............................ 388,565
4,250 TELUS Corp., Non-Voting ..................... 28,937
27,500 TELUS Corp., Non-Voting, ADR ................ 187,238
340,000 Verizon Communications Inc. ................. 9,329,600
120,000 WorldCom Inc. - MCI Group ................... 19,200
--------------
91,452,299
--------------
FOOD AND BEVERAGE -- 7.5%
15,000 Cadbury Schweppes plc, ADR .................. 400,050
80,000 Campbell Soup Co. ........................... 1,766,400
11,000 Carlsberg AS, Cl. B ......................... 570,815
30,000 Coca-Cola Co. ............................... 1,438,800
50,000 Coca-Cola Enterprises Inc. .................. 1,062,000
20,000 Coca-Cola Hellenic Bottling Co. SA .......... 291,336
100,000 Corn Products International Inc. ............ 2,875,000
10,108 Denny's Corp.+ .............................. 7,682
100,000 Diageo plc .................................. 1,240,799
13
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2002 (UNAUDITED)
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
224,000 Diageo plc, ADR ............................. $ 11,179,840
20,000 Dreyer's Grand Ice Cream Inc. ............... 1,397,200
41,600 Flowers Foods Inc.+ ......................... 945,568
90,000 General Mills Inc. .......................... 3,997,800
440,000 Grupo Bimbo SA de CV, Ser. A ................ 653,796
20,000 Hain Celestial Group Inc.+ .................. 293,000
114,000 Heinz (H.J.) Co. ............................ 3,804,180
15,000 Hershey Foods Corp. ......................... 930,750
30,000 Interbrew SA ................................ 710,947
350,000 Kellogg Co. ................................. 11,637,500
75,000 Kerry Group plc, Cl. A ...................... 964,214
60,500 LVMH Moet Hennessy Louis
Vuitton, ADR .............................. 441,650
41,300 Mondavi (Robert) Corp., Cl. A+ .............. 1,257,998
1,000 Nestle SA ................................... 218,569
150,000 Parmalat Finanziaria SpA .................... 410,618
600,595 PepsiAmericas Inc. .......................... 8,528,449
500,000 PepsiCo Inc. ................................ 18,475,000
7,000 Pernod-Ricard SA ............................ 629,515
60,000 Ralcorp Holdings Inc.+ ...................... 1,276,200
20,000 Sara Lee Corp. .............................. 365,800
2,000 Smucker (J.M.) Co. .......................... 73,400
103,854 Tootsie Roll Industries Inc. ................ 3,086,541
177,000 Wrigley (Wm.) Jr. Co. ....................... 8,759,730
--------------
89,691,147
--------------
ENERGY AND UTILITIES -- 6.5%
52,000 AES Corp.+ .................................. 130,520
70,000 AGL Resources Inc. .......................... 1,546,300
37,400 Apache Corp. ................................ 2,223,430
120,000 BP plc ...................................... 802,038
248,800 BP plc, ADR ................................. 9,927,120
150,000 Burlington Resources Inc. ................... 5,754,000
115,000 CH Energy Group Inc. ........................ 5,396,950
20,000 Cinergy Corp. ............................... 628,600
98,217 ConocoPhillips .............................. 4,541,554
10,000 Constellation Energy Group Inc. ............. 247,900
2,500 Dominion Resources Inc. ..................... 126,825
20,000 DPL Inc. .................................... 329,000
100,000 DQE Inc. .................................... 1,500,000
30,366 DTE Energy Co. .............................. 1,235,896
580,000 Duke Energy Corp. ........................... 11,339,000
120,000 El Paso Corp. ............................... 992,400
400,000 El Paso Electric Co.+ ....................... 4,752,000
30,000 Energy East Corp. ........................... 594,300
40,000 Exxon Mobil Corp. ........................... 1,276,000
9,400 FPL Group Inc. .............................. 505,720
30,000 Gas Natural SDG SA .......................... 508,454
280,000 Halliburton Co. ............................. 3,614,800
38,632 Kerr-McGee Corp. ............................ 1,678,174
90,000 Mirant Corp.+ ............................... 198,900
100,000 NiSource Inc.+ .............................. 181,000
MARKET
SHARES VALUE
------ ------
250,000 Northeast Utilities ......................... $ 4,225,000
358,200 Pennzoil-Quaker State Co. ................... 7,869,654
100,000 Progress Energy Inc., CVO+ .................. 21,000
7,500 Royal Dutch Petroleum Co. ................... 301,275
10,400 SJW Corp. ................................... 811,200
14,000 Southwest Gas Corp. ......................... 311,500
7,907 Total Fina Elf SA ........................... 1,040,837
260,000 Westar Energy Inc. .......................... 2,615,600
60,000 Xcel Energy Inc. ............................ 558,600
--------------
77,785,547
--------------
ENTERTAINMENT -- 6.0%
620,000 AOL Time Warner Inc.+ ....................... 7,254,000
160,000 Canal Plus, ADR ............................. 132,192
260,000 Disney (Walt) Co. ........................... 3,936,400
110,000 EMI Group plc ............................... 294,080
100,000 EMI Group plc, ADR .......................... 534,680
120,000 Fox Entertainment Group Inc., Cl. A+ ........ 2,643,600
50,000 GC Companies Inc.+ .......................... 14,750
240,432 Gemstar-TV Guide International Inc.+ ........ 605,889
24,000 Liberty Livewire Corp., Cl. A+ .............. 37,680
1,840,000 Liberty Media Corp., Cl. A+ ................. 13,211,200
300,000 Metro-Goldwyn-Mayer Inc.+ ................... 3,585,000
160,000 Publishing & Broadcasting Ltd. .............. 681,572
15,000 Regal Entertainment Group, Cl. A+ ........... 267,000
225,000 Six Flags Inc.+ ............................. 792,000
840,000 Viacom Inc., Cl. A+ ......................... 34,062,000
40,900 Vivendi Universal SA ........................ 458,760
310,000 Vivendi Universal SA, ADR ................... 3,530,900
--------------
72,041,703
--------------
PUBLISHING -- 5.1%
20,000 Dow Jones & Co. Inc. ........................ 768,200
196,000 Independent News & Media plc,
Dublin .................................... 261,491
15,900 Knight-Ridder Inc. .......................... 896,919
5,000 McClatchy Co., Cl. A ........................ 304,750
105,000 McGraw-Hill Companies Inc. .................. 6,428,100
400,000 Media General Inc., Cl. A ................... 20,340,000
125,000 Meredith Corp. .............................. 5,381,250
115,000 New York Times Co., Cl. A ................... 5,226,750
120,000 News Corp. Ltd. ............................. 573,120
11,016 News Corp. Ltd., ADR ........................ 212,058
400,000 Penton Media Inc.+ .......................... 96,000
350,000 PRIMEDIA Inc.+ .............................. 486,500
33,000 Pulitzer Inc. ............................... 1,374,450
140,000 Reader's Digest Association Inc., Cl. B ..... 2,592,800
400,000 SCMP Group Ltd. ............................. 173,087
70,000 Scripps (E.W.) Co., Cl. A ................... 4,851,000
91,842 Seat-Pagine Gialle SpA+ ..................... 53,278
75,000 Thomas Nelson Inc.+ ......................... 660,000
250,000 Tribune Co. ................................. 10,452,500
--------------
61,132,253
--------------
14
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2002 (UNAUDITED)
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
DIVERSIFIED INDUSTRIAL -- 5.0%
220,000 Acuity Brands Inc. .......................... $ 2,697,200
195,000 Ampco-Pittsburgh Corp. ...................... 1,912,950
120,000 Cooper Industries Ltd., Cl. A ............... 3,642,000
270,000 Crane Co. ................................... 5,335,200
110,000 GATX Corp. .................................. 2,178,000
200,000 GenTek Inc. ................................. 16,000
260,000 Greif Bros. Corp., Cl. A .................... 6,370,000
3,400 Greif Bros. Corp., Cl. B .................... 91,375
400,000 Honeywell International Inc. ................ 8,664,000
120,000 ITT Industries Inc. ......................... 7,479,600
400,600 Lamson & Sessions Co.+ ...................... 1,382,070
34,500 National Service Industries Inc. ............ 209,070
83,715 Park-Ohio Holdings Corp.+ ................... 334,860
213,800 Sensient Technologies Corp. ................. 4,517,594
10,000 Smiths Group plc ............................ 100,805
6,000 Sulzer AG+ .................................. 773,815
100,000 Thomas Industries Inc. ...................... 2,480,000
50,000 Trinity Industries Inc. ..................... 823,000
170,000 TRW Inc. .................................... 9,953,500
55,000 Tyco International Ltd. ..................... 775,500
--------------
59,736,539
--------------
EQUIPMENT AND SUPPLIES -- 4.9%
120,000 AMETEK Inc. ................................. 3,494,400
2,000 Amphenol Corp., Cl. A+ ...................... 62,000
10,000 Caterpillar Inc. ............................ 372,200
95,000 CIRCOR International Inc. ................... 1,273,000
320,000 Deere & Co. ................................. 14,544,000
216,000 Donaldson Co. Inc. .......................... 7,415,280
135,000 Flowserve Corp.+ ............................ 1,350,000
13,000 Franklin Electric Co. Inc. .................. 555,750
100,000 Gerber Scientific Inc.+ ..................... 385,000
75,000 GrafTech International Ltd.+ ................ 543,750
211,300 IDEX Corp. .................................. 6,032,615
20,000 Ingersoll-Rand Co., Cl. A ................... 688,800
60,000 Lufkin Industries Inc. ...................... 1,476,000
1,000 Manitowoc Co. Inc. .......................... 27,350
425,000 Navistar International Corp.+ ............... 9,214,000
28,000 Olympus Optical Co. Ltd. .................... 410,087
30,000 PACCAR Inc. ................................. 1,013,700
170,000 SPS Technologies Inc.+ ...................... 4,238,100
60,000 Sybron Dental Specialties Inc.+ ............. 839,400
20,000 Terumo Corp. ................................ 295,712
250,000 Watts Industries Inc., Cl. A ................ 4,100,000
100,000 Weir Group plc .............................. 318,456
--------------
58,649,600
--------------
CONSUMER PRODUCTS -- 4.0%
70,000 Altadis SA .................................. 1,563,411
43,000 Christian Dior SA ........................... 1,229,798
10,000 Church & Dwight Co. Inc. .................... 331,500
100,000 Compagnie Financiere Richemont AG,
Cl. A ..................................... $ 1,483,146
MARKET
SHARES VALUE
------ ------
50,000 Department 56 Inc.+ ......................... 522,500
90,000 Fortune Brands Inc. ......................... 4,256,100
250,000 Gallaher Group plc, ADR ..................... 9,575,000
300,000 Gillette Co. ................................ 8,880,000
2,000 Givaudan SA ................................. 895,996
60,000 Harley-Davidson Inc. ........................ 2,787,000
15,000 Matsushita Electric Industrial
Co. Ltd., ADR ............................... 155,550
100,000 Mattel Inc. ................................. 1,801,000
30,000 Maytag Corp. ................................ 695,400
50,000 National Presto Industries Inc. ............. 1,444,000
9,500 Nintendo Co. Ltd. ........................... 1,106,538
20,000 Philip Morris Companies Inc. ................ 776,000
100,000 Procter & Gamble Co. ........................ 8,938,000
32,000 Shimano Inc. ................................ 479,711
15,000 Swatch Group AG, Cl. B ...................... 1,119,996
--------------
48,040,646
--------------
WIRELESS COMMUNICATIONS -- 3.4%
95,000 America Movil SA de CV, Cl. L, ADR .......... 1,147,600
550,170 AT&T Wireless Services Inc.+ ................ 2,266,700
142,900 Leap Wireless International Inc.+ ........... 32,867
1,775,000 mm02 plc+ ................................... 1,116,562
125,600 mm02 plc, ADR+ .............................. 777,464
240,000 Nextel Communications Inc., Cl. A+ .......... 1,812,000
1,000 NTT DoCoMo Inc. ............................. 1,708,559
250,000 Rogers Wireless Communications Inc.,
Cl. B+ .................................... 1,365,000
230,000 Sprint Corp. - PCS Group+ ................... 450,800
16,700 Tele Celular Sul Participacoes SA, ADR ...... 110,220
55,666 Tele Centro Oeste Celular
Participacoes SA, ADR ..................... 129,145
3,340 Tele Leste Celular Participacoes SA,
ADR ....................................... 16,533
8,350 Tele Nordeste Celular Participacoes
SA, ADR ................................... 106,880
3,340 Tele Norte Celular Participacoes
SA, ADR+ .................................. 12,291
1,400,000 Telecom Italia Mobile SpA ................... 5,451,185
8,350 Telemig Celular Participacoes SA, ADR ....... 111,807
450,000 Telephone & Data Systems Inc. ............... 22,702,500
66,800 Telesp Celular Participacoes SA, ADR+ ....... 120,908
453,888 Vodafone Group plc .......................... 581,743
100,000 Vodafone Group plc, ADR ..................... 1,283,000
--------------
41,303,764
--------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.2%
20,000 ArvinMeritor Inc. ........................... 374,000
37,802 BorgWarner Inc. ............................. 1,876,491
100,000 CLARCOR Inc. ................................ 3,070,000
320,061 Dana Corp. .................................. 4,186,398
65,000 Delphi Corp. ................................ 555,750
15
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2002 (UNAUDITED)
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
AUTOMOTIVE: PARTS AND ACCESSORIES (CONTINUED)
260,000 GenCorp Inc. ................................ $ 2,615,600
210,000 Genuine Parts Co. ........................... 6,434,400
114,000 Johnson Controls Inc. ....................... 8,757,480
105,000 Midas Inc.+ ................................. 525,000
335,000 Modine Manufacturing Co. .................... 6,371,700
20,000 O'Reilly Automotive Inc.+ ................... 572,400
70,800 Scheib (Earl) Inc.+ ......................... 194,700
163,000 Standard Motor Products Inc. ................ 1,762,030
24,000 Superior Industries International Inc. ...... 1,129,920
105,000 TransPro Inc.+ .............................. 514,500
--------------
38,940,369
--------------
HEALTH CARE -- 2.6%
20,000 Abbott Laboratories ......................... 808,000
60,000 Amgen Inc.+ ................................. 2,502,000
40,000 Apogent Technologies Inc.+ .................. 746,400
10,000 AstraZeneca plc, London ..................... 303,202
35,146 AstraZeneca plc, Stockholm .................. 1,046,139
15,000 Aventis SA .................................. 785,658
26,000 Biogen Inc.+ ................................ 761,020
110,000 Bristol-Myers Squibb Co. .................... 2,618,000
23,000 Centerpulse AG+ ............................. 3,465,877
75,036 GlaxoSmithKline plc ......................... 1,451,441
4,000 GlaxoSmithKline plc, ADR .................... 153,720
56,011 Invitrogen Corp.+ ........................... 1,908,295
40,000 Merck & Co. Inc. ............................ 1,828,400
41,000 Novartis AG ................................. 1,621,109
108,000 Novartis AG, Registered ..................... 4,290,840
65,000 Pfizer Inc. ................................. 1,886,300
17,900 Roche Holding AG ............................ 1,210,773
20,000 Sanofi-Synthelabo SA ........................ 1,127,593
10,000 Schering-Plough Corp. ....................... 213,200
14,000 Takeda Chemical Industries Ltd. ............. 564,646
55,000 Wyeth ....................................... 1,749,000
--------------
31,041,613
--------------
HOTELS AND GAMING -- 2.3%
110,000 Aztar Corp.+ ................................ 1,453,100
90,000 Boca Resorts Inc., Cl. A+ ................... 918,000
240,000 Gaylord Entertainment Co.+ .................. 4,540,800
30,000 Greek Organization of Football
Prognostics ............................... 286,988
8,000 GTECH Holdings Corp.+ ....................... 198,560
2,460,000 Hilton Group plc ............................ 6,189,844
650,000 Hilton Hotels Corp. ......................... 7,397,000
60,000 MGM Mirage+ ................................. 2,238,000
430,000 Park Place Entertainment Corp.+ ............. 3,418,500
50,000 Starwood Hotels & Resorts
Worldwide Inc. ............................ 1,115,000
--------------
27,755,792
--------------
RETAIL -- 2.0%
200,000 Albertson's Inc. ............................ $ 4,832,000
300,000 AutoNation Inc.+ ............................ 3,456,000
75,000 Boots Co. plc ............................... 623,348
10,000 Coldwater Creek Inc.+ ....................... 131,800
16,000 Delhaize Le Lion SA, ADR .................... 259,040
10,000 Fast Retailing Co. Ltd. ..................... 257,927
33,000 Gucci Group NV, ADR ......................... 2,785,530
8,000 Ito-Yokado Co. Ltd. ......................... 314,112
100,000 Lillian Vernon Corp. ........................ 549,000
90,000 Neiman Marcus Group Inc., Cl. A+ ............ 2,362,500
320,000 Neiman Marcus Group Inc., Cl. B+ ............ 7,840,000
7,750 Tod's SpA ................................... 193,388
25,000 Winn-Dixie Stores Inc. ...................... 328,000
--------------
23,932,645
--------------
AEROSPACE -- 1.8%
125,000 BAE Systems plc ............................. 377,430
115,000 Boeing Co. .................................. 3,924,950
100,000 Lockheed Martin Corp. ....................... 6,467,000
91,000 Northrop Grumman Corp. ...................... 11,287,640
--------------
22,057,020
--------------
CONSUMER SERVICES -- 1.6%
40,000 Loewen Group Inc.+ .......................... 1,200
505,000 Rollins Inc. ................................ 9,797,000
490,000 USA Interactive Inc.+ ....................... 9,496,200
--------------
19,294,400
--------------
REAL ESTATE -- 1.6%
450,000 Catellus Development Corp.+ ................. 8,302,500
75,000 Cheung Kong (Holdings) Ltd. ................. 473,104
44,000 Florida East Coast Industries Inc., Cl. A ... 1,038,400
58,451 Florida East Coast Industries Inc., Cl. B ... 1,282,999
55,000 Griffin Land & Nurseries Inc.+ .............. 737,000
4,753 HomeFed Corp.+ .............................. 4,706
253,000 St. Joe Co. ................................. 6,982,800
--------------
18,821,509
--------------
CABLE -- 1.5%
100,000 Adelphia Communications Corp.,
Cl. A+ .................................... 12,500
1,551,443 Cablevision Systems Corp., Cl. A+ ........... 14,056,074
30,000 Charter Communications Inc., Cl. A+ ......... 55,800
40,000 Comcast Corp., Cl. A+ ....................... 853,200
85,000 Comcast Corp., Cl. A, Special+ .............. 1,773,100
20,000 NTL Inc.+ ................................... 260
20,000 Shaw Communications Inc., Cl. B ............. 164,290
80,000 Shaw Communications Inc., Cl. B,
Non-Voting ................................ 665,600
370,000 UnitedGlobalCom Inc., Cl. A+ ................ 606,800
--------------
18,187,624
--------------
16
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2002 (UNAUDITED)
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
AVIATION: PARTS AND SERVICES -- 1.4%
101,320 Curtiss-Wright Corp., Cl. B ................. $ 5,952,550
90,000 Fairchild Corp., Cl. A+ ..................... 467,100
60,000 Precision Castparts Corp. ................... 1,300,800
84,500 Sequa Corp., Cl. A+ ......................... 4,402,450
78,000 Sequa Corp., Cl. B+ ......................... 4,485,000
--------------
16,607,900
--------------
BROADCASTING -- 1.4%
15,015 Clear Channel Communications Inc.+ .......... 521,771
16,666 Corus Entertainment Inc., Cl. B+ ............ 199,523
25,000 Gray Television Inc. ........................ 273,750
28,000 Gray Television Inc., Cl. A ................. 376,600
195,000 Grupo Televisa SA, ADR+ ..................... 4,970,550
200,000 Liberty Corp. ............................... 7,160,000
5,000 LIN TV Corp., Cl. A+ ........................ 123,750
4,000 Nippon Broadcasting System Inc. ............. 118,285
40,375 NRJ Group ................................... 570,578
131,000 Paxson Communications Corp.+ ................ 288,200
14,700 RTL Group, Brussels ......................... 377,709
3,000 RTL Group, New York ......................... 81,234
100,000 Television Broadcasts Ltd. .................. 307,710
110,000 Young Broadcasting Inc., Cl. A+ ............. 953,700
--------------
16,323,360
--------------
AGRICULTURE -- 1.1%
1,050,000 Archer-Daniels-Midland Co. .................. 13,135,500
5,000 Delta & Pine Land Co. ....................... 93,700
--------------
13,229,200
--------------
SPECIALTY CHEMICALS -- 1.0%
5,400 Ciba Specialty Chemicals, ADR (b) ........... 177,930
10,000 du Pont de Nemours (E.I.) and Co. ........... 360,700
330,000 Ferro Corp. ................................. 7,623,000
40,000 Fuller (H.B.) Co. ........................... 1,064,000
120,000 Hercules Inc.+ .............................. 1,105,200
15,000 IVAX Corp.+ ................................. 184,050
210,000 Omnova Solutions Inc.+ ...................... 963,900
15,000 Rohm and Haas Co. ........................... 465,000
11,697 Syngenta AG, ADR ............................ 126,328
--------------
12,070,108
--------------
ELECTRONICS -- 0.9%
134,393 Agere Systems Inc., Cl. B+ .................. 133,049
3,000 Hitachi Ltd., ADR ........................... 148,680
16,000 Molex Inc., Cl. A ........................... 335,984
7,500 NEC Corp., ADR .............................. 35,625
6,000 Rohm Co. Ltd. ............................... 704,287
38,800 Royal Philips Electronics NV, ADR ........... 563,764
47,000 Sony Corp., ADR ............................. 1,931,700
200,000 Texas Instruments Inc. ...................... 2,954,000
250,000 Thomas & Betts Corp.+ ....................... 3,522,500
8,400 Tokyo Electron Ltd. ......................... 321,538
--------------
10,651,127
--------------
MARKET
SHARES VALUE
------ ------
ENVIRONMENTAL SERVICES -- 0.7%
65,000 Republic Services Inc.+ ..................... $ 1,222,000
300,000 Waste Management Inc. ....................... 6,996,000
--------------
8,218,000
--------------
BUILDING AND CONSTRUCTION -- 0.7%
92,500 CRH plc ..................................... 1,037,539
32,222 Huttig Building Products Inc.+ .............. 109,232
15,000 Martin Marietta Materials Inc. .............. 488,550
137,800 Nortek Inc.+ ................................ 5,962,606
5,000 Nortek Inc., Special Common+ (a) ............ 216,350
--------------
7,814,277
--------------
AUTOMOTIVE -- 0.6%
20,000 Ford Motor Co. .............................. 196,000
167,942 General Motors Corp. ........................ 6,532,944
--------------
6,728,944
--------------
BUSINESS SERVICES -- 0.5%
60,000 ANC Rental Corp.+ ........................... 6,000
180,000 Cendant Corp.+ .............................. 1,936,800
1,000 CheckFree Corp.+ ............................ 11,380
98,000 Landauer Inc. ............................... 3,248,700
70,000 Nashua Corp.+ ............................... 485,800
7,000 Secom Co. Ltd. .............................. 280,023
250,000 Securicor plc ............................... 397,087
3,500 SYNAVANT Inc.+ .............................. 2,835
--------------
6,368,625
--------------
METALS AND MINING -- 0.4%
72,500 Harmony Gold Mining Co. Ltd. ................ 1,148,727
15,000 Harmony Gold Mining Co. Ltd., ADR ........... 234,750
125,000 Newmont Mining Corp. ........................ 3,438,750
50,000 Placer Dome Inc. ............................ 456,500
--------------
5,278,727
--------------
PAPER AND FOREST PRODUCTS -- 0.4%
100,000 MeadWestvaco Corp. .......................... 1,921,000
170,000 Pactiv Corp.+ ............................... 2,796,500
10,000 Rayonier Inc. ............................... 419,100
--------------
5,136,600
--------------
COMMUNICATIONS EQUIPMENT -- 0.3%
60,000 Acterna Corp.+ .............................. 24,000
290,000 Allen Telecom Inc.+ ......................... 1,548,600
510,000 Corning Inc.+ ............................... 816,000
130,000 Lucent Technologies Inc.+ ................... 98,800
110,000 Motorola Inc. ............................... 1,119,800
100,000 Nortel Networks Corp.+ ...................... 54,000
44,000 Scientific-Atlanta Inc. ..................... 550,440
--------------
4,211,640
--------------
17
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2002 (UNAUDITED)
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
CLOSED END FUNDS -- 0.2%
59,000 Central European Equity Fund Inc. ........... $ 737,500
18,592 France Growth Fund Inc.+ .................... 98,352
54,150 Italy Fund Inc. ............................. 305,947
68,000 New Germany Fund Inc.+ ...................... 218,960
70,000 Pimco RCM Europe Fund Inc. .................. 411,600
40,000 Royce Value Trust Inc. ...................... 503,600
--------------
2,275,959
--------------
SATELLITE -- 0.1%
180,323 General Motors Corp., Cl. H+ ................ 1,649,955
34,000 Liberty Satellite & Technology Inc.,
Cl. A+ ...................................... 76,500
190,000 Loral Space & Communications Ltd.+ .......... 51,300
--------------
1,777,755
--------------
COMPUTER SOFTWARE AND SERVICES -- 0.1%
20,000 Capcom Co. Ltd. ............................. 456,711
10,000 Computer Associates International Inc. ...... 96,000
160,000 EMC Corp.+ .................................. 731,200
30,000 Genuity Inc., Cl. A+ ........................ 8,400
--------------
1,292,311
--------------
TRANSPORTATION -- 0.1%
100,000 AMR Corp.+ .................................. 418,000
20,000 Grupo TMM SA de CV, Cl. A, ADR+ ............. 122,200
7,500 Kansas City Southern+ ....................... 93,000
29,273 Tsakos Energy Navigation Ltd.+ .............. 319,076
--------------
952,276
--------------
COMPUTER HARDWARE -- 0.0%
26,000 Hewlett-Packard Co. ......................... 303,420
10,000 Xerox Corp.+ ................................ 49,500
--------------
352,920
--------------
TOTAL COMMON STOCKS ......................... 1,011,289,975
--------------
PREFERRED STOCKS -- 2.2%
PUBLISHING -- 1.1%
770,499 News Corp. Ltd., Pfd., ADR .................. 12,790,281
--------------
SPECIALTY CHEMICALS -- 0.5%
273,500 Hercules Trust I,
9.420% Pfd. 5,757,175
------------
TELECOMMUNICATIONS -- 0.3%
60,000 Allen Telecom Inc.,
7.750% Cv. Pfd., Ser. D ................... 2,460,000
31,000 Broadwing Inc.,
6.750% Cv. Pfd., Ser. B ................... 350,300
21,000 Citizens Communications Co.,
5.000% Cv. Pfd. ........................... 686,910
500 Lucent Technologies Capital Trust I,
7.750% Cv. Pfd.+ (b) ...................... 112,500
------------
3,609,710
------------
MARKET
SHARES VALUE
------ ------
AEROSPACE -- 0.2%
14,021 Northrop Grumman Corp.,
7.000% Cv. Pfd., Ser. B ................... $ 2,005,003
--------------
BROADCASTING -- 0.1%
90 Gray Television Inc.,
8.000% Cv. Pfd., Ser. C (b) ............... 900,000
100,000 ProSieben Sat.1 Media AG, Pfd. .............. 637,421
--------------
1,537,421
--------------
AVIATION: PARTS AND SERVICES -- 0.0%
3,000 Sequa Corp., $5.00 Cv. Pfd. ................. 256,800
--------------
WIRELESS COMMUNICATIONS -- 0.0%
10,760,547 Telesp Celular Participacoes SA, Pfd.+ ...... 7,440
--------------
TOTAL PREFERRED STOCKS ...................... 25,963,830
--------------
PRINCIPAL
AMOUNT
------
CORPORATE BONDS -- 0.5%
ELECTRONICS -- 0.2%
$ 3,500,000 Agere Systems Inc., Sub. Deb. Cv.,
6.500%, 12/15/09 .......................... 1,925,000
--------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.1%
1,400,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 .......................... 1,078,000
--------------
AVIATION: PARTS AND SERVICES -- 0.1%
933,000 Kaman Corp., Sub. Deb. Cv.,
6.000%, 03/15/12 .......................... 856,028
--------------
CABLE -- 0.1%
1,300,000 Charter Communications Inc., Cv.,
4.750%, 06/01/06 .......................... 563,875
--------------
ENERGY AND UTILITIES -- 0.0%
1,000,000 Mirant Corp., Sub. Deb. Cv.,
2.500%, 06/15/21 .......................... 441,250
--------------
WIRELESS COMMUNICATIONS -- 0.0%
500,000 Nextel Communications Inc.,
9.500%, 02/01/11 .......................... 376,250
--------------
HOTELS AND GAMING -- 0.0%
400,000 Hilton Hotels Corp., Sub. Deb. Cv.,
5.000%, 05/15/06 .......................... 368,000
--------------
CONSUMER PRODUCTS -- 0.0%
1,000,000 Pillowtex Corp., Sub. Deb.,
6.000%, 03/15/12+ (e) ..................... 0
--------------
TOTAL CORPORATE BONDS ....................... 5,608,403
--------------
18
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2002 (UNAUDITED)
MARKET
SHARES VALUE
------ ------
RIGHTS -- 0.0%
CABLE -- 0.0%
298 NTL Inc.+ ................................. $ 0
--------------
WARRANTS -- 0.0%
FOOD AND BEVERAGE -- 0.0%
62,463 Denny's Corp., expires 01/07/05+ .......... 1,031
--------------
METALS AND MINING -- 0.0%
5,000 Harmony Gold Mining Co. Ltd., ADR,
expires 06/29/03+ ....................... 57,450
--------------
TOTAL WARRANTS ............................ 58,481
--------------
PRINCIPAL
AMOUNT
------
U.S. GOVERNMENT OBLIGATIONS -- 4.1%
$ 50,000,000 U.S. Treasury Bills,
1.645%++, 10/24/02 ...................... 49,947,451
--------------
REPURCHASE AGREEMENTS -- 10.6%
100,000,000 Agreement with ABN AMRO,
1.850%, dated 09/30/02, due
10/01/02, proceeds at maturity,
$100,000,000 (c) ........................ 100,000,000
27,467,000 Agreement with State Street Bank and
Trust Co., 1.800%, dated 09/30/02,
due 10/01/02, proceeds at maturity,
$27,467,000 (c) ......................... 27,467,000
--------------
TOTAL REPURCHASE
AGREEMENTS .............................. 127,467,000
--------------
TOTAL INVESTMENTS -- 101.6%
(Cost $1,193,141,051) ................................. $1,220,335,140
OTHER ASSETS, LIABILITIES
AND LIQUIDATION VALUE OF
CUMULATIVE PREFERRED STOCK -- (37.4)% ................. (448,884,260)
--------------
NET ASSETS -- COMMON STOCK -- 64.2%
(133,308,858 common shares outstanding) ............... 771,450,880
--------------
NET ASSETS -- PREFERRED STOCK -- 35.8%
(11,973,100 preferred shares outstanding) ............. 429,197,500
--------------
TOTAL NET ASSETS -- 100.0% .............................. $1,200,648,380
==============
NET ASSET VALUE PER COMMON SHARE
(771,450,880 / 133,308,858 shares outstanding) ........ $5.79
=====
PRINCIPAL SETTLEMENT NET UNREALIZED
AMOUNT DATE APRECIATION
-------- ---------- --------------
FORWARD FOREIGN EXCHANGE CONTRACTS -- 0.0%
$ 7,790,000(d) Deliver Hong Kong Dollars
in exchange for
USD 2,627,026 .............. 08/01/03 $863
====
NOTIONAL UNREALIZED
AMOUNT DEPRECIATION
-------- ------------
INTEREST RATE SWAP AGREEMENT -- (0.7)%
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 ..................... $ (8,490,559)
==============
-----------------
For Federal tax purposes:
Aggregate cost ................................ $1,193,141,051
==============
Gross unrealized appreciation ................. $ 251,792,242
Gross unrealized depreciation ................. (224,597,290)
--------------
Net unrealized appreciation ................... $ 27,194,952
==============
-----------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At
September 30, 2002, the market value of Rule 144A securities amounted to
$1,190,430 or 0.1% of total net assets.
(c) Collateralized by U.S. Treasury Notes, 7.50% to 8.50%, due 02/15/20 to
11/15/24, market value $128,026,139.
(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 Depository Receipt.
BDR - Brazilian Depository Receipt.
CVO - Contingent Value Obligation.
RNC - Non-Convertible Savings Shares.
USD - U.S. Dollars.
% OF
MARKET MARKET
VALUE VALUE
------ --------------
GEOGRAPHIC DIVERSIFICATION
United States .............. 85.17% $1,039,302,143
Europe ..................... 10.66 130,130,097
Asia/Pacific Rim ........... 2.21 26,994,148
Latin America .............. 1.01 12,349,807
Canada ..................... 0.83 10,175,468
South Africa ............... 0.12 1,383,477
------ --------------
Total Investments .......... 100.0% $1,220,335,140
====== ==============
19
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 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.
20
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: 133,308,858 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
THIRD QUARTER REPORT
SEPTEMBER 30, 2002
GBFCM 09/02