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PICTURE OF USA FLAG
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THE GABELLI
EQUITY TRUST INC.
ANNUAL REPORT
DECEMBER 31, 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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PICTURE OF FLAGS
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 ISLANDS 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.
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PICTURE OF MARIO GABELLI
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THE GABELLI
EQUITY TRUST INC.
TO OUR SHAREHOLDERS,
In the fourth quarter of 2002, the stock market enjoyed its first
sustained rally of the year. The Dow Jones Industrial Average posted eight
consecutive weekly gains and closed the quarter with a 10.48% return. The
Standard & Poor's ("S&P") 500 Index and technology-dominated Nasdaq Composite
Index also finished in the black. This was not nearly enough, however, to
prevent a third consecutive year of declines for all of these indices. The
Gabelli Equity Trust Inc. (the "Trust") lost ground by falling 20.54% for the
year, behind the Dow, which dropped 15.04%, and finished ahead of the S&P 500
Index, which fell 22.09% during 2002.
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. The Trust distributed $0.14 per share on December 24, 2002.
Given the Fund's current net asset value, the Board of Directors intends
to review the appropriate level of future quarterly payments. As a result of
this review, subsequent interim quarterly distributions may be less than the
current $0.27 per share level in an effort to provide our common stock
shareholders consistent distributions throughout each year pursuant to our 10%
Distribution Policy. Each quarter, the Board of Directors reviews the amount of
any potential distribution based on the income, capital gains or capital
available.
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 and March, June, and September. The Trust distributed $0.27 per share
to common stock shareholders at quarter-end in March, June, and September of
2002. 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 December 2002, there was 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 declared a $0.14 per share cash distribution to provide our common
stock shareholders with consistent distributions throughout the year even though
the policy had been satisfied. The Board also declared a $0.27 per share cash
distribution to be paid in March 2003 to affirm its intention to maintain the
10% Distribution Policy.
COMPARATIVE RESULTS
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 2002 (A)
----------------------------------------------------
SINCE
QUARTER INCEPTION (B) 10 YEAR 5 YEAR 3 YEAR 1 YEAR
------- ------------- ------- ------ ------ ------
Gabelli Equity Trust NAV Return (c) .......... 10.84% 10.06% 8.27% 0.96% (9.61)% (20.54)%
Gabelli Equity Trust Investment Return (d) ... (1.14)% 10.20% 9.38% 2.17% (6.96)% (28.36)%
S&P 500 Index ................................ 8.43% 10.69% 9.34% (0.58)% (14.54)% (22.09)%
Dow Jones Industrial Average ................. 10.48% 12.49% 12.05% 2.87% (8.51)% (15.04)%
Nasdaq Composite Index ....................... 13.95% 7.97% 7.03% (3.19)% (31.02)% (31.53)%
(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 at NAV on the ex-dividend date,
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 545
publicly-traded closed-end funds in the U.S., approximately 23% currently trade
at premiums to NAV versus 32% five years ago and 49% ten years ago. For general
equity funds such as the Trust, approximately 13% currently trade at premiums to
NAV versus 30% five years ago and 38% 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 0.4% discount to NAV. Beginning in early 2001, the market price
of the Trust exceeded the NAV and this premium gradually increased through June
2002. The Trust's premium was 9.08% at year-end 2002. 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.
PREMIUM/DISCOUNT SINCE INCEPTION
DECEMBER 31, 2002
-----------------
Net Asset Value $6.28
Market Price $6.85
Premium 9.08%
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
9/30/86 0.0067
10/31/86 0.0046
11/30/86 -0.0390
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 -0.2000
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 -0.0180
9/30/90 -0.0348
10/31/90 -0.1187
11/30/90 -0.0327
12/31/90 0.0290
1/31/91 -0.0091
2/28/91 0.0269
3/31/91 0.0150
4/30/91 -0.0257
5/31/91 -0.0100
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 0.0120
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 -0.0270
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 0.0300
3/31/95 0.0170
4/30/95 -0.0122
5/31/95 -0.0240
6/30/95 -0.0081
7/31/95 -0.0440
8/31/95 -0.0697
9/30/95 -0.0845
10/31/95 -0.1206
11/30/95 -0.0750
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 -0.0470
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 -0.0220
4/30/98 -0.0788
5/31/98 -0.0885
6/30/98 -0.0400
7/31/98 -0.0420
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 -0.0060
6/30/99 -0.0163
7/31/99 0.0070
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 -0.0780
5/31/00 -0.0460
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 -0.0450
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 0.2480
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
10/31/02 0.1400
11/30/02 0.1800
12/31/02 0.0800
2
COMMENTARY
THE YEAR IN REVIEW -- A CRISIS IN CONFIDENCE
The economy roared out of the recession with a 5.8% Gross Domestic Product
("GDP") gain in the first quarter of 2002. What followed was a year
characterized by scandals: Enron -- the biggest bankruptcy in history (later
trumped by WorldCom); the uncovering of accounting scandals, the demise of
Arthur Andersen, as well as New York State Attorney General Eliot Spitzer's
attempts to eliminate the conflicts of interest between banking and research by
aggressively pursuing the large investment houses and the Grubmans and Blodgets
of the world. While on the subject, let us not forget Tyco's Kozlowski's alleged
personal tax avoidance schemes or the travails of Martha Stewart's alleged
insider trading in ImClone stock. These traumas weighed heavily on the overall
market. Anxiety about the vitality of our capital system spread to Securities
and Exchange Commission ("SEC") Chairman Harvey Pitt who was eventually forced
to resign because of his support of William Webster, who then also elected to
withdraw his nomination.
These announcements spooked investors. They surfaced during a period of
stalled earnings. In the same manner that the stock market boom encouraged
optimism about the boundless opportunities for earnings and sales growth, any
hint of wrongdoing was an excuse to ratchet down positive forecasts.
A RECOVERY WITHOUT RESPECT
The loss of investor confidence was at odds with the economic recovery
that reflected a solid, if frustratingly slow, path to recovery. Consumer
spending and confidence continued to hold up well. Individuals took advantage of
low interest rates to buy or refinance their homes and to purchase autos.
Beginning with the surprise 50 basis point rate cut in January of 2001, Federal
Reserve Board ("Fed") Chairman Alan Greenspan made plain his intention to help
the consumer sustain the economy until capital spending could resume to fuel a
more lasting recovery. Today, we are more optimistic that capital spending --
this second leg of the recovery -- will resume in 2003.
The excess capacity and equipment that was built under the boom scenario
is now getting rationalized out. This has been -- and continues to be -- a
wrenching period for the economy, particularly for the companies (and investors)
in telecommunications, media and utilities industries. However, Schumpeter's
"creative destruction" is a requisite evil in capitalism to wind up with
stronger companies that can compete well, maintain market share and produce new
goods and services. At the same time, it gives us renewed respect for the
self-regulating nature of the U.S. capital markets, and reminds us why it is the
model for the world. Ultimately we believe that solid companies in the telecom
industry such as Nextel, Telephone and Data Systems and AT&T Wireless will
emerge with broader opportunities.
POSITIVES: DE-REGULATION, DEALS, AND QUALITY OF EARNINGS
The Federal Communications Commission ("FCC") is preparing to phase out
rules that require the former "Baby Bells" to rent their networks to rivals at
low mandated prices, thereby subsidizing competition. FCC Chairman Michael
Powell believes that real competition can only come from those who own their own
networks. He also is committed to ensuring that surviving telecommunications
carriers will have the ability to generate good returns and cash flow to invest
in new services. One goal of the Bush Administration and Powell's FCC is the
proliferation of broadband. As the next economic cycle develops, demand for
telephony will again grow at a multiple of GDP, as it had for the prior two
decades.
Elsewhere, the limitations on cross ownership of media assets will be
lifted or eliminated. Merger and acquisition activity will resume along with
capital spending once companies begin to believe they are in a position of
strength, and that spending is necessary to grow and compete. The government
must encourage research and development to spur capital spending in conductivity
and connectivity. As was the case at Vivendi, where management is putting
Cegetel and SFR together, one favorable outcome is that the slowdown in wireless
and wireline will end up energizing transactions. In the utilities industry, the
1992 Utilities Act encouraged the unbundling of generation and transmission
lines. While this eventually led to the abuses at Enron, the Act creates the
framework for transactions to occur.
3
Clearly, WorldCom and Adelphia created an air pocket for valuations. They
also presented a delay in the catalyst for change. We do feel that the signal
lights go from yellow to green in the spring of 2003. More TV stations owners
will consolidate. A result of some of the recent mergers -- for example, Nestle
buying Ralston -- is that a slew of new product introductions will require
awareness. Bottom line, we anticipate a very good advertising market going
forward. In the interim, we add opportunistically to the portfolio when we find
distressed names such as Disney and Vivendi to buy.
In the mid-70's, we originated and focused a valuation methodology based
on Private Market Value ("PMV"). The baseline was at what price would an
industrialist be willing to pay for the assets of a given company and why? The
next level below the PMV of a company is the price leveraged buy-out ("LBO")
groups will pay, slightly less than a synergistic corporate buyer because of the
lack of ability to eliminate redundancy. The prices of small companies do not
have any room to go down. Indeed, managements want to own and families want to
sell. Unfortunately, as was the case in 1992, you cannot get financing. Banks
are not lending. Whereas years ago, banks would lend at six times, today banks
are absent from the equation at two times cash flow, while stocks trade at five
times cash flow. The result is that the next part of the consolidation process
will be by the corporate buyer -- for example, HSBC acquiring Household. There
are also a number of green lights including Financial Accounting Standards Board
("FASB") 142 in accounting that create an incredible stimulus for transactions.
While the stock market still has the overhang of the potential war with
Iraq, and the burden of higher oil prices, there are some bright spots. One
silver lining in the aftermath of accounting fraud and corporate scandals is
increased transparency and higher quality in earnings and cash flow. Corporate
America has been tagged with quality of earning concerns and has responded by
promising to include more detailed information about profitability in the
future. Companies that used to smooth quarterly earnings with accounting
contrivances are pressured to take a more conservative approach to reporting.
This overdue clarity and transparency will be good for investors. The
Sarbanes-Oxley Act, requiring chief executives to personally certify their
financial statements, will work to focus managements' attention on the
connection between their job to create wealth for shareholders and the need for
shareholders to understand what management is doing.
ECONOMIC STIMULUS
Our national priority is to get the economy stimulated. From a fiscal
policy standpoint, the end goal for this Administration is to get Bush
re-elected. In order to do this, the economy must start to improve by year-end
2003. Forty-three has learned from Forty-one. The Administration and Congress
have proposed plans to stimulate growth. While not yet in final form, the plans
include accelerating income tax rates that were approved two years ago,
extending unemployment benefits, providing rebate checks to middle class
parents, eliminating the tax on dividends for individuals, a tax incentive to
spur capital investment by small and medium size businesses, and an increase in
spending on infrastructure. There are a number of silver bullets that will
result in giving the consumer money to spend which should stimulate the economy.
The trial balloons launched in December resulted in more aggressive proposals
for stimulus from the President's economic package. By addressing the taxability
of dividends, it has helped the psychology of the market. In addition, the
acceleration in the timing of the earlier tax cuts and perhaps a holiday in
social security tax should encourage consumers to increase spending.
From a business standpoint, we need to jump start capital spending.
Investment tax credits and the elimination of double taxation of dividends are
powerful tools that will hopefully be approved. Meanwhile, the overriding drag
on the economy is the price of oil. A price of $25 or more per barrel presents a
challenge to consumption. Until action is taken to reduce consumption and alter
habits, the high price of oil is like a pickpocket in Times Square, stealing the
opportunity from consumers and businesses to reinvigorate the economy.
GROWTH OUTSIDE THE UNITED STATES
We expect better growth in Europe and its time may finally be coming. The
European Central Bank ("ECB") made an unexpected 50 basis point cut in interest
rates just at year-end. This was accompanied by remarks that the ECB would
reassess the emphasis placed upon fighting inflation and would at least
acknowledge the need for growth. Our holdings in companies with large European
exposure such as Modine and Heinz will benefit from a stronger economy overseas.
4
BARRON'S 2003 ROUNDTABLE
Mario Gabelli, our Chief Investment Officer, has appeared in the
prestigious BARRON'S Roundtable discussion annually since 1980. Many of our
readers have enjoyed the inclusion of selected and edited comments from BARRON'S
Roundtable in previous reports to shareholders. As is our custom, we are
including selected comments of Mario Gabelli from BARRON'S 2003 Roundtable.
-------------------------------------
BARRON'S
ROUNDTABLE
MARIO GABELLI
CHAIRMAN AND CHIEF INVESTMENT OFFICER
GABELLI ASSET MANAGEMENT INC.
-------------------------------------
(THE FOLLOWING HAS BEEN EXCERPTED:)
On the Money
FOUR SAVVY INVESTORS, LOTS OF STOCKS AND ONE GOLD RULE
By LAUREN B. RUBLIN
DID SOMEONE SAY "THEME PARTY"? Naw, we didn't serve fondue, or dance to the hits
of the 'Fifties, or come dressed as -- perish the thought -- our favorite
hot-shot investors. Instead, we invited some of Wall Street's best and brightest
to bring their favorite themes -- investment only, of course -- to the 35th
annual BARRON'S Roundtable, which convened Jan. 6 in lower Manhattan.
It was quite a party. The worldly Marc Faber brought plenty of doom and gloom,
along with animated talk of a boom -- in Asia's emerging markets. Abby Joseph
Cohen, the scholar-in-residence at Goldman Sachs, brought a flawless memory for
economic facts and financial figures, and a keen interpretation of same. And
Mario Gabelli, sharp as ever, probably brought dozens of stock picks, as usual,
but was kind enough to leave a few in the coatroom. After all, we had only nine
hours, on that wintry day, to grill and drill this loquacious, provocative
crowd.
BARRON'S: ALREADY, THIS NEW YEAR IS SHAPING UP DIFFERENTLY. THE PRESIDENT IS
PROPOSING A BIG TAX-CUT PACKAGE, AND WE ARE LIKELY TO GO TO WAR WITH IRAQ,
PROBABLY EARLY NEXT MONTH. MARIO, WILL IRAQ MAKE A DIFFERENCE TO THE ECONOMY,
ASIDE FROM THE OBVIOUS -- OIL PRICES?
GABELLI: Oil is like a pickpocket in Times Square. As it goes over $30 a barrel,
it robs my pocket. I am concerned about the unintended consequences of war.
Somebody gets on an airplane with smallpox. We have another anthrax attack. Do
the Iraqis dump scuds on Tel Aviv in a scorched-earth move as they're being
taken out? Yet, I say it's worth the risk, because when I was growing up in the
1940s and '50s, I remember hearing about Prague. "Let them [the Nazis] have
Prague."
5
Q: WE GAVE THEM PRAGUE.
GABELLI: Right. And then we had another seven years. There is an air pocket in
the economy right now. You basically come in with massive fiscal stimulation.
You are either in Baghdad or you're out after six weeks. If you're out, and oil
doesn't go up to $50 and stay there but comes back down to $25 or less a barrel,
then this president has done everything, will do everything to get re-elected in
2004. As a result, we're going to have an extraordinarily good economy in the
fourth quarter of 2003 and the first half of 2004, and the market will follow
suit.
Q: WHAT'S YOUR TAKE ON INTEREST RATES, MARIO?
GABELLI: If oil falls to the low $20s, consumers around the world will be helped
dramatically. The stimulation package is going to happen, too. Strong demand
from the absence of the energy pickpocket will drive rates materially higher by
the end of the year. The 10-year note will yield more than 5%.
BIGGS: I'm with Mario. I think the 10-year Treasury will yield over 5%. The
central banks of the world clearly have said they are committed to reflation.
GABELLI: If we get a 50% reduction in taxes on dividends, it's going to have an
impact on municipal bonds. [Tuesday, as part of a $674 billion economic-stimulus
plan, President Bush called for the elimination of all taxes on corporate
dividends.] Finally, interest-rate spreads will improve dramatically between
government and high-yield bonds as the economy starts to improve.
Q: OF COURSE, ELIMINATING TAXES ON DIVIDENDS IS BAD FOR THE STATES, AS IT COULD
RAISE THEIR BORROWING COSTS WHILE LOWERING THEIR REVENUES. AND IT'S BAD FOR
REAL-ESTATE INVESTMENT TRUSTS.
GABELLI: Rain is bad for the parade and great for the farmer. There are a lot of
trade-offs. There's a good opportunity here to make money on the short side in
munis.
Q: MARIO, CARE TO PREDICT THE MARKET?
GABELLI: Because the president will do all in his power to get himself
re-elected, we are going to have a very good economy in the spring of 2004. Oil
will be under $25, and we will be reflating the world. The market will be up
10%, with lots of volatility. However, if oil unexpectedly hits the $40s, the
Dow will fall to 6000-6500. But it will bounce back, because $40 oil is not
sustainable in the short run.
On a long-term basis I see a '68-'81 kind of environment, where the market moves
sideways. Earnings grow 6% a year and price-earnings multiples get bumped by
higher rates. The year will be characterized by the chase for dividends. It's
also a year in which deals come back. HSBC's deal to buy Household International
was a wake-up call. The leveraged buyout firms haven't been able to tap the debt
market, and that's starting to loosen up. Large companies want to grow. In
addition to the fiscal stimulus, specific sectors will benefit from changes in
regulatory dynamics. For example, the FCC [Federal Communications Commission] is
going to reform the telecom act, and there will be reforms in media, utility and
energy regulations. Even more interesting, we're going to have tort reform. All
these things will create an extraordinarily fertile environment for corporate
love-making.
Along similar lines, the FCC announced today that it is going to re-examine the
telecom industry in a way that would favor facilities-based companies -- namely,
the Baby Bells. [Under the FCC's plan, now in draft form, competitors such as
long-distance providers eventually would lose their discounted access to the
Bells' network switches.] This is a big boon to Verizon, SBC Communications and
the rest. So, if you want to compete in local service, you'll have to build your
own facilities.
SAMBERG: What Mario is saying is that after the government set the telecom
monster loose and let it screw up the economy, after it has killed itself on its
own, the government is going to jump on the corpse and trash it some more.
Terrific. That's a great investment theme.
GABELLI: What I'm saying is, the Verizons of the world will do better. They will
begin to spend money on Cisco and Lucent and R&D.
BARRON'S: MARIO, WHAT STOCKS HAVE YOU BROUGHT US?
GABELLI: First, I want to talk about old age, dividends and inflation. There are
approximately 200 million vehicles on the road in the United States. The average
age of a passenger car is 9.3 years, up from 8.1 years at the beginning of the
1990s. Light trucks are getting older, too. When I was growing up in the Bronx,
a car lasted for 50,000 miles. Fifteen or 20 years ago, it lasted 100,000.
Today, a new car will last 170,000 miles. In addition, years ago you used to get
a two- or three-year warranty. Now, it's five years. So cars between five and
nine years old are the sweet spot for parts consumption. Between 1996 and 2001,
cars in the sweet spot declined 2.2%, to 61 million units. In the next five
years, they are going to grow 15%, to 70 million. This is good news for GENUINE
PARTS.
Q: WE WONDERED WHERE YOU WERE GOING WITH THIS.
GABELLI: The stock sells for 31.50 or so. The company pays a dividend of $1.16 a
share, and dividends have grown for the past 30 years. The current yield is
around 4%. The payout ratio is about 50%. The balance sheet is terrific. Debt is
about $775 million. Earnings for 2002 probably will be a bit more than $2.10 a
share, rising to $2.30 in 2003 and around $2.50 in 2004. Revenues will grow
4%-5% and earnings about 7.5%-8%. Genuine Parts is a purveyor of expendable auto
components. The company is a leader in its market. If inflation picks up, parts
prices will rise, and its growth will rise more.
6
Q: WHERE IS THE STOCK HEADED?
GABELLI: If you can find 8%-10% growers with good balance sheets and predictable
earnings visibility, even with some quarterly earnings hiccups, a multiple of 20
times earnings isn't far-fetched. You could be looking at a $50 stock in a
couple of years. Plus, you get the dividend.
NEFF: There is some evidence that Detroit is building a better car. Would that
change the sweet spot any?
GABELLI: That's why the sweet spot moved from two to five years to six to 10.
BLACK: I owned Genuine Parts, but we sold it around 35 a share. The company's
growing the top line by only 3%-4%. Formerly, it had been an 8%-9% grower.
GABELLI: We expect auto-parts sales to grow by 5% a year -- and that's with
inflation of 1% -- over the next five years.
Now, to reiterate my view of the world, we're in a soft economy, but we'll get a
bunch of fiscal stimulation in the form of tax cuts for the consumer and the
business person, as well as something for the investor. We worry about higher
oil prices acting like a pickpocket in Times Square. If the price of crude falls
to under $25 a barrel, the world will reflate. Regulatory obstacles to business
will be re-examined in 2003. No. 1, the Telecommunications Act of 1996 is
re-examined. The opening salvo was launched today by the Federal Communications
Commission, echoing a commitment made by [FCC Chairman Michael] Powell in the
fall. The FCC is going to revisit the concept of unbundled networks, which would
help the regional Bell companies by allowing only full, facilities-based
competitors to enter the market. In the utilities area, the 1992 amendment to
the PUHCA, or Public Utility Holding Company Act of 1935, which created all the
opportunities for investment bankers to blow smoke up the portals of the utility
companies, is going to be re-examined.
Q: HOW WILL THE ENERGY-TRADING SCANDALS AFFECT THE INDUSTRY?
GABELLI: Companies are going back to basics. They're going to return to a
regulated monopoly business where they can earn 11%. But utility regulation is
going to change. Institutions will be allowed to own more than 10% of the shares
of any one utility. Then we're going to have an energy policy that will enable
us to address the world of $90 oil that Marc commented on. [In the first
installment of the Roundtable, Faber prophesied oil would hit $60-$90 a barrel
in the next 10-15 years, as demand from Asia surges.] We're going to produce
more, conserve more and find alternatives such as fuel cells and wind power.
Q: THERE'S BEEN A LOT OF THAT HERE TODAY.
GABELLI: We're also going to re-examine tort reform. And I want to talk about
deals, deals and more deals. In the past year or two, acquisitions have been
limited, because companies were concerned about being labeled serial acquirers
like Tyco and WorldCom. HSBC's acquisition of Household International sounds the
gong for a new wave of deals. This should benefit lots of my companies. Let's
turn to your TV set. Advertiser-supported media is going to do quite well in
2003. And in 2004 we'll have the Olympics, the election and economic
stimulation.
I'm recommending the small-television-station owners, because the FCC is going
to change several rules. They're going to raise the ownership cap, making it
possible for a given operator to own perhaps 50% of total households, versus the
current 35%, at a given time. They will permit duopoly in small markets, meaning
an operator will be able to own two TV stations. Third, they'll probably come
out with a better ruling on whether cable operators must carry digital signals.
Finally, television-station operators are finding new sources of revenues.
Q: WHICH STATION OWNERS DO YOU LIKE?
GABELLI: The first has done a pretty good job of damaging shareholder values.
It's YOUNG BROADCASTING, YBTVA. It closed Friday at 13 a share. It has an equity
market capitalization of approximately $260 million and net debt of about $600
million, for an enterprise value of $860 million. Young made an acquisition in
San Francisco, taking a TV station away from NBC. Bob Wright [chairman of NBC]
didn't forgive them, so he changed NBC's affiliation. Young paid about $750
million-$800 million for the station, and should sell it for $300 million-$400
million -- take a huge loss, sell it to NBC and apologize. That could drive the
stock from 12 to 40. Right now Young has 11 television stations, reaching 6.1%
of TV households -- six ABC affiliates, three CBS affiliates, one NBC affiliate
and an independent in San Francisco, KRON. If you took the broadcasting cash
flow of all of these stations except San Francisco, and applied it to all of the
company's debt, you'd get the San Francisco station for free.
Q: WHAT'S YOUR NEXT PICK?
GABELLI: LIBERTY, not LIBERTY MEDIA, which I'll talk about in a minute.
Liberty's symbol is LC. The stock trades on the New York Stock Exchange for 39,
and there are 19.8 million shares outstanding. The company's got a $770 million
market value, $60 million of cash, and $50 million of other assets which are
being converted to cash. Thus, you're really paying $660 million. Liberty has 15
affiliated television stations. The company has not done a good job of managing
shareholders' money, but they're generating significant cash flow. They will
generate a couple of hundred million dollars over the next three or four years.
Earnings will climb from $1.60 a share in 2002 to $2 to $3. The company is
controlled by the Hipp family in South Carolina.
7
Mario GABELLI'S PICKS
COMPANY SYMBOL 1/6/03 PRICE
-----------------------------------------
GENUINE PARTS GPC $31.88
-----------------------------------------
YOUNG BROADCASTING YBTVA 13.55
-----------------------------------------
LIBERTY CORP LC 39.31
-----------------------------------------
TRIBUNE TRB 47.79
-----------------------------------------
DQE DQE 16.50
-----------------------------------------
WESTAR ENERGY WR 10.26
-----------------------------------------
VERIZON COMM VZ 44.07
-----------------------------------------
DEL MONTE FOODS DLM 7.85
-----------------------------------------
CAMPBELL SOUP CPB 24.21
-----------------------------------------
H.J. HEINZ HNZ 33.91
-----------------------------------------
VIVENDI UNIVERSAL V 18.22
-----------------------------------------
LIBERTY MEDIA L 9.66
-----------------------------------------
AOL TIME WARNER AOL 14.09
-----------------------------------------
SOURCE: BLOOMBERG
--------------------------------------------------------------------------------
Q: WHAT DO YOU THINK OF LIBERTY MEDIA?
GABELLI: Be patient. Now, a kind word for TRIBUNE. The stock is 47. There are
330 million shares outstanding. Earnings of $2.20 a share are going to $3.50 a
share. Dennis FitzSimons [the current CEO] is going to succeed John Madigan.
Among utilities, I like DQE, formerly known as Duquesne. DQE has 586,000
electric customers in the Pittsburgh area and a propane business that serves
70,000 customers. The company is shedding assets. It's selling most of its
water-utility business to Philadelphia Suburban for $205 million. It's lowering
debt, which will fall to $800 million in a couple of years from a current $1.3
billion. Management got spooked by the rating agencies, so the investment
bankers convinced them to sell some stock. They sold 17 million shares last year
at $13.50 a share. We bought a basketful, and we're still nibbling.
Q: WHAT'S THE STOCK PRICE?
GABELLI: Around 15.50. The company cut its dividend in October, to a dollar a
share. As debt gets paid down, the dividend will rise. Plus, this is a
consolidation play. Somebody will take them over.
NEFF: What's the P/E?
GABELLI: DQE probably earned $1.30 a share in 2002. It was a hot summer in
Pittsburgh, so earnings may be flat in 2003, except for interest expense. The
stock trades for 12-13 times earnings. At eight times Ebitda [earnings before
interest, taxes, depreciation and amortization] I could do an LBO [leveraged
buyout] of this company, but that will not happen now. It might take a year and
a half to get a deal done. At that multiple, the stock is worth in the low $20s.
NEFF: Is this a 4%, 5%, 6% grower?
GABELLI: Yes. It's best to buy an index of utility stocks. The regulated
business will grow by 5%. Payout ratios will return to more historic levels, and
you could get a very good return on these stocks.
My next stock, WESTAR ENERGY, formerly Western Resources, is not without
controversy. Its former CEO was indicted. The new CEO, Jim Haines, is a good
chap. Westar, symbol WR, has 74 million shares outstanding. The stock trades for
10, giving the company a market value of $740 million. It pays a dividend of
$1.20 a share. Westar has $3.6 billion of debt, but Kansas's regulatory
commission has told the company to get that down to $1.8 billion. The company
owns 45 million shares of Oneok, worth $1 billion. Somehow, they have to
monetize it. They own Protection One, a protection company, which they will also
sell or otherwise deconsolidate. I would then suggest to the chairman that he
reduce the dividend to 60 cents, but pay shareholders a 60-cent stub. The
company's regulated business has a book value of $16-$18 a share, on which it
can earn 11%. The company can earn about $2 a share. Two years from now, you
could double your money and Westar will be merged with someone else.
Q: MARIO, HAVE YOU ACTUALLY SUGGESTED THIS?
GABELLI: I haven't talked to Mr. Haines at all. He'll read it when this is
published. The company doesn't have a debt problem, it has a cosmetic problem.
By cutting the dividend to 60 cents, you throw a bone to the regulators, much as
Con Edison did in New York in the 1970s. The regulators didn't like the former
CEO, but Haines is a former regulator and has credibility.
BLACK: A lot of these electric utilities make about 13%-14% on book. They're
leveraged roughly one-to-one on a debt-to-equity basis. They're making 6.5%-7%
on total capital, but they've been destroying capital for years because their
returns are below a normalized cost of capital, which is 8.5% or 9%. Maybe as
stocks they go up, but as an industry this is a lousy play and it has been
historically.
GABELLI: I don't know what you are talking about. I think you can make a lot of
money in this area. Once the PUHCA rules are amended, guys like Warren Buffett
and I are going to put tons of money into the group. And we're going to earn
20%-25% on our investment. Look, there's weakness in utilities if inflation goes
to 6%-7%, because there's a lag effect for adjusting rates. But local
distribution is still a terrific business, whether it's electric or gas.
Next, I've got a small-cap stock: VERIZON COMMUNICATIONS. It has only 2.7
billion shares, and trades for 40.50. However, the stock will be up today
[indeed, Verizon closed up 3.62, to 44.07 on Jan. 6, although it has since
backtracked]. The FCC has just proposed changes that will help the RBOCs
[regional Bell operating companies]. The competition that was fueled by Wall
Street's greed is dying, and the Bells are going to get stronger. Verizon can
earn about $2.80 a share this year. It will probably grow by 6%-7%, maybe a
little faster. The stock yields about 3.75% and sells below the S&P's
price/earnings multiple. I could also make the same case for SBC Communications
and BellSouth, but Verizon's enough for now.
8
--------------------------------------------------------------------------------
Q: THAT'S RESTRAINT.
GABELLI: Barton talked about the attractiveness of consumer staples. [Last
week's Roundtable installment featured Barton Biggs' stock picks, including
Kraft Foods, PepsiCo, Coca-Cola and Colgate-Palmolive.] I've got three more
names. DEL MONTE FOODS sells for 8. There are 210 million shares outstanding. So
that's $1.6 billion in market value. The company has $1.8 billion of debt. Del
Monte is a producer of consumables such as pet foods, tuna and vegetables.
Revenues for the year ending April 2004 will be about $3.4 billion. Earnings
will be 80 to 90 cents. The stock could trade for the same multiple as Ralcorp,
a producer of non-branded staples. If that happens, it goes to 15-16 in two
years.
CAMPBELL SOUP is another potential winner. The stock is 24, and the company has
a $10 billion market cap and $3.5 billion of debt. They are getting themselves
ready for a sale.
Q: WHAT IS GOING TO TURN THIS COMPANY AROUND?
GABELLI: It's got better management, better products. It's moving into Europe.
The chairman, George Sherman, did a pretty decent job in his former life,
running Danaher. Management is grooming Campbell for a takeover, which could
happen in the low 30s. We think it will happen a year from now.
BLACK: The company's condensed soups have been losing share for a long time.
This is a classic marketing problem.
GABELLI: It's a matter of execution. This is a terrific category, with seven or
eight companies. There's Unilever and Nestle and PepsiCo in the
$100-billion-market-cap category. There are a whole bunch of companies in the
$10 billion-$20 billion market. There is another round of consolidation
occurring. Campbell is on my list.
My next stock is ketchup -- any color, any flavor, any price. Yes, H.J. HEINZ.
The stock is 33, and the symbol is HNZ. Heinz has $4 billion of debt and a $15
billion market cap. After the spinoff of its SKF subsidiary, which was merged
into a subsidiary of Del Monte, Heinz will have earnings of about $2 a share.
That will grow by about 7%-8% a year, and cash flow is excellent. A good part of
Heinz's business is in Europe, where earnings will benefit from a declining
dollar.
Q: PLEASE TELL US ABOUT LIBERTY MEDIA.
GABELLI: There will be a lot of acquisitions and financial transactions in the
world of entertainment. Walt Disney and VIVENDI UNIVERSAL are thinking about
transactions. I'll start with Vivendi, because it is the least controversial
[general laughter]. The stock is around 17. There are 1.1 billion shares
outstanding. We think the company is worth about 35 euros a share. We like their
strategy. Vivendi has a very good business in wireless telecom in France. They
could always pick up the phone and sell it to Vodafone. Canal Plus, their cable
business in France and elsewhere in Europe, is wonderful. There's the
entertainment business in the United States, which is terrific, particularly the
sci-fi and cable-channel networks. Jean-Rene Fourtou, who succeeded Jean-Marie
Messier, is liquefying the company. We've been buying the stock.
Time for Liberty Media and John Malone [the company's chairman]. Here's the
math: 2.7 billion shares outstanding at 9 a share comes out to $25 billion in
market value. Liberty is invested in other companies whose stocks are going to
rise. Plus, it will benefit from more merger activity and more favorable
regulations. It's got a great collection of assets.
Q: WHAT HAPPENED TO MALONE? HE USED TO BE A GOOD INVESTOR.
GABELLI: Malone made the dumbest investments in the world. He invested in
telecoms and made a lot of mistakes, but let's deal with the deck we have. It's
a pretty interesting deck. Is he going to team up with Barry Diller to go after
Vivendi? Is he going to put QVC and Home Shopping Network together? Is he going
to do something with Bob Wright? Will he be in the forefront of the
re-engineering of other companies? Whatever the case, the stock is cheap at 9,
and gives you the equivalent of an active index fund in the media/entertainment
area.
BLACK: What does he do with the company's AOL holding? [Liberty Media owns 170
million AOL Time Warner shares.] I own Liberty as well, and it's got a breakup
value of $14 a share, conservatively speaking. But there's this huge holding in
AOL.
GABELLI: AOL is driven by AOL. If it were just Time Warner, the stock would sell
for a higher price. Those of us who owned Time Warner made a lot of money on
this deal [the January 2001 merger of AOL and Time Warner], because our stock
got up to 90-100, and we sold it. They marked it up, and we moved it down. We
started buying it back around 18 to 21, and the stock is around 11-12 today.
There are about 4.4 billion shares, times 12 a share, which is $50 billion in
market value. It's got another $30 billion of debt, so that's an enterprise
value of $80 billion. Looking at their non-AOL businesses, you get a value that
is higher than $80 billion. Cash flow is very good. The company is planning to
spin off Time Warner Cable. They'll buy Cablevision. You knew I would get that
in today! [Gabelli predicted at the 2002 Roundtable that Cablevision eventually
would be sold.] The question is, can they revitalize the company and maintain
AOL's subscriber base? Can they continue to create new services that are unique
at AOL? Can they get cash flow from transactions?
SAMBERG: And the answer is?
GABELLI: I don't know. I was never one pushing the AOL model.
Q: THANKS MARIO. []
9
INVESTMENT SCORECARD
In the fourth quarter, telecom stocks rallied strongly, with France
Telecom, Sprint PCS, Qwest and Broadwing making our top-ten performance list and
numerous other telecom holdings posting impressive gains. Media stocks including
Cablevision Systems, PRIMEDIA, News Corp. and Young Broadcasting posted good
gains. Beaten up "growth to value" stocks such as Xerox, Hewlett Packard and
Halliburton also performed quite well. Our biggest laggards were from a grab bag
of industry groups including defense (Northrop Grumman), consumer electronics
(Hitachi) and manufacturing (GrafTech International).
For the full year, our biggest winners also came from an eclectic group of
industries including publishing (Media General), hotels (Hilton Hotels),
consumer services (Rollins), and aerospace/defense (Fairchild). Despite strong
fourth quarter performance, telecommunications stocks performed poorly for the
full year. In general, our utilities stocks also disappointed with Duke Energy
and El Paso retreating significantly.
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.
BERKSHIRE HATHAWAY INC. (BRK'A - $72,750 - 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.
GAYLORD ENTERTAINMENT CO. (GET - $20.60 - NYSE) is a diversified company
operating principally in two segments: hospitality and media. The company's
hospitality group consists of an interrelated group of businesses including the
Opryland Hotel Nashville, the Inn at Opryland, the General Jackson (an
entertainment showboat), and other related assets. The media group consists
primarily of the Grand Ole Opry, the Ryman Auditorium, the Wildhorse Saloon, and
three Nashville radio stations. Gaylord's management team is focusing on
unlocking shareholder value. They have recently opened a new hotel, the Gaylord
Palms, in Orlando, FL and are constructing a third in Grapevine, TX. The company
recently announced the sale of Acuff-Rose Music Publishing to Sony for $157
million and the sale of its stake in the Opry Mills mall for $30 million,
allowing Gaylord to finance the completion of the Texas hotel.
GENUINE PARTS CO. (GPC - $30.80 - 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 U.S.,
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.
GRUPO TELEVISA SA (TV - $27.93 - NYSE), headquartered in Mexico, is Latin
America's dominant Spanish language media and broadcast company. The company has
interests in television production and broadcasting, programming for pay
television, direct-to-home ("DTH") satellite services, publishing and publishing
distribution, cable television, radio broadcasting and production. The company
also produces thousands of hours of television programming annually which it
exports to over 21 countries including the United States. This large and
expanding program library is exclusively available for U.S. distribution by
Univision Communications (UVN - $24.50 - NYSE), a Spanish-language television
broadcaster in the United States in which Televisa has as a 15% fully diluted
equity stake.
HEINZ (H.J.) CO. (HNZ - $32.87 - NYSE) is a manufacturer and marketer of
processed foods, including condiments and frozen meals. On December 20, 2002 the
company completed the spin-off of certain businesses, including U.S. Starkist
Tuna, North
10
America pet products, U.S. infant feeding, College Inn broth and U.S. private
label soup to Del Monte Foods Company. Each Heinz shareholder received
approximately 0.44 shares of the new Del Monte stock and as a result, Heinz
shareholders own around 74.5% of the new company. Following this deal, the H.J.
Heinz Company reorganized its U.S. operations into two segments -- Away from
Home, to focus on foodservice, and Consumer Products, centered on retail
business. These units consist of North American ketchup, condiment, sauces and
frozen meals businesses in addition to their International food businesses.
MEDIA GENERAL INC. (MEG - $59.95 - NYSE) is a Richmond, Virginia-based
communications company that is primarily focused on the Southeast. Its newspaper
publishing operations include the RICHMOND TIMES-DISPATCH, THE WINSTON-SALEM
JOURNAL, THE TAMPA TRIBUNE, and 22 other daily newspapers. This includes 5 daily
newspapers, clustered in Alabama and South Carolina, which the company bought
from Thomson Corp. for $238 million in August 2000. The company also owns a 20
percent interest in the DENVER POST. Media General also operates 26 television
stations primarily located in Southeastern markets, including 13 purchased from
Spartan Communications on March 27, 2000 for $605 million.
MIDLAND CO. (MLAN - $19.00 - NASDAQ) is a specialty property and casualty
insurance provider headquartered in Amelia, Ohio. The company's primary business
is to provide insurance for manufactured homes although in recent years Midland
has expanded into other insurance business lines such as watercraft, motorcycle,
snowmobile and recreational vehicle insurance. Midland is an above-average
underwriter and has produced an underwriting profit in eight of the past ten
years. The company also owns a niche river transportation business that
generates approximately 5% of pre-tax income. Midland has four strategies for
growth: organic growth, strategic acquisitions, strategic alliances, and
expansion of low-risk fee income business.
SPS TECHNOLOGIES INC. (ST - $23.75 - 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 roughly 20 acquisitions since 1996 and has positioned the nearly $1
billion company to be a strategic global supplier in the consolidating fastener
industry. We believe the company will continue to use its strong cash flow to
augment internal revenue and earnings growth with acquisitions.
VERIZON COMMUNICATIONS INC. (VZ - $38.75 - NYSE) was formed by the merger of
Bell Atlantic and GTE, and pooling the wireless assets of the combined company
with U.S. assets of Vodafone Group plc (VOD - $18.12 - NYSE). Verizon is the
largest domestic local phone provider with about 64 million access lines and is
also the largest national wireless carrier servicing over 30 million wireless
customers. Verizon is a major data service provider and a key player in print
and on-line directory information business. Verizon's global presence extends to
40 countries in the Americas, Europe, Asia and the Pacific.
WESTAR ENERGY INC. (WR - $9.90 - NYSE) is a stock with a very low valuation
relative to the sum of its parts. Westar's share price has fallen sharply over
the past 12 months because the company failed to execute its plans to sell the
electric utility operations to PNM Resources (PNM - $23.82 - NYSE) and also due
to disappointing rate orders from regulators in Kansas. During the fourth
quarter of 2002, Westar's top two officers resigned, prompting the hiring of a
new CEO and COO. Both of these individuals are experienced utility executives
who we think can turn the company around and, in particular, improve Westar's
relationship with state regulators. We think that Westar's ongoing effort to
divest its 45% ownership stake in ONEOK is a smart move. We would expect Westar
to use the profits from the ONEOK sale to pay off a large portion of the holding
company's debt. We also think that Westar is going to divest much or all of its
85% ownership stake in Protection One (POI - $2 NYSE), the nation's second
largest monitored security company. The loss on the sale of the Protection One
shares could be used to offset Westar's taxable gain on the sale of the ONEOK
shares.
7.25% TAX ADVANTAGED CUMULATIVE PREFERRED STOCK -- DIVIDENDS
The Trust's 7.25% Tax Advantaged Cumulative Preferred Stock paid a cash
distribution on December 26, 2002 of $0.453125 per share. For the year ended
December 31, 2002, Preferred Stock shareholders received distributions totaling
$1.8125, the annual dividend rate per share of Preferred Stock. The next
distribution is scheduled for March 2003. The 7.25% Preferred Stock 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.
11
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 December 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 March 2003.
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 1.48% to 1.95%
during 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 do not trade on an exchange.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage at www.gabelli.com contains
information about Gabelli Asset Management Inc., the Gabelli Mutual Funds, IRAs,
401(k)s, quarterly reports, closing prices and other current news. You can send
us e-mail at info@gabelli.com.
In our efforts to bring our shareholders more timely portfolio
information, Gabelli Fund's portfolio managers regularly participate in chat
sessions as reflected below.
FEBRUARY MARCH APRIL
-------- ----- -----
1st Tuesday Howard Ward Howard Ward Howard Ward
1st Wednesday Walter Walsh & Laura Linehan Caesar Bryan Charles Minter & Martin Weiner
2nd Wednesday Caesar Bryan Susan Byrne Susan Byrne
3rd Wednesday Elizabeth Lilly Henry Van der Eb Ivan Arteaga
4th Wednesday Barbara Marcin Barbara Marcin Walter Walsh & Laura Linehan
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.
IN CONCLUSION
2002 was the third consecutive year of losses for the S&P 500 Index.
Although never pleased with negative performance, we are proud of the Gabelli
Equity Trust's relative performance through one of the longest and most painful
bear markets in history. For the three-year period concluding at year-end 2002,
the Fund had an average annualized decline of 9.61%. This is certainly nothing
to cheer about, but considering the S&P 500's 14.54% average annualized loss
over this period, we have done a rather commendable job. Value investing has
worked as it should, preserving assets in a difficult market environment. We are
confident it will also be productive in the more benign market climate we expect
in the year ahead.
Sincerely,
/S/ MARIO J. GABELLI
MARIO J. GABELLI, CFA
Portfolio Manager and Chief Investment Officer
February 10, 2003
--------------------------------------------------------------------------------
SELECTED HOLDINGS
DECEMBER 31, 2002
-----------------
Berkshire Hathaway Inc. Media General Inc.
Gaylord Entertainment Co. Midland Co.
Genuine Parts Co. SPS Technologies Inc.
Grupo Televisa SA Verizon Communications Inc.
Heinz (H.J.) Co. Westar Energy 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.
12
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
QUARTER ENDED DECEMBER 31, 2002
(UNAUDITED)
OWNERSHIP AT
DECEMBER 31,
SHARES 2002
-------- ------------
NET PURCHASES
COMMON STOCKS
AES Corp. .......................... 8,000 60,000
Agere Systems Inc., Cl. B .......... 16,000 150,393
Ascent Media Group Inc., Cl. A ..... 24,000 24,000
AT&T Corp. (a) ..................... 300,000 300,000
Blockbuster Inc., Cl. A ............ 50,000 50,000
Broadwing Inc. ..................... 50,000 900,000
BT Group plc, ADR .................. 2,300 36,300
Cable And Wireless Jamaica Ltd. (b) 855,919 4,194,111
Cable & Wireless plc, ADR .......... 7,000 180,000
Campbell Soup Co. .................. 20,000 100,000
Carlsberg AS, Cl. B ................ 2,000 13,000
Cinergy Corp. ...................... 3,000 23,000
Coca-Cola Co. ...................... 5,000 35,000
Coca-Cola Hellenic Bottling Co. SA . 20,000 40,000
Comcast Corp., Cl. A (c)(d) ........ 525,250 525,250
Comcast Corp., Cl. A, Special (e) .. 85,000 85,000
ConocoPhillips ..................... 5,000 103,217
Corning Inc. ....................... 15,000 525,000
CRH plc ............................ 8,000 100,500
Cypress Semiconductor Corp. ........ 315,000 315,000
Del Monte Foods Co. (f) ............ 53,592 53,592
DPL Inc. ........................... 6,000 26,000
El Paso Corp. ...................... 30,000 150,000
Electronic Data Systems Corp. ...... 5,000 5,000
Gemstar-TV Guide International Inc. 110,000 350,432
Gray Television Inc. ............... 75,000 100,000
Gucci Group NV, ADR ................ 1,500 34,500
Heinz (H.J.) Co. (f) ............... 6,000 120,000
Henry Schein Inc. .................. 15,000 15,000
Hershey Foods Corp. ................ 5,000 20,000
Honeywell International Inc. ....... 20,000 420,000
John Hancock Financial Services Inc. 15,000 75,000
KDDI Corp. ......................... 143 143
Liberty Media Corp., Cl. A ......... 73,600 1,913,600
LVMH Moet Hennessy Louis
Vuitton SA (g) .................. 12,100 12,100
Maytag Corp. ....................... 5,000 35,000
Mediaset SpA ....................... 120,000 120,000
Merck & Co. Inc. ................... 10,000 50,000
Molex Inc., Cl. A .................. 2,000 18,000
Motorola Inc. ...................... 10,000 120,000
Murata Manufacturing Co. Ltd. ...... 11,500 11,500
Nortek Holdings Inc. ............... 137,800 137,800
Nortek Holdings Inc., Special
Common .......................... 5,000 5,000
Northrop Grumman Corp. (h) ......... 90,069 181,069
Panamerican Beverages Inc., Cl. A .. 30,000 30,000
Reader's Digest Association Inc. (i) 170,800 170,800
RTL Group .......................... 14,700 17,700
Schering-Plough Corp. .............. 10,000 20,000
Sealed Air Corp. ................... 5,000 5,000
Tokyo Electron Ltd. ................ 5,000 13,400
TXU Corp. .......................... 100,000 100,000
UBS AG ............................. 14,000 14,000
Vivendi Universal SA, ADR .......... 15,000 325,000
Vodafone Group plc ................. 100,000 553,888
Wrigley (Wm.) Jr. Co. .............. 2,100 179,100
Wyeth .............................. 5,000 60,000
PREFERRED STOCKS
Hercules Trust I, 9.420% Pfd. ...... 7,000 280,500
Lucent Technologies Capital Trust I,
7.750% Cv. Pfd. ................. 500 500
OWNERSHIP AT
DECEMBER 31,
SHARES 2002
-------- ------------
NET SALES
COMMON STOCKS
AT&T Corp. (a)(c) .................. (1,500,000) --
BAE Systems plc .................... (25,000) 100,000
Comcast Corp., Cl. A (d) ........... (40,000) --
Comcast Corp., Cl. A, Special (e) .. (85,000) --
Delhaize Le Lion SA, ADR ........... (16,000) --
DTE Energy Co. ..................... (3,366) 27,000
Genuity Inc., Cl. A ................ (10,000) 20,000
Halliburton Co. .................... (91,000) 189,000
Interbrew .......................... (12,000) 18,000
Leap Wireless International Inc. ... (42,900) 100,000
Liberty Livewire Corp., Cl. A ...... (24,000) --
LVMH Moet Hennessy Louis Vuitton,
ADR (g) ......................... (60,500) --
Nintendo Co. Ltd. .................. (1,300) 8,200
Nortek Inc. ........................ (137,800) --
Nortek Inc., Special Common ........ (5,000) --
NTL Inc. ........................... (20,000) --
NTL Inc., rights ................... (298) --
Olympus Optical Co. Ltd. ........... (28,000) --
Pennzoil-Quaker State Co. (j) ...... (358,200) --
Precision Castparts Corp. .......... (5,000) 55,000
RCN Corp. .......................... (20,000) 90,000
Reader's Digest Association Inc.,
Cl. B (i) ....................... (140,000) --
Rohm and Haas Co. .................. (10,000) 5,000
Rollins Inc. ....................... (32,000) 473,000
RTL Group .......................... (14,700) --
Sara Lee Corp. ..................... (5,000) 15,000
Secom Co. Ltd. ..................... (7,000) --
SCMP Group Ltd ..................... (138,681) 261,319
TRW Inc. (h) ....................... (170,000) --
Tsakos Energy Navigation Ltd. ...... (29,273) --
Winn-Dixie Stores Inc. ............. (5,000) 20,000
Worldcom Inc.--MCI Group ........... (120,000) --
PREFERRED STOCKS
Allen Telecom Inc., 7.750% Cv. Pfd.,
Ser D ........................... (7,500) 52,500
Lucent Technologies Capital Trust I,
7.750% Cv. Pfd. ................. (500) --
News Corp. Ltd., Pfd., ADR ......... (5) 770,494
-------------
(a) 1 for 5 reverse stock split
(b) 1 for 13 bonus issue
(c) Merger -- 0.3235 shares of Comcast Corp., Cl. A for every 1 share of AT&T
Corp.
(d) Merger -- 1 share of Comcast Corp., Cl. A for every 1 share of Comcast
Corp., Cl. A
(e) Merger -- 1 share of Comcast Corp., Cl. A, Special for every 1 share of
Comcast Corp., Cl. A, Special
(f) Spinoff -- 0.4466 shares of Del Monte Foods Co. for every 1 share of Heinz
(H.J.) Co.
(g) Merger -- 0.2000 shares of LVMH Moet Hennessy Louis Vuitton SA for every 1
share of LVMH Moet Hennessy Louis Vuitton, ADR
(h) Merger -- 0.5357 shares of Northrop Grumman Corp. for every 1 share of TRW
Inc.
(i) Merger -- 1.2200 shares of Reader's Digest Association Inc. for every 1
share of Reader's Digest Association Inc., Cl. B
(j) Tender Offer at $22.00 per share
See accompanying notes to financial statements.
13
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2002
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS -- 85.4%
TELECOMMUNICATIONS -- 7.8%
8,132 Aliant Inc. .............$ 72,479 $ 129,976
6,000 Allegiance
Telecom Inc.+ ........ 45,638 4,020
30,000 ALLTEL Corp. ............ 617,209 1,530,000
300,000 AT&T Corp. .............. 9,781,380 7,833,000
40,540 ATX Communications
Inc.+ ................ 238,320 15,811
3,333 Avaya Inc.+ ............. 26,540 8,166
320,000 BCE Inc. ................ 8,524,049 5,763,200
33,400 Brasil Telecom Participacoes
SA, ADR .............. 1,940,826 843,350
900,000 Broadwing Inc.+ ......... 8,446,628 3,168,000
1,775,000 BT Group plc ............ 7,339,812 5,572,325
36,300 BT Group plc, ADR ....... 1,393,082 1,137,279
4,194,111 Cable & Wireless
Jamaica Ltd. ......... 101,639 101,087
180,000 Cable & Wireless
plc, ADR ............. 4,079,570 419,400
130,000 CenturyTel Inc. ......... 2,760,538 3,819,400
100,000 Citizens Communications
Co.+ ................. 1,226,788 1,055,000
255,466 Commonwealth Telephone
Enterprises Inc.+ .... 9,444,863 9,155,901
20,000 Commonwealth Telephone
Enterprises Inc.,
Cl. B+ ............... 128,902 735,000
45,000 Compania de
Telecomunicaciones de
Chile SA, ADR ........ 721,724 431,550
240,278 Deutsche Telekom AG, ADR 4,091,422 3,051,531
200,000 Embratel Participacoes SA,
ADR+ ................. 3,112,869 214,000
24,000 France Telecom SA, ADR .. 904,424 426,480
230 Japan Telecom Holdings
Co. Ltd. ............. 801,311 713,238
143 KDDI Corp. .............. 445,020 463,933
100,000 KPN NV+ ................. 232,728 650,598
700,000 Qwest Communications
International Inc.+ .. 2,010,505 3,500,000
90,000 RCN Corp.+ .............. 638,986 47,700
9,655 Rogers Communications Inc.,
Cl. B+ ............... 137,424 89,596
110,345 Rogers Communications Inc.,
Cl. B, ADR+ .......... 1,537,198 1,035,036
225,000 SBC Communications Inc. . 7,483,249 6,099,750
350,000 Sprint Corp. - FON
Group ................ 8,833,016 5,068,000
186,554 Tele Norte Leste Participacoes
SA, ADR .............. 2,554,387 1,371,172
40,000 Telecom Argentina Stet France
Telecom SA, ADR+ ..... 349,211 90,000
400,040 Telecom Italia SpA ...... 3,059,315 3,035,026
123,000 Telecom Italia SpA, ADR . 2,585,208 9,345,540
135,000 Telecom Italia SpA, RNC . 517,495 681,396
265,139 Telefonica SA, ADR+ ..... 9,182,511 7,044,743
16,912 Telefonica SA, BDR+ ..... 206,521 150,487
36,000 Telefonos de Mexico SA de
CV, Cl. L, ADR ....... 389,422 1,151,280
12,750 TELUS Corp. ............. 222,542 140,834
52,500 TELUS Corp., ADR ........ 950,397 579,907
4,250 TELUS Corp., Non-Voting . 74,181 43,448
27,500 TELUS Corp., Non-Voting,
ADR .................. 557,547 281,131
340,000 Verizon Communications
Inc. ................. 12,761,426 13,175,000
-------------- --------------
120,528,302 100,172,291
-------------- --------------
FINANCIAL SERVICES -- 7.5%
90,000 Allstate Corp. .......... 2,376,366 3,329,100
550,000 American Express Co. .... 19,230,623 19,442,500
36,400 Argonaut Group Inc. ..... 977,772 536,900
MARKET
SHARES COST VALUE
------ ---- ------
90,000 Banco Santander Central
Hispano SA, ADR ......$ 322,130 $ 634,500
110,000 Bank of Ireland ......... 635,101 1,128,892
80,000 Bank of New York Co. Inc. 2,960,687 1,916,800
85,000 Bank One Corp. .......... 2,606,390 3,106,750
282,000 Bankgesellschaft
Berlin AG+ ........... 5,606,801 591,834
260 Berkshire Hathaway Inc.,
Cl. A+ ............... 824,299 18,915,000
5,000 Block (H&R) Inc. ........ 97,625 201,000
190,000 Commerzbank AG, ADR ..... 3,839,967 1,499,290
160,000 Deutsche Bank AG, ADR ... 6,917,270 7,268,800
20,000 Dun and Bradstreet Corp.+ 333,130 689,800
50,000 FleetBoston Financial Corp. 1,041,125 1,215,000
25,000 Hibernia Corp., Cl. A ... 198,750 481,500
20,000 Invik & Co. AB, Cl. B ... 936,800 594,491
100,000 Irish Life & Permanent plc 781,432 1,080,832
75,000 John Hancock Financial
Services Inc. ........ 2,741,794 2,092,500
50,000 JP Morgan Chase & Co. ... 1,334,283 1,200,000
64,000 Leucadia National Corp. . 2,040,082 2,387,840
100,000 Mellon Financial Corp. .. 3,140,094 2,611,000
199,400 Midland Co. ............. 1,114,894 3,788,600
30,000 Moody's Corp. ........... 666,995 1,238,700
207,500 Nikko Cordial Corp. ..... 1,534,151 699,418
185,000 Phoenix Companies Inc. .. 2,981,430 1,406,000
2,500 Prudential Financial Inc. 68,750 79,350
60,000 RAS SpA ................. 660,245 730,348
60,000 Riggs National Corp. .... 552,538 929,400
50,000 Schwab (Charles) Corp. .. 730,625 542,500
80,000 State Street Corp. ...... 1,417,370 3,120,000
30,000 Stilwell Financial Inc. . 470,955 392,100
20,000 SunTrust Banks Inc. ..... 419,333 1,138,400
100,000 T. Rowe Price Group Inc. 3,379,425 2,728,000
7,000 Travelers Property Casualty
Corp., Cl. A+ ........ 129,500 102,550
14,000 UBS AG+ ................. 588,234 680,413
58,500 Unitrin Inc. ............ 1,073,500 1,709,370
130,000 Wachovia Corp. .......... 4,051,382 4,737,200
55,100 Waddell & Reed Financial Inc.,
Cl. A ................ 1,150,377 1,083,817
-------------- --------------
79,932,225 96,030,495
-------------- --------------
FOOD AND BEVERAGE -- 7.4%
15,000 Cadbury Schweppes
plc, ADR ............. 393,807 384,150
100,000 Campbell Soup Co. ....... 2,694,094 2,347,000
13,000 Carlsberg AS, Cl. B ..... 642,968 572,099
35,000 Coca-Cola Co. ........... 1,625,312 1,533,700
50,000 Coca-Cola Enterprises
Inc. ................. 773,534 1,086,000
40,000 Coca-Cola Hellenic Bottling
Co. SA ............... 614,996 555,736
100,000 Corn Products
International Inc. ... 2,916,387 3,013,000
53,592 Del Monte Foods Co.+ .... 447,217 412,659
10,108 Denny's Corp.+ .......... 14,358 6,469
100,000 Diageo plc .............. 1,037,393 1,086,694
224,000 Diageo plc, ADR ......... 8,642,745 9,811,200
20,000 Dreyer's Grand Ice
Cream Inc. ........... 1,345,682 1,419,200
41,600 Flowers Foods Inc. ...... 1,055,628 811,616
90,000 General Mills Inc. ...... 3,178,115 4,225,500
440,000 Grupo Bimbo SA de CV,
Ser. A ............... 949,109 647,133
20,000 Hain Celestial
Group Inc.+ .......... 267,663 304,000
120,000 Heinz (H.J.) Co. ........ 4,315,473 3,944,400
20,000 Hershey Foods Corp. ..... 1,333,128 1,348,800
18,000 Interbrew ............... 499,878 424,987
350,000 Kellogg Co. ............. 9,933,854 11,994,500
See accompanying notes to financial statements.
14
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2002
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
75,000 Kerry Group plc, Cl. A ..$ 860,877 $ 987,080
12,100 LVMH Moet Hennessy Louis
Vuitton SA ........... 419,053 497,093
41,300 Mondavi (Robert) Corp.,
Cl. A+ ............... 1,286,495 1,280,300
1,000 Nestle SA ............... 213,495 211,906
30,000 Panamerican Beverages Inc.,
Cl. A ................ 620,279 623,400
150,000 Parmalat Finanziaria
SpA .................. 442,418 357,304
600,595 PepsiAmericas Inc. ...... 8,073,962 8,065,991
500,000 PepsiCo Inc. ............ 14,253,072 21,110,000
7,000 Pernod-Ricard SA ........ 606,722 677,986
60,000 Ralcorp Holdings Inc.+ .. 940,903 1,508,400
15,000 Sara Lee Corp. .......... 304,094 337,650
2,000 Smucker (J.M.) Co. ...... 52,993 79,620
103,854 Tootsie Roll
Industries Inc. ...... 1,580,957 3,186,241
179,100 Wrigley (Wm.) Jr. Co. ... 9,697,289 9,829,008
------------ --------------
82,033,950 94,680,822
------------ --------------
ENTERTAINMENT -- 6.4%
620,000 AOL Time Warner Inc.+ ... 14,622,091 8,122,000
24,000 Ascent Media Group Inc.,
Cl. A+ ............... 93,109 26,880
50,000 Blockbuster Inc., Cl. A . 680,395 612,500
160,000 Canal Plus, ADR ......... 34,010 150,432
110,000 EMI Group plc ........... 292,543 246,156
100,000 EMI Group plc, ADR ...... 1,189,467 447,550
120,000 Fox Entertainment Group
Inc., Cl. A+ ......... 2,783,871 3,111,600
50,000 GC Companies Inc.+ ...... 54,500 9,000
350,432 Gemstar-TV Guide
International Inc.+ .. 2,854,443 1,138,904
1,913,600 Liberty Media Corp.,
Cl. A+ ............... 9,721,198 17,107,584
300,000 Metro-Goldwyn-
Mayer Inc.+ .......... 4,962,381 3,900,000
160,000 Publishing &
Broadcasting Ltd. .... 893,720 779,332
15,000 Regal Entertainment Group,
Cl. A ................ 285,000 321,300
225,000 Six Flags Inc.+ ......... 1,991,205 1,284,750
260,000 The Walt Disney Co. ..... 5,453,387 4,240,600
840,000 Viacom Inc., Cl. A+ ..... 35,321,392 34,280,400
40,900 Vivendi Universal SA .... 2,169,026 660,515
325,000 Vivendi Universal
SA, ADR .............. 10,081,404 5,222,750
------------ --------------
93,483,142 81,662,253
------------ --------------
ENERGY AND UTILITIES -- 5.7%
60,000 AES Corp.+ .............. 294,617 181,200
70,000 AGL Resources Inc. ...... 1,259,271 1,701,000
37,400 Apache Corp. ............ 844,013 2,131,426
120,000 BP plc .................. 725,215 824,921
248,800 BP plc, ADR ............. 10,091,328 10,113,720
150,000 Burlington
Resources Inc. ....... 6,384,591 6,397,500
115,000 CH Energy Group Inc. .... 4,749,282 5,362,450
23,000 Cinergy Corp. ........... 700,115 775,560
103,217 ConocoPhillips .......... 5,288,737 4,994,671
10,000 Constellation Energy
Group Inc. ........... 237,177 278,200
2,500 Dominion Resources Inc. . 152,000 137,250
26,000 DPL Inc. ................ 524,093 398,840
100,000 DQE Inc. ................ 1,744,412 1,524,000
27,000 DTE Energy Co. .......... 1,193,907 1,252,800
580,000 Duke Energy Corp. ....... 10,643,000 11,333,200
150,000 El Paso Corp. ........... 2,669,824 1,044,000
400,000 El Paso Electric Co.+ ... 3,236,625 4,400,000
30,000 Energy East Corp. ....... 629,693 662,700
40,000 Exxon Mobil Corp. ....... 1,274,246 1,397,600
9,400 FPL Group Inc. .......... 507,682 565,222
MARKET
SHARES COST VALUE
------ ---- ------
30,000 Gas Natural SDG SA ......$ 547,942 $ 568,853
189,000 Halliburton Co. ......... 2,146,256 3,536,190
38,632 Kerr-McGee Corp. ........ 2,281,548 1,711,398
90,000 Mirant Corp.+ ........... 1,000,720 170,100
100,000 NiSource Inc.+ .......... 200,000 222,000
250,000 Northeast Utilities ..... 4,834,797 3,792,500
100,000 Progress Energy
Inc., CVO+ ........... 52,000 16,000
7,500 Royal Dutch
Petroleum Co. ........ 317,555 330,150
10,400 SJW Corp. ............... 931,126 811,720
14,000 Southwest Gas Corp. ..... 289,625 328,300
7,907 Total Fina Elf SA ....... 1,114,624 1,129,251
100,000 TXU Corp. ............... 1,673,875 1,868,000
260,000 Westar Energy Inc. ...... 4,407,757 2,574,000
60,000 Xcel Energy Inc. ........ 611,575 660,000
------------ --------------
73,559,228 73,194,722
------------ --------------
PUBLISHING -- 5.2%
20,000 Dow Jones & Co. Inc. .... 1,030,036 864,600
196,000 Independent News &
Media plc ............ 316,913 318,793
15,900 Knight-Ridder Inc. ...... 1,066,095 1,005,675
5,000 McClatchy Co., Cl. A .... 240,250 283,650
105,000 McGraw-Hill
Companies Inc. ....... 6,319,141 6,346,200
400,000 Media General Inc.,
Cl. A ................ 23,598,458 23,980,000
125,000 Meredith Corp. .......... 2,091,314 5,138,750
115,000 New York Times
Co., Cl. A ........... 790,115 5,258,950
120,000 News Corp. Ltd. ......... 696,029 775,728
11,016 News Corp. Ltd., ADR .... 195,893 289,170
400,000 Penton Media Inc.+ ...... 4,849,118 272,000
350,000 PRIMEDIA Inc.+ .......... 1,806,479 721,000
33,000 Pulitzer Inc. ........... 1,483,667 1,483,350
170,800 Reader's Digest
Association Inc. ..... 3,371,358 2,579,080
261,319 SCMP Group Ltd. ......... 191,790 108,906
70,000 Scripps (E.W.) Co.,
Cl. A ................ 4,559,387 5,386,500
91,842 Seat-Pagine Gialle SpA+ . 204,007 62,547
75,000 Thomas Nelson Inc.+ ..... 908,325 751,500
250,000 Tribune Co. ............. 11,310,100 11,365,000
------------ --------------
65,028,475 66,991,399
------------ --------------
EQUIPMENT AND SUPPLIES -- 4.9%
120,000 AMETEK Inc. ............. 1,873,494 4,618,800
2,000 Amphenol Corp., Cl. A+ .. 29,550 76,000
10,000 Caterpillar Inc. ........ 136,559 457,200
95,000 CIRCOR International
Inc. ................. 981,440 1,510,500
320,000 Deere & Co. ............. 15,328,000 14,672,000
216,000 Donaldson Co. Inc. ...... 1,449,454 7,776,000
135,000 Flowserve Corp.+ ........ 2,468,412 1,996,650
13,000 Franklin Electric
Co. Inc. ............. 210,022 624,130
100,000 Gerber Scientific Inc.+ . 1,060,701 406,000
75,000 GrafTech
International Ltd.+ .. 1,008,428 447,000
211,300 IDEX Corp. .............. 6,831,329 6,909,510
20,000 Ingersoll-Rand Co.,
Cl. A ................ 836,200 861,200
60,000 Lufkin Industries Inc. .. 1,105,223 1,407,000
1,000 Manitowoc Co. Inc. ...... 25,450 25,500
425,000 Navistar International
Corp.+ ............... 6,419,191 10,331,750
30,000 PACCAR Inc. ............. 450,000 1,383,900
5,000 Sealed Air Corp.+ ....... 87,018 186,500
170,000 SPS Technologies Inc.+ .. 2,963,443 4,037,500
60,000 Sybron Dental
Specialties Inc.+ .... 1,140,669 891,000
20,000 Terumo Corp. ............ 274,946 276,734
250,000 Watts Industries
Inc., Cl. A .......... 3,331,739 3,935,000
100,000 Weir Group plc .......... 420,789 339,692
------------ --------------
48,432,057 63,169,566
------------ --------------
See accompanying notes to financial statements.
15
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2002
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
DIVERSIFIED INDUSTRIAL -- 4.2%
220,000 Acuity Brands Inc. ....$ 3,801,308 $ 2,978,800
195,000 Ampco-Pittsburgh Corp. 2,627,873 2,371,200
120,000 Cooper Industries Ltd.,
Cl. A .............. 5,953,705 4,374,000
270,000 Crane Co. ............. 5,062,737 5,381,100
110,000 GATX Corp. ............ 1,748,853 2,510,200
200,000 GenTek Inc.+ .......... 1,587,121 3,000
260,000 Greif Bros. Corp.,
Cl. A .............. 4,845,131 6,188,000
3,400 Greif Bros. Corp.,
Cl. B .............. 69,825 91,205
420,000 Honeywell International
Inc. ............... 14,297,068 10,080,000
120,000 ITT Industries Inc. ... 3,650,454 7,282,800
400,600 Lamson & Sessions Co.+ 2,458,185 1,289,932
34,500 National Service
Industries Inc. .... 457,454 247,710
83,715 Park-Ohio Holdings
Corp.+ ............. 1,009,737 348,254
213,800 Sensient Technologies
Corp. .............. 3,865,929 4,804,086
10,000 Smiths Group plc ...... 171,257 111,970
6,000 Sulzer AG+ ............ 1,275,079 815,801
100,000 Thomas Industries Inc. 1,388,525 2,606,000
50,000 Trinity Industries Inc. 945,000 948,000
55,000 Tyco International Ltd. 861,864 939,400
-------------- --------------
56,077,105 53,371,458
-------------- --------------
CONSUMER PRODUCTS -- 3.8%
70,000 Altadis SA ............ 1,030,995 1,596,902
43,000 Christian Dior SA ..... 1,514,055 1,447,066
10,000 Church & Dwight
Co. Inc. ........... 99,535 304,300
100,000 Compagnie Financiere
Richemont AG, Cl. A 1,411,829 1,865,928
50,000 Department 56 Inc.+ ... 524,317 645,000
90,000 Fortune Brands Inc. ... 2,401,342 4,185,900
250,000 Gallaher Group plc, ADR 9,687,500 9,800,000
300,000 Gillette Co. .......... 9,680,864 9,108,000
2,000 Givaudan SA ........... 550,742 896,803
60,000 Harley-Davidson Inc. .. 151,125 2,772,000
15,000 Matsushita Electric Industrial
Co. Ltd., ADR ...... 178,325 144,000
100,000 Mattel Inc. ........... 1,549,565 1,915,000
35,000 Maytag Corp. .......... 1,035,876 997,500
50,000 National Presto
Industries Inc. .... 1,768,883 1,469,000
8,200 Nintendo Co. Ltd. ..... 700,058 766,310
20,000 Philip Morris
Companies Inc. ..... 600,935 810,600
100,000 Procter & Gamble Co. .. 8,770,000 8,594,000
32,000 Shimano Inc. .......... 521,107 485,379
15,000 Swatch Group AG, Cl. B 868,351 1,247,568
-------------- --------------
43,045,404 49,051,256
-------------- --------------
WIRELESS COMMUNICATIONS -- 3.6%
95,000 America Movil SA de CV,
Cl. L, ADR ......... 1,235,397 1,364,200
550,170 AT&T Wireless
Services Inc.+ ..... 7,186,094 3,108,461
100,000 Leap Wireless
International Inc.+ 897,410 15,000
1,775,000 mm02 plc+ ............. 1,980,584 1,264,489
125,600 mm02 plc, ADR+ ........ 1,452,796 898,040
240,000 Nextel Communications Inc.,
Cl. A+ ............. 3,841,367 2,772,000
1,000 NTT DoCoMo Inc. ....... 2,437,994 1,845,453
250,000 Rogers Wireless
Communications Inc.,
Cl. B+ ............. 3,494,025 2,200,000
230,000 Sprint Corp. - PCS Group+ 533,587 1,007,400
16,700 Tele Celular Sul Participacoes
SA, ADR ............ 266,992 131,262
55,666 Tele Centro Oeste Celular
Participacoes SA, ADR 166,868 222,664
MARKET
SHARES COST VALUE
------ ---- ------
3,340 Tele Leste Celular Participacoes
SA, ADR ............$ 89,340 $ 21,042
8,350 Tele Nordeste Celular
Participacoes SA, ADR 123,227 127,755
3,340 Tele Norte Celular
Participacoes SA,
ADR+ ............... 51,601 15,531
1,400,000 Telecom Italia
Mobile SpA ......... 2,694,316 6,390,547
8,350 Telemig Celular Participacoes
SA, ADR ............ 241,320 141,115
450,000 Telephone & Data
Systems Inc. ....... 37,059,011 21,159,000
66,800 Telesp Celular Participacoes
SA, ADR+ ........... 2,135,936 203,740
553,888 Vodafone Group plc .... 975,799 1,009,866
100,000 Vodafone Group plc, ADR 927,768 1,812,000
-------------- --------------
67,791,432 45,709,565
-------------- --------------
CABLE -- 3.3%
100,000 Adelphia Communications
Corp., Cl. A+ ...... 675,823 8,500
1,551,443 Cablevision Systems Corp.,
Cl. A+ ............. 23,225,037 25,971,156
30,000 Charter Communications Inc.,
Cl. A+ ............. 138,876 35,400
525,250 Comcast Corp., Cl. A+ . 16,072,664 12,380,142
85,000 Comcast Corp.,
Cl. A, Special+ .... 756,584 1,920,150
20,000 Shaw Communications Inc.,
Cl. B .............. 52,983 205,472
80,000 Shaw Communications Inc.,
Cl. B, Non-Voting .. 329,198 822,400
370,000 UnitedGlobalCom Inc.,
Cl. A+ ............. 2,499,253 888,000
-------------- --------------
43,750,418 42,231,220
-------------- --------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.0%
20,000 ArvinMeritor Inc. ..... 387,543 333,400
37,802 BorgWarner Inc. ....... 1,732,135 1,905,977
100,000 CLARCOR Inc. .......... 1,266,455 3,227,000
320,061 Dana Corp. ............ 5,237,799 3,763,917
65,000 Delphi Corp. .......... 766,915 523,250
260,000 GenCorp Inc. .......... 2,470,673 2,059,200
210,000 Genuine Parts Co. ..... 5,500,492 6,468,000
114,000 Johnson Controls Inc. . 9,222,600 9,139,380
105,000 Midas Inc.+ ........... 1,470,247 675,150
335,000 Modine Manufacturing Co. 4,388,179 5,922,800
20,000 O'Reilly Automotive Inc.+ 579,199 505,800
70,800 Scheib (Earl) Inc.+ ... 608,339 169,920
163,000 Standard Motor
Products Inc. ...... 1,748,388 2,119,000
24,000 Superior Industries
International Inc. . 603,378 992,640
105,000 TransPro Inc.+ ........ 936,808 588,000
-------------- --------------
36,919,150 38,393,434
-------------- --------------
HEALTH CARE -- 2.7%
20,000 Abbott Laboratories ... 743,000 800,000
60,000 Amgen Inc.+ ........... 256,894 2,900,400
40,000 Apogent Technologies
Inc.+ .............. 803,368 832,000
10,000 AstraZeneca plc, London 385,298 357,401
35,146 AstraZeneca plc,
Stockholm .......... 1,255,532 1,234,278
15,000 Aventis SA ............ 1,056,288 815,346
26,000 Biogen Inc.+ .......... 181,025 1,041,560
110,000 Bristol-Myers Squibb Co. 2,938,465 2,546,500
23,000 Centerpulse AG+ ....... 1,394,669 4,008,852
75,036 GlaxoSmithKline plc ... 1,817,377 1,439,957
4,000 GlaxoSmithKline
plc, ADR ........... 216,096 149,840
15,000 Henry Schein Inc.+ .... 675,634 675,000
56,011 Invitrogen Corp.+ ..... 2,678,982 1,752,584
50,000 Merck & Co. Inc. ...... 2,840,158 2,830,500
41,000 Novartis AG ........... 1,292,180 1,495,961
See accompanying notes to financial statements.
16
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2002
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
HEALTH CARE (CONTINUED)
108,000 Novartis AG,
Registered .........$ 3,905,280 $ 3,966,840
65,000 Pfizer Inc. ........... 1,077,000 1,987,050
17,900 Roche Holding AG ...... 1,644,702 1,247,326
20,000 Sanofi-Synthelabo SA .. 967,750 1,222,494
20,000 Schering-Plough Corp. . 527,530 444,000
14,000 Takeda Chemical
Industries Ltd. .... 782,347 585,152
60,000 Wyeth ................. 2,563,371 2,244,000
-------------- --------------
30,002,946 34,577,041
-------------- --------------
HOTELS AND GAMING -- 2.3%
110,000 Aztar Corp.+ .......... 772,707 1,570,800
90,000 Boca Resorts Inc.,
Cl. A+ ............. 787,000 963,000
240,000 Gaylord Entertainment
Co.+ ............... 6,198,540 4,944,000
30,000 Greek Organization of
Football Prognostics 288,232 317,953
8,000 GTECH Holdings Corp.+ . 69,219 222,880
2,460,000 Hilton Group plc ...... 8,307,399 6,613,861
650,000 Hilton Hotels Corp. ... 6,542,136 8,261,500
60,000 MGM Mirage+ ........... 1,588,260 1,978,200
430,000 Park Place Entertainment
Corp.+ ............. 2,424,893 3,612,000
50,000 Starwood Hotels & Resorts
Worldwide Inc. ..... 1,075,717 1,187,000
-------------- --------------
28,054,103 29,671,194
-------------- --------------
AEROSPACE -- 2.1%
100,000 BAE Systems plc ....... 470,791 199,630
115,000 Boeing Co. ............ 3,847,934 3,793,850
100,000 Lockheed Martin Corp. . 5,677,100 5,775,000
181,069 Northrop Grumman Corp. 17,210,135 17,563,693
-------------- --------------
27,205,960 27,332,173
-------------- --------------
RETAIL -- 2.0%
200,000 Albertson's Inc. ...... 5,669,538 4,452,000
300,000 AutoNation Inc.+ ...... 3,354,597 3,768,000
75,000 Boots Co. plc ......... 739,158 707,559
10,000 Coldwater Creek Inc.+ . 181,517 192,000
10,000 Fast Retailing Co. Ltd. 268,047 352,237
34,500 Gucci Group NV, ADR ... 2,844,684 3,160,200
8,000 Ito-Yokado Co. Ltd. ... 339,093 235,948
100,000 Lillian Vernon Corp. .. 1,362,258 410,000
90,000 Neiman Marcus Group Inc.,
Cl. A+ ............. 2,800,847 2,735,100
320,000 Neiman Marcus Group Inc.,
Cl. B+ ............. 7,741,769 8,745,600
7,750 Tod's SpA ............. 387,822 248,122
20,000 Winn-Dixie Stores Inc. 236,476 305,600
-------------- --------------
25,925,806 25,312,366
-------------- --------------
CONSUMER SERVICES -- 1.8%
40,000 Loewen Group Inc.+ .... 48,700 1,200
473,000 Rollins Inc. .......... 5,422,989 12,037,850
490,000 USA Interactive Inc.+ . 11,838,600 11,230,800
-------------- --------------
17,310,289 23,269,850
-------------- --------------
REAL ESTATE -- 1.6%
450,000 Catellus Development
Corp.+ ............. 7,555,315 8,932,500
75,000 Cheung Kong (Holdings)
Ltd. ............... 871,487 488,083
44,000 Florida East Coast Industries
Inc., Cl. A ........ 523,108 1,020,800
58,451 Florida East Coast Industries
Inc., Cl. B ........ 964,977 1,290,013
55,000 Griffin Land &
Nurseries Inc.+ .... 513,143 796,950
4,753 HomeFed Corp.+ ........ 851 6,892
253,000 St. Joe Co. ........... 1,873,208 7,590,000
-------------- --------------
12,302,089 20,125,238
-------------- --------------
MARKET
SHARES COST VALUE
------ ---- ------
BROADCASTING -- 1.5%
15,015 Clear Channel
Communications
Inc.+ ..............$ 481,784 $ 559,909
16,666 Corus Entertainment Inc.,
Cl. B+ ............. 62,036 199,914
100,000 Gray Television Inc. .. 974,530 975,000
28,000 Gray Television Inc.,
Cl. A .............. 376,900 331,800
195,000 Grupo Televisa SA, ADR+ 5,116,358 5,446,350
200,000 Liberty Corp. ......... 8,528,905 7,760,000
5,000 LIN TV Corp., Cl. A+ .. 110,000 121,750
120,000 Mediaset SpA .......... 915,894 914,195
4,000 Nippon Broadcasting
System Inc. ........ 161,709 119,660
40,375 NRJ Group ............. 384,806 614,329
131,000 Paxson Communications
Corp.+ ............ 1,311,348 269,860
17,700 RTL Group ............ 775,136 525,630
100,000 Television Broadcasts
Ltd. .............. 396,239 315,451
110,000 Young Broadcasting Inc.,
Cl. A+ ............ 2,713,685 1,448,700
-------------- --------------
22,309,330 19,602,548
-------------- --------------
AVIATION: PARTS AND SERVICES -- 1.2%
101,320 Curtiss-Wright Corp.,
Cl. B ............. 5,582,889 6,312,236
90,000 Fairchild Corp., Cl. A+ 1,111,343 446,400
55,000 Precision Castparts
Corp. ............. 1,018,343 1,333,750
84,500 Sequa Corp., Cl. A+ .. 3,371,578 3,304,795
78,000 Sequa Corp., Cl. B+ .. 4,068,661 3,490,500
-------------- --------------
15,152,814 14,887,681
-------------- --------------
ELECTRONICS -- 1.1%
150,393 Agere Systems Inc.,
Cl. B+ ............. 512,493 210,550
315,000 Cypress Semiconductor
Corp.+ ............. 2,107,295 1,801,800
3,000 Hitachi Ltd., ADR ..... 218,796 111,750
18,000 Molex Inc., Cl. A ..... 549,286 358,020
11,500 Murata Manufacturing
Co. Ltd. ........... 517,811 450,619
7,500 NEC Corp., ADR ........ 43,625 28,200
6,000 Rohm Co. Ltd. ......... 994,112 763,967
38,800 Royal Philips Electronics
NV, ADR ............ 53,457 685,984
47,000 Sony Corp., ADR ....... 1,554,214 1,941,570
200,000 Texas Instruments Inc. 5,075,340 3,002,000
250,000 Thomas & Betts Corp.+ . 4,581,748 4,225,000
13,400 Tokyo Electron Ltd. ... 672,183 606,371
-------------- --------------
16,880,360 14,185,831
-------------- --------------
AGRICULTURE -- 1.0%
1,050,000 Archer-Daniels-Midland
Co. ................ 13,728,377 13,020,000
5,000 Delta & Pine Land Co. . 84,396 102,050
-------------- --------------
13,812,773 13,122,050
-------------- --------------
SPECIALTY CHEMICALS -- 1.0%
5,400 Ciba Specialty Chemicals,
ADR ................ 21,140 186,840
10,000 du Pont de Nemours (E.I.)
and Co. ............ 327,500 424,000
330,000 Ferro Corp. ........... 6,975,503 8,061,900
40,000 Fuller (H.B.) Co. ..... 968,437 1,035,200
120,000 Hercules Inc.+ ........ 1,543,119 1,056,000
15,000 IVAX Corp.+ ........... 170,440 181,950
210,000 Omnova Solutions Inc.+ 1,767,940 846,300
5,000 Rohm and Haas Co. ..... 158,688 162,400
11,697 Syngenta AG, ADR ...... 22,129 134,750
-------------- --------------
11,954,896 12,089,340
-------------- --------------
See accompanying notes to financial statements.
17
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2002
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
BUILDING AND CONSTRUCTION -- 0.7%
100,500 CRH plc ...............$ 1,259,458 $ 1,239,152
32,222 Huttig Building
Products Inc.+ ..... 81,163 91,833
15,000 Martin Marietta
Materials Inc. ..... 322,687 459,900
137,800 Nortek Holdings Inc.+ . 6,285,058 6,304,350
5,000 Nortek Holdings Inc.,
Special Common+ (a) 72,155 228,750
-------------- --------------
8,020,521 8,323,985
-------------- --------------
ENVIRONMENTAL SERVICES -- 0.6%
65,000 Republic Services Inc.+ 875,761 1,363,700
300,000 Waste Management Inc. . 6,690,206 6,876,000
-------------- --------------
7,565,967 8,239,700
-------------- --------------
PAPER AND FOREST PRODUCTS -- 0.5%
100,000 MeadWestvaco Corp. .... 2,760,271 2,471,000
170,000 Pactiv Corp.+ ......... 1,775,756 3,716,200
10,000 Rayonier Inc. ......... 465,432 452,500
-------------- --------------
5,001,459 6,639,700
-------------- --------------
COMMUNICATIONS EQUIPMENT -- 0.5%
60,000 Acterna Corp.+ ........ 209,121 9,600
290,000 Allen Telecom Inc.+ ... 2,191,165 2,746,300
525,000 Corning Inc.+ ......... 5,185,332 1,737,750
130,000 Lucent Technologies ...
Inc.+ .............. 952,294 163,800
120,000 Motorola Inc. ......... 1,631,519 1,038,000
100,000 Nortel Networks Corp.+ 725,285 161,000
44,000 Scientific-Atlanta Inc. 355,750 521,840
-------------- --------------
11,250,466 6,378,290
-------------- --------------
AUTOMOTIVE -- 0.5%
20,000 Ford Motor Co. ........ 490,840 186,000
167,942 General Motors Corp. .. 5,307,581 6,190,342
-------------- --------------
5,798,421 6,376,342
-------------- --------------
BUSINESS SERVICES -- 0.5%
60,000 ANC Rental Corp.+ ..... 578,273 3,000
180,000 Cendant Corp.+ ........ 2,573,002 1,886,400
1,000 CheckFree Corp.+ ...... 9,040 16,001
98,000 Landauer Inc. ......... 634,307 3,405,500
70,000 Nashua Corp.+ ......... 634,028 614,600
250,000 Securicor plc ......... 0 341,101
3,500 SYNAVANT Inc.+ ........ 27,506 3,255
-------------- --------------
4,456,156 6,269,857
-------------- --------------
METALS AND MINING -- 0.4%
72,500 Harmony Gold Mining
Co. Ltd. ........... 347,738 1,242,056
15,000 Harmony Gold Mining Co.
Ltd., ADR .......... 79,800 252,150
125,000 Newmont Mining Corp. .. 2,829,421 3,628,750
50,000 Placer Dome Inc. ...... 487,169 575,000
-------------- --------------
3,744,128 5,697,956
-------------- --------------
CLOSED END FUNDS -- 0.2%
59,000 Central European Equity
Fund Inc.+ ......... 740,735 855,500
18,592 France Growth Fund Inc.+ 184,694 105,974
54,150 Italy Fund Inc. ....... 450,250 356,849
68,000 New Germany Fund Inc.+ 750,658 241,400
70,000 Pimco RCM Europe ......
Fund Inc.+ ......... 512,662 429,800
40,000 Royce Value Trust Inc. 466,533 530,000
-------------- --------------
3,105,532 2,519,523
-------------- --------------
MARKET
SHARES COST VALUE
------ ---- ------
SATELLITE -- 0.2%
180,323 General Motors Corp.,
Cl. H+ .............$ 2,584,089 $ 1,929,456
34,000 Liberty Satellite & Technology
Inc., Cl. A+ ....... 900,012 90,100
190,000 Loral Space &
Communications Ltd.+ 614,954 81,700
-------------- --------------
4,099,055 2,101,256
-------------- --------------
COMPUTER SOFTWARE AND SERVICES -- 0.1%
20,000 Capcom Co. Ltd. ....... 684,260 301,171
10,000 Computer Associates ...
International Inc. . 254,407 135,000
5,000 Electronic Data .......
Systems Corp. ...... 69,661 92,150
160,000 EMC Corp.+ ............ 2,749,056 982,400
20,000 Genuity Inc., Cl. A+ .. 136,779 1,800
-------------- --------------
3,894,163 1,512,521
-------------- --------------
TRANSPORTATION -- 0.1%
100,000 AMR Corp.+ ............ 1,924,248 660,000
20,000 Grupo TMM SA de CV,
Cl. A, ADR+ ........ 203,299 103,000
7,500 Kansas City Southern+ . 13,986 90,000
-------------- --------------
2,141,533 853,000
-------------- --------------
COMPUTER HARDWARE -- 0.0%
26,000 Hewlett-Packard Co. ... 839,290 451,360
10,000 Xerox Corp.+ .......... 108,625 80,500
-------------- --------------
947,915 531,860
-------------- --------------
TOTAL COMMON
STOCKS .............. 1,091,517,570 1,094,277,783
-------------- --------------
PREFERRED STOCKS -- 2.5%
PUBLISHING -- 1.4%
770,494 News Corp. Ltd.,
Pfd., ADR .......... 20,918,681 17,451,689
-------------- --------------
SPECIALTY CHEMICALS -- 0.5%
280,500 Hercules Trust I,
9.420% Pfd. ........ 6,358,552 6,044,775
-------------- --------------
TELECOMMUNICATIONS -- 0.4%
52,500 Allen Telecom Inc.,
7.750% Cv. Pfd.,
Ser. D ............. 2,625,000 3,885,000
31,000 Broadwing Inc.,
6.750% Cv. Pfd.,
Ser. B ............. 986,633 651,000
21,000 Citizens Communications Co.,
5.000% Cv. Pfd. .... 1,020,698 997,500
500 Lucent Technologies
Capital Trust I,
7.750% Cv. Pfd. .... 500,000 205,000
-------------- --------------
5,132,331 5,738,500
-------------- --------------
AEROSPACE -- 0.1%
14,021 Northrop Grumman Corp.,
7.000% Cv. Pfd.,
Ser. B ............. 1,633,727 1,729,630
-------------- --------------
BROADCASTING -- 0.1%
90 Gray Television Inc.,
8.000% Cv. Pfd.,
Ser. C (a)(b) ...... 900,000 918,000
100,000 ProSieben Sat.1 Media
AG, Pfd. ........... 1,043,352 682,078
-------------- --------------
1,943,352 1,600,078
-------------- --------------
See accompanying notes to financial statements.
18
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2002
MARKET
SHARES COST VALUE
------ ---- ------
PREFERRED STOCKS (CONTINUED)
AVIATION: PARTS AND SERVICES -- 0.0%
3,000 Sequa Corp.,
$5.00 Cv. Pfd. .....$ 239,700 $ 222,000
-------------- --------------
WIRELESS COMMUNICATIONS -- 0.0%
10,760,547 Telesp Celular Participacoes
SA, Pfd.+ .......... 82,623 12,919
-------------- --------------
TOTAL PREFERRED
STOCKS .............. 36,308,966 32,799,591
-------------- --------------
PRINCIPAL
AMOUNT
------
CORPORATE BONDS -- 0.5%
ELECTRONICS -- 0.2%
$ 3,500,000 Agere Systems Inc.,
Sub. Deb. Cv.,
6.500%, 12/15/09 ... 3,500,000 2,743,125
-------------- --------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.1%
1,400,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 ... 1,336,622 1,083,250
-------------- --------------
AVIATION: PARTS AND SERVICES -- 0.1%
933,000 Kaman Corp., Sub. Deb. Cv.,
6.000%, 03/15/12 ... 883,441 888,683
-------------- --------------
WIRELESS COMMUNICATIONS -- 0.1%
500,000 Nextel Communications Inc.,
9.500%, 02/01/11 ... 351,900 452,500
-------------- --------------
HOTELS AND GAMING -- 0.0%
400,000 Hilton Hotels Corp.,
Sub. Deb. Cv.,
5.000%, 05/15/06 ... 359,149 385,000
-------------- --------------
ENERGY AND UTILITIES -- 0.0%
1,000,000 Mirant Corp., Sub. Deb. Cv.,
2.500%, 06/15/21 ... 758,440 376,250
-------------- --------------
CABLE -- 0.0%
1,300,000 Charter Communications Inc.,
Cv.,
4.750%, 06/01/06 ... 848,588 238,875
-------------- --------------
TOTAL CORPORATE
BONDS ............... 8,038,140 6,167,683
-------------- --------------
SHARES
------
WARRANTS -- 0.0%
FOOD AND BEVERAGE -- 0.0%
62,463 Denny's Corp.,
expires 01/07/05+ .. 105,604 625
-------------- --------------
METALS AND MINING -- 0.0%
5,000 Harmony Gold Mining Co. Ltd.,
ADR, expires
06/29/03+ .......... 0 62,500
-------------- --------------
TOTAL WARRANTS ........ 105,604 63,125
-------------- --------------
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT OBLIGATIONS -- 1.5%
19,000,000 U.S. Treasury Bills,
0.811%++, 01/09/03 . 18,996,622 18,996,622
-------------- --------------
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- ------
REPURCHASE AGREEMENTS -- 10.1%
$100,000,000 Agreement with ABN Amro,
1.050%, dated 12/31/02,
due 01/02/03,
proceeds at maturity
$100,005,833 (c) ...$ 100,000,000 $ 100,000,000
29,401,000 Agreement with State Street
Bank & Trust Co., 1.050%,
dated 12/31/02, due 01/02/03,
proceeds at maturity
$29,402,715 (c) .... 29,401,000 29,401,000
-------------- --------------
TOTAL REPURCHASE
AGREEMENTS ......... 129,401,000 129,401,000
-------------- --------------
TOTAL INVESTMENTS -- 100.0% .......$1,284,367,902 $1,281,705,804
==============
OTHER LIABILITIES IN EXCESS OF ASSETS ........... (10,105,399)
PREFERRED STOCK
(11,973,100 preferred shares outstanding) ..... (429,197,500)
--------------
NET ASSETS -- COMMON STOCK
(134,059,967 common shares outstanding) ....... $ 842,402,905
==============
NET ASSET VALUE PER COMMON SHARE
($842,402,905 (DIVIDE) 134,059,967
shares outstanding) .......................... $6.28
=====
PRINCIPAL SETTLEMENT NET UNREALIZED
AMOUNT DATE APPRECIATION
-------- ---------- -------------
FORWARD FOREIGN EXCHANGE CONTRACTS
7,790,000(d) Deliver Hong Kong Dollars
in exchange for
USD 998,270 .............. 08/01/03 $ 496
==============
----------------
For Federal tax purposes:
Aggregate cost ..................... $1,290,492,415
==============
Gross unrealized appreciation ...... $ 170,215,400
Gross unrealized depreciation ...... (179,002,011)
--------------
Net unrealized depreciation ........ $ (8,786,611)
==============
---------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At December
31, 2002, the market value of Rule 144A securities amounted to $918,000 or
0.1% of total investments.
(c) Collateralized by U.S. Treasury Notes, 8.000% to 8.875%, due 02/15/19 to
11/15/21, market value $130,001,475.
(d) Principal amount denoted in Hong Kong Dollars.
+ 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 .................. 84.1% $1,077,918,136
Europe ......................... 11.2 144,106,731
Asia/Pacific Rim ............... 2.5 31,518,868
Latin America .................. 1.1 14,439,750
Canada ......................... 1.0 12,228,113
South Africa ................... 0.1 1,494,206
----- --------------
Total Investments ..............100.0% $1,281,705,804
===== ==============
See accompanying notes to financial statements.
19
THE GABELLI EQUITY TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2002
ASSETS:
Investments, at value (Cost $1,284,367,902) ........ $ 1,281,705,804
Cash and foreign currency, at value (Cost $1,374) .. 1,366
Dividends and interest receivable .................. 1,817,432
Receivable from investments sold ................... 37,026,380
Unrealized appreciation on forward foreign
exchange contracts ............................... 496
---------------
TOTAL ASSETS ....................................... 1,320,551,478
---------------
LIABILITIES:
Payable for investments purchased .................. 37,824,243
Dividends payable .................................. 406,825
Unrealized depreciation on swap contract ........... 8,896,359
Payable for investment advisory fees ............... 717,207
Interest payable on swap contract .................. 319,953
Payable to custodian ............................... 28,026
Other accrued expenses and liabilities ............. 758,460
---------------
TOTAL LIABILITIES .................................. 48,951,073
---------------
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 ............................... $ 842,402,905
===============
NET ASSETS ATTRIBUTABLE TO COMMON
STOCK SHAREHOLDERS CONSIST OF:
Capital stock, at par value ........................ $ 134,059
Additional paid-in capital ......................... 860,333,570
Accumulated distributions in excess of
net investment income ............................ (406,825)
Accumulated distributions in excess of net realized
gain on investments, options, future contracts and
foreign currency transactions .................... (6,124,513)
Net unrealized depreciation on investments
and foreign currency transactions ................ (11,533,386)
---------------
TOTAL NET ASSETS ................................... $ 842,402,905
===============
NET ASSET VALUE PER COMMON SHARE
($842,402,905 (DIVIDE) 134,059,967 shares
outstanding; 183,994,000 shares
authorized of $0.001 par value) .................. $6.28
=====
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
INVESTMENT INCOME:
Dividends (net of foreign taxes of $657,597) ..... $ 18,054,782
Interest ......................................... 3,626,158
-------------
TOTAL INVESTMENT INCOME .......................... 21,680,940
-------------
EXPENSES:
Investment advisory fees ......................... 9,835,224
Interest expense on swap contract (Note 2) ....... 1,813,999
Shareholder communications expenses .............. 447,246
Shareholder services fees ........................ 273,924
Payroll .......................................... 309,668
Directors' fees .................................. 143,619
Custodian fees ................................... 176,741
Legal and audit fees ............................. 158,023
Miscellaneous expenses ........................... 483,678
-------------
TOTAL EXPENSES ................................... 13,642,122
-------------
LESS: CUSTODIAN FEE CREDIT ....................... (5,768)
-------------
NET EXPENSES ..................................... 13,636,354
-------------
NET INVESTMENT INCOME ............................ 8,044,586
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES CONTRACTS, SWAP CONTRACTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments and options
134,196,334 Net realized gain on
foreign currency transactions ................... 23,259
Net realized gain on futures contracts
1,055,339
-------------
Net realized gain on investments, futures
contracts and foreign currency transactions .... 135,274,932
-------------
Net change in unrealized appreciation/depreciation
on investments, swap contracts
and foreign currency transactions .............. (348,434,576)
-------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS, FUTURES CONTRACTS, SWAP
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS .... (213,159,644)
-------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................ (205,115,058)
-------------
Total Distributions to Preferred
Stock Shareholders ............................. (22,825,651)
-------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS
RESULTING FROM OPERATIONS ...................... $(227,940,709)
=============
See accompanying notes to financial statements.
20
THE GABELLI EQUITY TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
OPERATIONS:
Net investment income ................................................ $ 8,044,586 $ 9,816,147
Net realized gain on investments, options, futures contracts
and foreign currency transactions .................................. 135,274,932 144,016,946
Net change in unrealized appreciation/depreciation on investments,
swap contracts and foreign currency transactions ................... (348,434,576) (171,507,313)
--------------- ---------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................. (205,115,058) (17,674,220)
--------------- ---------------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ................................................ (1,241,220) (1,001,064)
Net realized short-term gain on investments, options,
futures contracts and foreign currency transactions ................ (375,336) (929,028)
Net realized long-term gain on investments, options,
futures contracts and foreign currency transactions ................ (21,209,095) (13,938,133)
--------------- ---------------
TOTAL DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS .................. (22,825,651) (15,868,225)
--------------- ---------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS
RESULTING FROM OPERATIONS .......................................... (227,940,709) (33,542,445)
--------------- ---------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income ................................................ (6,579,486) (8,582,562)
Net realized short-term gain on investments, options,
futures contracts and foreign currency transactions ................ (2,051,189) (8,156,865)
Net realized long-term gain on investments, options,
futures contracts and foreign currency transactions ................ (115,905,914) (121,720,695)
Return of capital .................................................... (218,677) --
--------------- ---------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ..................... (124,755,266) (138,460,122)
--------------- ---------------
TRUST SHARE TRANSACTIONS:
Net increase in net assets from common shares issued upon reinvestment
of dividends and distributions and rights offering ................. 30,727,869 159,803,359
Offering costs for preferred shares charged to paid-in capital ....... (1,800,000) (5,670,825)
Net increase in net assets from repurchase of preferred stock ........ -- 130
--------------- ---------------
NET INCREASE IN NET ASSETS FROM TRUST SHARE TRANSACTIONS ............. 28,927,869 154,132,664
--------------- ---------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS . (323,768,106) (17,869,903)
NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS:
Beginning of period .................................................. 1,166,171,011 1,184,040,914
--------------- ---------------
End of period ........................................................ $ 842,402,905 $ 1,166,171,011
=============== ===============
See accompanying notes to financial statements.
21
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS
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.
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.
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 102% 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 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 Stock. 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,
22
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
such a default could negatively affect the Equity Trust's ability to make
dividend payments for the Series C Preferred Stock. 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
Stock.
The Trust has entered into one interest rate swap agreement with Citibank
N.A. Under the agreement the Trust receives a floating rate of interest and pays
a respective fixed rate of interest on the nominal value of the swap. Details of
the swap at December 31, 2002 are as follows:
NOTIONAL FLOATING RATE* TERMINATION UNREALIZED
AMOUNT FIXED RATE (RATE RESET MONTHLY) DATE DEPRECIATION
-------- ---------- -------------------- ----------- ------------
$130,000,000 4.494% 1.43875% July 1, 2007 $(8,896,359)
--------------
*Based on Libor (London Interbank Offered Rate).
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 December 31, 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.
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.
23
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
For the year ended December 31, 2002, reclassifications were made to
increase accumulated distributions in excess of net investment income for
$364,192 and decrease accumulated distributions in excess of net realized gain
on investments, options, future contracts and foreign currency transactions for
$114,892 with an offsetting adjustment to additional paid-in capital.
The tax character of distributions paid during the fiscal year ended
December 31, 2002 and December 31, 2001 were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------------------- ------------------------------
COMMON PREFERRED COMMON PREFERRED
------------ ----------- ------------ -----------
DISTRIBUTIONS PAID FROM:
Ordinary income
(Inclusive of short
term capital gain) ................$ 8,877,226 $ 1,616,556 $ 16,764,177 $ 1,930,092
Net long term capital gain .......... 115,659,363 21,209,095 121,695,945 13,938,133
Non-taxable return of capital ....... 218,677 -- -- --
------------ ----------- ------------ -----------
Total distribution paid .............$124,755,266 $22,825,651 $138,460,122 $15,868,225
============ =========== ============ ===========
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.
As of December 31, 2002, the components of accumulated earnings/(losses)
on a tax basis were as follows:
Net unrealized depreciation ......... $(17,657,899)
Other ............................... (406,825)
------------
Total accumulated loss .............. $(18,064,724)
============
Other is primarily due to dividends payable on preferred stock at December
31, 2002.
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 plus liquidation value of
preferred stock. 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 year ended
December 31, 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 year ended December 31, 2002, Gabelli & Company, Inc. and its
affiliates received $337,437 in brokerage commissions as a result of executing
agency transactions in portfolio securities on behalf of the Equity Trust.
The cost of calculating the Trust's net asset value per share is a Trust
expense pursuant to the Investment Advisory Agreement between the Trust and the
Adviser. During fiscal 2002, the Gabelli Equity Trust reimbursed the Adviser
$34,800 in connection with the cost of computing the Trust's net asset value.
4. PORTFOLIO SECURITIES. Cost of purchases and proceeds from sales of
securities, other than short-term securities, for the year ended December 31,
2002 aggregated $403,144,988 and $327,000,473, respectively.
5. CAPITAL. The Articles of Incorporation, dated May 19, 1986, permit the Equity
Trust to issue 183,994,000 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 year ended December 31, 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.
24
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions in common stock were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 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 ................3,992,168 $30,727,869 3,264,654 33,500,214
--------- ----------- ---------- ------------
Net increase ....................................3,992,168 $30,727,869 21,379,389 $159,803,359
========= =========== ========== ============
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 16,006,000 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 year ended December 31, 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 December 31, 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
$162,155.
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 year ended December 31,
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 December 31, 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 $198,000.
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 year
ended December 31, 2002, the Equity Trust did not repurchase any shares of
Series C Auction Rate Cumulative Preferred Stock. At December 31, 2002, 5,200
shares of the Series C Auction Rate Cumulative Preferred Stock were outstanding
at the annual rate of 1.65 percent per share and accrued dividends amounted to
$0.00.
25
THE GABELLI EQUITY TRUST INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR AN EQUITY TRUST COMMON SHARE OUTSTANDING THROUGHOUT EACH
PERIOD:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
OPERATING PERFORMANCE: 2002(A) 2001(A) 2000(A) 1999(A) 1998(A)
--------- ---------- ---------- ----------- ----------
Net asset value, beginning of period .............................$ 8.97 $ 10.89 $ 12.75 $ 11.47 $ 11.56
---------- ---------- ---------- ----------- ----------
Net investment income ............................................ 0.06 0.08 0.05 0.04 0.07
Net realized and unrealized gain (loss) on investments ........... (1.64) (0.16) (0.51) 3.25 1.09
---------- ---------- ---------- ----------- ----------
Total from investment operations ................................. (1.58) (0.08) (0.46) 3.29 1.16
---------- ---------- ---------- ----------- ----------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ............................................ (0.01) (0.01) (0.00)(c) (0.00)(c) (0.00)(c)
Net realized gain on investments ................................. (0.16) (0.11) (0.09) (0.09) (0.05)
---------- ---------- ---------- ----------- ----------
Total distributions to preferred stock shareholders .............. (0.17) (0.12) (0.09) (0.09) (0.05)
---------- ---------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS RESULTING FROM OPERATIONS ......................... (1.75) (0.20) (0.55) 3.20 1.11
---------- ---------- ---------- ----------- ----------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income ............................................ (0.05) (0.06) (0.04) (0.03)(b) (0.06)
Net realized gain on investments ................................. (0.90) (1.02) (1.27) (1.21)(b) (1.10)
Paid-in capital .................................................. (0.00)(c) -- -- (0.68)(b) --
---------- ---------- ---------- ----------- ----------
Total distributions to common stock shareholders ................. (0.95) (1.08) (1.31) (1.92) (1.16)
---------- ---------- ---------- ----------- ----------
CAPITAL SHARE TRANSACTIONS:
Increase in net asset value from common stock share transactions . 0.02 0.03 -- -- --
Decrease in net asset value from shares issued in rights offering -- (0.62) -- -- --
Offering costs for preferred shares charged to paid-in capital ... (0.01) (0.05) -- -- (0.04)
---------- ---------- ---------- ----------- ----------
Total capital share transactions ................................. 0.01 (0.64) -- -- (0.04)
---------- ---------- ---------- ----------- ----------
NET ASSET VALUE ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS,
END OF PERIOD ..................................................$ 6.28 $ 8.97 $ 10.89 $ 12.75 $ 11.47
========== ========== ========== =========== ==========
Net asset value total return + ................................... (21.00)% (3.68)% (4.39)% 29.49% 9.55%
========== ========== ========== =========== ==========
Market value, end of period ......................................$ 6.85 $ 10.79 $ 11.44 $ 12.56 $ 11.56
========== ========== ========== =========== ==========
Total investment return ++ ....................................... (28.36)% 10.32% 1.91% 26.57% 9.23%
========== ========== ========== =========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net assets including liquidation value of preferred shares,
end of period (in 000's) .......................................$1,271,600 $1,465,369 $1,318,263 $ 1,503,641 $1,352,190
Net assets attributable to common shares,
end of period (in 000's) .......................................$ 842,403 $1,166,171 $1,184,041 $ 1,368,981 $1,217,190
Ratio of net investment income to average net assets
attributable to common shares .................................. 0.81% 0.81% 0.42% 0.34% 0.60%
Ratio of operating expenses to average net assets
attributable to common shares (e)(g) ........................... 1.37% 1.12% 1.14% 1.27% 1.15%
Ratio of operating expenses to average total net assets
including liquidation value of preferred shares (e)(g) ......... 1.00% 0.95% 1.03% 1.15% 1.09%
Portfolio turnover rate .......................................... 27.1% 23.9% 32.1% 38.0% 39.8%
PREFERRED STOCK:
7.25% CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ......................$ 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) .........................................$ 25.75 $ 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) .........................................$ 26.40 $ 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) ............................................... 296% 490% 982% 1,117% 1,001%
ASSET COVERAGE PER SHARE (f) .....................................$ 106.20 $ 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.
++ 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.
(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 years ended December 31, 2002, 2001 and 2000, the expense
ratios of operating expenses to average net assets attributable to common
stock would be 1.37%, 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 1.00%, 0.94% and 1.03%, respectively.
(f) Asset coverage is calculated by combining all series of preferred stock.
(g) The Trust incurred interest expense during the year ended December 31, 2002.
If interest expense had not been incurred, the expense ratio of operating
expenses to average net assets attributable to common stock would be 1.19%
and the expense ratio of operating expenses to average total net assets
including liquidation value of preferred shares would be 0.87%.
See accompanying notes to financial statements.
26
THE GABELLI EQUITY TRUST INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Gabelli Equity Trust Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Equity Trust Inc. (the
"Trust") at December 31, 2002, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2002 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, NY 10036
February 13, 2003
27
THE GABELLI EQUITY TRUST INC.
ADDITIONAL FUND INFORMATION (UNAUDITED)
The business and affairs of the Trust are managed under the direction of
the Trust's Board of Directors. Information pertaining to the Directors and
officers of the Trust is set forth below. The Trust's Statement of Additional
Information includes additional information about The Gabelli Equity Trust Inc.
Directors and is available, without charge, upon request, by calling 800-GABELLI
(800-422-3554) or by writing to The Gabelli Equity Trust Inc. at One Corporate
Center, Rye, NY 10580.
TERM OF NUMBER OF
OFFICE AND FUNDS IN FUND
NAME, POSITION(S) LENGTH OF COMPLEX
ADDRESS 1 TIME OVERSEEN BY PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AND AGE SERVED 2 DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR
---------------- ---------- ------------ ---------------------- ------------------
INTERESTED DIRECTORS 3:
----------------------
MARIO J. GABELLI Since 1986** 22 Chairman of the Board and Chief Executive Director of Morgan Group
Director, President and Officer of Gabelli Asset Management Inc. and Holdings, Inc. (holding
Chief Investment Office Chief Investment Officer of Gabelli Funds, company); Vice Chairman
Age: 60 LLC and GAMCO Investors, Inc.; of Lynch Corporation
Chairman and Chief Executive Officer of (diversified manufacturing)
Lynch Interactive Corporation (multimedia
and services)
KARL OTTO POHL Since 1992* 31 Member of the Shareholder Committee of Sal Director of Gabelli Asset
Director Oppenheim Jr. & Cie (private investment Management Inc. (investment
Age: 73 bank); Former President of the management); Chairman, Incentive
Deutsche Bundesbank and Chairman of its Capital and Incentive Asset
Central Bank Council (1980-1991) Management (Zurich); Director
at Sal Oppenheim Jr. & Cie, Zurich
NON-INTERESTED DIRECTORS:
-----------------------
THOMAS E. BRATTER Since 1986** 3 Director, President and Founder, The John --
Director Dewey Academy (residential college
Age: 63 preparatory therapeutic high school)
ANTHONY J. COLAVITA 4 Since 1999*** 33 President and Attorney at Law in the law firm
Director of Anthony J. Colavita, P.C.
Age: 67
JAMES P. CONN 4 Since 1989* 11 Former Managing Director and Chief Investment Director of LaQuinta Corp. (hotels)
Director Officer of Financial Security Assurance Holdings and First Republic Bank
Age: 64 Ltd. (1992-1998)
FRANK J. FAHRENKOPF JR. Since 1998*** 3 President and Chief Executive Officer of the --
Director American Gaming Association since June
Age: 63 1995; Partner of Hogan & Hartson (law
firm); Chairman of International Trade
Practice Group; Co-Chairman of the
Commission on Presidential Debates;
Former Chairman of the Republican
National Committee
ARTHUR V. FERRARA Since 2001*** 9 Formerly, Chairman of the Board and Chief Director of The Guardian Life
Director Executive Officer of The Guardian Life Insurance Company of America;
Age: 72 Insurance Company of America from January Director of The Guardian Insurance
1993 to December 1995; President, Chief & Annuity Company, Inc.,
Executive Officer and a Director prior thereto Guardian Investor Services
Corporation, and 5 mutual funds
within the Guardian Fund Complex
ANTHONY R. PUSTORINO Since 1986* 17 Certified Public Accountant; Professor --
Director Emeritus, Pace University
Age: 77
SALVATORE J. ZIZZA Since 1986*** 9 Chairman, Hallmark Electrical Supplies Corp.; Director of Hollis Eden
Director Former Executive Vice President of FMG Pharmaceuticals
Age: 57 Group (OTC), a healthcare provider; Former
President and Chief Executive Officer of the
Lehigh Group Inc., (electrical supply
wholesaler); an interior construction company,
through 1997
28
THE GABELLI EQUITY TRUST INC.
ADDITIONAL FUND INFORMATION (CONTINUED) (UNAUDITED)
TERM OF NUMBER OF
OFFICE AND FUNDS IN FUND
NAME, POSITION(S) LENGTH OF COMPLEX
ADDRESS 1 TIME OVERSEEN BY PRINCIPAL OCCUPATION(S)
AND AGE SERVED 2 DIRECTOR DURING PAST FIVE YEARS
---------------- --------- ------------ ----------------------
OFFICERS:
--------
BRUCE N. ALPERT Since 1998 -- Executive Vice President and Chief Operating
Vice President and Officer of Gabelli Funds, LLC since 1988 and
Treasurer an officer of all mutual funds advised by
Age: 51 Gabelli Funds, LLC and its affiliates.
Director and President of the Gabelli Advisors,
Inc.
CARTER W. AUSTIN Since 2000 -- Vice President at the Trust since 2000.
Vice President Vice President of Gabelli Funds, LLC
Age: 35 since 1996.
JAMES E. MCKEE Since 1995 -- Vice President, General Counsel and Secretary
Secretary of Gabelli Asset Management Inc. since 1999
Age: 39 and GAMCO Investors, Inc. since 1993; Secretary
of all mutual funds advised by Gabelli Advisers,
Inc. and Gabelli Funds, LLC
----------------
1 Address: One Corporate Center, Rye, NY 10580, unless otherwise noted.
2 The Trust's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term. The three year term for each class expires as follows:
* - Term expires at the Trust's 2003 Annual Meeting of Shareholders and until
their successors are duly elected and qualified.
** - Term expires at the Trust's 2004 Annual Meeting of Shareholders and until
their successors are duly elected and qualified.
*** - Term expires at the Trust's 2005 Annual Meeting of Shareholders and until
their successors are duly elected and qualified.
3 "Interested person" of the Trust as defined in the Investment Company Act of
1940. Messrs. Gabelli and Pohl are each considered an "interested person"
because of their affiliation with Gabelli Funds, LLC which acts as the Trust's
investment adviser.
4 Represents holders of the Trust's 7.20% and 7.25% Cumulative Preferred Stock.
--------------------------------------------------------------------------------
THE GABELLI EQUITY TRUST INC.
AND YOUR PERSONAL PRIVACY
WHO ARE WE?
The Gabelli Equity Trust Inc. (the "Trust") is a closed-end investment
company registered with the Securities and Exchange Commission under the
Investment Company Act of 1940. We are managed by Gabelli Funds LLC, which
is affiliated with Gabelli Asset Management Inc. Gabelli Asset Management
is a publicly-held company that has subsidiaries that provide investment
advisory or brokerage services for a variety of clients.
WHAT KIND OF NON-PUBLIC INFORMATION DO WE COLLECT ABOUT YOU IF YOU BECOME A
GABELLI CUSTOMER?
When you purchase shares of the Trust on the New York Stock Exchange, you
have the option of registering directly with our transfer agent in order,
for example, to participate in our dividend reinvestment plan.
o INFORMATION YOU GIVE US ON YOUR APPLICATION FORM. This could include your
name, address, telephone number, social security number, bank account
number, and other information.
o INFORMATION ABOUT YOUR TRANSACTIONS WITH US. This would include information
about the shares that you buy or sell, it may also include information
about whether you sell or exercise rights that we have issued from time to
time. If we hire someone else to provide services--like a transfer
agent--we will also have information about the transactions that you
conduct through them.
WHAT INFORMATION DO WE DISCLOSE AND TO WHOM DO WE DISCLOSE IT?
We do not disclose any non-public personal information about our customers
or former customers to anyone, other than our affiliates, our service
providers who need to know such information and as otherwise permitted by
law. If you want to find out what the law permits, you can read the privacy
rules adopted by the Securities and Exchange Commission. They are in volume
17 of the Code of Federal Regulations, Part 248. The Commission often posts
information about its regulations on its web site, WWW.SEC.GOV.
WHAT DO WE DO TO PROTECT YOUR PERSONAL INFORMATION?
We restrict access to non-public personal information about you to the
people who need to know that information in order to provide services to
you or the Fund and to ensure that we are complying with the laws governing
the securities business. We maintain physical, electronic, and procedural
safeguards to keep your personal information confidential.
--------------------------------------------------------------------------------
29
THE GABELLI EQUITY TRUST INC.
INCOME TAX INFORMATION (UNAUDITED)
DECEMBER 31, 2002
CASH DIVIDENDS AND DISTRIBUTIONS
TOTAL AMOUNT ORDINARY LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT CAPITAL REINVESTMENT
DATE DATE PER SHARE (A) INCOME GAINS (A) PRICE
------- ------ ------------- ---------- --------- ------------
COMMON SHARES
03/25/02 03/15/02 $0.2700 $0.0192 $0.2508 $10.5450
06/24/02 06/14/02 0.2700 0.0191 0.2509 7.7235
09/24/02 09/16/02 0.2700 0.0191 0.2509 6.2225
12/24/02 12/16/02 0.1400 0.0099 0.1301 7.4195
------- ------- -------
$0.9500 $0.0673 $0.8827
7.25% PREFERRED SHARES
03/26/02 03/19/02 $0.4531 $0.0321 $0.4210
06/26/02 06/19/02 0.4531 0.0321 0.4210
09/26/02 09/19/02 0.4531 0.0321 0.4210
12/26/02 12/18/02 0.4532 0.0321 0.4211
------- ------- -------
$1.8125 $0.1284 $1.6841
7.20% PREFERRED SHARES
03/26/02 03/19/02 $0.4500 $0.0319 $0.4181
06/26/02 06/19/02 0.4500 0.0319 0.4181
09/26/02 09/19/02 0.4500 0.0319 0.4181
12/26/02 12/18/02 0.4500 0.0319 0.4181
------- ------- -------
$1.8000 $0.1276 $1.6724
AUCTION RATE PREFERRED SHARES
Auction Rate Preferred Shares pay dividends weekly based on a rate set at
auction, usually held every seven days.
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 2002 tax returns. Ordinary income distributions include net investment
income and realized net short-term capital gains. 13.36% of the long-term
capital gains paid by the Equity Trust in 2002 was classified as "20% Rate
Gains" subject to a maximum tax rate of 20% (or 10% depending on an individual's
tax bracket). Capital gain distributions are reported in box 2a of Form
1099-DIV. 86.64% of the long-term capital gains paid by the Gabelli Equity Trust
Fund in 2002 was classified as "Qualified 5-Year Gains" and reported in box 2c
of Form 1099-DIV.
NON-TAXABLE RETURN OF CAPITAL
The amount received as a non-taxable (return of capital) distribution should
be applied to reduce the tax cost of shares. There was no return of capital in
2002.
CORPORATE DIVIDENDS RECEIVED DEDUCTION AND U.S. GOVERNMENT SECURITIES INCOME
The Equity Trust paid to common shareholders an ordinary income dividend
totalling $0.0673 per share in 2002. The Equity Trust paid to 7.25% Series A
preferred shareholders and 7.20% Series B preferred shareholders an ordinary
income dividend totalling $0.1284 per share and $0.1276 per share, respectively,
in 2002. The percentage of such dividends that qualifies for the dividends
received deduction available to corporations is 99.95% for all such dividends
paid in 2002. The percentage of the ordinary income dividends paid by the Equity
Trust during 2002 derived from U.S. Government Securities was 2.83%. However, it
should be noted that the Equity Trust did not hold more than 50% of its assets
in U.S. Government Securities at the end of each calendar quarter during 2002.
30
THE GABELLI EQUITY TRUST INC.
INCOME TAX INFORMATION (CONTINUED) (UNAUDITED)
DECEMBER 31, 2002
HISTORICAL DISTRIBUTION SUMMARY - COMMON STOCK
SHORT- LONG- UNDISTRIBUTED TAXES PAID ON
TERM TERM NON-TAXABLE LONG-TERM UNDISTRIBUTED ADJUSTMENT
INVESTMENT CAPITAL CAPITAL RETURN OF CAPITAL CAPITAL TOTAL TO
INCOME GAINS (B) GAINS CAPITAL GAINS GAINS (C) DISTRIBUTIONS (A) COST BASIS
---------- --------- ------- ----------- ------------- ------------ ----------------- ----------
2002 $ 0.05180 $0.01550 $ 0.88270 -- -- -- $ 0.95000 --
2001 (d) 0.06700 0.06400 0.94900 -- -- -- 1.08000 --
2000 0.04070 0.15500 1.11430 -- -- -- 1.31000 --
1999 (e) 0.03010 0.21378 0.99561 $0.91176 -- -- 2.15125 $0.91176 -
1998 0.06420 -- 1.10080 -- -- -- 1.16500 --
1997 0.07610 0.00210 0.93670 0.02510 -- -- 1.04000 0.02500 -
1996 0.10480 -- 0.78120 0.11400 -- -- 1.00000 0.11400 -
1995 (f) 0.12890 -- 0.49310 0.37800 -- -- 1.00000 0.37800 -
1994 (g) 0.13536 0.06527 0.30300 1.38262 -- -- 1.88625 1.38262 -
1993 (h) 0.13050 0.02030 0.72930 0.22990 -- -- 1.11000 0.22990 -
1992 (i) 0.20530 0.04050 0.29660 0.51760 -- -- 1.06000 0.51760 -
1991 (j) 0.22590 0.03990 0.14420 0.68000 -- -- 1.09000 0.68000 -
1990 0.50470 -- 0.22950 0.44580 -- -- 1.18000 0.44580 -
1989 0.29100 0.35650 0.66250 -- $0.6288 $0.2138 1.31000 0.41500 +
1988 0.14500 0.20900 0.19600 -- 0.2513 0.0854 0.55000 0.16590 +
1987 0.25600 0.49100 0.33500 -- -- -- 1.08200 --
HISTORICAL DISTRIBUTION SUMMARY - 7.25% PREFERRED STOCK
2002 $ 0.09860 $0.02980 $ 1.68410 -- -- -- $ 1.81250 --
2001 0.11440 0.10610 1.59200 -- -- -- 1.81250 --
2000 0.05670 0.21430 1.54150 -- -- -- 1.81250 --
1999 0.04370 0.31640 1.45240 -- -- -- 1.81250 --
1998 0.05600 -- 0.96100 -- -- -- 1.01700 --
HISTORICAL DISTRIBUTION SUMMARY - 7.20% PREFERRED STOCK
2002 $ 0.09800 $0.02960 $ 1.67240 -- -- -- $ 1.80000 --
2001 0.05870 0.05440 0.81690 -- -- -- 0.93000 --
HISTORICAL DISTRIBUTION SUMMARY - AUCTION RATE PREFERRED SHARES
2002 $12.28350 $3.71450 $209.89200 -- -- -- $225.89000 --
--------------------------
(a) Total amounts may differ due to rounding.
(b) Taxable as ordinary income.
(c) Net Asset Value is reduced by this amount on the last business day of the
year.
(d) On January 10, 2001, the Company also distributed Rights equivalent to
$0.56 per share based upon full subscription of all issued shares.
(e) On July 9, 1999, the Company also distributed shares of The Gabelli Utility
Trust valued at $9.8125 per share.
(f) On October 19, 1995, the Company also distributed Rights equivalent to
$0.37 per share based upon full subscription of all issued shares.
(g) On November 15, 1994, the Company also distributed shares of The Gabelli
Global Multimedia Trust Inc. valued at $8.0625 per share.
(h) On July 14, 1993, the Company also distributed Rights equivalent to $0.50
per share based upon full subscription of all issued shares.
(i) On September 28, 1992, the Company also distributed Rights equivalent to
$0.36 per share based upon full subscription of all issued shares.
(j) On October 21, 1991, the Company also distributed Rights equivalent to
$0.42 per share based upon full subscription of all issued shares.
- Decrease in cost basis.
+ Increase in cost basis.
31
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, RI
02940-3011 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.
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The Annual Meeting of The Gabelli Equity Trust's stockholders
will be held at 9:00 A.M. on Monday, May 12, 2003, at The
Bruce Museum, One Museum Drive in Greenwich, Connecticut.
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32
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 ADVISOR
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
COMMON 7.25% PREFERRED 7.20% PREFERRED
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NYSE-Symbol: GAB GAB Pr GAB PrB
Shares Outstanding: 134,059,967 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.
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For general information about the Gabelli Funds,
call 800-GABELLI (800-422-3554), fax us at
914-921-5118, visit Gabelli Funds' Internet
homepage at: WWW.GABELLI.COM
or e-mail us at: closedend@gabelli.com
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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.
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THE GABELLI EQUITY TRUST INC.
ONE CORPORATE CENTER, RYE, NY 10580-1422
PHONE: 800-GABELLI (800-422-3554)
FAX: 914-921-5118 INTERNET: WWW.GABELLI.COM
E-MAIL: CLOSEDEND@GABELLI.COM
GBFCM-AR-12/02