[GRAPHIC OMITTED] [Graphic of U.S. Flag Omitted] [GRAPHIC OMITTED] [Graphic of The Gabelli Equity Trust Inc. Omitted] SEMI-ANNUAL REPORT JUNE 30, 2002 [GRAPHIC OMITTED] [Graphic of The Gabelli Equity Trust Inc. Omitted] 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. [GRAPHIC OMITTED] [Graphic of State Flags Omitted] 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. [PHOTO OMITTED] [Photo of Mario J. Gabelli Omitted] [GRAPHIC OMITTED] [Graphic of The Gabelli Equity Trust Inc. Omitted] TO OUR SHAREHOLDERS, Ongoing uncertainty over the strength of the economic and corporate profit recovery, turmoil in the Middle East, renewed fear of terrorism at home, accounting scandals, and revelations about conflicts of interest on Wall Street combined to undermine equities in the second quarter. At the close of the quarter, the Standard and Poor's ("S&P") 500 Index and Nasdaq Composite Index were re-testing their post-9/11 intra-day lows of 944.75 and 1,387.06, respectively. In general, the Gabelli Equity Trust's (the "Trust's") industrial holdings held up relatively well in this uncompromising market. However, the dismal performance of our media and telecommunications investments, which comprise about 26% of our Trust, penalized overall returns. COMPARATIVE RESULTS AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 2002 (A) SINCE YEAR TO QUARTER INCEPTION (B) 10 YEAR 5 YEAR 3 YEAR 1 YEAR DATE ------- ------------- ------- ------ ------ ------ ------ Gabelli Equity Trust NAV Return (c) ...........(12.67)% 11.31% 10.78% 6.22% (1.58)% (12.82)% (9.70)% Gabelli Equity Trust Investment Return (d) .... (6.31)% 12.79% 13.67% 13.30% 7.86% (2.12)% (1.33)% Dow Jones Industrial Average ..................(10.74)% 10.56% 13.20% 5.59% (3.94)% (10.34)% (6.91)% S&P 500 Index .................................(13.39)% 9.07% 11.42% 3.67% (9.17)% (17.98)% (13.15)% Nasdaq Composite Index ........................(20.71)% 8.85% 10.01% 0.29% (18.33)% (32.30)% (24.98)% (a) Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. When shares are sold, they may be worth more or less than their original cost. The Dow Jones Industrial Average is an unmanaged index of 30 large industrial stocks. The S&P 500 and the Nasdaq Composite Indices are unmanaged indicators of stock market performance. Dividends are considered reinvested (except for the Nasdaq Composite Index). Performance for periods less than one year are not annualized. (b) From commencement of investment operations on August 21, 1986. (c) Total returns and average annual returns reflect changes in net asset value ("NAV"), reinvestment of distributions, adjustments for rights offerings, spin-offs and taxes paid on undistributed long-term capital gains, and are net of expenses. Since Inception return based on initial net asset value of $9.34. (d) Total returns and average annual returns reflect changes in closing market values on the New York Stock Exchange, reinvestment of distributions, adjustments for rights offerings, spin-offs and taxes paid on undistributed long-term capital gains. Since Inception return based on an initial offering price of $10.00. PREMIUM/DISCOUNT DISCUSSION As a refresher to our shareholders, the price of a closed-end mutual fund is determined in the open market by willing buyers and sellers. Shares of the Trust trade on the New York Stock Exchange and may trade at a premium to (higher than) net asset value ("NAV") (the market value of the Trust's underlying portfolio) or a discount to (lower than) net asset value. Of the 502 publicly-traded closed-end funds in the U.S., approximately 37% currently trade at premiums to NAV versus 26% five years ago and 61% ten years ago. For general equity funds such as the Trust, approximately 31% currently trade at premiums to NAV versus 33% five years and 14% ten years ago. Ideally, the Trust's market price will generally track the NAV. The Trust's premium or discount to NAV fluctuates over time. Over our Trust's 15-year history, the range fluctuated from a 38% premium in June 2002 to a 27% discount in December 1987. The average variance from NAV for the Trust since inception is a 0.3% discount to NAV. Beginning in early 2001, the market price of the Trust exceeded the NAV and this premium has gradually increased since. The previous extended period in which a premium existed occurred during a 20-month period from August 1993 to March 1995. "Mr. Market" often provides opportunities to invest at a discount. The Trust has undertaken various initiatives to narrow the discount when appropriate through distribution policies, rights offerings, share repurchase programs and use of leverage. The Trust's long-term investment goal is to generate a real rate of return of 10%. We believe that our stock selection process adds to the investment equation. We have a successful history of investment providing shareholders average annual returns of 11% since inception. However, it is important to remember that "Mr. Market" is a pendulum that swings both ways. As the market moves away from momentum investing and back to basics, we believe that an excessive premium for the Trust is not likely to be sustainable. PREMIUM/DISCOUNT SINCE INCEPTION [GRAPHIC OMITTED] JUNE 30, 2002 Net Asset Value $ 7.59 Market Price $10.03 Premium 32.15% 8/21/86 0 9/30/86 0.0067 10/31/86 0.0046 11/30/86 -0.039 12/31/86 -0.0661 1/31/87 -0.1363 2/28/87 -0.1323 3/31/87 -0.1555 4/30/87 -0.1393 5/31/87 -0.1788 6/30/87 -0.2028 7/31/87 -0.2 8/31/87 -0.2052 9/30/87 -0.2128 10/31/87 -0.2074 11/30/87 -0.2154 12/31/87 -0.2061 1/31/88 -0.2235 2/29/88 -0.1145 3/31/88 -0.1523 4/30/88 -0.1477 5/31/88 -0.1906 6/30/88 -0.0819 7/31/88 -0.0984 8/31/88 -0.0942 9/30/88 -0.1097 10/31/88 -0.1256 11/30/88 -0.1104 12/31/88 -0.1113 1/31/89 -0.1214 2/28/89 -0.1108 3/31/89 -0.1006 4/30/89 -0.0925 5/31/89 -0.0699 6/30/89 -0.0468 7/31/89 -0.0854 8/31/89 -0.0243 9/30/89 -0.0385 10/31/89 -0.0257 11/30/89 -0.0217 12/31/89 0.0076 1/31/90 0.0534 2/28/90 -0.0156 3/31/90 0.0242 4/30/90 0.0033 5/31/90 -0.0056 6/30/90 -0.0049 7/31/90 -0.0176 8/31/90 -0.018 9/30/90 -0.0348 10/31/90 -0.1187 11/30/90 -0.0327 12/31/90 0.029 1/31/91 -0.0091 2/28/91 0.0269 3/31/91 0.015 4/30/91 -0.0257 5/31/91 -0.01 6/30/91 0.0138 7/31/91 -0.0032 8/31/91 -0.0009 9/30/91 -0.0298 10/31/91 -0.0083 11/30/91 -0.1014 12/31/91 -0.0366 1/31/92 -0.0077 2/29/92 0.0141 3/31/92 0.0045 4/30/92 0.0069 5/31/92 0.0092 6/30/92 0.0032 7/31/92 0.0165 8/31/92 0.0309 9/30/92 0.0427 10/31/92 -0.0068 11/30/92 -0.0461 12/31/92 -0.0257 1/31/93 -0.0312 2/28/93 -0.0046 3/31/93 0.0265 4/30/93 0.0436 5/31/93 0.012 6/30/93 -0.0207 7/31/93 -0.0093 8/31/93 -0.0358 9/30/93 0.0088 10/31/93 0.0601 11/30/93 0.0659 12/31/93 0.0573 1/31/94 0.0797 2/28/94 0.0673 3/31/94 0.0733 4/30/94 -0.027 5/31/94 0.0524 6/30/94 0.0542 7/31/94 0.0233 8/31/94 0.0597 9/30/94 0.0185 10/31/94 0.0375 11/30/94 0.0622 12/31/94 0.0121 1/31/95 0.0047 2/28/95 0.03 3/31/95 0.017 4/30/95 -0.0122 5/31/95 -0.024 6/30/95 -0.0081 7/31/95 -0.044 8/31/95 -0.0697 9/30/95 -0.0845 10/31/95 -0.1206 11/30/95 -0.075 12/31/95 -0.0578 1/31/96 -0.0625 2/29/96 -0.0821 3/31/96 -0.0385 4/30/96 -0.0732 5/31/96 -0.0916 6/30/96 -0.047 7/31/96 -0.0576 8/31/96 -0.0708 9/30/96 -0.0474 10/31/96 -0.0405 11/30/96 -0.0644 12/31/96 -0.0394 1/31/97 -0.0741 2/28/97 -0.0644 3/31/97 -0.0424 4/30/97 -0.0077 5/31/97 -0.0688 6/30/97 -0.0613 7/31/97 -0.0693 8/31/97 -0.0676 9/30/97 -0.0397 10/31/97 -0.0636 11/30/97 -0.0175 12/31/97 0.0316 1/31/98 0.0119 2/28/98 -0.0088 3/31/98 -0.022 4/30/98 -0.0788 5/31/98 -0.0885 6/30/98 -0.04 7/31/98 -0.042 8/31/98 -0.0814 9/30/98 -0.0091 10/31/98 0.0025 11/30/98 0.0216 12/31/98 0.0026 1/31/99 0.0103 2/28/99 0.0264 3/31/99 0.0202 4/30/99 -0.0068 5/31/99 -0.006 6/30/99 -0.0163 7/31/99 0.007 8/31/99 0.0159 9/30/99 0.0126 10/31/99 -0.0045 11/30/99 -0.0178 12/31/99 -0.0147 1/31/00 -0.0331 2/29/00 -0.0835 3/31/00 -0.0438 4/30/00 -0.078 5/31/00 -0.046 6/30/00 0.0097 7/31/00 -0.0093 8/31/00 0.0073 9/30/00 -0.0179 10/31/00 -0.0298 11/30/00 0.0332 12/31/00 0.0493 1/31/01 -0.045 2/28/01 -0.0067 3/31/01 0.1048 4/30/01 0.0937 5/31/01 0.1453 6/30/01 0.1596 7/31/01 0.1107 8/31/01 0.1614 9/30/01 0.2041 10/31/01 0.2241 11/30/01 0.2314 12/31/01 0.2029 1/31/02 0.2497 2/28/02 0.2463 3/31/02 0.2311 4/30/02 0.248 5/30/02 0.2955 6/30/02 0.3215 SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK On June 27, 2002, the Trust successfully completed its offering of Series C Auction Rate Cumulative Preferred Stock ("Preferred Shares") which was rated 'Aaa' by Moody's Investors Service, Inc. and 'AAA' by Standard & Poor's Rating Services. Shareholder response has been positive and we appreciate the efforts of Salomon Smith Barney Inc. and Gabelli & Company, Inc., the underwriters, and wish to thank and welcome all those investors who participated. The Trust issued 5,200 Preferred Shares at $25,000 per share ($130 million) with an initial annualized dividend rate of 1.85% payable on July 3, 2002. Dividend rates for the Preferred Shares are cumulative at a rate that may be reset every seven days based on the results of an auction. The Preferred Shares are redeemable at the option of the Trust, in whole or in part, following any dividend payment date with not less than 15 days and not more than 40 days 2 notice at $25,000 per share plus any accumulated or unpaid dividends. These Preferred Shares do not trade on an exchange. Consistent with our conservative approach, the Trust issued the Preferred Shares in a cost-effective manner at less than an estimated $0.013 per share. How do the additional Preferred Shares benefit Common Shareholders? The Trust has earned an 11.31% average annual total return from inception on August 21, 1986 through June 30, 2002. The Preferred Shares were issued with an initial annualized dividend rate of 1.85%. Going forward, the dividend rate will fluctuate weekly based on market conditions. Additionally, the Trust was able to leverage the current low interest rate environment and protect the Trust from increases in such interest rates by entering into a five-year interest rate swap agreement with Citibank at a rate of 4.494%. Any return earned in excess of the stated 4.494% swap rate would benefit Common Shareholders; however, any shortfall from the stated swap rate would have an adverse effect on the Common Shareholder. Therefore, by taking advantage of the historically low interest rate environment and achieving our long-term investment objectives, the Preferred Share issuance offers what we believe is a method of potentially adding wealth for our Common Shareholders. Similar to the Trust's previous preferred offerings, the Adviser will not earn any management fee on the incremental assets during any year in which the net asset value total return on the Trust does not exceed the stated five-year swap rate related to the Preferred Shares. Following the expiration of the swap agreement, the variable dividend rate on the Preferred Shares will serve as the hurdle rate for the Adviser to earn any management fee on the incremental assets, unless the Trust enters into a new swap agreement. Coupled with the Trust's existing Preferred Stock outstanding, the effective dividend rate for the Trust's three classes of Preferred Stock is 6.40%. Realized long-term capital gains of the Trust are passed through to all shareholders. In 2001, 87.89% of the common and preferred distributions was classified as long-term capital gains, taxable at a maximum rate of 20%. Accordingly, the ordinary income equivalent yield on the preferred stock at the initial dividend rate of 1.85%, for a shareholder in the 38.6% tax bracket, would be 2.35%. COMMENTARY THE ECONOMY: THE RECOVERY IS FOR REAL Although consumer confidence readings and retail sales softened in May, most other economic data has been encouraging. Industrial production and productivity continued to trend higher, new housing starts approached record levels, and there was a modest up-tick in business investment. Importantly, inflation remained dormant, most likely postponing any Federal Reserve Board ("Fed") interest rate hikes. We believe full year 2002 Gross Domestic Product ("GDP") growth will be above the 3% to 3.5% range we expected at the beginning of the year and that capital spending plus a recovery in Europe and Japan in 2003 will help sustain economic growth in the year ahead. Presently, investors appear to be questioning whether corporate earnings will meet expectations in the coming quarters. We believe profits will be up sharply this year as a result of the economic expansion, increased productivity, cost cutting, financial re-engineering, and big decline in the "everything including the kitchen sink" write-offs taken in 2001. Financial Accounting Standards Board ("FASB") Rule 142, which does not require companies to amortize goodwill, will also help earnings for many companies. In addition, a gradual weakening of the dollar will boost profits for the large U.S.-based multinationals in the S&P 500 Index. Although stocks are still not cheap by historical standards, rising earnings will make equity valuations considerably more reasonable. 3 THE MARKET: A CRISIS IN CONFIDENCE Unfortunately, over the short term, a recovering economy, a rebound in corporate profits, and more reasonable equity valuations may not do much to improve investor psychology, which has been battered by geopolitical tensions and a crisis in confidence in the integrity of corporate America and Wall Street. It has become apparent that our quick victory over the Taliban in Afghanistan has not eliminated the threat of terrorism at home or abroad. The seemingly never-ending cycle of violence in the Middle East has further unnerved investors. For a few tense weeks, investors also worried about a nuclear confrontation between Pakistan and India over Kashmir. Clearly, it's a dangerous world out there. Investors have come to believe the stock market is a dangerous place as well. Not only have they lost a pile of money over the last two years, but "Enronitis," "Tycosis," "Marthritis" (the insider trading investigation of Martha Stewart), and most recently "WorldCon" have many investors wondering what malady will strike their portfolios next. Following the revelations (to some) that Wall Street research is not what it's cracked up to be, investors are reluctant to go to their broker for a portfolio check-up, fearing the cure may be worse than the disease. REALITY CHECK At this stage, some perspective on the recent scandals in corporate America and Wall Street is in order. I've spent nearly 40 years grilling corporate managers about their businesses. Most have been honest, albeit with a tendency to "accentuate the positives and de-centuate the negatives." Some have been disingenuous, doing their best to sweep the bad news under the rug. While I've seen many incompetent managements run good companies into the ground, I've only encountered a few who have been outright crooks. Unfortunately, corporate skullduggery was on the rise, in part due to "momentum" investing, which focuses on short-term earnings dynamics, as well as the widespread use of stock options -- the cocaine of the corporate elite -- that reward managements on the basis of their companies' stock prices rather than improving business fundamentals. It is little wonder that some managements are willing to cook the books to enhance and/or protect the value of these enormous options packages. We are a little more cynical regarding Wall Street's improprieties. We have always been wary of Wall Street research, primarily because we feel most sell-side analysts do not do as thorough a job as we do. Also, although the conflict of interest between investment banking and equity research may be front-page news to the investor public, it is old hat to investment professionals. Writing a negative research report on the stock of one of your firm's investment banking clients has always been a sure-fire way for sell-side analysts to end up on the unemployment line. Although corporate accounting has never been transparent -- we have been fighting our way through pages of footnotes attached to corporate financial statements for years -- we would welcome reform in this area as well. We expect a certain amount of accounting gimmickry will always be the norm, as the bean counters figure out how to skirt whatever new rules are put in place. However, separation of auditors from management consultants would be the first step in resolving potential conflicts of interest. Hopefully, we will make some progress on all these fronts. In the coming quarters, we may continue to see negative headlines further denting investor confidence. However, we believe that as the economic recovery unfolds and corporate earnings meet or beat consensus expectations, investors will refocus on an expanding number of excellent opportunities in the stock market. 4 BACK TO BASICS In an economic dynamic and stock market turmoil like this we want to go back to basics. The stock market is a function of several inter-related elements: o Earnings/Economy o Inflation/Interest Rates o Mr. Market/Psychology DOUBLE-DIGIT RETURNS - ARE THEY ACHIEVABLE? Many corporate sponsors (public companies tied to liabilities with plan assets) have made certain assumptions about inflation. In the 1990s, stocks returned 18.2% and in the 1980s, 17.5%. Those lofty returns were not sustainable and the past couple years have proved that premise. Expectations for returns in the future should be more in line with the historical numbers. 9% to 9.5% is the number that most have migrated to over the past several years. Is this sustainable? What portfolio mix is necessary to achieve these results if rates on fixed income instruments are under 6%? To help guide us on a going-forward basis, below is a road map of returns over the last seventy-five years prepared by Ibbotson Associates, a data services firm that provides historical research information. Chart I compares the returns by decade of three separate asset classes and the rate of inflation. The "Stocks" category consists of the S&P 500 Composite Index with dividends reinvested. The "Bonds" consist of Long Term Government Bonds with a maturity of 20 years. The "Bills" represent the total return of 30-day Treasury bills. "Inflation" reflects the Consumer Price Index of all Urban consumers and is not seasonally adjusted. CHART I: A CENTURY OF INVESTING COMPOUNDED ANNUAL RATES OF RETURN STOCKS BONDS BILLS INFLATION ---------------------------------------------------------------------- 02 (YTD) -13.2% 3.6% 0.9% 1.8% 01 -11.9 3.6 4.1 2.0 00 -9.1 21.5 5.9 3.4 90's 18.2 8.8 4.9 2.9 80's 17.5 12.6 8.9 5.1 70's 5.9 5.5 6.3 7.4 60's 7.8 1.4 3.9 2.5 50's 19.4 -0.1 1.9 2.2 40's 9.2 3.2 0.4 5.4 30's 0.0 4.9 0.6 -2.0 --------------------------------------------------------------------- 1926-2002 10.6% 5.9% 3.8% 3.0% SOURCE: IBBOTSON ASSOCIATES AS OF 6/30/2002 5 Chart II details returns on the S&P 500 Index. Note the number of declines. S&P 500 TOTAL RETURNS ONLY TWICE HAS THE S&P 500 HAD TOTAL RETURN DOWN THREE OR MORE YEARS. IT LOOKS LIKE WE'RE POISED FOR THE THIRD, BUT NOTE THE MARKET GAINS IN THE YEARS FOLLOWING CONSECUTIVE DECLINES. [GRAPHIC OMITTED] [GRAPHIC OF ARROWS OMITTED] YEAR TOTAL RETURNS 2001 -11.9% 2000 -9.1 1999 21.0 1998 28.6 1997 33.4 1996 23.1 1995 37.4 1994 1.3 1993 10.0 1992 7.7 1991 30.6 1990 -3.2 1989 31.5 1988 16.8 1987 5.2 1986 18.5 1985 32.2 1984 6.3 1983 22.5 1982 21.4 1981 -4.9 1980 32.4 1979 18.4 1978 6.6 1977 -7.2 1976 23.8 1975 37.2 1974 -26.5 1973 -14.7 1972 19.0 1971 14.3 1970 4.0 1969 -8.5 1968 11.1 1967 24.0 1966 -10.1 1965 12.5 1964 16.5 YEAR TOTAL RETURNS 1963 22.8% 1962 -8.7 1961 26.9 1960 0.1 1959 12.0 1958 43.3 1957 -10.8 1956 6.6 1955 31.6 1954 52.6 1953 -1.0 1952 18.4 1951 24.0 1950 31.7 1949 18.8 1948 5.5 1947 5.7 1946 -8.1 1945 36.4 1944 19.8 1943 25.9 1942 20.3 1941 -11.6 1940 -9.8 1939 -0.4 1938 31.1 1937 -35.0 1936 33.9 1935 47.7 1934 -1.4 1933 54.0 1932 -8.2 1931 -43.3 1930 -24.9 1929 -8.4 1928 43.6 1927 37.5 1926 11.6 SOURCE: ISI GROUP As we have said in our previous shareholder reports, we believe that the economy in the decade of the aughts will grow at 3% to 3.5% and that inflation will be about 3% (don't get concerned with our country's ability to deal with guns and Guccis). As a result, the overall markets should return 6% to 8% to investors. We believe that our Trust will be able to continue to generate double-digit returns. 6 CORPORATE GOVERNANCE It has become fashionable for institutional investors to talk about corporate governance. Some are focusing on compensation, some are focusing on stock options. We want to share with you the following table labeled "The Magna Carta of Shareholder Rights," which we published in 1988. In it, we indicated what we believe as ombudsman for our shareholders -- we are not for management or against management, we are for shareholders. This is our long-standing tenet. 655 Third Ave. Gabelli & Company, Inc. New York, N.Y. 10017 May 16, 1988 MAGNA CARTA OF SHAREHOLDER RIGHTS There has been a great deal of dialogue among fund sponsors, especially among corporate sponsors, about the voting of proxies. The U.S. Department of Labor has focused on this as well. We thought it timely to share with you our thought process on the voting of proxies. THE MAGNA CARTA (A) OF SHAREHOLDER RIGHTS As we have stated in the past, we are neither for nor against management. We are for shareholders. As security analysts we are best informed (sic!) to make the decisions on matters that will affect the economic value of investments. We believe a Magna Carta of Shareholder Rights should exist. What do you as a professional in the investment business think? We feel there are issues that affect corporate governance. The following list outlines our position on these issues: WE ARE IN FAVOR OF: WE WILL VOTE AGAINST: ------------------- --------------------- o Cumulative Voting o Greenmail o Golden Parachutes o Poison Pills o One Share: One Vote o Supermajority Voting o Cash Incentives o Blank Check Preferreds o Pre-emptive Rights o Super-Dilutive Stock Options This is our policy. We will make exceptions when we encounter management that demonstrates superior sensitivity to the needs of shareholders. What are you doing? --------------- (a) The MAGNA CARTA (L. great charter) was signed in June 1215 at Runnymede on the Thames. It was the decisive step forward in the establishment of constitutional government in England. Mario J. Gabelli, C.F.A. [COPYRIGHT] GAMCO Investors, Inc. 7 Where art thou now, White Knight? Today our focus is to suggest that we need to eliminate the poison pill. Why? We believe in an old maxim, that "power corrupts and absolute power corrupts absolutely." The introduction of the poison pill weakened a discipline to management's errant activities -- a takeover by someone who could marshal and energize the assets better. The second part was that with all of us desiring to align management's interests with shareholders, we want to reframe that with this premise: Management's responsibility is to grow the intrinsic value of the enterprise as well as to make sure that the public price tracks that intrinsic value. Another basic premise of the free market system is that capital has to move to its highest returns. Lazy assets and lazy managements have to be energized. A takeover that attempts to narrow the spread acts as a powerful cleansing tool and a powerful catalyst to stimulate management. Poison pills are major deterrents that have to be eliminated. Our adviser and its affiliate, Gabelli Asset Management Company, are initiating actions to have companies remove their poison pills. We will again refocus our energies, as we have identified in our Magna Carta, on stock options. If companies want to issue them in lieu of cash, then account for them as an expense! We will also echo comments of other observers that the accounting for these options has to be reexamined, namely they should flow through the P&L (profit and loss statement) as opposed to just the balance sheet. Obviously, the issues with stock options will be resolved. THE BEAUTY AND THE BEAST Many of the shares in our portfolio, which we view as princely, turned out to be beasts because they weren't capable of making love (i.e. nobody would make love to them). In other words, the consolidation we thought would occur in broadcasting, cable, wireless and telecom did not unfold. The culprit: constraints were not lifted as readily as we anticipated at the Federal Communications Commission ("FCC"). 8 FEDERAL COMMUNICATIONS COMMISSION DEEP SIXING THE BIG 6? On September 17th, 2001, we published a report entitled REGULATORY CHANGE = CATALYST. In it, we laid out our bullish case for a sweeping near-term media and telecommunications regulatory overhaul, led by FCC Chairman Michael Powell (See Exhibit 1 below and our September report). EXHIBIT 1: SEPTEMBER 2001 BULL CASE --------------------------------------------------------------------------------------------------------------------------- REGULATION CURRENT STATUS "BULL CASE" --------------------------------------------------------------------------------------------------------------------------- - Cable Ownership Cap 30% of pay TV subscribers Above 50% or no cap - Affiliated Programming Cap Affiliated content < 40% of first 75 No cap channels - Cable/Broadcast Cross- No cable and broadcast TV in same Removal of ban ownership Designated Market Area (DMA) - Cable Dual Must Carry Must carry analog broadcast signal Not forced to carry both broadcast digital and analog - Cable Open Access Notice of Inquiry No forced open access - Satellite Must Carry Must carry all local analog broadcasts DBS Co. chooses which broadcast if carry one stations to carry - Broadcast/Newspaper Cross- No newspaper and broadcast station in Removal of ban ownership same DMA - National TV Ownership Cap 35% of television audience Above 50% or no cap - TV Duopolies Can own two stations in one market if Eliminate rating and voice tests only one is in top four and eight independent voices exist - Wireless Spectrum Cap 45 MHz in urban and 55 MHz in rural No cap markets - Wireline - Section 271 Regional Bell Operating Companies (RBOCs) RBOCs can offer in-region LD cannot offer in-region Long Distance (LD) While the deregulation roadmap we laid out for the media and telecom industries in our report (see the "Bull Case" above) is still valid, progress is taking longer than we had originally expected. Whether this delay is political or due to a cautious FCC is a subject of debate. Considerable friction has developed between Michael Powell and vocal Democratic Senator Fritz Hollings. The facts are that on June 17th, 2002, the FCC announced that it was combining the rule making proceedings of six key media rules that were moving along separate tracks into one. According to the FCC, the new universal rule should be ready by Spring 2003. THE "BIG 6" The six rules to be reviewed together are as follows (The first four we addressed in September - see Exhibit 1.): o 35% National TV Ownership Cap o TV Duopoly Rule o Newspaper/Broadcast Cross-Ownership Rule o Cable/Broadcast Cross Ownership o Radio Concentration Rule (limited to eight stations within the largest markets) o Dual Network Rule (No company can own two of the top four national broadcast networks.) 9 KEY POINTS - THE OPTIMIST: STRONGER THEORETICAL UNDERPINNINGS. There will now be one coherent, well thought out rule that should stand the test of intense judicial scrutiny. A series of rulings by the United States Court of Appeals for the District of Columbia Circuit have brought into focus the underpinnings of the FCC rules. We specifically refer to the Court's comments on the 35% TV Ownership Cap, Cable/Broadcast Cross-Ownership and the Local TV Ownership Rules (Duopoly). In general, the court felt the rules were arbitrary. We believe the new merger rule will require a rational market analysis of the broad competitive landscape in each specific media market, similar to what takes place today in an FTC anti-trust review. There will be one fabric, as opposed to six rules. - THE PESSIMIST: DEEP SIX? Again, it remains open for debate what is being driven by politics and what is being driven by the theoretical underpinnings. The cynical side in us tells us that Powell is pushing off the tough decisions until after the 2002 election. If the Republicans take control of the Senate, he may be able to push through the rules without having to joust with Hollings. - OVERALL MOMENTUM REMAINS POSITIVE. Regardless of what the real driver may be, we believe change is still coming and that remains evident. Given the Court's recent decisions severely criticizing the FCC's rules, we continue to expect more than ever that the industry will be deregulated. (See our Broadcast Deregulation reports dated 3/11/02 and 4/5/02.) - CONCLUSION OF ENTIRE REVIEW POSSIBLY MOVED FORWARD. Though new regulatory rules were expected to be promulgated in 2002, most industry watchers did not expect all six of the above issues to be addressed this year. Thus, instead of several relatively smaller catalysts hitting the market over the next several years, we believe the unified rule will provide one powerful catalyst in 2003. - UNCERTAINTY. There still exists a level of uncertainty in the media mergers and acquisitions marketplace. CONCLUSION Since a notice of proposed rule making (NPRM) was initiated by the FCC in September 2001 for the Newspaper/Broadcast Cross-Ownership rule and the comment periods have ended, we believe that this rule was the furthest along in the FCC review process and therefore slowed down the most by this event. However, we think that this new process will speed up the time frame for a wider-ranging review of media rules. We note that the rule making process on the 30% cable ownership cap is unaffected here. More importantly, we believe that this decision by the FCC may have little to no effect on companies' long-term acquisition strategies. The powerful need for consolidation to achieve economies of scale for the global marketplace remains the driver behind the propensity to merge. Several companies have indicated that when faced with an attractive acquisition opportunity they may very well go ahead with it and challenge the rules instead of waiting for the FCC. The FCC's rule changes will provide more fuel to drive natural consolidation. Deals should surface asset value and should therefore drive higher valuations for many companies in the media space. Evan Carpenter Andrew Rittenberry (914) 921-6595 (914) 921-6592 [COPYRIGHT]Gabelli & Company, Inc. 2002 ONE CORPORATE CENTER RYE, NY 10580 GABELLI & COMPANY, INC. TEL (914) 921-3700 FAX (914) 921-5098 -------------------------------------------------------------------------------- This report has been prepared as a matter of general information. It is not intended to be a complete description of any security or company mentioned and is not an offer to buy or sell any security. Unless otherwise noted, stock prices for 2002 reflect the closing price through the business day immediately prior to the date of this report. All facts and statistics are from sources believed reliable, but are not guaranteed as to accuracy. The firm and its affiliates, employees, and clients may have recently established or disposed of, or may be establishing or disposing of, positions in securities mentioned in this report. Since portfolio managers make individual investment decisions in the accounts under their supervision, transactions in such accounts may be inconsistent with research reports. Additional information on these securities and companies is available upon request. [COPYRIGHT]Gabelli & Company, Inc. 2002 10 On top of that, the Beast got particularly ugly as Adelphia and WorldCom, not to mention the Winstars, Teligents, Global Crossings and Qwests, over-impacted on the market. Indeed, instead of positive developments out of the FCC we had negative ones -- for example Senator Feingold from Wisconsin recently introduced legislation to curtail the ability of radio companies to expand their ownership. INVESTMENT SCORECARD Defense contractors (Curtiss-Wright, Lockheed Martin and Northrup Grumman), food and beverage stocks (Coca-Cola Enterprises, Kellogg Co. and Kerry Group), manufacturers (Nortek and Watts Industries) and industrial companies (Acuity Brands, Nashua and ITT Industries) finished this quarter at the top of our performance list. Media and telecommunications stocks dominated our laggard's list with portfolio holdings such as Cablevision Systems, UnitedGlobalCom, Vivendi Universal, AT&T, Sprint and Broadwing giving substantial ground. THE MEDIA STOCK MASSACRE Media stocks, with the exception of newspaper publishers, were clobbered in the second quarter, with some of our favorite companies near the bottom of the Trust's performance list. Several factors -- investor concern over relatively high debt levels in the media industry (especially in cable television), heavy institutional ownership and an absence of deals despite regulatory changes that should promote further consolidation in the industry -- were responsible for the media stock massacre. We believe these three factors will work in media stocks' favor in the year ahead. Ad spending should improve as the economic recovery and "political spending" unfolds. In fact, "up-front" advertising sales for broadcasters have already firmed considerably. The implication is that corporations believe ad prices will rise in the spot market in the coming quarters. As media company cash flows improve, investor concern over debt will diminish. Finally, we think it is simply a matter of time before we see more deals resulting from new rules that permit ownership of broadcast and cable television properties in the same markets and that allow broadcasters to increase their national "footprint." As regulatory barriers continue to come down -- we expect rules currently preventing companies from owning television stations and newspapers in the same market to be modified or eliminated this year -- deal activity should resume, helping to surface values in the beaten down media sector. LET'S TALK STOCKS The following are stock specifics on selected holdings of our Trust. Favorable earnings prospects do not necessarily translate into higher stock prices, but they do express a positive trend that we believe will develop over time. AMERICAN EXPRESS CO. (AXP - $36.32 - NYSE), one of the most widely recognized brands around the world, is focused on increasingly cross-selling financial products and services to its customers. The company consists of three segments: its Travel Related Services business, which contributes 80% of revenues, provides charge cards, credit cards, travelers cheques, and travel services to corporations and consumers; American Express Financial Advisors, which contributes 17% of revenues, provides investment advisory services and financial products such as mutual funds, insurance, and annuities; finally, American Express Bank, which accounts for 3% of revenues, offers banking services to other financial institutions, wholesale banking for corporations, and private banking for high net worth 11 individuals. The company's long-term goal is to deliver revenue growth of at least 8% and earnings per share ("EPS") growth between 12% and 15%. AT&T CORP. (T - $10.70 - NYSE) provides voice, data and video communications services to large and small businesses, as well as consumers and government entities. AT&T and its subsidiaries furnish domestic and international long distance, regional and local telecommunications, cable television and Internet services. The company is in the process of splitting itself into four separate entities. As part of the restructuring, AT&T has converted AT&T Wireless (AWE - $5.85 - NYSE) from a tracking stock to an asset-based stock and spun it off to AT&T shareholders. AT&T Broadband, which includes cable, is in the process of being acquired by Comcast Corp. (CMCSK - $23.84 - Nasdaq) in a $70 billion transaction that will form the largest cable operator in the country with about 22 million subscribers. The deal has recently received shareholder approval and pending regulatory approvals is expected to close by the end of 2002. As a result of the Comcast merger, AT&T will be left with a significantly de-leveraged balance sheet and two businesses: business services catering to large corporations and consumer operations providing long distance services to about 50 million households. BERKSHIRE HATHAWAY INC. (BRK'A - $66,800 - NYSE) is Warren Buffett. The company has interests in insurance (notably GEICO and General Re), publishing, aviation, retailing, and manufacturing. Its investment portfolio includes over $28 billion of marketable equity securities. Berkshire has grown rapidly through acquisitions over the past 15 years, including Kirby vacuum cleaners; World Book encyclopedias; H. H. Brown, Dexter and Justin footwear; Executive Jet aviation; Dairy Queen restaurants and snack treats; Johns Manville building products; Benjamin Moore paints; Shaw Industries carpets; MiTek steel connectors; XTRA transportation leasing; GEICO insurance; and General Re reinsurance. GEICO, the sixth largest auto insurer in the U.S., contributes 17% of revenues while General Re, the fourth largest reinsurer globally, contributes 23% of revenues. GENUINE PARTS CO. (GPC - $34.87 - NYSE), a Georgia corporation incorporated in 1928, is the premier service organization engaged in the traditional distribution of automotive and industrial replacement parts, office products and electrical/electronic materials. The company's NAPA automotive parts distribution centers distribute replacement parts (other than body parts) for substantially all motor vehicle makes and models in service in the United States, including imported vehicles, trucks, buses, motorcycles, recreational vehicles and farm vehicles. The Industrial Parts Group distributes a wide variety of products to its customers, primarily industrial concerns, to maintain and operate plants, machinery and equipment. The Office Products Group (S. P. Richards Company), is engaged in the wholesale distribution of a broad line of office and other products that are used in the daily operation of businesses, schools, offices and institutions. The financially troublesome Electrical/Electronic Materials Group ("EIS") distributes materials for the manufacture and repair of electrical and electronic apparatus. LIBERTY MEDIA CORP. (L - $10.00 - NYSE), run by savvy deal maker and media investor John Malone, is engaged in businesses that provide programming services (including production, acquisition and distribution through all media formats) as well as businesses engaged in electronic retailing, direct marketing and other services. Liberty Media holds interests in globally branded entertainment networks such as the Discovery Channel, USA Interactive, QVC, Encore and STARZ!. Liberty's investment portfolio also includes interests in international video distribution businesses, international telephony and domestic wireless companies, plant and equipment manufacturers, and other businesses related to broadband services. 12 PEPSICO INC. (PEP - $48.20 - NYSE) is a $25 billion food and beverage company after the acquisition of Quaker Oats was completed on August 2, 2001. PepsiCo added several products to its existing portfolio of the Pepsi-Cola and Frito Lay brands, such as Gatorade and the Quaker Oat snack and food businesses. The company is focused on the faster growing convenience category, improving their distribution systems and extracting the synergies expected from the merger. PepsiCo is also benefiting from the introduction of new products such as Mountain Dew Code Red, Pepsi Twist, Pepsi Blue, Starbucks Doubleshot, Bistro chips and the continued robust growth of Aquafina. SCRIPPS (E.W.) CO. (SSP - $77.00 - NYSE), headquartered in Cincinnati, Ohio, is a diversified media company with operations throughout the United States combining traditional and new media. The company is the tenth largest newspaper publisher in the U.S. with 21 daily newspapers. Scripps also has 10 television stations, reaching one in every ten homes in America. Additionally, Scripps Networks includes four national cable networks: Home & Garden Television, Food Network, Do It Yourself and Fine Living. Lastly, the company has a global licensing and syndication business which syndicates more than 150 comic strips and editorial features, including PEANUTS and DILBERT. Scripps is focused on growing and strengthening its cable television business. SPS TECHNOLOGIES INC. (ST - $38.17 - NYSE) is a leading manufacturer of fasteners, superalloys and magnetic materials for the aerospace, automotive and industrial markets. The Precision Fasteners and Components group produces high strength fasteners for the aerospace, automotive and machinery markets. The Specialty Materials and Alloys group makes superalloys for the aerospace and industrial gas turbine markets and the Magnetic Products group produces magnetic materials used in automotive, electronics and other specialty applications. SPS has made 18 acquisitions since 1996 and has positioned the nearly $1 billion company to be a strategic global supplier in the fastener and component industry. We believe the company will continue to use its strong cash flow to augment internal revenue and earnings growth with acquisitions. TELEPHONE & DATA SYSTEMS INC. (TDS - $60.55 - AMEX) provides mobile and local phone services to 3.6 million customers in 35 states. TDS conducts its cellular operations through 81%-owned United States Cellular (USM - $25.45 - AMEX) and its wireline telephone operations through its wholly owned TDS Telecommunications ("TDS Telecom") subsidiary, a full-service local exchange carrier. Having completed a merger of its 82%-owned PCS subsidiary Aerial Communications with VoiceStream Wireless, which was acquired by Deutsche Telekom (DT - $9.31 - NYSE), a former German phone monopoly, TDS owns 131.6 million shares of Deutsche Telekom, representing 2.25 shares of DT per share of TDS. As part of the VoiceStream/Deutsche Telekom deal, TDS also received $570 million in cash. VIACOM INC. (VIA - $44.46 - NYSE) is a diversified media company with businesses across many media platforms. The firm operates cable networks (including VH1, MTV, Showtime and Nickelodeon), television networks and stations (including the CBS and UPN Television networks and numerous affiliated TV stations in major markets), major market radio stations and outdoor advertising (through Infinity Broadcasting), a movie studio (Paramount), a publishing house (Simon and Schuster), amusement parks (Paramount Parks) and video rental operations (Blockbuster). The company focuses on high growth businesses and aims to deliver cash flow growth that is above the industry average. 13 SHAREHOLDER MEETING - MAY 20, 2002 - FINAL RESULTS The Annual Meeting of Shareholders was held on May 20, 2002 at the Bruce Museum in Greenwich, Connecticut. At that meeting, common shareholders and preferred shareholders voting as a single class elected Frank J. Fahrenkopf, Jr., Arthur V. Ferrara and Salvatore J. Zizza as Directors of the Trust. A total of 120,975,558 votes, 121,385,966 votes and 121,266,291 votes were cast in favor of each Director and 1,106,598 votes, 1,026,191 votes and 805,865 votes were withheld for each Director, respectively. Preferred shareholders voting as a separate class elected Anthony J. Colavita as a Director of the Trust. A total of 11,564,422 votes were cast in favor of this Director and 72,412 votes were withheld for this Director. Mario J. Gabelli, Thomas E. Bratter, James P. Conn, Karl Otto Pohl and Anthony R. Pustorino continue to serve in their capacities as Directors of the Trust. We thank you for you participation and appreciate your continued support. COMMON STOCK 10% DISTRIBUTION POLICY The Trust continues to maintain its 10% Distribution Policy whereby the Trust pays to common stock shareholders 10% of its average net assets each year. Pursuant to this policy, the Trust distributed $0.27 per share on June 24, 2002. Under the policy, distributions are made at the annual rate of 10% of the average of the calendar quarter-end net assets of the Trust's common stock at December 2001 and March, June, and September 2002. The Trust normally distributes $0.27 per share to common stock shareholders in March, June, and September. The fourth quarter distribution is a variable adjusting distribution in December. The adjusting distribution is the greater of the remaining portion of 10% of the average net assets to be distributed (10% of the average net assets less the cumulative amount paid in March, June, and September) or the minimum distribution required by IRS regulations. Using June quarter-end net asset figures in place of September quarter-end net asset figures for discussion purposes, 10% of the Trust's average net assets equates to $0.81 per share. Under the existing policy, a distribution of $0.27 per share in September would bring the total distribution for 2002 to $0.81 per share ($0.27 per share per quarter x 3 quarters = $0.81 per share), satisfying the Trust's 10% Distribution Policy projected required amount. Each quarter, the Board of Directors reviews the amount of any potential distribution based on the income, capital gains or capital available. As of June 30, 2002, the Trust has approximately $366 million ($2.78 per common share) of gross unrealized appreciation on portfolio securities which could be realized through the sale of portfolio securities and distributed to shareholders. In any event, the Trust will continue to make every effort to provide our common stock shareholders with consistent distributions throughout the year pursuant to our policy. 7.25% TAX ADVANTAGED CUMULATIVE PREFERRED STOCK - DIVIDENDS The Trust's 7.25% Tax Advantaged Cumulative Preferred Stock paid a cash distribution on June 26, 2002 of $0.453125 per share. For the twelve months ended June 30, 2002, Preferred Stock shareholders received distributions totaling $1.8125, the annual dividend rate per share of Preferred Stock. The next distribution is scheduled for September 2002. 14 7.20% TAX ADVANTAGED SERIES B CUMULATIVE PREFERRED STOCK - DIVIDENDS The Trust's 7.20% Tax Advantaged Series B Cumulative Preferred Stock paid a cash distribution on June 26, 2002 of $0.45 per share. The Series B Preferred Shares were issued on June 20, 2001 at $25.00 per share and will pay distributions quarterly at an annual dividend rate of $1.80 per share. The next distribution is scheduled for September 2002. WWW.GABELLI.COM Please visit us on the Internet. Our homepage at http://www.gabelli.com contains information about Gabelli Asset Management Inc., the Gabelli Mutual Funds, IRAs, 401(k)s, quarterly reports, closing prices and other current news. You can send us e-mail at closedend@gabelli.com. In our efforts to bring our shareholders more timely portfolio information, Gabelli Fund's portfolio managers regularly participate in chat sessions at www.gabelli.com as reflected below. WHO WHEN --- ---- Special Chats: Mario J. Gabelli First Monday of each month Howard Ward First Tuesday of each month In addition, every Wednesday will feature a different portfolio manager. The upcoming Wednesday chat schedule is as follows: AUGUST SEPTEMBER OCTOBER ------ --------- ------- 1st Wednesday Susan Byrne Caesar Bryan Walter Walsh & Laura Linehan 2nd Wednesday Lynda Calkin Hart Woodson Caesar Bryan 3rd Wednesday Walter Walsh & Laura Linehan Charles Minter & Martin Weiner Henry Van der Eb 4th Wednesday Barbara Marcin Barbara Marcin Lynda Calkin 5th Wednesday Barbara Marcin All chat sessions start at 4:15 PM (Eastern Time). Please arrive early, as participation is limited. You may sign up for our e-mail alerts at www.gabelli.com and receive early notice of chat sessions, closing mutual fund prices, news events and media sightings. 15 IN CONCLUSION As the old saying goes, "the darkest hour is just before dawn." We are not suggesting the stock market is about to take off in the coming quarters. However, the fundamental picture -- an expanding economy, low interest rates, rising earnings and more reasonable equity valuations -- raises the floor under equities. Sincerely, /S/ Mario J. Gabelli MARIO J. GABELLI, CFA Portfolio Manager and Chief Investment Officer August 1, 2002 -------------------------------------------------------------------------------- SELECTED HOLDINGS JUNE 30, 2002 American Express Co. PepsiCo Inc. AT&T Corp. Scripps (E.W.) Co. Berkshire Hathaway Inc. SPS Technologies Inc. Genuine Parts Co. Telephone & Data Systems Inc. Liberty Media Corp. Viacom Inc. -------------------------------------------------------------------------------- NOTE: The views expressed in this report reflect those of the portfolio managers only through the end of the period stated in this report. The managers' views are subject to change at any time based on market and other conditions. 16 THE GABELLI EQUITY TRUST INC. PORTFOLIO CHANGES QUARTER ENDED JUNE 30, 2002 (UNAUDITED) OWNERSHIP AT JUNE 30, SHARES 2002 ------ ------------ NET PURCHASES COMMON STOCKS Abbott Laboratories .................... 20,000 20,000 Adelphia Communications Corp., Cl. A ... 120,000 120,000 AES Corp. .............................. 52,000 52,000 Agere Systems Inc., Cl. B (a) .......... 134,393 134,393 Allegiance Telecom Inc. ................ 1,500 9,000 AOL Time Warner Inc. ................... 45,000 620,000 AT&T Wireless Services Inc. ............ 50,000 550,170 Bank Of Ireland, Ireland ............... 11,000 110,000 Boots Co. pl ........................... 60,000 60,000 Bristol-Meyers Squibb Co. .............. 110,000 110,000 Broadwing Inc. ......................... 40,000 850,000 BT Group plc, ADR ...................... 5,000 34,000 Cablevision Systems Corp., Cl. A ....... 20,000 535,000 Campbell Soup Co. ...................... 5,000 70,000 Charter Communications Inc., Cl. A ..... 30,000 30,000 Cheung Kong (Holdings) Ltd. - Rts. (b) . 3,000 3,000 Clear Channel Communications Inc. (c ) . 15,015 15,015 Coca-Cola Hellenic Bottling Co. SA ..... 20,000 20,000 Cooper Industries Ltd., Cl. A .......... 120,000 120,000 Corning Inc. ........................... 50,000 510,000 Curtiss-Wright Corp. Cl. B ............. 3,000 101,320 DQE Inc. ............................... 50,000 100,000 Dreyer's Grand Ice Cream Inc. .......... 20,000 20,000 El Paso Corp ........................... 80,000 80,000 Ferro Corp. ............................ 25,000 340,000 Ford Motor Co. ......................... 5,000 20,000 Gas Natural SDG SA ..................... 25,000 25,000 Gemstar-TV Guide International Inc. .... 110,000 140,432 Genuity Inc. (d) ....................... 30,000 30,000 GrafTech International Ltd. ............ 75,000 75,000 Greek Organization Of Football Prognostics ......................... 30,000 30,000 Grupo Bimbo SA de CV, Ser. A ........... 89,000 440,000 Grupo TMM SA de CV, Cl. A, ADR ......... 20,000 20,000 GTECH Holdings Corp. (e) ............... 4,000 8,000 HBOS plc ............................... 10,000 66,000 Heinz (H.J.) Co. ....................... 29,000 114,000 Hilton Group plc ....................... 810,000 2,460,000 IVAX Corp. ............................. 15,000 15,000 Knight-Ridder Inc. ..................... 15,900 15,900 Leap Wireless International Inc. ....... 20,000 160,000 Liberty Media Corp., Cl. A ............. 40,000 1,840,000 Liberty Satellite & Technology Inc., Cl. A (f) ..................... 34,000 34,000 Lin TV Corp., Cl. A .................... 5,000 5,000 Mellon Financial Corp. ................. 1,900 85,000 Merck & Co. Inc. ....................... 5,000 40,000 Mirant Corp. ........................... 30,000 90,000 mm02 plc ADR ........................... 10,800 140,800 Muenchener Rueckversicherungs- Gesellschaft AG ..................... 5,000 5,000 OWNERSHIP AT JUNE 30, SHARES 2002 ------ ------------ NTT DoCoMo Inc. ........................ 800 1,000 PACCAR Inc. (g) ........................ 10,000 30,000 Parmalat Finanziaria SpA ............... 150,000 150,000 Pennzoil-Quaker State Co. .............. 144,800 358,200 Pernod-Ricard SA ....................... 7,000 7,000 PRIMEDIA Inc. .......................... 50,000 350,000 Qwest Communications International Inc. .................. 180,000 200,000 Rainbow Media Group, Cl. A ............. 10,000 560,000 Regal Entertainment Group, Cl. A ....... 15,000 15,000 SBC Communications Inc. ................ 90,000 205,000 Sequa Corp., Cl. B ..................... 3,000 78,000 Smucker (J.M.) Co. (h) ................. 2,000 2,000 Texas Instruments Inc. ................. 70,000 110,000 Tod's SpA .............................. 7,750 7,750 TotalFinaElf SA ........................ 1,000 7,907 Tsakos Energy Navigation Ltd. .......... 29,273 29,273 Tyco International Ltd. ................ 35,000 35,000 Unitrin Inc. ........................... 8,500 58,500 Verizon Communications Inc. ............ 45,000 340,000 Vivendi Universal SA ................... 5,000 35,900 Vivendi Universal SA, ADR .............. 20,000 230,000 Westar Energy Inc. ..................... 260,000 260,000 Worldcom Inc. - MCI Group .............. 20,000 120,000 PREFERRED STOCKS Gray Communications Systems Inc., 8.000% Cv. Pfd., Ser. C ............. 90 90 Hercules Trust I, 9.420% Pfd. .......... 21,700 21,700 PRINCIPAL CORPORATE BONDS AMOUNT --------- Agere Systems Inc., Sub. Dev. Cv., 6.500%, 12/15/09 .....$3,500,000 $3,500,000 Charter Communications Inc., Cv., 4.750%, 06/01/06 ............... 400,000 900,000 NET SALES SHARES COMMON STOCKS ------ Ackerley Group Inc. (c ) ............... (42,900) -- Aegon NV ............................... (26,000) -- Allianz AG ............................. (4,100) -- AT&T Canada Inc., Cl. B ................ (50,000) -- BAE Systems plc ........................ (50,000) 100,000 Bank of Ireland, London ................ (11,000) -- Bank One Corp. ......................... (20,000) 85,000 Compass Group plc ...................... (150,940) -- Cooper Industries Inc. ................. (120,000) -- Dominion Resources Inc. ................ (2,500) 2,500 Donaldson Co. Inc. ..................... (3,000) 216,000 See accompanying notes to financial statements. 17 THE GABELLI EQUITY TRUST INC. PORTFOLIO CHANGES (CONTINUED) QUARTER ENDED JUNE 30, 2002 (UNAUDITED) OWNERSHIP AT JUNE 30, SHARES 2002 ------ ------------ NET SALES (CONTINUED) COMMON STOCKS (CONTINUED) Embratel Participacoes SA, ADR .......... (15,000) 200,000 EMC Corp. ............................... (10,000) 160,000 Energizer Holdings Inc. ................. (5,000) 345,001 Flowserve Corp. ......................... (15,000) 135,000 Genuity Inc. (d) ........................ (180,000) -- Gerber Scientific Inc. .................. (5,000) 100,000 Halliburton Co. ......................... (20,000) 280,000 Hilton Hotels Corp. ..................... (10,000) 650,000 IDEX Corp. .............................. (38,700) 211,300 Independent News & Media plc, Dublin .... (215,000) 196,000 ITT Industries Inc. ..................... (5,000) 120,000 Japan Telecom Co. Ltd. .................. (35) 230 Liberty Satellite & Technology Inc., Cl. A (f) ...................... (340,000) -- MGM Mirage .............................. (30,000) 60,000 Midland Co. ............................. (300) 99,700 National Service Industries Inc. ........ (500) 34,500 Neiman Marcus Group Inc., Cl. B ......... (14,500) 90,000 Northrop Grumman Corp. .................. (6,978) 91,000 NTL Inc. ................................ (20,000) 20,000 NTT DoCoMo Inc.-W/I ..................... (800) -- Obic Co. Ltd. ........................... (1,500) -- PepsiCo Inc. ............................ (25,000) 500,000 RCN Corp. ............................... (20,000) 110,000 Reader's Digest Association Inc., Cl. B .......................... (45,000) 140,000 Reuters Group plc, ADR .................. (10,833) -- Rohm and Haas Co. ....................... (80,000) 20,000 Rohm Co. Ltd. ........................... (1,400) 6,000 Sprint Corp. - PCS Group ................ (20,000) 230,000 Superior Industries International Inc. .. (35,000) 25,000 Swiss Re ................................ (6,000) 4,200 Telefonica SA, ADR ...................... (13,884) 265,140 THK Co. Ltd. ............................ (11,000) 33,000 Tokyo Electron Ltd ...................... (1,000) 8,400 Tsakos Energy Navigation Ltd. (31,273) -- Tyson Foods Inc., Cl. A ................. (90,000) -- OWNERSHIP AT JUNE 30, SHARES 2002 ------ ------------ UCAR International Inc. ................. (75,000) -- USA Interactive ......................... (5,000) 490,000 Vodafone Group plc ...................... (100,000) 453,888 Western Resources Inc. .................. (250,000) -- Winn-Dixie Stores Inc. .................. (10,000) 40,000 ------------------ (a) Spinoff - 0.2646 shares of Agere Systems Inc., Cl. B for every 1 share of Lucent Technologies Inc. (b) Spinoff - 0.0400 shares of Cheung Kong (Holdings) Ltd. - Rts for every 1 share of Cheung Kong (Holdings) Ltd. (c) Merger - 0.3500 shares of Clear Channel Communications Inc. for every 1 share of Ackerley Group Inc (d) 1 for 20 stock split (e) 2 for 1 stock split (f) 1 for 10 stock split (g) 3 for 2 stock split (h) Spinoff - 0.0200 shares of Smucker (J.M.) Co. for every 1 share of Procter & Gamble Co. See accompanying notes to financial statements. 18 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS JUNE 30, 2002 (UNAUDITED) MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS -- 82.6% FINANCIAL SERVICES -- 7.6% 90,000 Allstate Corp. .......... $ 2,376,366 $ 3,328,200 550,000 American Express Co. .... 19,230,623 19,976,000 36,400 Argonaut Group Inc. ..... 977,772 779,688 90,000 Banco Santander Central Hispano SA, ADR ....... 322,130 701,100 110,000 Bank of Ireland ......... 635,101 1,366,676 80,000 Bank of New York Co. Inc. 2,960,687 2,700,000 85,000 Bank One Corp. .......... 2,606,390 3,270,800 282,000 Bankgesellschaft Berlin AG+ ............ 5,606,801 523,599 260 Berkshire Hathaway Inc., Cl. A+ .......... 824,299 17,368,000 5,000 Block (H&R) Inc. ........ 97,625 230,750 190,000 Commerzbank AG, ADR ..... 3,839,967 2,880,400 160,000 Deutsche Bank AG, ADR ... 6,917,270 11,121,600 20,000 Dun and Bradstreet Corp.+ 333,130 661,000 66,000 HBOS plc ................ 472,591 714,296 25,000 Hibernia Corp., Cl. A ... 198,750 494,750 20,000 Invik & Co. AB, Cl. B ... 936,800 587,584 100,000 Irish Life & Permanent plc, Dublin ........... 781,432 1,446,871 60,000 John Hancock Financial Services Inc. ......... 2,322,590 2,112,000 50,000 JP Morgan Chase & Co. ... 1,334,283 1,696,000 64,000 Leucadia National Corp. . 2,040,082 2,026,240 85,000 Mellon Financial Corp. .. 2,750,640 2,671,550 99,700 Midland Co. ............. 1,114,894 5,031,859 30,000 Moody's Corp. ........... 666,995 1,492,500 5,000 Muenchener Rueckversicherungs- Gesellschaft AG ....... 1,219,733 1,185,150 186,500 Nikko Cordial Corp. ..... 1,436,073 941,400 185,000 Phoenix Companies Inc. .. 2,981,430 3,394,750 2,500 Prudential Financial Inc.+ 68,750 83,400 50,000 Prudential plc .......... 754,035 457,296 60,000 RAS SpA ................. 660,245 805,309 60,000 Riggs National Corp. .... 552,538 894,600 50,000 Schwab (Charles) Corp. .. 730,625 560,000 80,000 State Street Corp. ...... 1,417,370 3,576,000 30,000 Stilwell Financial Inc. . 470,955 546,000 20,000 SunTrust Banks Inc. ..... 419,333 1,354,400 4,200 Swiss Re ................ 434,171 410,644 100,000 T. Rowe Price Group Inc. 3,379,425 3,288,000 7,000 Travelers Property Casualty Corp., Cl. A+ 129,500 123,900 58,500 Unitrin Inc. ............ 1,073,500 2,092,545 130,000 Wachovia Corp. .......... 4,051,382 4,963,400 MARKET SHARES COST VALUE ------ ---- ------- 55,100 Waddell & Reed Financial Inc., Cl. A ........... $ 1,150,377 $ 1,262,892 ------------ ------------- 80,276,660 109,121,149 ------------ ------------- TELECOMMUNICATIONS -- 7.4% 8,132 Aliant Inc. ............. 72,479 149,499 9,000 Allegiance Telecom Inc.+ 75,638 16,470 30,000 ALLTEL Corp. ............ 617,209 1,410,000 1,500,000 AT&T Corp. .............. 25,512,207 16,050,000 3,333 Avaya Inc.+ ............. 26,540 16,498 320,000 BCE Inc. ................ 8,524,049 5,574,400 33,400 Brasil Telecom Participacoes SA, ADR . 1,940,826 945,554 850,000 Broadwing Inc.+ ......... 8,374,257 2,210,000 1,775,000 BT Group plc+ ........... 7,339,812 6,818,284 34,000 BT Group plc, ADR+ ...... 1,326,152 1,296,080 3,338,192 Cable & Wireless Jamaica Ltd. .................. 101,642 113,500 173,000 Cable & Wireless plc, ADR 4,035,260 1,344,210 130,000 CenturyTel Inc. ......... 2,760,538 3,835,000 100,000 Citizens Communications Co.+ .................. 1,226,788 836,000 255,466 Commonwealth Telephone Enterprises Inc.+ ..... 4,424,217 10,279,952 20,000 Commonwealth Telephone Enterprises Inc., Cl. B+ 128,902 820,000 45,000 Compania de Telecomunicaciones de Chile SA, ADR ......... 721,724 551,250 1,577,000 CoreComm Ltd.+ .......... 238,320 63,080 240,278 Deutsche Telekom AG, ADR ................... 4,091,422 2,236,988 200,000 Embratel Participacoes SA, ADR ................... 3,112,869 80,000 27,000 France Telecom SA, ADR .. 1,024,124 253,260 230 Japan Telecom Co. Ltd. .. 801,311 658,206 100,000 KPN NV+ ................. 232,728 468,134 200,000 Qwest Communications International Inc.+ ... 1,048,965 560,000 110,000 RCN Corp.+ .............. 780,983 150,700 9,655 Rogers Communications Inc., Cl. B+ .......... 137,424 86,336 110,345 Rogers Communications Inc., Cl. B, ADR+ ..... 1,537,198 1,008,553 205,000 SBC Communications Inc. . 6,853,475 6,252,500 350,000 Sprint Corp. - FON Group 8,833,016 3,713,500 186,554 Tele Norte Leste Participacoes SA, ADR . 2,554,387 1,856,212 See accompanying notes to financial statements. 19 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) TELECOMMUNICATIONS (CONTINUED) 40,000 Telecom Argentina Stet France Telecom SA, ADR+ .................. $ 349,211 $ 26,000 400,040 Telecom Italia SpA ...... 839,903 3,133,060 123,000 Telecom Italia SpA, ADR . 2,585,208 9,606,300 135,000 Telecom Italia SpA, RNC . 517,495 715,979 265,140 Telefonica SA, ADR+ ..... 9,182,548 6,588,729 16,912 Telefonica SA, BDR+ ..... 206,521 140,023 36,000 Telefonos de Mexico SA, Cl. L, ADR ............ 389,422 1,154,880 12,750 TELUS Corp. ............. 222,542 90,623 52,500 TELUS Corp., ADR ........ 950,397 373,153 4,250 TELUS Corp., Non-Voting . 74,181 28,280 27,500 TELUS Corp., Non-Voting, ADR ................... 557,547 182,985 340,000 Verizon Communications Inc. .................. 12,761,426 13,651,000 120,000 WorldCom Inc. - MCI Group ................. 1,339,033 108,000 ------------ ------------- 128,429,896 105,453,178 ------------ ------------- FOOD AND BEVERAGE -- 6.9% 10,108 Advantica Restaurant Group Inc.+ ........... 14,357 9,400 10,800 Cadbury Schweppes plc, ADR ................... 271,368 325,944 70,000 Campbell Soup Co. ....... 2,012,307 1,936,200 30,000 Coca-Cola Co. ........... 1,389,563 1,680,000 50,000 Coca-Cola Enterprises Inc. 773,534 1,104,000 20,000 Coca-Cola Hellenic Bottling Co. SA ....... 320,189 338,558 100,000 Corn Products International Inc. .... 2,916,387 3,112,000 100,000 Diageo plc .............. 1,037,393 1,298,721 224,000 Diageo plc, ADR ......... 8,642,745 11,569,600 20,000 Dreyer's Grand Ice Cream Inc. ............ 1,345,682 1,372,000 41,600 Flowers Foods Inc.+ ..... 1,055,628 1,075,360 90,000 General Mills Inc. ...... 3,178,115 3,967,200 440,000 Grupo Bimbo SA de CV, Ser. A ................ 949,109 983,118 20,000 Hain Celestial Group Inc.+ 267,663 370,000 114,000 Heinz (H.J.) Co. ........ 4,571,694 4,685,400 30,000 Interbrew SA ............ 845,071 861,308 350,000 Kellogg Co. ............. 9,771,694 12,551,000 75,000 Kerry Group plc, Cl. A .. 860,877 1,120,375 60,500 LVMH Moet Hennessy Louis Vuitton, ADR .... 416,625 610,445 MARKET SHARES COST VALUE ------ ---- ------- 41,300 Mondavi (Robert) Corp., Cl. A+ ................ $ 1,286,495 $ 1,413,699 150,000 Parmalat Finanziaria SpA 442,418 463,690 600,595 PepsiAmericas Inc. ...... 8,073,962 8,972,889 500,000 PepsiCo Inc. ............ 14,253,072 24,100,000 7,000 Pernod-Ricard SA ........ 606,722 685,807 60,000 Ralcorp Holdings Inc.+ .. 940,903 1,875,000 20,000 Sara Lee Corp. .......... 398,414 412,800 2,000 Smucker (J.M.) Co. ...... 52,993 68,260 103,854 Tootsie Roll Industries Inc. ....... 1,580,957 4,004,610 150,000 Wrigley (Wm.) Jr. Co. ... 3,610,220 8,302,500 ------------ ------------- 71,886,157 99,269,884 ------------ ------------- ENTERTAINMENT -- 6.0% 620,000 AOL Time Warner Inc.+ ... 14,622,091 9,120,200 160,000 Canal Plus, ADR ......... 34,010 114,400 220,000 Disney (Walt) Co. ....... 4,846,732 4,158,000 100,000 EMI Group plc, ADR ...... 1,189,467 762,150 120,000 Fox Entertainment Group Inc., Cl. A+ .......... 2,783,871 2,610,000 50,000 GC Companies Inc.+ ...... 54,500 12,500 140,432 Gemstar-TV Guide International Inc.+ ... 2,061,073 756,928 24,000 Liberty Livewire Corp., Cl. A+ ................ 93,109 70,560 1,840,000 Liberty Media Corp., Cl. A+ ................ 9,279,598 18,400,000 300,000 Metro-Goldwyn-Mayer Inc.+ ................. 4,962,381 3,510,000 160,000 Publishing & Broadcasting Ltd. ..... 893,720 812,871 15,000 Regal Entertainment Group, Cl. A+ ......... 285,000 349,800 100,000 Six Flags Inc.+ ......... 1,387,850 1,445,000 850,000 Viacom Inc., Cl. A+ ..... 9,373,638 37,791,000 35,900 Vivendi Universal SA .... 2,294,754 775,772 230,000 Vivendi Universal SA, ADR ................... 8,896,712 4,945,000 ------------ ------------- 63,058,506 85,634,181 ------------ ------------- DIVERSIFIED INDUSTRIAL -- 5.2% 220,000 Acuity Brands Inc. ...... 3,801,308 4,004,000 195,000 Ampco-Pittsburgh Corp. .. 2,627,873 2,340,000 120,000 Cooper Industries Ltd., Cl. A ................. 5,953,705 4,716,000 270,000 Crane Co. ............... 5,062,737 6,852,600 110,000 GATX Corp. .............. 1,748,853 3,311,000 200,000 GenTek Inc. ............. 1,587,121 44,000 260,000 Greif Bros. Corp., Cl. A 4,845,131 8,673,860 See accompanying notes to financial statements. 20 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) DIVERSIFIED INDUSTRIAL (CONTINUED) 3,400 Greif Bros. Corp., Cl. B $ 69,825 $ 112,200 380,000 Honeywell International Inc. .................. 13,367,461 13,387,400 120,000 ITT Industries Inc. ..... 3,650,453 8,472,000 400,600 Lamson & Sessions Co.+ .. 2,458,185 1,562,340 34,500 National Service Industries Inc. .................. 457,454 310,500 83,715 Park-Ohio Holdings Corp.+ 1,009,737 376,718 213,800 Sensient Technologies Corp. ................. 3,865,929 4,866,088 10,000 Smiths Group plc ........ 171,257 129,872 6,000 Sulzer AG+ .............. 1,275,079 1,274,065 100,000 Thomas Industries Inc. .. 1,388,525 2,880,000 50,000 Trinity Industries Inc. . 945,000 1,036,000 170,000 TRW Inc. ................ 8,590,646 9,686,600 35,000 Tyco International Ltd. . 599,534 472,850 ------------ ------------- 63,475,813 74,508,093 ------------ ------------- EQUIPMENT AND SUPPLIES -- 5.2% 120,000 AMETEK Inc. ............. 1,873,494 4,470,000 2,000 Amphenol Corp., Cl. A+ .. 29,550 72,000 10,000 Caterpillar Inc. ........ 136,559 489,500 95,000 CIRCOR International Inc. 981,440 1,629,250 320,000 Deere & Co. ............. 3,134,721 15,328,000 216,000 Donaldson Co. Inc. ...... 1,449,454 7,568,640 135,000 Flowserve Corp.+ ........ 2,468,412 4,023,000 13,000 Franklin Electric Co. Inc. 210,022 611,910 100,000 Gerber Scientific Inc.+ . 1,060,701 351,000 75,000 GrafTech International Ltd.+ ................. 1,008,428 922,500 211,300 IDEX Corp. .............. 1,377,232 7,078,550 20,000 Ingersoll-Rand Co., Cl. A 844,600 913,200 60,000 Lufkin Industries Inc. .. 1,105,223 1,732,200 1,000 Manitowoc Co. Inc. ...... 25,450 35,490 425,000 Navistar International Corp.+ ................ 6,419,191 13,600,000 28,000 Olympus Optical Co. Ltd. 418,424 391,069 30,000 PACCAR Inc. ............. 450,000 1,331,700 170,000 SPS Technologies Inc.+ .. 2,963,443 6,488,900 60,000 Sybron Dental Specialties Inc.+ ................. 1,140,669 1,110,000 33,000 THK Co. Ltd. ............ 790,476 634,636 250,000 Watts Industries Inc., Cl. A ................. 3,331,739 4,962,500 100,000 Weir Group plc .......... 420,789 432,907 ------------ ------------- 31,640,017 74,176,952 ------------ ------------- MARKET SHARES COST VALUE ------ ---- ------- ENERGY AND UTILITIES -- 5.2% 52,000 AES Corp.+ .............. $ 283,977 $ 281,840 70,000 AGL Resources Inc. ...... 1,259,271 1,624,000 37,400 Apache Corp. ............ 844,013 2,149,752 120,000 BP plc .................. 725,215 1,007,880 248,800 BP plc, ADR ............. 5,313,984 12,561,912 150,000 Burlington Resources Inc. 6,384,591 5,700,000 115,000 CH Energy Group Inc. .... 4,749,282 5,663,750 20,000 Cinergy Corp. ........... 609,845 719,800 210,000 Conoco Inc. ............. 5,050,835 5,838,000 10,000 Constellation Energy Group Inc. ............ 237,177 293,400 2,500 Dominion Resources Inc. . 152,000 165,500 15,000 DPL Inc. ................ 355,513 396,750 100,000 DQE Inc. ................ 1,744,412 1,400,000 30,366 DTE Energy Co. .......... 1,344,098 1,355,538 80,000 El Paso Corp. ........... 1,980,239 1,648,800 400,000 El Paso Electric Co.+ ... 3,236,625 5,540,000 20,000 Energy East Corp. ....... 429,788 452,000 9,400 FPL Group Inc. .......... 507,682 563,906 25,000 Gas Natural SDG SA ...... 460,652 481,467 280,000 Halliburton Co. ......... 4,123,915 4,463,200 38,632 Kerr-McGee Corp. ........ 2,281,548 2,068,744 90,000 Mirant Corp.+ ........... 1,000,720 657,000 100,000 NiSource Inc.+ .......... 200,000 208,000 250,000 Northeast Utilities ..... 4,834,797 4,702,500 358,200 Pennzoil-Quaker State Co. 6,836,957 7,712,046 100,000 Progress Energy Inc.+ ... 52,000 30,000 10,400 SJW Corp. ............... 931,126 842,400 14,000 Southwest Gas Corp. ..... 289,625 346,500 7,907 Total Fina Elf SA ....... 1,114,624 1,283,825 260,000 Westar Energy Inc. ...... 4,407,757 3,991,000 ------------ ------------- 61,742,268 74,149,510 ------------ ------------- PUBLISHING -- 4.8% 20,000 Dow Jones & Co. Inc. .... 1,030,036 969,000 196,000 Independent News & Media plc, Dublin ..... 316,913 387,149 15,900 Knight-Ridder Inc. ...... 1,066,095 1,000,905 5,000 McClatchy Co., Cl. A .... 240,250 321,250 105,000 McGraw-Hill Companies Inc. .................. 2,621,025 6,268,500 400,000 Media General Inc., Cl. A 9,832,031 24,000,000 125,000 Meredith Corp. .......... 2,091,314 4,793,750 115,000 New York Times Co., Cl. A 790,115 5,922,500 120,000 News Corp. Ltd. ......... 696,029 652,093 See accompanying notes to financial statements. 21 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) PUBLISHING (CONTINUED) 11,016 News Corp. Ltd., ADR .... $ 195,892 $ 252,597 400,000 Penton Media Inc.+ ...... 4,849,118 860,000 350,000 PRIMEDIA Inc.+ .......... 1,806,479 427,000 33,000 Pulitzer Inc. ........... 1,483,667 1,712,700 140,000 Reader's Digest Association Inc., Cl. B 3,371,358 3,220,000 400,000 SCMP Group Ltd. ......... 273,726 232,060 70,000 Scripps (E.W.) Co., Cl. A 4,559,387 5,390,000 91,842 Seat-Pagine Gialle SpA+ . 204,007 67,304 75,000 Thomas Nelson Inc. ...... 908,325 792,000 250,000 Tribune Co. ............. 8,604,264 10,875,000 ------------ ------------- 44,940,031 68,143,808 ------------ ------------- CONSUMER PRODUCTS -- 4.4% 70,000 Altadis SA .............. 1,030,995 1,444,896 43,000 Christian Dior SA ....... 1,514,055 1,656,247 10,000 Church & Dwight Co. Inc. 99,536 313,300 110,000 Compagnie Financiere Richemont AG, Cl. A ... 1,550,184 2,502,100 50,000 Department 56 Inc.+ ..... 524,317 814,000 345,001 Energizer Holdings Inc.+ 5,324,935 9,459,927 90,000 Fortune Brands Inc. ..... 2,401,342 5,040,000 250,000 Gallaher Group plc, ADR . 4,342,521 9,337,500 300,000 Gillette Co. ............ 9,680,864 10,161,000 2,000 Givaudan SA ............. 550,742 806,370 60,000 Harley-Davidson Inc. .... 151,125 3,076,200 15,000 Matsushita Electric Industrial Co. Ltd., ADR ......... 178,325 207,450 100,000 Mattel Inc. ............. 1,549,565 2,108,000 30,000 Maytag Corp. ............ 913,036 1,279,500 50,000 National Presto Industries Inc. .................. 1,768,883 1,600,000 9,500 Nintendo Co. Ltd. ....... 784,763 1,398,970 20,000 Philip Morris Companies Inc. .................. 600,935 873,600 100,000 Procter & Gamble Co. .... 6,919,810 8,930,000 32,000 Shimano Inc. ............ 521,107 434,121 15,000 Swatch Group AG, Cl. B .. 868,351 1,335,551 10,425 Syratech Corp.+ (a) ..... 333,704 4,691 ------------ ------------- 41,609,095 62,783,423 ------------ ------------- WIRELESS COMMUNICATIONS -- 3.4% 95,000 America Movil SA de CV, Cl. L, ADR ............ 1,235,397 1,273,000 550,170 AT&T Wireless Services Inc.+ ................. 7,186,094 3,218,494 160,000 Leap Wireless International Inc.+ ................. 3,115,240 172,800 1,775,000 mm02 plc+ ............... 1,980,584 1,136,381 MARKET SHARES COST VALUE ------ ---- ------- 140,800 mm02 plc, ADR+ .......... $ 1,649,378 $ 887,040 240,000 Nextel Communications Inc., Cl. A+ .......... 3,841,367 770,400 1,000 NTT DoCoMo Inc. ......... 2,437,994 2,461,286 250,000 Rogers Wireless Communications Inc., Cl. B+ ................ 3,494,025 1,927,500 230,000 Sprint Corp. - PCS Group+ ................ 533,587 1,028,100 16,700 Tele Celular Sul Participacoes SA, ADR . 266,992 184,034 55,666 Tele Centro Oeste Celular Participacoes SA, ADR . 166,868 246,600 3,340 Tele Leste Celular Participacoes SA, ADR+ 89,340 35,070 8,350 Tele Nordeste Celular Participacoes SA, ADR . 123,227 160,320 3,340 Tele Norte Celular Participacoes SA, ADR+ 51,601 17,535 1,400,000 Telecom Italia Mobile SpA ................... 2,244,688 5,738,102 8,350 Telemig Celular Participacoes SA, ADR . 241,320 172,845 450,000 Telephone & Data Systems Inc. .......... 37,059,011 27,247,500 66,800 Telesp Celular Participacoes SA, ADR+ 2,135,936 264,528 453,888 Vodafone Group plc ...... 817,567 622,683 100,000 Vodafone Group plc, ADR . 927,768 1,365,000 ------------ ------------- 69,597,984 48,929,218 ------------ ------------- AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.4% 20,000 ArvinMeritor Inc. ....... 387,543 480,000 36,802 BorgWarner Inc. ......... 1,669,649 2,125,684 100,000 CLARCOR Inc. ............ 1,266,455 3,165,000 320,061 Dana Corp. .............. 5,237,799 5,930,730 65,000 Delphi Corp. ............ 766,915 858,000 260,000 GenCorp Inc. ............ 2,470,673 3,718,000 210,000 Genuine Parts Co. ....... 5,500,492 7,322,700 114,000 Johnson Controls Inc. ... 1,890,245 9,303,540 110,000 Midas Inc.+ ............. 1,575,679 1,364,000 335,000 Modine Manufacturing Co. 4,388,179 8,234,300 20,000 O'Reilly Automotive Inc.+ 579,199 551,200 70,800 Scheib (Earl) Inc.+ ..... 608,339 212,400 163,000 Standard Motor Products Inc. .................. 1,748,388 2,762,850 25,000 Superior Industries International Inc. .... 626,663 1,156,250 105,000 TransPro Inc.+ .......... 936,808 656,250 ------------ ------------- 29,653,026 47,840,904 ------------ ------------- See accompanying notes to financial statements. 22 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) HOTELS AND GAMING -- 2.4% 110,000 Aztar Corp.+ ............ $ 772,707 $ 2,288,000 90,000 Boca Resorts Inc., Cl. A+ 787,000 1,192,500 240,000 Gaylord Entertainment Co.+ .................. 6,198,540 5,292,000 30,000 Greek Organization of Football Prognostics .. 288,232 275,547 8,000 GTECH Holdings Corp.+ ... 69,219 204,320 2,460,000 Hilton Group plc ........ 8,307,399 8,558,981 650,000 Hilton Hotels Corp. ..... 6,542,136 9,035,000 60,000 MGM Mirage+ ............. 1,588,260 2,025,000 430,000 Park Place Entertainment Corp.+ ................ 2,424,893 4,407,500 50,000 Starwood Hotels & Resorts Worldwide Inc. ........ 1,075,717 1,644,500 ------------ ------------- 28,054,103 34,923,348 ------------ ------------- HEALTH CARE -- 2.4% 20,000 Abbott Laboratories ..... 743,000 753,000 60,000 Amgen Inc.+ ............. 256,894 2,512,800 40,000 Apogent Technologies Inc.+ 803,368 822,800 10,000 AstraZeneca plc, London . 385,298 414,005 35,146 AstraZeneca plc, Stockholm ............. 1,255,532 1,460,882 12,000 Aventis SA .............. 899,375 850,345 26,000 Biogen Inc.+ ............ 181,025 1,077,180 110,000 Bristol-Myers Squibb Co. 2,938,465 2,827,000 23,000 Centerpulse AG+ ......... 1,394,669 3,836,811 75,036 GlaxoSmithKline plc ..... 1,817,378 1,621,893 4,000 GlaxoSmithKline plc, ADR ................... 216,096 172,560 56,011 Invitrogen Corp.+ ....... 2,678,982 1,792,912 40,000 Merck & Co. Inc. ........ 2,380,606 2,025,600 46,000 Novartis AG ............. 1,431,247 2,023,116 108,000 Novartis AG, Registered . 948,510 4,733,640 65,000 Pfizer Inc. ............. 1,077,000 2,275,000 17,900 Roche Holding AG ........ 1,644,702 1,353,190 20,000 Sanofi-Synthelabo SA .... 967,750 1,216,754 10,000 Schering-Plough Corp. ... 354,700 246,000 14,000 Takeda Chemical Industries Ltd. ....... 782,347 614,404 38,000 Wyeth ................... 1,819,180 1,945,600 ------------ ------------- 24,976,124 34,575,492 ------------ ------------- RETAIL -- 2.1% 200,000 Albertson's Inc. ........ 5,669,538 6,092,000 300,000 AutoNation Inc.+ ........ 3,354,597 4,350,000 60,000 Boots Co. plc ........... 617,609 594,942 10,000 Coldwater Creek Inc.+ ... 181,517 244,000 MARKET SHARES COST VALUE ------ ---- ------- 16,000 Delhaize Le Lion SA, ADR ................... $ 908,672 $ 745,280 33,000 Gucci Group NV, ADR ..... 2,709,049 3,122,130 100,000 Lillian Vernon Corp. .... 1,362,258 712,500 90,000 Neiman Marcus Group Inc., Cl. A+ ................ 2,800,847 3,123,000 320,000 Neiman Marcus Group Inc., Cl. B+ ................ 7,741,769 10,329,600 7,750 Tod's SpA ............... 387,822 336,780 40,000 Winn-Dixie Stores Inc. .. 482,476 623,600 ------------ ------------- 26,216,154 30,273,832 ------------ ------------- AEROSPACE -- 1.7% 100,000 BAE Systems plc ......... 560,593 510,647 115,000 Boeing Co. .............. 3,847,934 5,175,000 100,000 Lockheed Martin Corp. ... 2,641,248 6,950,000 91,000 Northrop Grumman Corp. .. 6,452,792 11,375,000 ------------ ------------- 13,502,567 24,010,647 ------------ ------------- CONSUMER SERVICES -- 1.5% 40,000 Loewen Group Inc.+ ...... 48,700 1,200 505,000 Rollins Inc. ............ 5,690,722 10,271,700 490,000 USA Interactive Inc.+ ... 5,149,626 11,490,500 ------------ ------------- 10,889,048 21,763,400 ------------ ------------- BROADCASTING -- 1.5% 15,015 Clear Channel Communications Inc.+ .. 481,784 480,780 16,666 Corus Entertainment Inc., Cl. B+ ................ 62,036 294,772 28,000 Gray Communications Systems Inc. .......... 376,900 506,800 25,000 Gray Communications Systems Inc., Cl. B ... 355,780 332,500 195,000 Grupo Televisa SA, ADR+ . 5,116,358 7,289,100 200,000 Liberty Corp. ........... 8,528,905 7,970,000 5,000 Lin TV Corp., Cl. A+ .... 110,000 135,200 4,000 Nippon Broadcasting System Inc. ........... 161,709 146,843 40,375 NRJ Group ............... 384,806 732,112 131,000 Paxson Communications Corp.+ ................ 1,311,348 720,500 14,700 RTL Group (Brussels) .... 649,036 580,723 3,000 RTL Group (New York) .... 126,100 118,515 100,000 Television Broadcasts Ltd. 396,239 425,657 110,000 Young Broadcasting Inc., Cl. A+ ................ 2,713,685 1,955,800 ------------ ------------- 20,774,686 21,689,302 ------------ ------------- See accompanying notes to financial statements. 23 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) REAL ESTATE -- 1.5% 450,000 Catellus Development Corp.+ ................ $ 6,751,839 $ 9,189,000 75,000 Cheung Kong (Holdings) Ltd. .................. 871,487 625,023 44,000 Florida East Coast Industries Inc., Cl. A 523,108 1,113,200 58,451 Florida East Coast Industries Inc., Cl. B 964,977 1,391,134 55,000 Griffin Land & Nurseries Inc.+ ................. 513,143 760,375 4,753 HomeFed Corp.+ .......... 851 4,325 253,000 St. Joe Co. ............. 1,873,208 7,595,060 ------------ ------------- 11,498,613 20,678,117 ------------ ------------- AVIATION: PARTS AND SERVICES -- 1.4% 101,320 Curtiss-Wright Corp., Cl. B ................. 5,582,889 7,659,792 90,000 Fairchild Corp., Cl. A+ . 1,111,343 283,500 60,000 Precision Castparts Corp. 1,113,468 1,980,000 84,500 Sequa Corp., Cl. A+ ..... 3,371,578 5,525,455 78,000 Sequa Corp., Cl. B+ ..... 4,068,661 5,109,000 ------------ ------------- 15,247,939 20,557,747 ------------ ------------- SPECIALTY CHEMICALS -- 1.1% 5,400 Ciba Specialty Chemicals, ADR (b) ............... 21,140 216,324 10,000 du Pont de Nemours (E.I.) and Co. ........ 327,500 444,000 340,000 Ferro Corp. ............. 7,268,003 10,251,000 40,000 Fuller (H.B.) Co. ....... 968,437 1,171,600 120,000 Hercules Inc.+ .......... 1,543,119 1,392,000 15,000 IVAX Corp.+ ............. 170,441 162,000 210,000 Omnova Solutions Inc.+ .. 1,767,940 1,764,000 20,000 Rohm and Haas Co. ....... 618,875 809,800 11,697 Syngenta AG, ADR ........ 22,129 142,236 ------------ ------------- 12,707,584 16,352,960 ------------ ------------- CABLE -- 1.1% 120,000 Adelphia Communications Corp., Cl. A+ ......... 890,183 19,200 535,000 Cablevision Systems Corp., Cl. A+ ......... 8,190,256 5,061,100 30,000 Charter Communications Inc., Cl. A+ .......... 138,876 122,400 40,000 Comcast Corp., Cl. A+ ... 341,837 968,000 85,000 Comcast Corp., Cl. A, Special+ .............. 756,584 2,026,400 20,000 NTL Inc.+ ............... 80,402 640 MARKET SHARES COST VALUE ------ ---- ------- 560,000 Rainbow Media Group, Cl. A+ ................ $ 8,588,016 $ 4,900,000 20,000 Shaw Communications Inc., Cl. B ........... 52,983 220,266 80,000 Shaw Communications Inc., Cl. B, Non-Voting ..... 329,197 896,000 370,000 UnitedGlobalCom Inc., Cl. A+ ................ 2,499,253 1,017,500 ------------ ------------- 21,867,587 15,231,506 ------------ ------------- AGRICULTURE -- 0.9% 1,050,000 Archer-Daniels- Midland Co. ........... 13,728,377 13,429,500 5,000 Delta & Pine Land Co. ... 84,396 100,500 ------------ ------------- 13,812,773 13,530,000 ------------ ------------- ELECTRONICS -- 0.9% 134,393 Agere Systems Inc., Cl. B+ ................ 499,373 201,589 3,000 Hitachi Ltd., ADR ....... 218,796 192,510 16,000 Molex Inc., Cl. A ....... 504,206 438,880 7,500 NEC Corp., ADR .......... 43,625 52,125 38,800 Philips Electronics NV, ADR ............... 53,456 1,070,880 6,000 Rohm Co. Ltd. ........... 994,112 895,574 47,000 Sony Corp., ADR ......... 1,554,214 2,495,700 110,000 Texas Instruments Inc. .. 3,370,837 2,607,000 250,000 Thomas & Betts Corp.+ ... 4,581,748 4,650,000 8,400 Tokyo Electron Ltd. ..... 483,190 547,357 ------------ ------------- 12,303,557 13,151,615 ------------ ------------- AUTOMOTIVE -- 0.7% 20,000 Ford Motor Co. .......... 490,840 320,000 167,942 General Motors Corp. .... 5,307,581 8,976,500 ------------ ------------- 5,798,421 9,296,500 ------------ ------------- BUILDING AND CONSTRUCTION -- 0.6% 112,500 CRH plc ................. 1,363,025 1,883,278 32,222 Huttig Building Products Inc.+ ................. 81,163 173,032 15,000 Martin Marietta Materials Inc. .................. 322,687 585,000 140,000 Nortek Inc.+ ............ 1,892,737 6,314,000 5,000 Nortek Inc., Special Common+ (a) ........... 72,155 225,500 ------------ ------------- 3,731,767 9,180,810 ------------ ------------- ENVIRONMENTAL SERVICES -- 0.6% 65,000 Republic Services Inc.+ . 875,761 1,239,550 300,000 Waste Management Inc. ... 5,314,129 7,815,000 ------------ ------------- 6,189,890 9,054,550 ------------ ------------- See accompanying notes to financial statements. 24 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) BUSINESS SERVICES -- 0.6% 60,000 ANC Rental Corp.+ ....... $ 578,273 $ 10,800 180,000 Cendant Corp.+ .......... 2,573,002 2,858,400 1,000 CheckFree Corp.+ ........ 9,040 15,640 98,000 Landauer Inc. ........... 634,307 3,805,340 70,000 Nashua Corp.+ ........... 634,027 497,000 7,000 Secom Co. Ltd. .......... 481,862 343,412 250,000 Securicor plc ........... 0 452,532 3,500 SYNAVANT Inc.+ .......... 27,506 4,935 ------------ ------------- 4,938,017 7,988,059 ------------ ------------- PAPER AND FOREST PRODUCTS -- 0.6% 100,000 MeadWestvaco Corp. ...... 2,806,203 3,356,000 170,000 Pactiv Corp.+ ........... 1,775,756 4,046,000 10,000 Rayonier Inc. ........... 465,432 491,300 ------------ ------------- 5,047,391 7,893,300 ------------ ------------- COMMUNICATIONS EQUIPMENT -- 0.4% 68,000 Acterna Corp.+ .......... 245,121 27,948 290,000 Allen Telecom Inc.+ ..... 2,191,165 1,247,000 510,000 Corning Inc.+ ........... 5,161,032 1,810,500 130,000 Lucent Technologies Inc.+ 952,294 215,800 110,000 Motorola Inc. ........... 1,553,319 1,586,200 100,000 Nortel Networks Corp.+ .. 725,285 145,000 44,000 Scientific-Atlanta Inc. . 355,750 723,800 ------------ ------------- 11,183,966 5,756,248 ------------ ------------- METALS AND MINING -- 0.4% 72,500 Harmony Gold Mining Co. Ltd. .............. 347,738 998,579 15,000 Harmony Gold Mining Co. Ltd., ADR ......... 79,800 202,950 125,000 Newmont Mining Corp. Holding Co. ........... 2,501,633 3,291,250 50,000 Placer Dome Inc. ........ 487,169 560,500 ------------ ------------- 3,416,340 5,053,279 ------------ ------------- CLOSED END FUNDS -- 0.2% 59,000 Central European Equity Fund Inc. ............. 740,735 814,200 18,592 France Growth Fund Inc.+ 184,694 129,214 54,150 Italy Fund Inc. ......... 450,250 370,928 68,000 New Germany Fund Inc.+ .. 750,658 343,400 70,000 Pimco RCM Europe Fund Inc. ............. 512,662 495,600 40,000 Royce Value Trust Inc. .. 466,533 662,000 ------------ ------------- 3,105,532 2,815,342 ------------ ------------- MARKET SHARES COST VALUE ------ ---- ------- TRANSPORTATION -- 0.2% 100,000 AMR Corp.+ .............. $ 1,924,248 $ 1,686,000 20,000 Grupo TMM SA de CV, Cl. A, ADR+ ........... 203,300 138,000 7,500 Kansas City Southern+ ... 13,986 127,500 29,273 Tsakos Energy Navigation Ltd.+ 421,218 409,822 ------------ ------------- 2,562,752 2,361,322 ------------ ------------- SATELLITE -- 0.2% 180,323 General Motors Corp., Cl. H+ ................ 2,584,089 1,875,359 34,000 Liberty Satellite & Technology Inc., Cl. A+ 900,012 76,500 190,000 Loral Space & Communications Ltd.+ .. 614,954 188,100 ------------ ------------- 4,099,055 2,139,959 ------------ ------------- COMPUTER SOFTWARE AND SERVICES -- 0.1% 20,000 Capcom Co. Ltd. ......... 684,260 517,287 10,000 Computer Associates International Inc. .... 254,407 158,900 160,000 EMC Corp.+ .............. 2,749,056 1,208,000 30,000 Genuity Inc., Cl. A+ .... 617,929 114,000 ------------ ------------- 4,305,652 1,998,187 ------------ ------------- COMPUTER HARDWARE -- 0.0% 26,000 Hewlett-Packard Co. ..... 839,290 397,280 10,000 Xerox Corp.+ ............ 108,625 69,700 ------------ ------------- 947,915 466,980 ------------ ------------- TOTAL COMMON STOCKS ................ 953,486,886 1,180,752,802 ------------ ------------- PREFERRED STOCKS -- 1.6% PUBLISHING -- 1.1% 770,499 News Corp. Ltd., Pfd., ADR ................... 20,918,811 15,217,352 ------------ ------------- TELECOMMUNICATIONS -- 0.3% 60,000 Allen Telecom Inc., 7.750% Cv. Pfd., Ser. D 3,000,000 2,139,000 31,000 Broadwing Inc., 6.750% Cv. Pfd., Ser. B 986,633 523,900 20,000 Citizens Communications Co., 5.000% Cv. Pfd. ....... 986,648 808,000 500 Lucent Technologies Capital Trust I, 7.750% Cv. Pfd. (b) ... 500,000 240,114 ------------ ------------- 5,473,281 3,711,014 ------------ ------------- See accompanying notes to financial statements. 25 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) AEROSPACE -- 0.1% 14,021 Northrop Grumman Corp., 7.000% Cv. Pfd., Ser. B ................ $ 1,633,727 $ 2,033,045 ------------ ------------- BROADCASTING -- 0.1% 90 Gray Communications Systems Inc., 8.000% Cv. Pfd., Ser. C (b) ............ 900,000 900,000 100,000 ProSieben Sat.1 Media AG, Pfd. .............. 1,043,352 1,014,291 ------------ ------------- 1,943,352 1,914,291 ------------ ------------- SPECIALTY CHEMICALS -- 0.0% 21,700 Hercules Trust I, 9.420% Pfd. ........... 502,980 507,780 ------------ ------------- AVIATION: PARTS AND SERVICES -- 0.0% 3,000 Sequa Corp., $5.00 Cv. Pfd. ........ 239,700 282,000 ------------ ------------- WIRELESS COMMUNICATIONS -- 0.0% 10,760,547 Telesp Celular Participacoes SA, Pfd.+ 82,623 16,875 ------------ ------------- TOTAL PREFERRED STOCKS ................ 30,794,474 23,682,357 ------------ ------------- PRINCIPAL AMOUNT -------- CORPORATE BONDS -- 0.5% ELECTRONICS -- 0.2% $3,500,000 Agere Sysyems Inc., Sub. Deb. Cv., 6.500%, 12/15/09 ...... 3,500,000 2,681,875 ------------ ------------- AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.1% 1,500,000 Standard Motor Products Inc., Sub. Deb. Cv., 6.750%, 07/15/09 ...... 1,433,621 1,218,750 ------------ ------------- AVIATION: PARTS AND SERVICES -- 0.1% 933,000 Kaman Corp., Sub. Deb. Cv., 6.000%, 03/15/12 ...... 881,491 910,841 ------------ ------------- ENERGY AND UTILITIES -- 0.1% 1,000,000 Mirant Corp., Sub. Deb. Cv., 2.500%, 06/15/21 ...... 754,164 731,250 ------------ ------------- PRINCIPAL MARKET AMOUNT COST VALUE --------- ---- ------- CABLE -- 0.0% $ 900,000 Charter Communications Inc., Cv., 4.750%, 06/01/06 ...... $ 640,718 $ 410,625 ------------ ------------- HOTELS AND GAMING -- 0.0% 400,000 Hilton Hotels Corp., Sub. Deb. Cv., 5.000%, 05/15/06 ...... 354,000 377,500 ------------ ------------- WIRELESS COMMUNICATIONS -- 0.0% 500,000 Nextel Communications Inc., 9.500%, 02/01/11 ...... 347,402 247,500 ------------ ------------- CONSUMER PRODUCTS -- 0.0% 1,000,000 Pillowtex Corp., Sub. Deb. Cv., 6.000%, 03/15/12+ (e) . 406,180 0 ------------ ------------- TOTAL CORPORATE BONDS ................. 8,317,576 6,578,341 ------------ ------------- SHARES ------ RIGHTS -- 0.0% REAL ESTATE -- 0.0% 3,000 Cheung Kong Life Science International Inc. Rights+ ............... 0 0 ------------ ------------- WARRANTS -- 0.0% FOOD AND BEVERAGE -- 0.0% 62,463 Advantica Restaurant Group Inc., expires 01/07/05+ ............. 105,603 187 ------------ ------------- METALS AND MINING -- 0.0% 5,000 Harmony Gold Mining Co. Ltd., ADR, expires 06/29/03+ ..... 0 44,850 ------------ ------------- TOTAL WARRANTS .......... 105,603 45,037 ------------ ------------- PRINCIPAL AMOUNT --------- U.S. GOVERNMENT OBLIGATIONS -- 3.5% $50,000,000 U.S. Treasury Bill, 1.770%++, 07/11/02 .... 49,970,500 49,970,500 ------------ ------------- See accompanying notes to financial statements. 26 THE GABELLI EQUITY TRUST INC. PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) PRINCIPAL MARKET AMOUNT COST VALUE --------- ---- ------- REPURCHASE AGREEMENTS -- 12.1% $ 32,458,000 Agreement with State Street Bank & Trust Co., 1.870%, dated 06/28/02, due 07/01/02, proceeds at maturity $32,463,058 (c) ...... $32,458,000 $ 32,458,000 140,000,000 Agreement with Warburg Dillon Reed, 1.920%, dated 06/28/02, due 07/01/02, proceeds at maturity $140,022,400 (c) ..... 140,000,000 140,000,000 -------------- -------------- TOTAL REPURCHASE AGREEMENTS .......... 172,458,000 172,458,000 -------------- -------------- TOTAL INVESTMENTS -- 100.3% .........$1,215,133,039 1,433,487,037 ============== OTHER ASSETS, LIABILITIES AND LIQUIDATION VALUE OF CUMULATIVE PREFERRED STOCK -- (30.3)% ............. (433,327,225) -------------- NET ASSETS -- COMMON STOCK -- 70.0% (131,771,904 common shares outstanding) ........... 1,000,159,812 -------------- NET ASSETS -- PREFERRED STOCK -- 30.0% (11,973,100 preferred shares outstanding) ......... 429,197,500 -------------- TOTAL NET ASSETS -- 100.0% .......................... $1,429,357,312 ============== NET ASSET VALUE PER COMMON SHARE ($1,000,159,812 / 131,771,904 shares outstanding) ............................... $ 7.59 ======= ---------------- For Federal tax purposes: Aggregate cost ........................ $1,215,133,039 ============== Gross unrealized appreciation ......... $ 366,171,067 Gross unrealized depreciation ......... (147,817,069) -------------- Net unrealized appreciation ........... $ 218,353,998 -------------- PRINCIPAL SETTLEMENT NET UNREALIZED AMOUNT DATE DEPRECIATION --------- ---------- -------------- FORWARD FOREIGN EXCHANGE CONTRACTS -- 0.0% $ 4,992,000(d) Deliver Hong Kong Dollars in exchange for USD 639,820 ........ 08/01/02 $(204) ===== NOTIONAL AMOUNT -------- INTEREST RATE SWAP AGREEMENT -- 0.0% 130,000,000 Receive floating rate from Citibank, NA based on the 1-month LIBOR and pay a fixed rate equal to 4.494% Terminates 07/01/07 ...................... $(69,000) ======== ------------------------------ (a) Security fair valued under procedures established by the Board of Directors. (b) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2002, the market value of Rule 144A securities amounted to $1,356,438 or 0.1% of total net assets. (c) Collateralized by U.S. Treasury Notes, 5.50% to 8.00%, due 02/28/02 to 11/15/21, market value $173,112,736. (d) Principal amount denoted in Hong Kong Dollars. (e) Bond in default. + Non-income producing security. ++ Represents annualized yield at date of purchase. ADR - American Depositary Receipt. BDR - Brazilian Depositary Receipt. RNC - Non-Convertible Savings Shares. USD - U.S. Dollars. W/I - When Issued. % OF MARKET MARKET VALUE VALUE ------ ----------- GEOGRAPHIC DIVERSIFICATION United States ................. 84.6% $1,212,360,665 Europe ........................ 11.1 159,910,293 Asia/Pacific Rim .............. 2.3 32,494,212 Latin America ................. 1.1 15,981,271 Canada ........................ 0.8 11,539,066 South Africa .................. 0.1 1,201,530 ----- -------------- Total Investments ............. 100.0% $1,433,487,037 ===== ============== See accompanying notes to financial statements. 27 THE GABELLI EQUITY TRUST INC. STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2002 (UNAUDITED) ASSETS: Investments, at value (cost $1,215,133,039) ..... $ 1,433,487,037 Cash and foreign currency, at value (cost $1,490) 2,063 Dividends and interest receivable ............... 1,591,769 --------------- TOTAL ASSETS .................................... 1,435,080,869 --------------- LIABILITIES: Payable for investments purchased ............... 3,938,549 Dividends payable ............................... 193,438 Unrealized depreciation on swap contract ........ 69,000 Unrealized depreciation on forward foreign exchange contracts ........................... 204 Payable for investment advisory fees ............ 794,434 Payable to custodian ............................ 28,402 Other accrued expenses and liabilities .......... 699,530 --------------- TOTAL LIABILITIES ............................... 5,723,557 --------------- PREFERRED STOCK: Series A Cumulative Preferred Stock (7.25%, $25 liquidation value, $0.001 par value, 8,000,000 shares authorized with 5,367,900 shares issued and outstanding) ..... 134,197,500 Series B Cumulative Preferred Stock (7.20%, $25 liquidation value, $0.001 par value, 8,000,000 shares authorized with 6,600,000 shares issued and outstanding) ..... 165,000,000 Series C Cumulative Preferred Stock (Auction Rate, $25,000 liquidation value, $0.001 par value, 6,000 shares authorized with 5,200 shares issued and outstanding) ................................. 130,000,000 --------------- TOTAL PREFERRED STOCK ........................... 429,197,500 --------------- NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS ................................. $ 1,000,159,812 =============== NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS CONSIST OF: Capital stock, at par value ..................... $ 131,772 Additional paid-in capital ...................... 783,748,484 Accumulated distributions in excess of net investment income ............................ (47,836) Accumulated distributions in excess of net realized gain on investments, futures contracts and foreign currency transactions .. (1,972,803) Net unrealized appreciation on investments and foreign currency transactions ................ 218,300,195 --------------- TOTAL NET ASSETS ................................ $ 1,000,159,812 =============== NET ASSET VALUE PER COMMON SHARE ($1,000,159,812 / 131,771,904 shares outstanding; 184,000,000 shares authorized of $0.001 par value) .............. $7.59 ===== STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) INVESTMENT INCOME: Dividends (net of foreign taxes of $418,277) ......... $ 9,059,362 Interest ............................................. 1,769,640 ------------- TOTAL INVESTMENT INCOME .............................. 10,829,002 ------------- EXPENSES: Investment advisory fees ............................. 5,512,313 Shareholder communications expenses .................. 181,508 Payroll .............................................. 148,204 Shareholder services fees ............................ 118,025 Custodian fees ....................................... 75,830 Directors' fees ...................................... 71,482 Legal and audit fees ................................. 55,612 Miscellaneous expenses ............................... 79,994 ------------- TOTAL EXPENSES ....................................... 6,242,968 ------------- LESS: CUSTODIAN FEE CREDIT ........................... (4,814) ------------- NET EXPENSES ......................................... 6,238,154 ------------- NET INVESTMENT INCOME ................................ 4,590,848 ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain on investments ..................... 13,307,995 Net realized gain on foreign currency transactions ... 17,470 Net realized gain on futures contracts ............... 555,625 ------------- Net realized gain on investments, futures contracts and foreign currency transactions ....... 13,881,090 ------------- Net change in net unrealized appreciation/depreciation on investments and foreign currency transactions .. (118,600,995) ------------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS ................. (104,719,905) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................... (100,129,057) ------------- DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS: Net investment income ................................ (10,998,098) ------------- TOTAL DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS ...................................... (10,998,098) ------------- NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS RESULTING FROM OPERATIONS ................................... $(111,127,155) ============= See accompanying notes to financial statements. 28 THE GABELLI EQUITY TRUST INC. STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS SIX MONTHS ENDED JUNE 30, 2002 YEAR ENDED (UNAUDITED) DECEMBER 31, 2001 --------------- ----------------- OPERATIONS: Net investment income ................................................ $ 4,590,848 $ 9,816,147 Net realized gain on investments, options, futures contracts and foreign currency transactions ................................. 13,881,090 144,016,946 Net change in unrealized appreciation/depreciation on investments and foreign currency transactions ................................. (118,600,995) (171,507,313) --------------- --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................. (100,129,057) (17,674,220) --------------- --------------- DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS: Net investment income ................................................ (2,733,027) (1,001,064) Net realized gain on investments, options, futures contracts and foreign currency transactions ............... (8,265,071) (14,867,161) --------------- --------------- TOTAL DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS .................. (10,998,098) (15,868,225) --------------- --------------- NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS RESULTING FROM OPERATIONS ............................................ (111,127,155) (33,542,445) --------------- --------------- DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS: Net investment income ................................................ (1,857,821) (8,582,562) Net realized gain on investments, options, futures contracts and foreign currency transactions ............... (5,616,019) (129,877,560) Paid-in capital ...................................................... (62,605,925) -- --------------- --------------- TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ..................... (70,079,765) (138,460,122) --------------- --------------- FUND SHARE TRANSACTIONS: Net increase in net assets from common shares issued upon reinvestment of dividends and distributions and rights offering ................ 16,995,721 160,303,359 Underwriting discount for preferred shares charged to paid-in capital (1,300,000) (5,670,695) Offering costs for preferred shares charged to paid-in capital ....... (500,000) (500,000) --------------- --------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS .............. 15,195,721 154,132,664 --------------- --------------- NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS . (166,011,199) (17,869,903) NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS: Beginning of period .................................................. 1,166,171,011 1,184,040,914 --------------- --------------- End of period ........................................................ $ 1,000,159,812 $ 1,166,171,011 =============== =============== See accompanying notes to financial statements. 29 THE GABELLI EQUITY TRUST INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION. The Gabelli Equity Trust Inc. (the "Equity Trust") is a closed-end, non-diversified management investment company organized as a Maryland corporation on May 20, 1986 and registered under the Investment Company Act of 1940, as amended (the "1940 Act"), whose primary objective is long-term growth of capital. The Equity Trust had no operations until August 11, 1986, when it sold 10,696 shares of common stock to Gabelli Funds, LLC (the "Adviser") for $100,008. Investment operations commenced on August 21, 1986. 2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Equity Trust in the preparation of its financial statements. SECURITY VALUATION. Portfolio securities listed or traded on a nationally recognized securities exchange, quoted by the National Association of Securities Dealers Automated Quotations, Inc. ("Nasdaq") or traded in the U.S. over-the-counter market for which market quotations are readily available are valued at the last quoted sale price on that exchange or market as of the close of business on the day the securities are being valued. If there were no sales that day, the security is valued at the average of the closing bid and asked prices or, if there were no asked prices quoted on that day, then the security is valued at the closing bid price on that day. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Directors so determines, by such other method as the Board of Directors shall determine in good faith, to reflect its fair market value. Portfolio securities traded on more than one national securities exchange or market are valued according to the broadest and most representative market, as determined by Gabelli Funds, LLC (the "Adviser"). Portfolio securities primarily traded in foreign markets are generally valued at the preceding closing values of such securities on their respective exchanges or markets. Securities and assets for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Board of Directors. Short term debt securities with remaining maturities of 60 days or less are valued at amortized cost, unless the Board of Directors determines such does not reflect the securities fair value, in which case these securities will be valued at their fair value as determined by the Board of Directors. Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued at the latest average of the bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing bid price on that day. Options are valued at the last sale price on the exchange on which they are listed. If no sales of such options have taken place that day, they will be valued at the mean between their closing bid and asked prices. REPURCHASE AGREEMENTS. The Equity Trust may enter into repurchase agreements with primary government securities dealers recognized by the Federal Reserve Bank of New York, with member banks of the Federal Reserve System or with other brokers or dealers that meet credit guidelines established by the Adviser and reviewed by the Board of Directors. Under the terms of a typical repurchase agreement, the Equity Trust takes possession of an underlying debt obligation subject to an obligation of the seller to repurchase, and the Equity Trust to resell, the obligation at an agreed-upon price and time, thereby determining the yield during the Equity Trust's holding period. The Equity Trust will always receive and maintain securities as collateral whose market value, including accrued interest, will be at least equal to 100% of the dollar amount invested by the Equity Trust in each agreement. The Equity Trust will make payment for such securities only upon physical delivery or upon evidence of book entry transfer of the collateral to the account of the custodian. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to maintain the adequacy 30 THE GABELLI EQUITY TRUST INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Equity Trust may be delayed or limited. SWAP AGREEMENTS. The Equity Trust may enter into interest rate swap or cap transactions. The use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an interest rate swap, the Equity Trust would agree to pay to the other party to the interest rate swap (which is known as the "counterparty") periodically a fixed rate payment in exchange for the counterparty agreeing to pay to the Equity Trust periodically a variable rate payment that is intended to approximate the Equity Trust's variable rate payment obligation on the Series C Preferred. In an interest rate cap, the Equity Trust would pay a premium to the interest rate cap to the counterparty and, to the extent that a specified variable rate index exceeds a predetermined fixed rate, would receive from the counterparty payments of the difference based on the notional amount of such cap. Interest rate swap and cap transactions introduce additional risk because the Equity Trust would remain obligated to pay preferred stock dividends when due in accordance with the Articles Supplementary even if the counterparty defaulted. Depending on the general state of short-term interest rates and the returns on the Equity Trust's portfolio securities at that point in time, such a default could negatively affect the Equity Trust's ability to make dividend payments for the Series C Preferred. In addition, at the time an interest rate swap or cap transaction reaches its scheduled termination date, there is a risk that the Equity Trust will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the Equity Trust's ability to make dividend payments on the Series C Preferred. FUTURES CONTRACTS. The Equity Trust may engage in futures contracts for the purpose of hedging against changes in the value of its portfolio securities and in the value of securities it intends to purchase. Such investments will only be made if they are economically appropriate to the reduction of risks involved in the management of the Equity Trust's investments. Upon entering into a futures contract, the Equity Trust is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by the Equity Trust each day, depending on the daily fluctuation of the value of the contract. The daily changes in the contract are included in unrealized appreciation/depreciation on investments and futures contracts. The Equity Trust recognizes a realized gain or loss when the contract is closed. There were no open futures contracts at June 30, 2002. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in value of the hedged investments. In addition, there is the risk the Equity Trust may not be able to enter into a closing transaction because of an illiquid secondary market. FORWARD FOREIGN EXCHANGE CONTRACTS. The Equity Trust may engage in forward foreign exchange contracts for hedging a specific transaction with respect to either the currency in which the transaction is denominated or another currency as deemed appropriate by the Adviser. Forward foreign exchange contracts are valued at the forward rate and are marked-to-market daily. The change in market value is included in unrealized appreciation/depreciation on investments and foreign currency transactions. When the contract is closed, the Equity Trust records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. 31 THE GABELLI EQUITY TRUST INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The use of forward foreign exchange contracts does not eliminate fluctuations in the underlying prices of the Equity Trust's portfolio securities, but it does establish a rate of exchange that can be achieved in the future. Although forward foreign exchange contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain/(loss) that might result should the value of the currency increase. In addition, the Equity Trust could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. FOREIGN CURRENCY TRANSLATION. The books and records of the Equity Trust are maintained in United States (U.S.) dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period, and purchases and sales of investment securities, income and expenses are translated at the exchange rate prevailing on the respective dates of such transactions. Unrealized gains and losses, which result from changes in foreign exchange rates and/or changes in market prices of securities, have been included in unrealized appreciation/depreciation on investments and foreign currency transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions, foreign currency transactions and the difference between the amounts of interest and dividends recorded on the books of the Equity Trust and the amounts actually received. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial trade date and subsequent sale trade date is included in realized gain/(loss) on investments. SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are accounted for as of the trade date with realized gain or loss on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded as earned. Dividend income is recorded on the ex-dividend date. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders are recorded on the ex-dividend date. Distributions to shareholders of the Equity Trust's 7.25% Tax Advantaged Series A Cumulative Preferred Stock, 7.20% Tax Advantaged Series B Cumulative Preferred Stock and Series C Auction Rate Cumulative Preferred Stock ("Cumulative Preferred Stock") are accrued on a daily basis and are determined as described in Note 5. Income distributions and capital gain distributions are determined in accordance with Federal income tax regulations which may differ from accounting principles generally accepted in the United States. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Equity Trust, timing differences and differing characterization of distributions made by the Equity Trust. PROVISION FOR INCOME TAXES. The Equity Trust intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. As a result, a Federal income tax provision is not required. Dividends and interest from non-U.S. sources received by the Equity Trust are generally subject to non-U.S. withholding taxes at rates ranging up to 30%. Such withholding taxes may be reduced or eliminated under the terms of applicable U.S. income tax treaties, and the Equity Trust intends to undertake any procedural steps required to claim the benefits of such treaties. If the value of more than 50% of the Equity Trust's total net assets at the close of any taxable year consists of stocks or securities of non-U.S. corporations, the Equity Trust is permitted and may elect to treat any non-U.S. taxes paid by it as paid by its shareholders. 32 THE GABELLI EQUITY TRUST INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES. The Equity Trust has entered into an investment advisory agreement (the "Advisory Agreement") with the Adviser which provides that the Equity Trust will pay the Adviser a fee, computed weekly and paid monthly, equal on an annual basis to 1.00% of the value of the Equity Trust's average weekly net assets. In accordance with the Advisory Agreement, the Adviser provides a continuous investment program for the Equity Trust's portfolio and oversees the administration of all aspects of the Equity Trust's business and affairs. The Adviser has agreed to reduce the management fee on the incremental assets attributable to the Cumulative Preferred Stock if the total return of the net asset value of the common shares of the Equity Trust, including distributions and advisory fee subject to reduction, does not exceed the stated dividend rate or corresponding swap rate of the Cumulative Preferred Stock. For the six months ended June 30, 2002, the Equity Trust's total return on the net asset value of the common shares did not exceed the stated dividend rate of the Cumulative Preferred Stock. Thus, such management fees were not earned on the incremental assets. During the six months ended June 30, 2002, Gabelli & Company, Inc. and its affiliates received $226,776 in brokerage commissions as a result of executing agency transactions in portfolio securities on behalf of the Equity Trust. 4. PORTFOLIO SECURITIES. Cost of purchases and proceeds from sales of securities, other than short-term securities, for the six months ended June 30, 2002 aggregated $139,275,810 and $93,129,622, respectively. 5. CAPITAL. The Articles of Incorporation, dated May 19, 1986, permit the Equity Trust to issue 184,000,000 shares of common stock (par value $0.001). The Board of Directors of the Equity Trust has authorized the repurchase of its shares on the open market when the shares are trading at a discount of 10% or more (or such other percentage as the Board of Directors may determine from time to time) from the net asset value of the shares. During the six months ended June 30, 2002, the Equity Trust did not repurchase any shares of its common stock in the open market. On January 10, 2001, the Equity Trust distributed one transferable right for each of the 108,688,408 common shares outstanding to shareholders of record on that date. Six rights were required to purchase one additional common share at the subscription price of $7.00 per share. The subscription period expired on February 13, 2001. The rights offering was fully subscribed resulting in the issuance of 18,114,735 common shares and proceeds of $126,803,145 to the Equity Trust, prior to the deduction of estimated expenses of $500,000. The net asset value per share of the Equity Trust common shareholders was reduced by approximately $0.62 per share as a result of the issuance. Transactions in common stock were as follows: SIX MONTHS ENDED JUNE 30, 2002 YEAR ENDED (UNAUDITED) DECEMBER 31, 2001 ----------------------- ---------------------- Shares Amount Shares Amount --------- ----------- ---------- ----------- Shares issued in rights offering ... -- $ -- 18,114,735 $126,303,145 Shares issued upon reinvestment of dividends and distributions ... 1,704,105 16,995,721 3,264,654 33,500,214 --------- ----------- ---------- ------------ Net increase ....................... 1,704,105 $16,995,721 21,379,389 $159,803,359 ========= =========== ========== ============ 33 THE GABELLI EQUITY TRUST INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The holders of Cumulative Preferred Stock have voting rights equivalent to those of the holders of common stock (one vote per share) and will vote together with holders of shares of common stock as a single class. In addition, the 1940 Act requires that along with approval of a majority of the holders of common stock, approval of a majority of the holders of any outstanding shares of Cumulative Preferred Stock, voting separately as a class, would be required to (a) adopt any plan of reorganization that would adversely affect the Cumulative Preferred Stock, and (b) take any action requiring a vote of security holders, including, among other things, changes in the Trust's subclassification as a closed-end investment company or changes in its fundamental investment restrictions. The Equity Trust's Articles of Incorporation, as amended, authorize the issuance of up to 16,000,000 shares of $0.001 par value Cumulative Preferred Stock. The Cumulative Preferred Stock is senior to the common stock and results in the financial leveraging of the common stock. Such leveraging tends to magnify both the risks and opportunities to common shareholders. Dividends on shares of the Cumulative Preferred Stock are cumulative. The Equity Trust is required to meet certain asset coverage tests as required by the 1940 Act and by the Shares' Articles Supplementary with respect to the Cumulative Preferred Stock. If the Equity Trust fails to meet these requirements and does not correct such failure, the Equity Trust may be required to redeem, in part or in full, the 7.25% Series A, 7.20% Series B and Series C Auction Rate Cumulative Preferred Stock at a redemption price of $25, $25 and $25,000, respectively, per share plus an amount equal to the accumulated and unpaid dividends whether or not declared on such shares in order to meet these requirements. Additionally, failure to meet the foregoing asset requirements could restrict the Equity Trust's ability to pay dividends to common shareholders and could lead to sales of portfolio securities at inopportune times. The income received on the Equity Trust's assets may vary in a manner unrelated to the fixed and variable rates, which could have either a beneficial or detrimental impact on net investment income and gains available to common shareholders. Under Emerging Issues Task Force (EITF) promulgating Topic D-98, CLASSIFICATION AND MEASUREMENT OF REDEEMABLE SECURITIES, which was issued on July 19, 2001, preferred securities that are redeemable for cash or other assets are to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer. Subject to the guidance of the EITF, the Equity Trust's Cumulative Preferred Stock, which was previously classified as a component of net assets, has been reclassified outside of permanent equity (net assets attributable to common stock shareholders) in the accompanying financial statements. Prior year amounts have also been reclassified to conform with this presentation. The impact of this reclassification creates no change to the net assets available to common shareholders. Commencing June 9, 2003 and thereafter, the Equity Trust, at its option, may redeem the 7.25% Series A Cumulative Preferred Stock in whole or in part at the redemption price. During the six months ended June 30, 2002, the Equity Trust did not repurchase any shares of 7.25% Series A Cumulative Preferred Stock. During the year ended December 31, 2001, the Equity Trust repurchased 1,000 shares of 7.25% Series A Cumulative Preferred Stock at a cost of $24,870 and at an average price of $24.87 per share. At June 30, 2002, 5,367,900 shares of the 7.25% Series A Cumulative Preferred Stock were outstanding at the fixed dividend rate of 7.25 percent per share and accrued dividends amounted to $81,077. 34 THE GABELLI EQUITY TRUST INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) On June 20, 2001, the Equity Trust received net proceeds of $159,329,175 (after underwriting discounts of $5,197,500 and estimated offering expenses of $473,325) from the public offering of 6,600,000 shares of 7.20% Series B Cumulative Preferred Stock. Commencing June 20, 2006 and thereafter, the Equity Trust, at its option, may redeem the 7.20% Series B Cumulative Preferred Stock in whole or in part at the redemption price. During the six months ended June 30, 2002 and the year ended December 31, 2001, the Equity Trust did not repurchase any shares of 7.20% Series B Cumulative Preferred Stock. At June 30, 2002, 6,600,000 shares of the 7.20% Series B Cumulative Preferred Stock were outstanding at the fixed rate of 7.20 percent per share and accrued dividends amounted to $99,000. On June 27, 2002, the Equity Trust received net proceeds of $128,200,000 (after underwriting discounts of $1,300,000 and estimated offering expenses of $500,000) from the public offering of 5,200 shares of Series C Auction Rate Cumulative Preferred Stock. The dividend rate, as set by the auction process, which is generally held every 7 days, is expected to vary with short-term interest rates. Existing shareholders may submit an order to hold, bid or sell such shares on each auction date. Series C Auction Rate Cumulative Preferred Stock shareholders may also trade shares in the secondary market. The Equity Trust, at its option, may redeem the Series C Auction Rate Cumulative Preferred Stock in whole or in part at the redemption price at any time. During the six months ended June 30, 2002, the Equity Trust did not repurchase any shares of Series C Auction Rate Cumulative Preferred Stock. At June 30, 2002, 5,200 shares of the Series C Auction Rate Cumulative Preferred Stock were outstanding at the annual rate of 1.85 percent per share and accrued dividends amounted to $13,361. 6. SUBSEQUENT EVENT. Effective August 1, 2002, the Equity Trust modified its non-fundamental investment policy to increase, from 65% to 80%, the portion of its assets that it will invest, under normal market conditions in equity securities (the "80% Policy"). The 80% Policy may be changed without shareholder approval. However, the Equity Trust has adopted a policy to provide shareholders with at least 60 days' notice of the implementation of any change in the 80% Policy. 35 THE GABELLI EQUITY TRUST INC. FINANCIAL HIGHLIGHTS SELECTED DATA FOR AN EQUITY TRUST COMMON SIX MONTHS ENDED YEAR ENDED DECEMBER 31, SHARE OUTSTANDING THROUGHOUT EACH PERIOD: JUNE 30, 2002(A) ----------------------------------------------------------------- OPERATING PERFORMANCE: (UNAUDITED) 2001(A) 2000(A) 1999(A) 1998(A) 1997(A) ---------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period ......... $ 8.97 $ 10.89 $ 12.75 $ 11.47 $ 11.56 $ 9.77 ---------- ---------- ---------- ---------- ---------- ---------- Net investment income ........................ 0.04 0.08 0.05 0.04 0.07 0.08 Net realized and unrealized gain (loss) on investments ...................... (0.78) (0.16) (0.51) 3.25 1.09 2.75 ---------- ---------- ---------- ---------- ---------- ---------- Total from investment operations ............. (0.74) (0.08) (0.46) 3.29 1.16 2.83 ---------- ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS: Net investment income ........................ (0.02) (0.01) (0.00)(c) (0.00)(c) (0.00)(c) -- Net realized gain on investments ............. (0.06) (0.11) (0.09) (0.09) (0.05) -- ---------- ---------- ---------- ---------- ---------- ---------- Total distributions to preferred stock shareholders ..................... (0.08) (0.12) (0.09) (0.09) (0.05) -- ---------- ---------- ---------- ---------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS RESULTING FROM OPERATIONS ..................... (0.82) (0.20) (0.55) 3.20 1.11 2.83 ---------- ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS: Net investment income ........................ (0.02) (0.06) (0.04) (0.03)(b) (0.06) (0.08) Net realized gain on investments ............. (0.04) (1.02) (1.27) (1.21)(b) (1.10) (0.93) Paid-in capital .............................. (0.48) -- -- (0.68)(b) -- (0.03) ---------- ---------- ---------- ---------- ---------- ---------- Total distributions to common stock shareholders ........................ (0.54) (1.08) (1.31) (1.92) (1.16) (1.04) ---------- ---------- ---------- ---------- ---------- ---------- CAPITAL SHARE TRANSACTIONS: Increase (decrease) in net asset value from common stock share transactions and rights offering ........... (0.01) 0.03 -- -- -- -- Underwriting discount for preferred shares charged to paid-in capital ................. (0.01) (0.62) -- -- -- -- Offering costs for preferred shares charged to paid-in capital ................. -- (0.05) -- -- (0.04) -- ---------- ---------- ---------- ---------- ---------- ---------- Total capital share transactions ............. (0.02) (0.64) -- -- (0.04) -- ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS, END OF PERIOD ................ $ 7.59 $ 8.97 $ 10.89 $ 12.75 $ 11.47 $ 11.56 ========== ========== ========== ========== ========== ========== Net asset value total return + ............... (9.70)% (3.68)% (4.39)% 29.49% 9.55% 30.46% ========== ========== ========== ========== ========== ========== Market value, end of period .................. $ 10.03 $ 10.79 $ 11.44 $ 12.56 $ 11.56 $ 11.69 ========== ========== ========== ========== ========== ========== Total investment return ++ ................... (1.33)% 10.32% 1.91% 26.57% 9.23% 37.46% ========== ========== ========== ========== ========== ========== RATIOS AND SUPPLEMENTAL DATA: Net assets including liquidation value of preferred shares, end of period (in 000's) .......................... $1,429,357 $1,465,369 $1,318,263 $1,503,641 $1,352,190 $1,210,570 Net assets attributable to common shares, end of period (in 000's) ................... $1,000,160 $1,166,171 $1,184,041 $1,368,981 $1,217,190 $1,210,570 Ratio of net investment income to average net assets attributable to common shares .............. 0.82%(g) 0.81% 0.42% 0.34% 0.60% 0.76% Ratio of operating expenses to average net assets attributable to common shares (e) .......... 1.11%(g) 1.12% 1.14% 1.27% 1.15% 1.14% Ratio of operating expenses to average total net assets including liquidation value of preferred shares (e) .................... 0.88%(g) 0.95% 1.03% 1.15% 1.09% 1.14% Portfolio turnover rate ...................... 7.3% 23.9% 32.1% 38.0% 39.8% 39.2% -------------------------- + Based on net asset value per share, adjusted for reinvestment of distributions, including the effect of shares issued pursuant to rights offering, assuming full subscription by shareholders. Total return for the period of less than one year is not annualized. ++ Based on market value per share, adjusted for reinvestment of distributions, including the effect of shares issued pursuant to rights offering, assuming full subscription by shareholders. Total return for the period of less than one year is not annualized. (a) Per share amounts have been calculated using the monthly average shares outstanding method. (b) A distribution equivalent to $0.75 per share for The Gabelli Utility Trust spin-off from net investment income, realized short-term gains, realized long-term gains, and paid-in-capital were $0.01029, $0.07453, $0.34218 and $0.32300, respectively. (c) Amount represents less than $0.005 per share. (d) Based on weekly prices. (e) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits for the period ended June 30, 2002 and the years ended December 31, 2001 and 2000, the expense ratios of operating expenses to average net assets attributable to common stock would be 1.11%, 1.11% and 1.14%, respectively, and the expense ratios of operating expenses to average total net assets including liquidation value of preferred shares would be 0.88%, 0.94% and 1.03%, respectively. (f) Asset coverage is calculated by combining all series of preferred stock. (g) Annualized. See accompanying notes to financial statements. 36 THE GABELLI EQUITY TRUST INC. FINANCIAL HIGHLIGHTS (CONTINUED) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2002(A) ----------------------------------------------------- RATIOS AND SUPPLEMENTAL DATA: (UNAUDITED) 2001(A) 2000(A) 1999(A) 1998(A) 1997(A) ---------- -------- -------- --------- -------- ------- PREFERRED STOCK: 7.25% CUMULATIVE PREFERRED STOCK Liquidation value, end of period (in 000's) ............... $ 134,198 $ 134,198 $ 134,223 $ 134,660 $ 135,000 -- Total shares outstanding (in 000's) ...... 5,368 5,368 5,369 5,386 5,400 -- Liquidation preference per share ......... $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 -- Average market value (d) ................. $ 25.86 $ 25.39 $ 22.62 $ 24.43 $ 25.63 -- 7.20% CUMULATIVE PREFERRED STOCK Liquidation value, end of period (in 000's) ............... $ 165,000 $ 165,000 -- -- -- -- Total shares outstanding (in 000's) ...... 6,600 6,600 -- -- -- -- Liquidation preference per share ......... $ 25.00 $ 25.00 -- -- -- -- Average market value (d) ................. $ 26.20 $ 25.60 -- -- -- -- AUCTION RATE CUMULATIVE PREFERRED STOCK Liquidation value, end of period (in 000's) ...................... $ 130,000 -- -- -- -- -- Total shares outstanding (in 000's) ...... 5 -- -- -- -- -- Liquidation preference per share ......... $ 25,000 -- -- -- -- -- Average market value (d) ................. $ 25,000 -- -- -- -- -- ASSET COVERAGE (f) .......................... 333% 490% 982% 1,117% 1,001% -- ASSET COVERAGE PER SHARE (f) ................ $ 119.38 $ 122.44 $ 245.54 $ 279.16 $ 250.41 -- -------------------------- + Based on net asset value per share, adjusted for reinvestment of distributions, including the effect of shares issued pursuant to rights offering, assuming full subscription by shareholder. Total return for the period of less than one year is not annualized. ++ Based on market value per share, adjusted for reinvestment of distributions, including the effect of shares issued pursuant to rights offering, assuming full subscription by shareholder. Total return for the period of less than one year is not annualized. (a) Per share amounts have been calculated using the monthly average shares outstanding method. (b) A distribution equivalent to $0.75 per share for The Gabelli Utility Trust spin-off from net investment income, realized short-term gains, realized long-term gains, and paid-in-capital were $0.01029, $0.07453, $0.34218 and $0.32300, respectively. (c) Amount represents less than $0.005 per share. (d) Based on weekly prices. (e) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits for the period ended June 30, 2002 and the years ended December 31, 2001 and 2000, the expense ratios of operating expenses to average net assets attributable to common stock would be 1.11%, 1.11% and 1.14%, respectively, and the expense ratios of operating expenses to average total net assets including liquidation value of preferred shares would be 0.88%, 0.94% and 1.03%, respectively. (f) Asset coverage is calculated by combining all series of preferred stock. (g) Annualized. See accompanying notes to financial statements. 37 AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN ENROLLMENT IN THE PLAN It is the policy of The Gabelli Equity Trust Inc. ("Equity Trust") to automatically reinvest dividends. As a "registered" shareholder you automatically become a participant in the Equity Trust's Automatic Dividend Reinvestment Plan (the "Plan"). The Plan authorizes the Equity Trust to issue shares to participants upon an income dividend or a capital gains distribution regardless of whether the shares are trading at a discount or a premium to net asset value. All distributions to shareholders whose shares are registered in their own names will be automatically reinvested pursuant to the Plan in additional shares of the Equity Trust. Plan participants may send their stock certificates to EquiServe Trust Company ("EquiServe") to be held in their dividend reinvestment account. Registered shareholders wishing to receive their distribution in cash must submit this request in writing to: The Gabelli Equity Trust Inc. c/o EquiServe P.O. Box 43011 Providence, RI 02940-3011 Shareholders requesting this cash election must include the shareholder's name and address as they appear on the share certificate. Shareholders with additional questions regarding the Plan may contact EquiServe at 1 (800) 336-6983. SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at EquiServe must do so in writing or by telephone. Please submit your request to the above mentioned address or telephone number. Include in your request your name, address and account number. The cost to liquidate shares is $2.50 per transaction as well as the brokerage commission incurred. Brokerage charges are expected to be less than the usual brokerage charge for such transactions. If your shares are held in the name of a broker, bank or nominee, you should contact such institution. If such institution is not participating in the Plan, your account will be credited with a cash dividend. In order to participate in the Plan through such institution, it may be necessary for you to have your shares taken out of "street name" and re-registered in your own name. Once registered in your own name your dividends will be automatically reinvested. Certain brokers participate in the Plan. Shareholders holding shares in "street name" at participating institutions will have dividends automatically reinvested. Shareholders wishing a cash dividend at such institution must contact their broker to make this change. The number of shares of Common Stock distributed to participants in the Plan in lieu of cash dividends is determined in the following manner. Under the Plan, whenever the market price of the Equity Trust's Common Stock is equal to or exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash dividends or capital gains distribution, participants are issued shares of Common Stock valued at the greater of (i) the net asset value as most recently determined or (ii) 95% of the then current market price of the Equity Trust's Common Stock. The valuation date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange trading day, the next trading day. If the net asset value of the Common Stock at the time of valuation 38 exceeds the market price of the Common Stock, participants will receive shares from the Equity Trust valued at market price. If the Equity Trust should declare a dividend or capital gains distribution payable only in cash, EquiServe will buy Common Stock in the open market, or on the New York Stock Exchange or elsewhere, for the participants' accounts, except that EquiServe will endeavor to terminate purchases in the open market and cause the Equity Trust to issue shares at net asset value if, following the commencement of such purchases, the market value of the Common Stock exceeds the then current net asset value. The automatic reinvestment of dividends and capital gains distributions will not relieve participants of any income tax which may be payable on such distributions. A participant in the Plan will be treated for Federal income tax purposes as having received, on a dividend payment date, a dividend or distribution in an amount equal to the cash the participant could have received instead of shares. The Equity Trust reserves the right to amend or terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of the Plan at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by EquiServe on at least 90 days' written notice to participants in the Plan. VOLUNTARY CASH PURCHASE PLAN The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders to increase their investment in the Equity Trust. In order to participate in the Voluntary Cash Purchase Plan, shareholders must have their shares registered in their own name. Participants in the Voluntary Cash Purchase Plan have the option of making additional cash payments to EquiServe for investments in the Equity Trust's shares at the then current market price. Shareholders may send an amount from $250 to $10,000. EquiServe will use these funds to purchase shares in the open market on or about the 1st and 15th of each month. EquiServe will charge each shareholder who participates $0.75, plus a pro rata share of the brokerage commissions. Brokerage charges for such purchases are expected to be less than the usual brokerage charge for such transactions. It is suggested that any voluntary cash payments be sent to EquiServe, P.O. Box 43011, Providence, RI02940-3011 such that EquiServe receives such payments approximately 10 days before the investment date. Funds not received at least five days before the investment date shall be held for investment in the following month. A payment may be withdrawn without charge if notice is received by EquiServe at least 48 hours before such payment is to be invested. For more information regarding the Dividend Reinvestment Plan and Voluntary Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by writing directly to the Equity Trust. 39 DIRECTORS AND OFFICERS THE GABELLI EQUITY TRUST INC. ONE CORPORATE CENTER, RYE, NY 10580-1422 DIRECTORS Mario J. Gabelli, CFA CHAIRMAN & CHIEF INVESTMENT OFFICER, GABELLI ASSET MANAGEMENT INC. Dr. Thomas E. Bratter PRESIDENT, JOHN DEWEY ACADEMY Anthony J. Colavita ATTORNEY-AT-LAW, ANTHONY J. COLAVITA, P.C. James P. Conn FORMER MANAGING DIRECTOR AND CHIEF INVESTMENT OFFICER, FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. Frank J. Fahrenkopf, Jr. PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN GAMING ASSOCIATION Arthur V. Ferrara FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER, GUARDIAN LIFE INSURANCE COMPANY OF AMERICA Karl Otto Pohl FORMER PRESIDENT, DEUTSCHE BUNDESBANK Anthony R. Pustorino CERTIFIED PUBLIC ACCOUNTANT, PROFESSOR EMERITUS, PACE UNIVERSITY Salvatore J. Zizza CHAIRMAN, HALLMARK ELECTRICAL SUPPLIES CORP. OFFICERS Mario J. Gabelli, CFA PRESIDENT & CHIEF INVESTMENT OFFICER Bruce N. Alpert VICE PRESIDENT & TREASURER Carter W. Austin VICE PRESIDENT James E. McKee SECRETARY INVESTMENT ADVISER Gabelli Funds, LLC One Corporate Center Rye, New York 10580-1422 CUSTODIAN Boston Safe Deposit and Trust Company COUNSEL Willkie Farr & Gallagher TRANSFER AGENT AND REGISTRAR EquiServe Trust Company STOCK EXCHANGE LISTING 7.25% 7.20% COMMON PREFERRED PREFERRED ------ --------- --------- NYSE- Symbol: GAB GAB Pr GAB PrB Shares Outstanding: 131,771,904 5,367,900 6,600,000 The Net Asset Value appears in the Publicly Traded Funds column, under the heading "General Equity Funds," in Sunday's The New York Times and in Monday's The Wall Street Journal. It is also listed in Barron's Mutual Funds/Closed End Funds section under the heading "General Equity Funds". The Net Asset Value may be obtained each day by calling (914) 921-5071. -------------------------------------------------------------------------------- For general information about the Gabelli Funds, call 1-800-GABELLI (1-800-422-3554), fax us at 914-921-5118, visit Gabelli Funds' Internet homepage at: HTTP://WWW.GABELLI.COM or e-mail us at: closedend@gabelli.com -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Equity Trust may, from time to time, purchase shares of its common stock in the open market when the Equity Trust shares are trading at a discount of 10% or more from the net asset value of the shares. The Equity Trust may also, from time to time, purchase shares of its Cumulative Preferred Stock in the open market when the shares are trading at a discount to the Liquidation Value of $25.00. -------------------------------------------------------------------------------- THE GABELLI EQUITY TRUST INC. ONE CORPORATE CENTER RYE, NY 10580-1422 (914) 921-5070 HTTP://WWW.GABELLI.COM SEMI-ANNUAL REPORT JUNE 30, 2002 GBFCM 06/02