UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04700
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The Gabelli Equity Trust Inc.
----------------------------------------
(Exact name of registrant as specified in charter)
One Corporate Center
Rye, New York 10580-1422
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(Address of principal executive offices) (Zip code)
Bruce N. Alpert
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
----------------------------------------
(Name and address of agent for service)
registrant's telephone number, including area code: 1-800-422-3554
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2005
-----------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
[LOGO]
THE GABELLI
EQUITY TRUST INC.
THE GABELLI EQUITY TRUST INC.
Annual Report
December 31, 2005
TO OUR SHAREHOLDERS,
The Sarbanes-Oxley Act requires a fund's principal executive and financial
officers to certify the entire contents of the semi-annual and annual
shareholder reports in a filing with the Securities and Exchange Commission on
Form N-CSR. This certification would cover the portfolio manager's commentary
and subjective opinions if they are attached to or a part of the financial
statements. Many of these comments and opinions would be difficult or impossible
to certify.
Because we do not want our portfolio managers to eliminate their opinions
and/or restrict their commentary to historical facts, we have separated their
commentary from the financial statements and investment portfolio and have sent
it to you separately. Both the commentary and the financial statements,
including the portfolio of investments, will be available on our website at
www.gabelli.com/funds.
Enclosed are the audited financial statements and the investment portfolio
as of December 31, 2005.
COMPARATIVE RESULTS
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 2005 (a)
SINCE
INCEPTION
QUARTER 1 YEAR 3 YEAR 5 YEAR 10 YEAR 15 YEAR (8/21/86)
------- ------ ------ ------ ------- ------- ---------
GABELLI EQUITY TRUST NAV RETURN (b) .......... (2.83)% 5.42% 21.44% 6.75% 10.34% 11.69% 11.72%
GABELLI EQUITY TRUST INVESTMENT RETURN (c) ... (0.31) 0.66 17.02 4.79 10.57 11.38 11.22
S&P 500 Index ................................ 2.08 4.91 14.38 0.54 9.07 11.51 11.25
Dow Jones Industrial Average ................. 2.01 1.83 11.24 2.04 9.83 12.34 12.28
Nasdaq Composite Index ....................... 2.49 1.37 18.20 (2.25) 7.68 12.56 9.49
(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. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE
INFORMATION AS OF THE MOST RECENT MONTH END.
PERFORMANCE FIGURES FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND
EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. 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.
(b) TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN NAV,
REINVESTMENT OF DISTRIBUTIONS AT NAV ON THE EX-DIVIDEND DATE, ADJUSTMENTS
FOR RIGHTS OFFERINGS, SPIN-OFFS, AND TAXES PAID ON UNDISTRIBUTED LONG-TERM
CAPITAL GAINS, AND ARE NET OF EXPENSES. SINCE INCEPTION RETURN BASED ON AN
INITIAL NET ASSET VALUE OF $9.34.
(c) 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.
--------------------------------------------------------------------------------
Sincerely yours,
/s/ Bruce N. Alpert
Bruce N. Alpert
President
February 13, 2006
THE GABELLI EQUITY TRUST INC.
SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED)
The following table presents portfolio holdings as a percent of total
investments as of December 31, 2005:
Food and Beverage ................................................... 9.2%
Financial Services .................................................. 7.9%
Telecommunications .................................................. 7.5%
Energy and Utilities ................................................ 7.4%
Entertainment ....................................................... 6.3%
Diversified Industrial .............................................. 5.4%
Publishing .......................................................... 5.1%
Health Care ......................................................... 4.7%
Cable and Satellite ................................................. 4.4%
Consumer Products ................................................... 4.2%
U.S. Government Obligations ......................................... 4.1%
Hotels and Gaming ................................................... 3.3%
Automotive: Parts and Accessories ................................... 3.2%
Equipment and Supplies .............................................. 2.8%
Repurchase Agreements ............................................... 2.6%
Communications Equipment ............................................ 2.3%
Wireless Communications ............................................. 2.2%
Aviation: Parts and Services ........................................ 2.0%
Computer Software and Services ...................................... 1.8%
Agriculture ......................................................... 1.3%
Consumer Services ................................................... 1.3%
Aerospace ........................................................... 1.1%
Machinery ........................................................... 1.1%
Broadcasting ........................................................ 1.0%
Specialty Chemicals ................................................. 1.0%
Retail .............................................................. 1.0%
Real Estate ......................................................... 1.0%
Environmental Services .............................................. 1.0%
Metals and Mining ................................................... 0.8%
Electronics ......................................................... 0.8%
Automotive .......................................................... 0.7%
Business Services ................................................... 0.6%
Manufactured Housing and Recreational Vehicles ...................... 0.3%
Closed-End Funds .................................................... 0.3%
Paper and Forest Products ........................................... 0.1%
Transportation ...................................................... 0.1%
Real Estate Investment Trusts ....................................... 0.1%
-----
100.0%
=====
THE GABELLI EQUITY TRUST INC. (THE "EQUITY TRUST") FILES A COMPLETE SCHEDULE OF
PORTFOLIO HOLDINGS WITH THE SEC FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL
YEAR ON FORM N-Q, THE LAST OF WHICH WAS FILED FOR THE QUARTER ENDED SEPTEMBER
30, 2005. SHAREHOLDERS MAY OBTAIN THIS INFORMATION AT WWW.GABELLI.COM OR BY
CALLING THE EQUITY TRUST AT 800-GABELLI (800-422-3554). THE EQUITY TRUST'S FORM
N-Q IS AVAILABLE ON THE SEC'S WEBSITE AT WWW.SEC.GOV AND MAY ALSO BE REVIEWED
AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY
CALLING 1-800-SEC-0330.
PROXY VOTING
The Equity Trust files Form N-PX with its complete proxy voting record for
the 12 months ended June 30th, no later than August 31st of each year. A
description of the Equity Trust's proxy voting policies, procedures, and how the
Equity Trust voted proxies relating to portfolio securities are available
without charge, upon request, (i) by calling 800-GABELLI (800-422-3554); (ii) by
writing to The Gabelli Funds at One Corporate Center, Rye, NY 10580-1422; and
(iii) by visiting the Securities and Exchange Commission's website at
www.sec.gov.
--------------------------------------------------------------------------------
THE GABELLI EQUITY TRUST INC.
AND YOUR PERSONAL PRIVACY
WHO ARE WE?
The Gabelli Equity Trust Inc. (the "Trust") is a closed-end investment company
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940. We are managed by Gabelli Funds, LLC, which is affiliated
with GAMCO Investors, Inc. GAMCO Investors, Inc. is a publicly held company that
has subsidiaries that provide investment advisory or brokerage services for a
variety of clients.
WHAT KIND OF NON-PUBLIC INFORMATION DO WE COLLECT ABOUT YOU IF YOU BECOME A
GABELLI CUSTOMER?
When you purchase shares of the Trust on the New York Stock Exchange, you have
the option of registering directly with our transfer agent in order, for
example, to participate in our dividend reinvestment plan.
o INFORMATION YOU GIVE US ON YOUR APPLICATION FORM. This could include your
name, address, telephone number, social security number, bank account
number, and other information.
o INFORMATION ABOUT YOUR TRANSACTIONS WITH US. This would include
information about the shares that you buy or sell, it may also include
information about whether you sell or exercise rights that we have issued
from time to time. If we hire someone else to provide services--like a
transfer agent--we will also have information about the transactions that
you conduct through them.
WHAT INFORMATION DO WE DISCLOSE AND TO WHOM DO WE DISCLOSE IT?
We do not disclose any non-public personal information about our customers or
former customers to anyone, other than our affiliates, our service providers who
need to know such information, and as otherwise permitted by law. If you want to
find out what the law permits, you can read the privacy rules adopted by the
Securities and Exchange Commission. They are in volume 17 of the Code of Federal
Regulations, Part 248. The Commission often posts information about its
regulations on its web site, WWW.SEC.GOV.
WHAT DO WE DO TO PROTECT YOUR PERSONAL INFORMATION?
We restrict access to non-public personal information about you to the people
who need to know that information in order to provide services to you or the
Fund and to ensure that we are complying with the laws governing the securities
business. We maintain physical, electronic, and procedural safeguards to keep
your personal information confidential.
--------------------------------------------------------------------------------
2
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
QUARTER ENDED DECEMBER 31, 2005
(UNAUDITED)
OWNERSHIP AT
DECEMBER 31,
SHARES 2005
--------- ------------
NET PURCHASES
COMMON STOCKS
Albertson's Inc. ........................... 40,000 300,000
Ameriprise Financial Inc. (a) .............. 110,000 110,000
Anheuser-Busch Companies Inc. .............. 12,000 20,000
ARIAKE JAPAN Co. Ltd. ...................... 27,000 27,000
AT&T Inc. (b)(c) ........................... 480,000 480,000
Avon Products Inc. ......................... 10,000 60,000
Bristol-Myers Squibb Co. ................... 5,000 140,000
Burlington Resources Inc. .................. 110,000 385,000
Cablevision Systems Corp., Cl. A ........... 110,000 1,610,000
Cadbury Schweppes plc, ADR ................. 20,000 60,000
Campbell Soup Co. .......................... 10,000 100,000
Canon Inc. ................................. 15,000 15,000
CCE Spinco Inc. (d) ........................ 125 125
Chestnut Hill Ventures (e) ................. 2,003 2,003
Chiron Corp. ............................... 380,000 380,000
Citigroup Inc. ............................. 65,000 110,000
Clear Channel Communications Inc. .......... 1,000 1,000
Clear Channel Outdoor Holdings Inc.,
Cl. A .................................... 15,000 15,000
Coca-Cola Co. .............................. 15,000 75,000
Coca-Cola Enterprises Inc. ................. 15,000 20,000
Cooper Industries Ltd., Cl. A .............. 40,000 200,000
Costco Wholesale Corp. ..................... 5,000 25,000
Crane Co. .................................. 20,000 270,000
Credit Suisse Group ........................ 3,000 22,000
Dana Corp. ................................. 10,000 400,000
Dave & Buster's Inc. ....................... 2,000 2,000
Dow Jones & Co Inc. ........................ 32,000 50,000
Dreyer's Grand Ice Cream Holdings Inc.,
Cl. A .................................... 95,300 345,300
El Paso Corp. .............................. 60,000 270,000
Energizer Holdings Inc. .................... 85,000 115,000
Fairchild Corp., Cl. A ..................... 70,400 200,000
Fedders Corp. .............................. 10,000 80,000
Genuine Parts Co. .......................... 50,000 350,000
GrafTech International Ltd. ................ 10,000 80,000
Groupe Danone .............................. 160,000 200,000
Groupe Danone, ADR ......................... 5,000 5,000
GTECH Holdings Corp. ....................... 3,000 19,000
Guidant Corp. .............................. 65,000 65,000
Heinz (H.J.) Co. ........................... 10,000 140,000
Hercules Inc. .............................. 80,000 200,000
Hershey Foods Corp. ........................ 3,000 28,000
Hisamitsu Pharmaceutical Co. Inc. .......... 16,000 16,000
IDX Systems Corp. .......................... 26,200 26,200
Ivanhoe Mines Ltd. ......................... 20,000 75,000
Johnson Controls Inc. ...................... 20,000 140,000
La Quinta Corp. ............................ 450,000 450,000
Las Vegas Sands Corp. ...................... 1,000 6,000
Lenox Group Inc. ........................... 50,000 50,000
Lin TV Corp., Cl. A ........................ 20,000 70,000
MCI Inc. ................................... 100,000 100,000
New York Times Co., Cl. A .................. 5,000 85,000
Newmont Mining Corp Holding Co. ............ 5,000 130,000
Nextel Partners Inc., Cl. A ................ 300,000 300,000
NIWS Co. Ltd. .............................. 650 650
Novelis Inc. ............................... 70,000 110,000
O2 plc ..................................... 590,000 3,350,000
Oceaneering International Inc. ............. 5,000 5,000
Park-Ohio Holdings Corp. ................... 3,000 101,000
PetroChina Co. Ltd., ADR ................... 1,000 2,000
OWNERSHIP AT
DECEMBER 31,
SHARES 2005
--------- ------------
Pfizer Inc. ................................ 27,000 310,000
Placer Dome Inc. ........................... 70,000 120,000
Procter & Gamble Co. (f) ................... 89,750 269,750
Prosperity REIT ............................ 2,187 2,187
Rayonier Inc. (g) .......................... 8,328 24,984
Reckitt Benckiser plc ...................... 10,000 60,000
Reebok International Ltd. .................. 20,000 20,000
Renal Care Group Inc. ...................... 5,000 40,000
Rolls-Royce Group plc, Cl. B (h) ........... 2,672,000 2,672,000
Scientific-Atlanta Inc. .................... 256,000 300,000
Shizuoka Bank Ltd. ......................... 80,000 80,000
Siebel Systems Inc. ........................ 2,500,000 2,500,000
Skyline Corp. .............................. 900 20,900
Southern Energy Homes Inc. ................. 3,600 4,600
Standard Motor Products Inc. ............... 5,000 165,000
Straumann Holding AG ....................... 1,000 5,250
TDC A/S .................................... 300,000 300,000
Thomas & Betts Corp. ....................... 8,000 308,000
Tokai Carbon Co. Ltd. ...................... 190,000 190,000
Tribune Co. ................................ 14,200 315,000
TXU Corp. (i) .............................. 41,000 95,000
Viacom Inc., Cl. A ......................... 3,000 845,000
Viacom Inc., Cl. A W/I ..................... 35,000 35,000
Westar Energy Inc. ......................... 20,000 275,000
Xstrata plc ................................ 5,000 50,000
Yahoo! Inc. ................................ 10,000 90,000
RIGHTS
Central Europe and Russia Fund Inc.
Rights, expire 01/20/06 (j) .............. 74,200 74,200
NET SALES
COMMON STOCKS
Agere Systems Inc. ......................... (2,000) 48,000
Altadis Sa ................................. (15,000) 45,000
America Movil SA de CV,
Cl. L, ADR ............................... (2,000) 232,000
AMETEK Inc. ................................ (15,000) 190,000
Archer-Daniels-Midland Co. ................. (40,000) 960,000
AT&T Corp. (b) ............................. (585,000) --
ATX Communications Inc. .................... (90,540) --
Boeing Co. ................................. (5,000) 105,000
Cendant Corp. .............................. (10,000) 130,000
Central Europe and Russia Fund Inc. ........ (800) 74,200
Cincinnati Bell Inc. ....................... (70,000) 860,000
CMS Energy Corp. ........................... (1,200) 90,000
Coldwater Creek Inc. ....................... (5,000) 35,000
Comcast Corp., Cl. A ....................... (10,000) 320,000
ConocoPhillips ............................. (159,000) 45,000
Corning Inc. ............................... (10,000) 505,000
Curtiss-Wright Corp. ....................... (2,000) 198,000
Deere & Co. ................................ (60,000) 260,000
Department 56 Inc. ......................... (50,000) --
Expedia Inc. ............................... (110,000) --
Fomento Economico Mexicano
SA de CV, ADR ............................ (641) 35,000
Fuller (H.B.) Co. .......................... (4,000) 35,000
GC Companies Inc. (e) ...................... (50,000) --
General Mills Inc. ......................... (10,000) 165,000
Gillette Co. (f) ........................... (110,000) --
Grupo Televisa SA, ADR ..................... (3,000) 170,000
Hilton Group plc ........................... (200,000) 2,675,000
Hilton Hotels Corp. ........................ (50,000) 550,000
See accompanying notes to financial statements.
3
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES (CONTINUED)
QUARTER ENDED DECEMBER 31, 2005
(UNAUDITED)
OWNERSHIP AT
DECEMBER 31,
SHARES 2005
---------- ------------
NET SALES (CONTINUED)
COMMON STOCKS (CONTINUED)
Honeywell International Inc. .................. (10,000) 405,500
IDEX Corp. .................................... (18,000) 232,000
Irish Life & Permanent plc, Dublin ............ (10,000) 65,000
IVAX Corp. .................................... (10,000) --
Janus Capital Group Inc. ...................... (140,000) 60,000
KDDI Corp. .................................... (80) 153
Kellogg Co. ................................... (15,000) 145,000
Kerzner International Ltd. .................... (200) 10,000
Lamson & Sessions Co. ......................... (240,000) 150,000
Leucadia National Corp. ....................... (8,000) 70,000
Lockheed Martin Corp. ......................... (10,000) 20,000
Loral Space & Communications
Ltd. ........................................ (50,000) --
Mattel Inc. ................................... (40,000) 20,000
Maytag Corp. .................................. (10,000) 65,000
MBNA Corp. .................................... (40,000) 60,000
Mediaset SpA .................................. (10,000) 155,000
National Presto Industries Inc. ............... (6,000) 29,000
Neiman Marcus Group Inc., Cl. B (k) ........... (320,000) --
Northrop Grumman Corp. ........................ (45,000) 135,000
Paxson Communications Corp. ................... (10,000) 100,000
PRIMEDIA Inc. ................................. (5,000) 395,000
Qwest Communications
International Inc. .......................... (60,000) 940,000
Rogers Communications Inc., Cl. B,
New York .................................... (5,000) 402,845
Rollins Inc. .................................. (5,000) 835,000
Sanofi-Aventis ................................ (2,000) 24,808
SBC Communications Inc. (c) ................... (130,000) --
Six Flags Inc. ................................ (63,500) 90,000
Spinnaker Exploration Co. (l) ................. (75,000) --
St. Joe. Co. .................................. (1,000) 166,000
Telecom Argentina Stet France
Telecom SA, ADR ............................. (2,000) 48,000
Telecom Italia SpA ............................ (300,000) 1,488,075
Telefonica Moviles SA ......................... (90,000) --
Telefonica SA, BDR ............................ (18,298) --
TELUS Corp. ................................... (2,500) --
TELUS Corp., ADR .............................. (12,500) 35,000
Tootsie Roll Industries Inc. .................. (270) 112,000
TRW Automotive Holdings Corp. ................. (30,000) --
Vivendi Universal SA .......................... (10,000) 33,900
VNU NV ........................................ (4,000) --
Vodafone Group plc ............................ (200,000) 353,888
Waste Management Inc. ......................... (10,000) 490,000
Young Broadcasting Inc., Cl. A ................ (30,000) 100,000
OWNERSHIP AT
DECEMBER 31,
SHARES 2005
---------- ------------
PUT OPTION
SPDR Trust Series 1, Oct. 05/120 .............. (1,000) --
PRINCIPAL
AMOUNT
---------
U.S. TREASURY NOTES
U.S. Treasury Note,
5.750%, 11/15/05 ............................ $(1,000,000) --
----------
(a) Spin-off -- 0.20000 share of Ameriprise Financial Inc. for every 1 share
of American Express Co.
(b) Merger -- 0.77942 share of AT&T Inc. for every 1 share of AT&T Corp.
(c) Merger -- 1 share of AT&T Inc. for every 1 share of SBC Communications
Inc.
(d) Spin-off -- 0.12500 share of CCE Spinco Inc. for every 1 share of Clear
Channel Communications Inc.
(e) Merger -- 0.04005 share of Chestnut Hill Ventures for every 1 share of GC
Companies
(f) Merger -- 0.97500 share of Procter & Gamble Co. for every 1 share of
Gillette Co.
(g) 3 for 2 stock split
(h) Spin-off -- 33.40000 shares of Rolls-Royce Group plc, Cl. B for every 1
share of Rolls-Royce Group plc
(i) 2 for 1 stock split
(j) Rights Issue -- 1 right for every 1 share of Central Europe and Russia
Fund
(k) Cash Merger -- $100.00 for every 1 share
(l) Cash Merger -- $65.50 for every 1 share
See accompanying notes to financial statements.
4
THE GABELLI EQUITY TRUST INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
MARKET
SHARES COST VALUE
--------- ------------ ------------
COMMON STOCKS -- 93.0%
FOOD AND BEVERAGE -- 9.2%
85,000 Ajinomoto Co. Inc. ................................... $ 998,444 $ 869,928
20,000 Anheuser-Busch
Companies Inc. ..................................... 895,534 859,200
27,000 ARIAKE JAPAN Co. Ltd. ................................ 615,859 665,070
83,000 Cadbury Schweppes plc ................................ 855,208 784,689
60,000 Cadbury Schweppes plc,
ADR ................................................ 1,902,198 2,297,400
100,000 Campbell Soup Co. .................................... 2,678,697 2,977,000
75,000 Coca-Cola Co. ........................................ 3,393,098 3,023,250
20,000 Coca-Cola Enterprises Inc. ........................... 376,515 383,400
40,000 Coca-Cola Hellenic
Bottling Co. SA .................................... 519,295 1,178,212
100,000 Corn Products
International Inc. ................................. 1,385,122 2,389,000
60,000 Del Monte Foods Co.+ ................................. 564,374 625,800
10,108 Denny's Corp.+ ....................................... 14,358 40,735
100,000 Diageo plc ........................................... 1,467,580 1,449,512
224,000 Diageo plc, ADR ...................................... 9,660,541 13,059,200
345,300 Dreyer's Grand Ice Cream
Holdings Inc., Cl. A ............................... 27,702,259 28,618,464
90,000 Flowers Foods Inc. ................................... 1,011,842 2,480,400
35,000 Fomento Economico Mexicano
SA de CV, ADR ...................................... 1,378,845 2,537,850
165,000 General Mills Inc. ................................... 7,893,483 8,137,800
200,000 Groupe Danone ........................................ 19,701,934 20,895,734
5,000 Groupe Danone, ADR ................................... 100,250 105,200
500,000 Grupo Bimbo SA de CV, Cl. A .......................... 1,052,379 1,739,948
20,000 Hain Celestial Group Inc.+ ........................... 267,663 423,200
140,000 Heinz (H.J.) Co. ..................................... 5,026,298 4,720,800
28,000 Hershey Co. .......................................... 1,006,700 1,547,000
145,000 Kellogg Co. .......................................... 5,202,398 6,266,900
75,000 Kerry Group plc, Cl. A ............................... 860,877 1,653,502
12,100 LVMH Moet Hennessy
Louis Vuitton SA ................................... 419,053 1,075,100
2,500 Nestle SA ............................................ 513,610 747,689
480,000 PepsiAmericas Inc. ................................... 8,563,021 11,164,800
350,000 PepsiCo Inc. ......................................... 16,929,287 20,678,000
6,750 Pernod-Ricard SA ..................................... 470,174 1,177,916
68,200 Ralcorp Holdings Inc.+ ............................... 1,308,415 2,721,862
90,000 Sara Lee Corp. ....................................... 1,671,270 1,701,000
2,000 Smucker (J.M.) Co. ................................... 52,993 88,000
112,000 Tootsie Roll Industries Inc. ......................... 1,562,923 3,240,160
170,000 Wrigley (Wm.) Jr. Co. ................................ 10,436,095 11,303,300
------------ ------------
138,458,592 163,627,021
------------ ------------
FINANCIAL SERVICES -- 7.9%
7,000 Allianz AG ........................................... 866,497 1,060,272
5,000 Allstate Corp. ....................................... 209,064 270,350
550,000 American Express Co. ................................. 26,001,250 28,303,000
110,000 Ameriprise Financial Inc. ............................ 2,680,598 4,510,000
32,000 Argonaut Group Inc.+ ................................. 822,496 1,048,640
95,000 Aviva plc ............................................ 1,163,351 1,152,297
90,000 Banco Santander Central
Hispano SA, ADR ................................... 322,130 1,187,100
100,000 Bank of Ireland ...................................... 584,533 1,575,763
75,000 Bank of New York Co. Inc. ............................ 2,749,625 2,388,750
275,000 Bankgesellschaft Berlin AG+ .......................... 5,495,399 966,946
260 Berkshire Hathaway
Inc., Cl. A+ ....................................... 1,074,049 23,041,200
7,500 Calamos Asset Management
Inc., Cl. A ........................................ 135,000 235,875
110,000 Citigroup Inc. ....................................... 5,299,542 5,338,300
185,000 Commerzbank AG, ADR .................................. 3,747,342 5,721,643
MARKET
SHARES COST VALUE
--------- ------------ ------------
22,000 Credit Suisse Group .................................. $ 986,436 $ 1,121,723
152,000 Deutsche Bank AG ..................................... 13,322,073 14,724,240
20,000 Dun and Bradstreet Corp.+ ............................ 424,266 1,339,200
20,000 H&R Block Inc. ....................................... 329,930 491,000
65,000 Irish Life & Permanent plc ........................... 506,648 1,328,211
60,000 Janus Capital Group Inc. ............................. 851,922 1,117,800
55,000 JPMorgan Chase & Co. ................................. 1,360,152 2,182,950
70,000 Leucadia National Corp. .............................. 1,736,656 3,322,200
60,000 MBNA Corp. ........................................... 1,551,501 1,629,000
100,000 Mellon Financial Corp. ............................... 3,140,094 3,425,000
189,000 Midland Co. .......................................... 1,386,764 6,811,560
60,000 Moody's Corp. ........................................ 3,014,407 3,685,200
128,750 Nikko Cordial Corp. .................................. 1,725,292 2,039,301
145,000 Phoenix Companies Inc. ............................... 2,094,171 1,977,800
2,500 Prudential Financial Inc. ............................ 68,750 182,975
45,000 Schwab (Charles) Corp. ............................... 657,563 660,150
80,000 Shizuoka Bank Ltd. ................................... 791,848 801,798
3,000 St. Paul Travelers
Companies Inc. ..................................... 113,277 134,010
50,000 Standard Chartered plc ............................... 954,007 1,114,017
80,000 State Street Corp. ................................... 4,001,480 4,435,200
20,000 SunTrust Banks Inc. .................................. 419,333 1,455,200
78,500 T. Rowe Price Group Inc. ............................. 4,816,620 5,654,355
20,000 UBS AG ............................................... 1,875,967 1,904,037
70,000 Waddell & Reed Financial
Inc., Cl. A ........................................ 1,439,547 1,467,900
53,000 Westpac Banking Corp. ................................ 833,192 883,935
------------ ------------
99,552,772 140,688,898
------------ ------------
TELECOMMUNICATIONS -- 7.4%
5,000 ALLTEL Corp. ......................................... 111,101 315,500
480,000 AT&T Inc. ............................................ 13,847,443 11,755,200
265,000 BCE Inc. ............................................. 6,947,469 6,346,750
30,000 Brasil Telecom Participacoes
SA, ADR ............................................ 1,743,257 1,120,500
1,760,000 BT Group plc ......................................... 7,277,785 6,745,005
4,440,836 Cable & Wireless
Jamaica Ltd.+ ...................................... 101,639 101,954
860,000 Cincinnati Bell Inc.+ ................................ 6,295,609 3,018,600
80,000 Citizens Communications Co. .......................... 960,550 978,400
170,000 Commonwealth Telephone
Enterprises Inc. ................................... 6,485,526 5,740,900
110,000 Compania de
Telecomunicaciones de
Chile SA, ADR ...................................... 1,634,847 968,000
170,000 Deutsche Telekom AG, ADR ............................. 2,827,195 2,827,100
15,000 Embratel Participacoes
SA, ADR+ ........................................... 266,400 221,250
5,000 France Telecom SA, ADR ............................... 146,305 124,200
153 KDDI Corp. ........................................... 581,471 882,181
100,000 KPN NV ............................................... 232,728 1,002,758
100,000 MCI Inc. ............................................. 2,552,990 1,973,000
940,000 Qwest Communications
International Inc.+ ................................ 3,014,598 5,311,000
532,387 Sprint Nextel Corp. .................................. 16,576,895 12,436,560
300,000 TDC A/S .............................................. 17,773,903 17,970,486
186,554 Tele Norte Leste Participacoes
SA, ADR ............................................ 2,477,755 3,343,048
48,000 Telecom Argentina SA,
Cl. B, ADR+ ........................................ 369,540 618,720
1,488,075 Telecom Italia SpA ................................... 6,089,193 4,333,840
254,800 Telefonica SA, ADR ................................... 12,826,593 11,471,096
64,000 Telefonos de Mexico
SA de CV, Cl. L, ADR ............................... 482,044 1,579,520
310,000 Telephone & Data Systems Inc. ........................ 14,444,104 11,169,300
See accompanying notes to financial statements.
5
THE GABELLI EQUITY TRUST INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2005
MARKET
SHARES COST VALUE
--------- ------------ ------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
390,000 Telephone & Data Systems
Inc., Special ...................................... $ 16,299,155 $ 13,497,900
35,000 TELUS Corp., ADR ..................................... 641,907 1,433,977
140,060 Verizon Communications Inc. .......................... 5,505,166 4,218,607
------------ ------------
148,513,168 131,505,352
------------ ------------
ENERGY AND UTILITIES -- 7.4%
70,000 AES Corp.+ ........................................... 397,267 1,108,100
10,000 AGL Resources Inc. ................................... 174,924 348,100
120,000 Allegheny Energy Inc.+ ............................... 1,557,788 3,798,000
70,000 Apache Corp. ......................................... 2,728,670 4,796,400
247,000 BP plc, ADR .......................................... 15,155,797 15,862,340
385,000 Burlington Resources Inc. ............................ 23,958,559 33,187,000
115,000 CH Energy Group Inc. ................................. 4,749,282 5,278,500
40,000 Cinergy Corp. ........................................ 1,456,054 1,698,400
90,000 CMS Energy Corp.+ .................................... 576,290 1,305,900
45,000 ConocoPhillips ....................................... 2,460,039 2,618,100
8,000 Constellation Energy Group ........................... 449,608 460,800
30,000 DPL Inc. ............................................. 624,493 780,300
14,000 DTE Energy Co. ....................................... 619,459 604,660
250,000 Duke Energy Corp. .................................... 5,835,450 6,862,500
110,000 Duquesne Light Holdings Inc. ......................... 1,845,274 1,795,200
270,000 El Paso Corp. ........................................ 3,253,601 3,283,200
370,000 El Paso Electric Co.+ ................................ 5,253,285 7,784,800
50,000 Energy East Corp. .................................... 1,065,733 1,140,000
80,000 Eni SpA .............................................. 2,246,480 2,219,092
80,000 Exxon Mobil Corp. .................................... 2,750,108 4,493,600
20,000 FPL Group Inc. ....................................... 556,256 831,200
70,000 Halliburton Co. ...................................... 1,726,011 4,337,200
19,999 Kerr-McGee Corp. ..................................... 1,111,848 1,817,109
10,000 Marathon Oil Corp. ................................... 242,414 609,700
140,000 Mirant Corp.+ ........................................ 62,690 184,800
10,000 NiSource Inc. ........................................ 215,500 208,600
300,000 Northeast Utilities .................................. 5,838,917 5,907,000
5,000 Oceaneering International
Inc.+ .............................................. 262,281 248,900
2,000 PetroChina Co. Ltd., ADR ............................. 137,965 163,920
23,000 Petroleo Brasileiro SA, ADR .......................... 1,618,258 1,639,210
100,000 Progress Energy Inc., CVO+ ........................... 52,000 7,250
30,000 Saipem SpA ........................................... 518,818 492,263
30,000 SJW Corp. ............................................ 883,106 1,365,000
20,000 Southwest Gas Corp. .................................. 451,132 528,000
8,657 Total SA ............................................. 2,218,733 2,174,832
95,000 TXU Corp. ............................................ 1,113,511 4,768,050
200 Vectren Corp. ........................................ 5,810 5,432
275,000 Westar Energy Inc. ................................... 4,758,248 5,912,500
------------ ------------
98,931,659 130,625,958
------------ ------------
ENTERTAINMENT -- 6.3%
160,000 Canal Plus, ADR+ ..................................... 34,010 296,000
125 CCE Spinco Inc.+ ..................................... 1,296 1,638
2,003 Chestnut Hill Ventures+ (a) .......................... 54,500 43,001
2,000 Dave & Buster's Inc.+ ................................ 35,000 35,220
220,000 Discovery Holding Co., Cl. A+ ........................ 3,185,692 3,333,000
1,600 DreamWorks Animation SKG
Inc., Cl. A+ ....................................... 39,461 39,296
110,000 EMI Group plc ........................................ 292,543 458,941
80,000 EMI Group plc, ADR ................................... 947,487 666,096
650,000 Gemstar-TV Guide
International Inc.+ ................................ 3,842,787 1,696,500
170,000 Grupo Televisa SA, ADR ............................... 6,392,675 13,685,000
2,200,000 Liberty Media Corp., Cl. A+ .......................... 19,569,251 17,314,000
17,500 Oriental Land Co. Ltd. ............................... 1,043,187 954,127
160,000 Publishing & Broadcasting Ltd. ....................... 893,720 1,933,038
MARKET
SHARES COST VALUE
--------- ------------ ------------
1,629,500 Rank Group plc ....................................... $ 7,987,535 $ 8,571,814
12,000 Regal Entertainment
Group, Cl. A ....................................... 165,788 228,240
90,000 Six Flags Inc.+ ...................................... 430,475 693,900
260,000 The Walt Disney Co. .................................. 5,453,387 6,232,200
810,000 Time Warner Inc. ..................................... 17,932,501 14,126,400
845,000 Viacom Inc., Cl. A ................................... 34,792,427 27,682,200
35,000 Viacom Inc., Cl. A W/I ............................... 1,502,548 1,400,000
33,900 Vivendi Universal SA ................................. 1,750,629 1,061,946
330,000 Vivendi Universal SA, ADR ............................ 8,718,814 10,371,900
------------ ------------
115,065,713 110,824,457
------------ ------------
DIVERSIFIED INDUSTRIAL -- 5.4%
170,000 Acuity Brands Inc. ................................... 5,161,361 5,406,000
195,000 Ampco-Pittsburgh Corp. ............................... 2,627,873 2,829,450
25,000 Bouygues SA .......................................... 1,244,322 1,222,371
200,000 Cooper Industries Ltd., Cl. A ........................ 11,224,646 14,600,000
270,000 Crane Co. ............................................ 6,053,955 9,522,900
100,500 CRH plc .............................................. 1,259,458 2,956,687
110,000 GATX Corp. ........................................... 2,036,677 3,968,800
233,000 Greif Inc., Cl. A .................................... 4,735,561 15,443,240
5,000 Greif Inc., Cl. B .................................... 135,354 315,050
405,500 Honeywell International Inc. ......................... 13,533,476 15,104,875
130,000 ITT Industries Inc. .................................. 6,774,340 13,366,600
150,000 Lamson & Sessions Co.+ ............................... 875,984 3,753,000
101,000 Park-Ohio Holdings Corp.+ ............................ 1,073,670 1,424,100
4,000 Sulzer AG ............................................ 850,053 2,118,641
30,000 Technip SA ........................................... 721,269 1,804,255
50,000 Trinity Industries Inc. .............................. 945,000 2,203,500
------------ ------------
59,252,999 96,039,469
------------ ------------
PUBLISHING -- 5.1%
50,000 Dow Jones & Co. Inc. ................................. 2,060,493 1,774,500
348,266 Independent News &
Media plc .......................................... 663,968 1,047,268
20,000 Knight-Ridder Inc. ................................... 1,345,264 1,266,000
5,000 McClatchy Co., Cl. A ................................. 240,250 295,500
200,000 McGraw-Hill Companies Inc. ........................... 7,669,017 10,326,000
330,000 Media General Inc., Cl. A ............................ 19,747,873 16,731,000
124,000 Meredith Corp. ....................................... 5,106,014 6,490,160
85,000 New York Times Co., Cl. A ............................ 3,781,383 2,248,250
1,744,800 News Corp., Cl. A .................................... 23,233,744 27,131,640
20,000 News Corp., Cl. B .................................... 186,274 332,200
200,000 Penton Media Inc.+ ................................... 439,128 110,000
395,000 PRIMEDIA Inc.+ ....................................... 1,799,175 635,950
175,000 Reader's Digest Association
Inc ................................................ 3,181,221 2,663,500
261,319 SCMP Group Ltd. ...................................... 191,790 96,895
150,000 Scripps (E.W.) Co., Cl. A ............................ 5,032,324 7,203,000
66,585 Seat Pagine Gialle SpA+ .............................. 177,139 31,098
80,000 Thomas Nelson Inc. ................................... 951,267 1,972,000
315,000 Tribune Co. .......................................... 14,024,758 9,531,900
------------ ------------
89,831,082 89,886,861
------------ ------------
HEALTH CARE -- 4.7%
10,000 Abbott Laboratories .................................. 398,848 394,300
52,000 Amgen Inc.+ .......................................... 3,039,863 4,100,720
19,146 AstraZeneca plc ...................................... 949,527 936,273
27,000 Biogen Idec Inc.+ .................................... 163,601 1,223,910
140,000 Bristol-Myers Squibb Co. ............................. 3,619,758 3,217,200
380,000 Chiron Corp.+ ........................................ 17,033,462 16,894,800
65,036 GlaxoSmithKline plc .................................. 1,653,252 1,643,719
4,000 GlaxoSmithKline plc, ADR ............................. 216,096 201,920
65,000 Guidant Corp. ........................................ 4,368,458 4,208,750
30,000 Henry Schein Inc.+ ................................... 764,324 1,309,200
16,000 Hisamitsu Pharmaceutical
Co. Inc. ........................................... 389,332 402,934
See accompanying notes to financial statements.
6
THE GABELLI EQUITY TRUST INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2005
MARKET
SHARES COST VALUE
--------- ------------ ------------
COMMON STOCKS (CONTINUED)
HEALTH CARE (CONTINUED)
10,000 Hospira Inc.+ ........................................ $ 342,400 $ 427,800
26,200 IDX Systems Corp.+ ................................... 1,132,031 1,150,704
15,000 INAMED Corp.+ ........................................ 655,449 1,315,200
40,000 Invitrogen Corp.+ .................................... 2,065,234 2,665,600
100,000 Merck & Co. Inc. ..................................... 3,922,616 3,181,000
2,000 Nobel Biocare Holding AG ............................. 286,712 439,861
41,000 Novartis AG .......................................... 2,183,149 2,154,446
105,000 Novartis AG, ADR ..................................... 4,622,998 5,510,400
310,000 Pfizer Inc. .......................................... 8,792,241 7,229,200
40,000 Renal Care Group Inc.+ ............................... 1,848,649 1,892,400
18,100 Roche Holding AG ..................................... 2,855,531 2,717,652
24,808 Sanofi-Aventis ....................................... 2,223,765 2,173,384
100,000 Schering-Plough Corp. ................................ 1,917,839 2,085,000
80,000 Smith & Nephew plc ................................... 752,722 737,057
5,250 Straumann Holding AG ................................. 1,087,318 1,216,563
60,000 Sybron Dental Specialties
Inc.+ ............................................. 1,230,090 2,388,600
10,000 Synthes Inc. ......................................... 677,094 1,123,245
23,000 Takeda Pharmaceutical
Co. Ltd. .......................................... 1,140,219 1,244,245
82,000 William Demant Holding A/S+ .......................... 3,730,842 4,534,592
100,000 Wyeth ................................................ 4,105,470 4,607,000
------------ ------------
78,168,890 83,327,675
------------ ------------
CABLE AND SATELLITE -- 4.4%
1,610,000 Cablevision Systems Corp.,
Cl. A+ ............................................ 35,851,186 37,786,700
320,000 Comcast Corp., Cl. A+ ................................ 10,708,770 8,307,200
85,000 Comcast Corp., Cl. A,
Special+ .......................................... 756,584 2,183,650
153,444 DIRECTV Group Inc.+ .................................. 2,214,257 2,166,629
55,000 EchoStar Communications
Corp., Cl. A+ ..................................... 1,722,522 1,494,350
156,770 Liberty Global Inc., Cl. A+ .......................... 2,194,421 3,527,325
156,770 Liberty Global Inc., Cl. C+ .......................... 2,108,365 3,323,524
402,845 Rogers Communications Inc.,
Cl. B, New York ................................... 5,014,079 17,024,230
9,655 Rogers Communications Inc.,
Cl. B, Toronto .................................... 137,424 408,642
80,000 Shaw Communications Inc.,
Cl. B, New York ................................... 329,197 1,734,400
20,000 Shaw Communications Inc.,
Cl. B, Toronto .................................... 52,983 434,083
------------ ------------
61,089,788 78,390,733
------------ ------------
CONSUMER PRODUCTS -- 4.2%
45,000 Altadis SA ........................................... 1,893,854 2,041,507
60,000 Avon Products Inc. ................................... 1,744,667 1,713,000
43,000 Christian Dior SA .................................... 1,633,717 3,823,150
15,000 Church & Dwight Co. Inc. ............................. 99,536 495,450
33,000 Clorox Co. ........................................... 1,832,427 1,877,370
10,000 Colgate-Palmolive Co. ................................ 513,338 548,500
90,000 Compagnie Financiere
Richemont AG, Cl. A ............................... 3,755,593 3,917,659
115,000 Energizer Holdings Inc.+ ............................. 4,952,999 5,725,850
30,000 Fortune Brands Inc. .................................. 1,975,224 2,340,600
30,000 Gallaher Group plc ................................... 460,656 452,919
234,000 Gallaher Group plc, ADR .............................. 13,788,386 14,077,440
2,000 Givaudan SA .......................................... 550,742 1,355,352
42,000 Harley-Davidson Inc. ................................. 1,951,169 2,162,580
50,000 Lenox Group Inc.+ .................................... 524,317 662,000
MARKET
SHARES COST VALUE
--------- ------------ ------------
15,000 Matsushita Electric Industrial
Co. Ltd., ADR ..................................... $ 178,325 $ 290,700
20,000 Mattel Inc. .......................................... 360,000 316,400
65,000 Maytag Corp. ......................................... 1,287,670 1,223,300
29,000 National Presto Industries Inc. ...................... 1,010,273 1,286,150
269,750 Procter & Gamble Co. ................................. 14,267,671 15,613,130
60,000 Reckitt Benckiser plc ................................ 1,849,650 1,982,003
20,000 Reebok International Ltd. ............................ 1,162,800 1,164,600
10,000 Swatch Group AG, Cl. B ............................... 584,263 1,483,962
890,000 Swedish Match AB ..................................... 9,252,561 10,474,542
------------ ------------
65,629,838 75,028,164
------------ ------------
HOTELS AND GAMING -- 3.3%
115,000 Aztar Corp.+ ......................................... 1,531,188 3,494,850
200,000 Gaylord Entertainment Co.+ ........................... 5,321,414 8,718,000
55,000 Greek Organization of
Football Prognostics SA ........................... 630,177 1,894,823
19,000 GTECH Holdings Corp. ................................. 162,999 603,060
8,000 Harrah's Entertainment Inc. .......................... 528,453 570,320
2,675,000 Hilton Group plc ..................................... 11,189,653 16,729,390
550,000 Hilton Hotels Corp. .................................. 9,124,217 13,260,500
10,000 Kerzner International Ltd.+ .......................... 506,373 687,500
450,000 La Quinta Corp.+ ..................................... 4,934,758 5,013,000
6,000 Las Vegas Sands Corp.+ ............................... 221,279 236,820
118,000 MGM Mirage+ .......................................... 3,549,795 4,327,060
38,000 Starwood Hotels & Resorts
Worldwide Inc. .................................... 875,103 2,426,680
------------ ------------
38,575,409 57,962,003
------------ ------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.1%
60,000 BorgWarner Inc. ...................................... 1,396,719 3,637,800
200,000 CLARCOR Inc. ......................................... 1,597,860 5,942,000
400,000 Dana Corp. ........................................... 5,910,524 2,872,000
350,000 Genuine Parts Co. .................................... 12,868,192 15,372,000
140,000 Johnson Controls Inc. ................................ 7,103,829 10,207,400
116,000 Midas Inc.+ .......................................... 1,508,953 2,129,760
330,000 Modine Manufacturing Co. ............................. 8,428,932 10,754,700
182,774 Proliance International Inc.+ ........................ 1,294,904 966,874
80,500 Scheib (Earl) Inc.+ .................................. 637,613 301,875
165,000 Standard Motor Products Inc. ......................... 1,776,338 1,522,950
30,000 Superior Industries
International Inc. ................................ 736,730 667,800
------------ ------------
43,260,594 54,375,159
------------ ------------
EQUIPMENT AND SUPPLIES -- 2.8%
190,000 AMETEK Inc. .......................................... 4,767,657 8,082,600
2,000 Amphenol Corp., Cl. A ................................ 14,775 88,520
94,000 CIRCOR International Inc. ............................ 974,241 2,412,040
213,000 Donaldson Co. Inc. ................................... 2,981,627 6,773,400
80,000 Fedders Corp. ........................................ 430,416 137,600
115,000 Flowserve Corp.+ ..................................... 2,167,080 4,549,400
24,000 Franklin Electric Co. Inc. ........................... 258,462 948,960
100,000 Gerber Scientific Inc.+ .............................. 1,060,700 957,000
80,000 GrafTech International Ltd.+ ......................... 909,836 497,600
232,000 IDEX Corp. ........................................... 8,240,167 9,537,520
40,000 Ingersoll-Rand Co.
Ltd., Cl. A ....................................... 855,378 1,614,800
107,000 Lufkin Industries Inc. ............................... 1,036,848 5,336,090
1,000 Manitowoc Co. Inc. ................................... 25,450 50,220
11,000 Mueller Industries Inc. .............................. 485,034 301,620
1,000 Sealed Air Corp.+ .................................... 17,404 56,170
230,000 Watts Water Technologies
Inc., Cl. A ....................................... 3,450,965 6,966,700
100,000 Weir Group plc ....................................... 420,789 651,205
------------ ------------
28,096,829 48,961,445
------------ ------------
See accompanying notes to financial statements.
7
THE GABELLI EQUITY TRUST INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2005
MARKET
SHARES COST VALUE
--------- ------------ ------------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS EQUIPMENT -- 2.3%
48,000 Agere Systems Inc.+ .................................. $ 756,268 $ 619,200
45,000 Andrew Corp.+ ........................................ 491,747 482,850
505,000 Corning Inc.+ ........................................ 4,463,528 9,928,300
180,000 Lucent Technologies Inc.+ ............................ 949,628 478,800
110,000 Motorola Inc. ........................................ 1,378,052 2,484,900
150,000 Nortel Networks Corp.+ ............................... 818,085 459,000
300,000 Scientific-Atlanta Inc. .............................. 11,272,055 12,921,000
308,000 Thomas & Betts Corp.+ ................................ 8,626,418 12,923,680
------------ ------------
28,755,781 40,297,730
------------ ------------
WIRELESS COMMUNICATIONS -- 2.2%
232,000 America Movil SA de
CV, Cl. L, ADR .................................... 2,525,138 6,788,320
300,000 Nextel Partners Inc., Cl. A+ ......................... 8,355,480 8,382,000
1,500 NTT DoCoMo Inc. ...................................... 3,553,937 2,289,397
3,350,000 O2 plc ............................................... 11,700,942 11,397,595
24,787 Tele Centro Oeste Celular
Participacoes SA, ADR .............................. 74,303 278,110
1,920 Tele Leste Celular
Participacoes SA, ADR+ ............................. 51,357 27,168
3,340 Tele Norte Celular
Participacoes SA, ADR+ ............................. 51,601 24,883
8,350 Telemig Celular
Participacoes SA, ADR .............................. 241,320 329,074
270 Telesp Celular
Participacoes SA+ .................................. 941 980
90,217 Telesp Celular
Participacoes SA, ADR .............................. 2,244,802 341,020
5,845 Telesp Celular
Participacoes SA, Pfd.+ ............................ 89,789 22,122
32,165 Tim Participacoes SA, ADR ............................ 390,212 813,131
100,000 United States Cellular Corp.+ ........................ 4,333,517 4,940,000
353,888 Vodafone Group plc ................................... 761,822 764,120
90,000 Vodafone Group plc, ADR .............................. 2,140,731 1,932,300
------------ ------------
36,515,892 38,330,220
------------ ------------
AVIATION: PARTS AND SERVICES -- 2.0%
198,000 Curtiss-Wright Corp. ................................. 5,702,006 10,810,800
200,000 Fairchild Corp., Cl. A+ .............................. 1,185,348 510,000
220,000 GenCorp Inc.+ ........................................ 2,822,545 3,905,000
180,000 Precision Castparts Corp. ............................ 9,256,216 9,325,800
84,000 Sequa Corp., Cl. A+ .................................. 3,347,991 5,800,200
74,600 Sequa Corp., Cl. B+ .................................. 3,852,673 5,184,700
------------ ------------
26,166,779 35,536,500
------------ ------------
COMPUTER SOFTWARE AND SERVICES -- 1.8%
10,000 Check Point Software
Technologies Ltd.+ ................................. 169,874 201,000
146 Computer Associates
International Inc. ................................. 4,526 4,116
650 NIWS Co. Ltd. ........................................ 803,310 887,353
2,500,000 Siebel Systems Inc. .................................. 26,110,337 26,450,000
25,256 Telecom Italia Media SpA+ ............................ 26,867 13,365
90,000 Yahoo! Inc.+ ......................................... 3,115,701 3,526,200
------------ ------------
30,230,615 31,082,034
------------ ------------
AGRICULTURE -- 1.3%
960,000 Archer-Daniels-Midland Co. ........................... 18,911,934 23,673,600
5,000 Delta & Pine Land Co. ................................ 84,396 115,050
10,000 Mosaic Co.+ .......................................... 139,585 146,300
------------ ------------
19,135,915 23,934,950
------------ ------------
MARKET
SHARES COST VALUE
--------- ------------ ------------
CONSUMER SERVICES -- 1.3%
230,000 IAC/InterActiveCorp+ ................................. $ 6,252,263 $ 6,511,300
835,000 Rollins Inc. ......................................... 12,690,996 16,457,850
------------ ------------
18,943,259 22,969,150
------------ ------------
MACHINERY -- 1.1%
20,000 Caterpillar Inc. ..................................... 136,559 1,155,400
260,000 Deere & Co. .......................................... 15,210,606 17,708,600
------------ ------------
15,347,165 18,864,000
------------ ------------
SPECIALTY CHEMICALS -- 1.0%
5,400 Ciba Specialty
Chemicals AG, ADR .................................. 4,285 174,420
20,000 E.I. du Pont de Nemours
and Co. ............................................ 802,600 850,000
325,000 Ferro Corp. .......................................... 6,928,725 6,097,000
35,000 Fuller (H.B.) Co. .................................... 862,031 1,122,450
200,000 Hercules Inc.+ ....................................... 2,421,610 2,260,000
232,300 Omnova Solutions Inc.+ ............................... 1,879,165 1,115,040
300,000 Sensient Technologies Corp. .......................... 5,529,921 5,370,000
10,000 Syngenta AG, ADR ..................................... 16,177 249,100
190,000 Tokai Carbon Co. Ltd. ................................ 779,696 882,859
------------ ------------
19,224,210 18,120,869
------------ ------------
RETAIL -- 1.0%
300,000 Albertson's Inc. ..................................... 7,397,938 6,405,000
230,000 AutoNation Inc.+ ..................................... 3,028,848 4,997,900
35,000 Coldwater Creek Inc.+ ................................ 122,882 1,068,550
25,000 Costco Wholesale Corp. ............................... 1,141,563 1,236,750
38,000 Matsumotokiyoshi Co. Ltd. ............................ 1,037,783 1,201,849
30,000 Next plc ............................................. 811,183 792,285
44,800 Seven & I Holdings Co. Ltd.+ ......................... 1,290,992 1,918,345
------------ ------------
14,831,189 17,620,679
------------ ------------
REAL ESTATE -- 1.0%
70,000 Cheung Kong (Holdings) Ltd. .......................... 815,521 718,178
98,000 Florida East Coast
Industries Inc. .................................... 2,113,491 4,152,260
55,000 Griffin Land &
Nurseries Inc.+ .................................... 513,144 1,435,775
166,000 St. Joe Co. .......................................... 9,480,874 11,158,520
------------ ------------
12,923,030 17,464,733
------------ ------------
AEROSPACE -- 1.0%
105,000 Boeing Co. ........................................... 6,475,976 7,375,200
20,000 Lockheed Martin Corp. ................................ 1,158,328 1,272,600
135,000 Northrop Grumman Corp. ............................... 7,203,572 8,114,850
80,000 Rolls-Royce Group plc+ ............................... 502,486 588,407
2,672,000 Rolls-Royce Group plc, Cl. B ......................... 2,712 4,712
------------ ------------
15,343,074 17,355,769
------------ ------------
ENVIRONMENTAL SERVICES -- 1.0%
65,000 Republic Services Inc. ............................... 875,761 2,440,750
490,000 Waste Management Inc. ................................ 12,220,496 14,871,500
------------ ------------
13,096,257 17,312,250
------------ ------------
BROADCASTING -- 1.0%
1,000 Clear Channel
Communications Inc. ................................ 31,114 31,450
2,000 Cogeco Inc. .......................................... 39,014 41,292
16,666 Corus Entertainment Inc., Cl. B ...................... 62,035 447,313
120,000 Gray Television Inc. ................................. 1,204,736 1,178,400
27,500 Gray Television Inc., Cl. A .......................... 370,755 248,875
199,000 Liberty Corp. ........................................ 8,500,125 9,315,190
See accompanying notes to financial statements.
8
THE GABELLI EQUITY TRUST INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2005
MARKET
SHARES COST VALUE
--------- -------------- --------------
COMMON STOCKS (CONTINUED)
BROADCASTING (CONTINUED)
70,000 Lin TV Corp., Cl. A+ ................................. $ 1,187,659 $ 779,800
155,000 Mediaset SpA ......................................... 1,664,123 1,642,357
30,000 Modern Times Group, Cl. B+ ........................... 823,064 1,251,810
7,800 Nippon Television
Network Corp. ...................................... 1,232,257 1,199,084
100,000 Paxson Communications Corp.+ ......................... 388,012 90,000
100,000 Television Broadcasts Ltd. ........................... 396,239 531,363
100,000 Young Broadcasting Inc.,
Cl. A+ ............................................. 1,331,124 260,000
-------------- --------------
17,230,257 17,016,934
-------------- --------------
METALS AND MINING -- 0.8%
72,500 Harmony Gold
Mining Co. Ltd.+ ................................... 347,738 972,778
35,000 Harmony Gold
Mining Co. Ltd., ADR+ .............................. 460,008 456,750
75,000 Ivanhoe Mines Ltd.+ .................................. 560,208 539,250
130,000 Newmont Mining Corp. ................................. 3,820,955 6,942,000
110,000 Novelis Inc. ......................................... 2,381,034 2,297,900
120,000 Placer Dome Inc. ..................................... 2,078,538 2,751,600
50,000 Xstrata plc .......................................... 948,090 1,169,932
-------------- --------------
10,596,571 15,130,210
-------------- --------------
ELECTRONICS -- 0.8%
10,000 Advanced Micro Devices Inc.+ ......................... 106,090 306,000
3,000 Hitachi Ltd., ADR .................................... 218,796 202,200
5,200 Keyence Corp. ........................................ 1,092,186 1,479,289
20,000 Molex Inc., Cl. A .................................... 519,697 491,800
7,500 NEC Corp., ADR ....................................... 43,625 46,425
9,500 Rohm Co. Ltd. ........................................ 1,408,684 1,033,493
38,000 Royal Philips Electronics
NV, ADR ............................................ 52,354 1,181,800
265,000 Texas Instruments Inc. ............................... 6,407,535 8,498,550
17,000 Tokyo Electron Ltd. .................................. 917,536 1,068,131
-------------- --------------
10,766,503 14,307,688
-------------- --------------
AUTOMOTIVE -- 0.7%
335,000 Navistar International Corp.+ ........................ 12,403,039 9,587,700
43,000 PACCAR Inc. .......................................... 431,444 2,976,890
-------------- --------------
12,834,483 12,564,590
-------------- --------------
BUSINESS SERVICES -- 0.6%
7,050 Acco Brands Corp.+ ................................... 126,069 172,725
60,000 ANC Rental Corp.+ .................................... 578,273 6
15,000 Canon Inc. ........................................... 865,859 877,602
130,000 Cendant Corp. ........................................ 2,545,119 2,242,500
1,000 CheckFree Corp.+ ..................................... 9,040 45,900
15,000 Clear Channel Outdoor
Holdings Inc., Cl. A+ .............................. 289,301 300,750
186,554 Contax Participacoes SA, ADR ......................... 76,632 224,462
212,500 Group 4 Securicor plc ................................ 0 588,622
95,000 Landauer Inc. ........................................ 2,518,125 4,378,550
72,500 Nashua Corp.+ ........................................ 656,627 508,950
25,000 Secom Co. Ltd. ....................................... 1,095,891 1,307,924
-------------- --------------
8,760,936 10,647,991
-------------- --------------
MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 0.3%
70,000 Champion Enterprises Inc.+ ........................... 659,503 953,400
50,000 Fleetwood Enterprises Inc.+ .......................... 602,670 617,500
32,222 Huttig Building Products Inc.+ ....................... 81,163 270,665
13,000 Martin Marietta Materials Inc. ....................... 274,588 997,360
10,000 Nobility Homes Inc. .................................. 195,123 270,200
80,000 Sekisui House Ltd. ................................... 846,007 1,006,656
MARKET
SHARES COST VALUE
--------- -------------- --------------
20,900 Skyline Corp. ........................................ $ 840,086 $ 760,760
4,600 Southern Energy Homes Inc.+ .......................... 24,312 26,450
-------------- --------------
3,523,452 4,902,991
-------------- --------------
CLOSED-END FUNDS -- 0.3%
74,200 Central Europe and
Russia Fund Inc. ................................... 1,086,502 3,150,532
70,000 New Germany Fund Inc. ................................ 754,518 713,300
31,500 Royce Value Trust Inc. ............................... 388,298 632,520
-------------- --------------
2,229,318 4,496,352
-------------- --------------
PAPER AND FOREST PRODUCTS -- 0.1%
120,000 Pactiv Corp.+ ........................................ 1,259,210 2,640,000
-------------- --------------
TRANSPORTATION -- 0.1%
100,000 AMR Corp.+ ........................................... 1,924,248 2,223,000
15,000 Grupo TMM SA,
Cl. A, ADR+ ........................................ 80,460 57,750
-------------- --------------
2,004,708 2,280,750
-------------- --------------
REAL ESTATE INVESTMENT TRUSTS -- 0.1%
1,500 Amli Residential
Properties Trust ................................... 29,822 57,075
6,000 Camden Property Trust ................................ 112,470 347,520
2,000 Equity Residential ................................... 39,570 78,240
2,187 Prosperity REIT+ ..................................... 616 691
24,984 Rayonier Inc. ........................................ 798,811 995,612
-------------- --------------
981,289 1,479,138
-------------- --------------
TOTAL COMMON
STOCKS ............................................. 1,385,127,226 1,645,598,723
-------------- --------------
CONVERTIBLE PREFERRED STOCKS -- 0.2%
AEROSPACE -- 0.1%
13,500 Northrop Grumman Corp.,
7.000% Cv. Pfd., Ser. B ............................ 1,573,020 1,716,795
-------------- --------------
TELECOMMUNICATIONS -- 0.1%
26,000 Cincinnati Bell Inc.,
6.750% Cv. Pfd., Ser. B ............................ 820,366 989,300
-------------- --------------
BROADCASTING -- 0.0%
90 Gray Television Inc.,
8.000% Cv. Pfd.,
Ser. C (a)(c)(d) ................................... 900,000 909,000
-------------- --------------
AVIATION: PARTS AND SERVICES -- 0.0%
3,200 Sequa Corp.,
$5.00 Cv. Pfd. ..................................... 258,560 332,800
-------------- --------------
TOTAL CONVERTIBLE
PREFERRED STOCKS ................................... 3,551,946 3,947,895
-------------- --------------
PRINCIPAL
AMOUNT
---------
CONVERTIBLE CORPORATE BONDS -- 0.1%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.1%
$ 500,000 Pep Boys - Manny, Moe &
Jack, Cv., 4.250%,
06/01/07 ........................................... 489,138 488,125
1,000,000 Standard Motor Products Inc.,
Sub. Deb. Cv., 6.750%,
07/15/09 ........................................... 959,101 855,000
-------------- --------------
1,448,239 1,343,125
-------------- --------------
See accompanying notes to financial statements.
9
THE GABELLI EQUITY TRUST INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2005
PRINCIPAL MARKET
AMOUNT COST VALUE
----------- -------------- ---------------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
AEROSPACE --0.0%
$ 736,000 Kaman Corp., Sub. Deb. Cv.,
6.000%, 03/15/12 ................................. $ 706,234 $ 701,960
-------------- ---------------
CABLE AND SATELLITE -- 0.0%
500,000 Charter Communications Inc.,
Cv., 4.750%, 06/01/06 ............................ 454,157 497,500
-------------- ---------------
TOTAL CONVERTIBLE
CORPORATE BONDS .................................. 2,608,630 2,542,585
-------------- ---------------
SHARES
-----------
RIGHTS -- 0.0%
CLOSED-END FUNDS -- 0.0%
74,200 Central Europe and Russia
Fund Inc. Rights, expire
01/20/06+ ........................................ 0 101,654
-------------- ---------------
PRINCIPAL
AMOUNT
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
FEDERAL HOME LOAN BANK -- 0.0%
$ 500,000 3.060%, 04/13/06 ................................. 500,000 497,962
-------------- ---------------
U.S. TREASURY NOTES -- 0.1%
500,000 5.625%, 02/15/06 ................................. 503,429 503,429
300,000 4.625%, 05/15/06 ................................. 303,221 300,399
300,000 3.500%, 11/15/06 ................................. 300,980 297,738
-------------- ---------------
1,107,630 1,101,566
-------------- ---------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS ............................... 1,607,630 1,599,528
-------------- ---------------
SHORT-TERM OBLIGATIONS -- 6.6%
REPURCHASE AGREEMENTS -- 2.6%
45,807,000 ABN Amro, 3.300%, dated
12/30/05, due 01/03/06,
proceeds at maturity,
$45,823,796(b) ................................... 45,807,000 45,807,000
-------------- ---------------
U.S. GOVERNMENT OBLIGATIONS -- 4.0%
71,135,000 U.S. Treasury Bills,
3.841% to 3.947%++,
01/12/06 to 03/23/06 ............................. 71,008,207 71,008,931
-------------- ---------------
TOTAL SHORT-TERM
OBLIGATIONS ...................................... 116,815,207 116,815,931
-------------- ---------------
TOTAL INVESTMENTS -- 100.0% ..................................... $1,509,710,639 1,770,606,316
==============
OTHER ASSETS AND LIABILITIES (NET) .............................. (5,972,419)
PREFERRED STOCK
(9,556,900 preferred shares outstanding) ..................... (418,742,500)
---------------
NET ASSETS -- COMMON STOCK
(166,079,270 common shares outstanding) ...................... $ 1,345,891,397
===============
NET ASSET VALUE PER COMMON SHARE
$1,345,891,397 / $166,079,270 shares (outstanding) ........... $8.10
=====
(a) Security fair valued under procedures established by the Board of
Directors. At December 31, 2005, the market value of fair valued
securities amounted to $952,001 or 0.05% of total investments.
(b) Collateralized by U.S. Treasury Notes, 2.375%, due 08/15/06, market value
$46,723,140.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
2005, the market value of the Rule 144A security amounted to $909,000 or
0.05% of total investments.
(d) At December 31, 2005, the Fund held an investment in a restricted and
illiquid security amounting to $909,000 or 0.05% of net assets, which was
valued under methods approved by the Board as follows:
12/31/2005
ACQUISITION ACQUISITION ACQUISITION CARRYING VALUE
SHARES ISSUER DATE COST PER UNIT
------ ------ ---- ---- --------
90 Gray Television Inc.,
8.000% Cv. Pfd., Ser. C .......... 04/23/02 $ 900,000 $ 10,100.0000
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR American Depository Receipt
CVO Contingent Value Obligation
W/I When issued
% OF
MARKET MARKET
VALUE VALUE
----- -----
GEOGRAPHIC DIVERSIFICATION
North America ........................ 79.7% $1,411,799,237
Europe ............................... 15.6 276,134,321
Latin America ........................ 3.0 53,364,320
Japan ................................ 1.3 23,551,582
Asia/Pacific ......................... 0.3 4,327,329
South Africa ......................... 0.1 1,429,527
----- --------------
Total Investments .................... 100.0% $1,770,606,316
===== ==============
See accompanying notes to financial statements.
10
THE GABELLI EQUITY TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
ASSETS:
Investments, at value (cost $1,509,710,639) ........................... $ 1,770,606,316
Foreign currency, at value (cost $32,744) ............................. 31,887
Cash .................................................................. 257,039
Receivable for investments sold ....................................... 28,548,856
Dividends and interest receivable ..................................... 2,194,983
Unrealized appreciation on swap contracts ............................. 415,025
Other assets .......................................................... 59,409
---------------
TOTAL ASSETS .......................................................... 1,802,113,515
---------------
LIABILITIES:
Payable for investments purchased ..................................... 33,026,956
Payable for investment advisory fees .................................. 2,962,877
Payable for shareholder communications expenses ....................... 579,680
Dividends payable ..................................................... 304,105
Payable for offering expenses ......................................... 196,724
Other accrued expenses and liabilities ................................ 409,276
---------------
TOTAL LIABILITIES ..................................................... 37,479,618
---------------
PREFERRED STOCK:
Series B Cumulative Preferred Stock (7.20%,
$25 liquidation value, $0.001 par value,
6,600,000 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,
5,200 shares authorized with 5,200 shares issued
and outstanding) .................................................... 130,000,000
Series D Cumulative Preferred Stock (5.875%,
$25 liquidation value, $0.001 par value,
3,000,000 shares authorized with 2,949,700
shares issued and outstanding) ...................................... 73,742,500
Series E Cumulative Preferred Stock (Auction Rate,
$25,000 liquidation value, $0.001 par value,
2,000 shares authorized with 2,000 shares issued
and outstanding) .................................................... 50,000,000
---------------
TOTAL PREFERRED STOCK ................................................. 418,742,500
---------------
NET ASSETS ATTRIBUTABLE TO COMMON
STOCK SHAREHOLDERS .................................................. $ 1,345,891,397
===============
NET ASSETS ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS CONSIST OF:
Capital stock, at $0.001 par value .................................... $ 166,079
Additional paid-in capital ............................................ 1,091,661,087
Undistributed net investment income ................................... 561,527
Accumulated distributions in excess of net realized
gain on investments, options, futures contracts,
swap contracts, and foreign currency transactions ................... (7,800,361)
Net unrealized appreciation on investments
and swap contracts .................................................. 261,310,702
Net unrealized depreciation on foreign
currency translations ............................................... (7,637)
---------------
NET ASSETS ............................................................ $ 1,345,891,397
===============
NET ASSET VALUE PER COMMON SHARE
($1,345,891,397 / 166,079,270 shares outstanding;
182,000,000 shares authorized) ........................................ $8.10
=====
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign taxes of $552,496) .......................... $ 28,591,567
Interest .............................................................. 4,147,686
---------------
TOTAL INVESTMENT INCOME ............................................... 32,739,253
---------------
EXPENSES:
Investment advisory fees .............................................. 16,357,998
Shareholder communications expenses ................................... 1,259,641
Auction agent fees .................................................... 449,240
Custodian fees ........................................................ 233,327
Payroll expenses ...................................................... 193,777
Legal and audit fees .................................................. 152,333
Shareholder services fees ............................................. 144,160
Directors' fees ....................................................... 139,924
Miscellaneous expenses ................................................ 601,845
---------------
TOTAL EXPENSES ........................................................ 19,532,245
---------------
LESS:
Advisory fee reduction .............................................. (2,387,425)
Custodian fee credits ............................................... (27,319)
---------------
TOTAL REDUCTIONS AND CREDITS ........................................ (2,414,744)
---------------
TOTAL NET EXPENSES .................................................... 17,117,501
---------------
NET INVESTMENT INCOME ................................................. 15,621,752
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, OPTIONS, FUTURES CONTRACTS, SWAP
CONTRACTS, AND FOREIGN CURRENCY:
Net realized gain on investments ...................................... 134,604,868
Net realized gain on options .......................................... 114,988
Net realized loss on futures contracts ................................ (214,050)
Net realized loss on swap contracts ................................... (1,807,771)
Net realized loss on foreign currency transactions .................... (141,255)
---------------
Net realized gain on investments, options,
futures contracts, swap contracts, and foreign
currency transactions ............................................... 132,556,780
Net change in unrealized appreciation/depreciation
on investments, options, futures contracts, swap
contracts, and foreign currency translations ........................ (60,827,456)
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, OPTIONS, FUTURES CONTRACTS,
SWAP CONTRACTS, AND FOREIGN CURRENCY ................................ 71,729,324
---------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................................................... 87,351,076
Total Distributions to Preferred Stock Shareholders ................... (22,181,024)
---------------
NET INCREASE IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS
RESULTING FROM OPERATIONS ........................................... $ 65,170,052
===============
See accompanying notes to financial statements.
11
THE GABELLI EQUITY TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
OPERATIONS:
Net investment income ................................................................ $ 15,621,752 $ 7,154,873
Net realized gain on investments, options, futures contracts, swap contracts,
and foreign currency transactions .................................................. 132,556,780 123,877,687
Net change in unrealized appreciation/depreciation on investments, options,
futures contracts, swap contracts, and foreign currency translations ............... (60,827,456) 97,428,111
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................. 87,351,076 228,460,671
-------------- --------------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ................................................................ (2,181,294) (200,307)
Net realized short-term gains on investments, futures contracts, and
foreign currency transactions ...................................................... (182,478) (1,205,026)
Net realized long-term gains on investments, futures contracts, and
foreign currency transactions ...................................................... (19,817,252) (17,540,730)
-------------- --------------
TOTAL DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS .................................. (22,181,024) (18,946,063)
-------------- --------------
NET INCREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS
RESULTING FROM OPERATIONS .......................................................... 65,170,052 209,514,608
-------------- --------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income ................................................................ (12,530,700) (1,170,403)
Net realized short-term gains on investments, options, futures contracts, and
foreign currency transactions ...................................................... (1,048,266) (7,041,045)
Net realized long-term gains on investments, options, futures contracts, and
foreign currency transactions ...................................................... (113,842,518) (102,491,569)
-------------- --------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ..................................... (127,421,484) (110,703,017)
-------------- --------------
FUND SHARE TRANSACTIONS:
Net increase in net assets from common shares issued upon reorganization and
reinvestment of dividends and distributions ........................................ 45,583,893 25,998,112
Net increase in net assets from common shares issued upon rights offering ............ 143,681,307 --
Net increase in net assets from repurchase of preferred shares ....................... -- 72,307
Offering costs for preferred shares charged to paid-in capital ....................... (5,050) 75,457
Offering cost for issuance of rights charged to paid-in capital ...................... (600,000) --
-------------- --------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS .............................. 188,660,150 26,145,876
-------------- --------------
NET INCREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS ................. 126,408,718 124,957,467
NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS:
Beginning of period .................................................................. 1,219,482,679 1,094,525,212
-------------- --------------
End of period (includes undistributed net investment income of
$561,527 and $1,703,869, respectively) ............................................. $1,345,891,397 $1,219,482,679
============== ==============
See accompanying notes to financial statements.
12
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION. The Gabelli Equity Trust Inc. (the "Equity Trust") is a
non-diversified closed-end 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. Investment operations commenced on August 21, 1986.
The Equity Trust will invest at least 80% of its assets in equity
securities under normal market conditions (the "80% Policy"). The 80% Policy may
be changed without shareholder approval. The Equity Trust will provide
shareholders with notice at least 60 days prior to the implementation of any
change in the 80% Policy.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with U.S. 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 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 or a market's official closing price 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 (the "Board") so determines, by such other method as the
Board 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 on foreign markets are generally
valued at the preceding closing values of such securities on their respective
exchanges or if after the close of the foreign markets, but prior to the close
of business on the day the securities are being valued, market conditions change
significantly, certain foreign securities may be fair valued pursuant to
procedures established by the Board. Debt instruments with remaining maturities
of 60 days or less that are not credit impaired are valued at amortized cost,
unless the Board determines such amount does not reflect the securities' fair
value, in which case these securities will be valued at their fair value as
determined by the Board. Debt instruments having a maturity greater than 60 days
for which market quotations are readily available are valued at the average of
the latest bid and asked prices. If there were no asked prices quoted on such
day, the security is valued using the closing bid price. Futures contracts are
valued at the closing settlement price of the exchange or board of trade on
which the applicable contract is traded.
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. Fair
valuation methodologies and procedures may include, but are not limited to:
analysis and review of available financial and non-financial information about
the company; comparisons to the valuation and changes in valuation of similar
securities, including a comparison of foreign securities to the equivalent U.S.
dollar value ADR securities at the close of the U.S. exchange; and evaluation of
any other information that could be indicative of the value of the security.
REPURCHASE AGREEMENTS. The Equity Trust may enter into repurchase
agreements with primary government securities dealers recognized by the Federal
Reserve Board, 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. 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 in value to the dollar amount invested by the
Equity Trust in each agreement. The Equity Trust will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
of the collateral to the account of the custodian. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to maintain the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Equity Trust may be delayed or limited.
SWAP AGREEMENTS. The Equity Trust may enter into interest rate swap or cap
transactions. The use of interest rate swaps and caps is a highly specialized
activity that involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. In an interest rate
swap, the Equity Trust would agree to pay to the other party to the interest
rate swap (which is known as the "counterparty") periodically a fixed rate
payment in exchange for the counterparty agreeing to pay to the Equity Trust
periodically a variable rate payment that is intended to approximate the Equity
Trust's variable rate payment obligation on the Series C Preferred Stock. In an
interest rate cap, the Equity Trust would pay a premium to the counterparty and,
to the extent that a specified
13
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. If there is a default by the counterparty to a swap contract, the
Equity Trust will be limited to contractual remedies pursuant to the agreements
related to the transaction.There is no assurance that the swap contract
counterparties will be able to meet their obligations pursuant to the swap
contracts or that, in the event of default, the Equity Trust will succeed in
pursuing contractual remedies. The Equity Trust thus assumes the risk that it
may be delayed in or prevented from obtaining payments owed to it pursuant to
the swap contracts. The creditworthiness of the swap contract counterparties is
closely monitored in order to minimize this risk. 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
Stock. In addition, at the time an interest rate swap or cap transaction reaches
its scheduled termination date, there is a risk that the Equity Trust will not
be able to obtain a replacement transaction or that the terms of the replacement
will not be as favorable as on the expiring transaction. If this occurs, it
could have a negative impact on the Equity Trust's ability to make dividend
payments on the Series C Preferred Stock.
The use of derivative instruments involves, to varying degrees, elements
of market risk in excess of the amount recognized in the Statement of Assets and
Liabilities.
Unrealized gains related to swaps are reported as an asset and unrealized
losses are reported as a liability on the Statement of Assets and Liabilities.
The change in value of swaps, including the accrual of periodic amounts of
interest to be paid or received on swaps is reported as unrealized gains or
losses in the Statement of Operations. A realized gain or loss is recorded upon
payment or receipt of a periodic payment or termination of swap agreements. Swap
agreements involve, to varying degrees, elements of market and counterparty
risk, and exposure to loss in excess of the related amounts reflected in the
Statement of Assets and Liabilities.
The Equity Trust has entered into one interest rate swap agreement with
Citibank N.A. Under the agreement the Equity Trust receives a floating rate of
interest and pays a respective fixed rate of interest on the nominal value of
the swap. Details of the swap at December 31, 2005 are as follows:
NOTIONAL FLOATING RATE* TERMINATION UNREALIZED
AMOUNT FIXED RATE (RATE RESET MONTHLY) DATE APPRECIATION
------ ---------- -------------------- ---- ------------
$130,000,000 4.494% 4.29063% July 2, 2007 $415,025
----------
* Based on Libor (London Interbank Offered Rate).
FUTURES CONTRACTS. The Equity Trust may engage in futures contracts for
the purpose of hedging against changes in the value of its portfolio securities
and in the value of securities it intends to purchase. Such investments will
only be made if they are economically appropriate to the reduction of risks
involved in the management of the Equity Trust's investments. Upon entering into
a futures contract, the Equity Trust is required to deposit with the broker an
amount of cash or cash equivalents equal to a certain percentage of the contract
amount. This is known as the "initial margin." Subsequent payments ("variation
margin") are made or received by the Equity Trust each day, depending on the
daily fluctuation of the value of the contract. The daily changes in the
contract are included in unrealized appreciation/depreciation on investments and
futures contracts. The Equity Trust recognizes a realized gain or loss when the
contract is closed.
There are several risks in connection with the use of futures contracts as
a hedging instrument. 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. These contracts
may involve market risk in excess of the unrealized gain or loss reflected in
the Statement of Assets and Liabilities. 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. At December 31, 2005, there were no open futures
contracts.
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 translations. 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.
14
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 that might result should the value of the currency increase. These
contracts may involve market risk in excess of the unrealized gain or loss
reflected in the Statement of Assets and Liabilities. 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. At December 31, 2005, there were no
open forward foreign exchange contracts.
FOREIGN CURRENCY TRANSLATIONS. 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 current
exchange rates. 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 that 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 translations. 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.
FOREIGN SECURITIES. The Equity Trust may directly purchase securities of
foreign issuers. Investing in securities of foreign issuers involves special
risks not typically associated with investing in securities of U.S. issuers. The
risks include possible revaluation of currencies, the ability to repatriate
funds, less complete financial information about companies, and possible future
adverse political and economic developments. Moreover, securities of many
foreign issuers and their markets may be less liquid and their prices more
volatile than those of securities of comparable U.S. issuers.
FOREIGN TAXES. The Equity Trust may be subject to foreign taxes on income,
gains on investments, or currency repatriation, a portion of which may be
recoverable. The Equity Trust will accrue such taxes and recoveries as
applicable, based upon its current interpretation of tax rules and regulations
that exist in the markets in which it invests.
RESTRICTED AND ILLIQUID SECURITIES. The Equity Trust may invest up to 10%
of its net assets in securities for which the markets are illiquid. Illiquid
securities include securities the disposition of which is subject to substantial
legal or contractual restrictions. The sale of illiquid securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of securities eligible for trading
on national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Securities freely saleable among qualified
institutional investors under special rules adopted by the Securities and
Exchange Commission ("SEC") may be treated as liquid if they satisfy liquidity
standards established by the Board. The continued liquidity of such securities
is not as well assured as that of publicly traded securities, and accordingly
the Board will monitor their liquidity.
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 on the accrual
basis. Premiums and discounts on debt securities are amortized using the yield
to maturity method. Dividend income is recorded on the ex-dividend date except
for certain dividends which are recorded as soon as the Trust is informed of the
dividend.
CUSTODIAN FEE CREDITS. When cash balances are maintained in the custody
account, the Equity Trust receives credits which are used to offset custodian
fees. The gross expenses paid under the custody arrangement are included in
custodian fees in the Statement of Operations with the corresponding expense
offset shown as "custodian fee credits".
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Distributions to common
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with Federal income tax
regulations which may differ from that determined under U.S. generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by the
Equity Trust, foreign currency transactions, timing differences, and differing
characterizations of distributions made by the Equity Trust. These book/tax
differences are either temporary or permanent in nature. To the extent these
differences are permanent, adjustments are made to the appropriate capital
accounts in the period when the differences arise. These reclassifications have
no impact on the NAV of the Equity Trust and the calculation of net investment
income per share in the Financial Highlights includes these adjustments. For the
year ended December 31, 2005, reclassifications were made to decrease
accumulated net investment income by $2,052,100 and decrease accumulated
distributions in excess of net realized gain on investments, futures contracts,
swap contracts, and foreign currency transactions by $2,052,100.
Distributions to shareholders of the Equity Trust's 7.20% Series B
Cumulative Preferred Stock, Series C Auction Rate Cumulative Preferred Stock,
5.875% Series D Cumulative Preferred Stock, and Series E Auction Rate Cumulative
Preferred Stock ("Cumulative Preferred Stock") are recorded on a daily basis and
are determined as described in Note 5.
15
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax character of distributions paid during the years ended December
31, 2005 and December 31, 2004 was as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------------------- -----------------------------
COMMON PREFERRED COMMON PREFERRED
------------ ----------- ------------ -----------
DISTRIBUTIONS PAID FROM:
Ordinary income
(Inclusive of short-term capital gains) $ 13,578,966 $ 2,363,772 $ 8,211,448 $ 1,405,333
Net long-term capital gains ............... 113,842,518 19,817,252 102,491,569 17,540,730
------------ ----------- ------------ -----------
Total distributions paid .................. $127,421,484 $22,181,024 $110,703,017 $18,946,063
============ =========== ============ ===========
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 (the "Code"). It is the Equity Trust's policy
to comply with the requirements of the Code applicable to regulated investment
companies and to distribute substantially all of its net investment company
taxable income and net capital gains. Therefore, no provision for Federal income
taxes is required.
As of December 31, 2005, the components of accumulated earnings/(losses)
on a tax basis were as follows:
Net unrealized appreciation on investments .................. $ 253,104,499
Net unrealized appreciation on foreign currency
and swap contracts ........................................ 428,687
Distributions payable ....................................... (304,105)
Undistributed ordinary income ............................... 835,150
-------------
Total ....................................................... $ 254,064,231
=============
The following summarizes the tax cost of investments, swap contracts, and the
related unrealized appreciation/depreciation at December 31, 2005:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION (DEPRECIATION)
---- ------------ ------------ --------------
Investments ........... $ 1,517,501,817 $345,287,834 $(92,183,335) $253,104,499
Swap contracts ........ -- 415,025 -- 415,025
------------ ------------ ------------
$345,702,859 $(92,183,335) $253,519,524
============ ============ ============
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 including the liquidation value
of preferred stock. In accordance with the Advisory Agreement, the Adviser
provides a continuous investment program for the Equity Trust's portfolio and
oversees the administration of all aspects of the Equity Trust's business and
affairs. The Adviser has agreed to reduce the management fee on the incremental
assets attributable to the Cumulative Preferred Stock if the total return of the
net asset value of the common shares of the Equity Trust, including
distributions and advisory fee subject to reduction, does not exceed the stated
dividend rate or corresponding swap rate of each particular series of the
Cumulative Preferred Stock for the fiscal year.
The Equity Trust's total return on the net asset value of the common
shares is monitored on a monthly basis to assess whether the total return on the
net asset value of the common shares exceeds the stated dividend rate or
corresponding swap rate of each particular series of Cumulative Preferred Stock
for the period. For the year ended December 31, 2005, the Equity Trust's total
return on the net asset value of the common shares exceeded the stated dividend
rate or net swap expense of Series C and E Auction Rate Cumulative Preferred
Stock. Thus, management fees were accrued on these assets. The Equity Trust's
total return on the net asset value of the common shares did not exceed the
stated dividend rate or corresponding swap rate of 7.20% Series B and 5.875%
Series D Cumulative Preferred Stock. Thus, management fees with respect to the
liquidation value of the preferred stock assets were reduced by $2,387,425.
During the year ended December 31, 2005, Gabelli & Company, Inc.,
("Gabelli & Company") an affiliate of the Adviser, received $469,081 in
brokerage commissions as a result of executing agency transactions in portfolio
securities on behalf of the Equity Trust.
In connection with the 2005 Rights Offering ("Rights"), holders of
unexercised rights to purchase Common Shares of the Trust were able to instruct
the Subscription Agent (Computershare Shareholder Services, Inc.) to sell such
Rights on their behalf. The Subscription Agent was permitted to effect such
sales through Gabelli & Company, unless the Subscription Agent was able to
negotiate a lower commission rate with an independent broker. Total commissions
from sales of Rights effected by the Subscription Agent through Gabelli &
Company amounted to $93,506 for the year ended December 31, 2005.
16
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The cost of calculating the Equity Trust's net asset value per share is an
Equity Trust expense pursuant to the Advisory Agreement. During the year ended
December 31, 2005, the Equity Trust reimbursed the Adviser $45,000 in connection
with the cost of computing the Equity Trust's net asset value, which is included
in miscellaneous expenses in the Statement of Operations.
The Equity Trust is assuming its portion of the allocated cost of the
Gabelli Funds' Chief Compliance Officer in the amount of $27,008 for the year
ended December 31, 2005, which is included in payroll expenses in the Statement
of Operations.
4. PORTFOLIO SECURITIES. Cost of purchases and proceeds from the sales of
securities, other than short-term securities, for the year ended December 31,
2005 aggregated $467,095,671 and $343,532,624, respectively.
5. CAPITAL. The charter permits the Equity Trust to issue 182,000,000 shares of
common stock (par value $0.001) and authorizes the Board to increase its
authorized shares from time to time. The Board 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 may
determine from time to time) from the net asset value of the shares. During the
year ended December 31, 2005, the Equity Trust did not repurchase any shares of
its common stock in the open market.
Transactions in common stock were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
Shares issued upon reinvestment
of dividends and distributions ......... 3,242,215 $ 27,277,033 3,143,080 $25,998,112
Shares issued in rights offering ......... 20,525,901 143,081,307 -- --
Shares issued in connection with
reorganization of Sterling Capital
Corporation ............................ 1,978,190 18,306,860 -- --
---------- ------------ --------- -----------
Net increase ............................. 25,746,306 $188,665,200 3,143,080 $25,998,112
========== ============ ========= ===========
The Equity Trust's Articles of Incorporation, as amended, authorize the
issuance of up to 18,000,000 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 by the 1940 Act and by the Articles Supplementary to meet certain asset
coverage tests 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 7.20% Series B,
Series C Auction Rate, 5.875% Series D, and Series E Auction Rate Cumulative
Preferred Stock at redemption prices of $25, $25,000, $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 preferred dividend rates, which could have
either a beneficial or detrimental impact on net investment income and gains
available to common shareholders.
On September 21, 2005, the Trust distributed one transferable right for
each of the 143,681,301 shares of common stock outstanding to shareholders of
record on that date. Seven rights were required to purchase one additional
common share at the subscription price of $7.00 per share. Shareholders who
exercised their full primary subscription rights were eligible for an
over-subscription privilege entitling them to subscribe, subject to certain
limitations and a pro-rata allotment, for any additional shares not purchased
pursuant to the primary subscription plus such additional amounts as authorized
by the Board in accordance with the registration statement. The subscription
period expired on October 26, 2005. The rights offering was fully subscribed,
having received over-subscription requests in excess of the shares available for
primary subscription resulting in the issuance of 20,525,901 shares of common
stock and proceeds of $143,681,307 to the Equity Trust, prior to the deduction
of estimated expenses of $600,000. The net asset value per share of the Trust
common shareholders was reduced by approximately $0.15 per share as a result of
the issuance of shares below net asset value.
On June 20, 2001, the Equity Trust received net proceeds of $159,329,175
(after underwriting discounts of $5,197,500 and 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 at any time. During the year ended December 31,
2005, the Equity Trust did not repurchase any shares of 7.20% Series B
Cumulative Preferred Stock. At December 31, 2005, 6,600,000 shares of the 7.20%
Series B Cumulative Preferred Stock were outstanding and accrued dividends
amounted to $165,000.
On June 27, 2002, the Equity Trust received net proceeds of $128,246,557
(after underwriting discounts of $1,300,000 and offering expenses of $453,443)
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.
17
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The dividend rates of Series C Auction Rate Cumulative Preferred Stock ranged
from 2.15% to 4.58% for the year ended December 31, 2005. Existing shareholders
may submit an order to hold, bid, or sell such shares on each auction date.
Series C Auction Rate Cumulative Preferred Stock shareholders may also trade
shares in the secondary market. The Equity Trust, at its option, may redeem the
Series C Auction Rate Cumulative Preferred Stock in whole or in part at the
redemption price at any time. During the year ended December 31, 2005, the
Equity Trust did not redeem any shares of Series C Auction Rate Cumulative
Preferred Stock. At December 31, 2005, 5,200 shares of the Series C Auction Rate
Cumulative Preferred Stock were outstanding with an annualized dividend rate of
4.58% per share and accrued dividends amounted to $66,155.
On October 7, 2003, the Equity Trust received net proceeds of $72,387,500
(after underwriting discounts of $2,362,500 and offering expenses of $264,522)
from the public offering of 3,000,000 shares of 5.875% Series D Cumulative
Preferred Stock. Commencing October 7, 2008 and thereafter, the Equity Trust, at
its option, may redeem the 5.875% Series D Cumulative Preferred Stock in whole
or in part at the redemption price at any time. During the year ended December
31, 2005, the Equity Trust did not repurchase any shares of 5.875% Series D
Cumulative Preferred Stock. At December 31, 2005, 2,949,700 shares of the 5.875%
Series D Cumulative Preferred Stock were outstanding and accrued dividends
amounted to $60,172.
On October 7, 2003, the Equity Trust received net proceeds of $49,260,000
(after underwriting discounts of $500,000 and offering expenses of $149,991)
from the public offering of 2,000 shares of Series E 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.
The dividend rates of Series E Auction Rate Cumulative Preferred Stock ranged
from 2.20% to 4.60% for the year ended December 31, 2005. Existing shareholders
may submit an order to hold, bid, or sell such shares on each auction date.
Series E Auction Rate Cumulative Preferred Stock shareholders may also trade
shares in the secondary market. The Equity Trust, at its option, may redeem the
Series E Auction Rate Cumulative Preferred Stock in whole or in part at the
redemption price at any time. During the year ended December 31, 2005, the
Equity Trust did not redeem any shares of Series E Auction Rate Cumulative
Preferred Stock. At December 31, 2005, 2,000 shares of the Series E Auction Rate
Cumulative Preferred Stock were outstanding with an annualized dividend rate of
4.60% and accrued dividends amounted to $12,778.
The holders of Cumulative Preferred Stock generally are entitled to one
vote per share held on each matter submitted to a vote of shareholders of the
Equity Trust and will vote together with holders of common stock as a single
class. The holders of Cumulative Preferred Stock voting together as a single
class also have the right currently to elect two Directors and under certain
circumstances are entitled to elect a majority of the Board of Directors. In
addition, the affirmative vote of a majority of the votes entitled to be cast by
holders of all outstanding shares of the preferred stock, voting as a single
class, will be required to approve any plan of reorganization adversely
affecting the preferred stock, and the approval of two-thirds of each class,
voting separately, of the Equity Trust's outstanding voting stock must approve
the conversion of the Equity Trust from a closed-end to an open-end investment
company. The approval of a majority (as defined in the 1940 Act) of the
outstanding preferred stock and a majority (as defined in the 1940 Act) of the
Equity Trust's outstanding voting securities are required to approve certain
other actions, including changes in the Equity Trust's investment objectives or
fundamental investment policies.
6. INDEMNIFICATIONS. The Equity Trust enters into contracts that contain a
variety of indemnifications. The Equity Trust's maximum exposure under these
arrangements is unknown. However, the Equity Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
7. REORGANIZATION. On September 13, 2005, the Equity Trust acquired
substantially all of the net assets of the Sterling Capital Corp. pursuant to a
Plan of Reorganization approved by Sterling Capital Corp. on September 12, 2005.
The acquisition was accomplished by a tax-free exchange of 1,978,190 common
shares of the Equity Trust valued at $18,306,860 for the net assets of the
Sterling Capital Corp. on September 12, 2005. Sterling Capital Corp.'s net
assets of $18,306,860, including $2,191,264 of unrealized appreciation, were
combined with those of the Equity Trust on September 13, 2005. The net assets
attributable to common stock shareholders of the Equity Trust immediately before
the acquisition were $1,273,163,812.
8. OTHER MATTERS. The Adviser and/or affiliates have received subpoenas from the
Attorney General of the State of New York and the SEC requesting information on
mutual fund trading practices involving certain funds managed by the Adviser.
GAMCO Investors, Inc., the Adviser's parent company, is responding to these
requests for documents and testimony. On a separate matter, in September 2005,
the Adviser was informed by the staff of the SEC that the staff may recommend to
the Commission that an administrative remedy and a monetary penalty be sought
from the Adviser in connection with the actions of two of seven closed-end funds
managed by the Adviser relating to Section 19(a) and Rule 19a-1 of the 1940 Act.
These provisions require registered investment companies to provide written
statements to shareholders when a dividend is made from a source other than net
investment income. While the two closed-end funds sent annual statements and
provided other materials containing this information, the funds did not send
written statements to shareholders with each distribution in 2002 and 2003. The
Adviser believes that all of the funds are now in compliance. The Adviser
believes that these matters would have no effect on the Equity Trust or any
material adverse effect on the Adviser or its ability to manage the Equity
Trust. The staff's notice to the Adviser did not relate to the Equity Trust.
18
THE GABELLI EQUITY TRUST INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2005 2004 2003 2002 2001
------ ------ ------ ------ ------
OPERATING PERFORMANCE:
Net asset value, beginning of period ............................... $ 8.69 $ 7.98 $ 6.28 $ 8.97 $10.89
------ ------ ------ ------ ------
Net investment income (loss) ....................................... 0.09 0.02 0.04 0.07 0.08
Net realized and unrealized gain (loss) on investments ............. 0.47 1.63 2.50 (1.65) (0.16)
------ ------ ------ ------ ------
Total from investment operations ................................... 0.56 1.65 2.54 (1.58) (0.08)
------ ------ ------ ------ ------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:(e)
Net investment income .............................................. (0.01) (0.00)(a) (0.00)(a) (0.01) (0.01)
Net realized gain on investments ................................... (0.14) (0.14) (0.14) (0.16) (0.11)
------ ------ ------ ------ ------
Total distributions to preferred stock shareholders ................ (0.15) (0.14) (0.14) (0.17) (0.12)
------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO COMMON
STOCK SHAREHOLDERS RESULTING FROM OPERATIONS ....................... 0.41 1.51 2.40 (1.75) (0.20)
------ ------ ------ ------ ------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income .............................................. (0.08) (0.01) (0.01) (0.05) (0.06)
Net realized gain on investments ................................... (0.77) (0.79) (0.68) (0.90) (1.02)
Return of capital .................................................. -- -- (0.00)(a) (0.00)(a) --
------ ------ ------ ------ ------
Total distributions to common stock shareholders ................... (0.85) (0.80) (0.69) (0.95) (1.08)
------ ------ ------ ------ ------
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net asset value from common stock
share transactions ................................................ (0.00)(a) 0.00(a) 0.01 0.02 0.03
Decrease in net asset value from shares issued in rights offering .. (0.15) -- -- -- (0.62)
Increase in net asset value from repurchase of preferred shares .... -- 0.00(a) -- -- --
Offering costs for preferred shares charged to paid-in capital ..... (0.00)(a) 0.00(a) (0.02) (0.01) (0.05)
Offering costs for issuance of rights charged to paid-in capital ... (0.00)(a) -- -- -- --
------ ------ ------ ------ ------
Total capital share transactions ................................... (0.15) 0.00(a) (0.01) 0.01 (0.64)
------ ------ ------ ------ ------
NET ASSET VALUE ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS, END OF PERIOD ....................................... $ 8.10 $ 8.69 $ 7.98 $ 6.28 $ 8.97
====== ====== ====== ====== ======
Net Asset Value Total Return + ..................................... 5.50% 19.81% 39.90% (21.00)% (3.68)%
====== ====== ====== ====== ======
Market Value, End of Period ........................................ $ 8.03 $ 9.02 $ 8.00 $ 6.85 $10.79
====== ====== ====== ====== ======
Total Investment Return ++ ......................................... 0.66% 24.04% 28.58% (28.36)% 10.32%
====== ====== ====== ====== ======
See accompanying notes to financial statements.
19
THE GABELLI EQUITY TRUST INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA:
Net assets including liquidation value of preferred shares,
end of period (in 000's) ..................................... $1,764,634 $1,638,225 $1,514,525 $1,271,600 $1,465,369
Net assets attributable to common shares,
end of period (in 000's) ..................................... $1,345,891 $1,219,483 $1,094,525 $ 842,403 $1,166,171
Ratio of net investment income to average net assets
attributable to common shares ................................ 1.27% 0.64% 0.67% 0.99% 0.81%
Ratio of operating expenses to average net assets
attributable to common shares net of fee reduction (c) ....... 1.39% 1.57% 1.62% 1.19% 1.12%
Ratio of operating expenses to average net assets including
liquidation value of preferred shares net of fee reduction (c) 1.04% 1.14% 1.14% 0.87% 0.95%
Portfolio turnover rate ....................................... 22.4% 28.6% 19.2% 27.1% 23.9%
PREFERRED STOCK:
7.25% SERIES A CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ................... -- -- -- $ 134,198 $ 134,198
Total shares outstanding (in 000's) ........................... -- -- -- 5,368 5,368
Liquidation preference per share .............................. -- -- -- $ 25.00 $ 25.00
Average market value (b) ...................................... -- -- -- $ 25.75 25.39
Asset coverage per share ...................................... -- -- -- $ 74.07 122.44
7.20% SERIES B CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ................... $ 165,000 $ 165,000 $ 165,000 $ 165,000 $ 165,000
Total shares outstanding (in 000's) ........................... 6,600 6,600 6,600 6,600 6,600
Liquidation preference per share .............................. $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00
Average market value (b) ...................................... $ 25.92 $ 26.57 $ 27.06 $ 26.40 $ 25.60
Asset coverage per share ...................................... $ 105.35 $ 97.81 $ 90.15 $ 74.07 $ 122.44
AUCTION RATE SERIES C CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ................... $ 130,000 $ 130,000 $ 130,000 $ 130,000 --
Total shares outstanding (in 000's) ........................... 5 5 5 5 --
Liquidation preference per share .............................. $ 25,000 $ 25,000 $ 25,000 $ 25,000 --
Average market value (b) ...................................... $ 25,000 $ 25,000 $ 25,000 $ 25,000 --
Asset coverage per share ...................................... $ 105,353 $ 97,806 $ 90,150 $ 74,068 --
5.875% SERIES D CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ................... $ 73,743 $ 73,743 $ 75,000 -- --
Total shares outstanding (in 000's) ........................... 2,950 2,950 3,000 -- --
Liquidation preference per share .............................. $ 25.00 $ 25.00 $ 25.00 -- --
Average market value (b) ...................................... $ 24.82 $ 24.81 $ 25.10 -- --
Asset coverage per share ...................................... $ 105.35 $ 97.81 $ 90.15 -- --
AUCTION RATE SERIES E CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ................... $ 50,000 $ 50,000 $ 50,000 -- --
Total shares outstanding (in 000's) ........................... 2 2 2 -- --
Liquidation preference per share .............................. $ 25,000 $ 25,000 $ 25,000 -- --
Average market value (b) ...................................... $ 25,000 $ 25,000 $ 25,000 -- --
Asset coverage per share ...................................... $ 105,353 $ 97,806 $ 90,150 -- --
ASSET COVERAGE (d) ............................................ 421% 391% 361% 296% 490%
----------
+ Based on net asset value per share, adjusted for reinvestment of
distributions, at prices dependent upon the relationship of the net asset
value per share and the market value per share on the ex-dividend dates,
including the effect of shares issued pursuant to 2001 and 2005 rights
offering, assuming full subscription by shareholder.
++ Based on market value per share, adjusted for reinvestment of
distributions, including the effect of shares issued pursuant to 2001 and
2005 rights offering, assuming full subscription by shareholder.
(a) Amount represents less than $0.005 per share.
(b) Based on weekly prices.
(c) The ratios do not include a reduction of expenses for custodian fee
credits on cash balances maintained with the custodian. Including such
custodian fee credits for the years ended December 31, 2002 and 2001, the
ratios of operating expenses to average net assets attributable to common
stock net of fee reduction would be 1.19% and 1.11%, respectively, and the
ratios of operating expenses to average total net assets including
liquidation value of preferred shares net of fee reduction would be 0.87%
and 0.94%, respectively. For the fiscal years ended December 31, 2005,
2004, and 2003, the effect of the custodian fee credits was minimal.
(d) Asset coverage is calculated by combining all series of preferred stock.
(e) Calculated based upon average common shares outstanding on the record
dates throughout the year.
See accompanying notes to financial statements.
20
THE GABELLI EQUITY TRUST INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Gabelli Equity Trust Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Equity Trust Inc.
(hereafter referred to as the "Trust") at December 31, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods presented, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 28, 2006
21
THE GABELLI EQUITY TRUST INC.
ADDITIONAL FUND INFORMATION (UNAUDITED)
The business and affairs of Equity Trust are managed under the direction
of the Trust's Board of Directors. Information pertaining to the Directors and
officers of the Trust is set forth below. The Trust's Statement of Additional
Information includes additional information about The Gabelli Equity Trust Inc.
Directors and is available, without charge, upon request, by calling 800-GABELLI
(800-422-3554) or by writing to The Gabelli Equity Trust Inc. at One Corporate
Center, Rye, NY 10580-1422.
TERM OF NUMBER OF
OFFICE AND FUNDS IN FUND
NAME, POSITION(S) LENGTH OF COMPLEX
ADDRESS 1 TIME OVERSEEN BY PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AND AGE SERVED 2 DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR 5
----------------- ---------- -------------- ----------------------- -------------------
INTERESTED DIRECTORS 3:
MARIO J. GABELLI Since 1986** 24 Chairman of the Board and Chief Executive Director of Morgan
Director and Officer of GAMCO Investors, Inc. and Group Holdings, Inc.
Chief Investment Officer Chief Investment Officer - Value Portfolios (holding company)
Age: 63 of Gabelli Funds, LLC and GAMCO Asset
Management Inc.; Chairman and Chief
Executive Officer of Lynch Interactive
Corporation (multimedia and services)
NON-INTERESTED DIRECTORS:
THOMAS E. BRATTER Since 1986** 3 Director, President and Founder of The John --
Director Dewey Academy (residential college
Age: 66 preparatory therapeutic high school)
ANTHONY J. COLAVITA 4 Since 1999*** 34 Partner in the law firm of --
Director Anthony J. Colavita, P.C.
Age: 70
JAMES P. CONN 4 Since 1989* 14 Former Managing Director and Chief Investment Director of LaQuinta
Director Officer of Financial Security Assurance Holdings Corp. (hotels) and
Age: 67 Ltd. (1992-1998) First Republic Bank
(banking)
FRANK J. FAHRENKOPF JR. Since 1998*** 5 President and Chief Executive Officer of the Director of First
Director American Gaming Association; Partner in the Republic Bank (banking)
Age: 66 law firm of Hogan & Hartson LLP; Co-Chairman
of the Commission on Presidential Debates;
Former Chairman of the Republican National
Committee
ARTHUR V. FERRARA Since 2001** 6 Formerly, Chairman of the Board and Chief Director/Trustee of 25
Director Executive Officer of The Guardian Life mutual funds within
Age: 75 Insurance Company of America from January the Guardian Fund
1993 to December 1995; President, Chief Complex
Executive Officer and a Director prior thereto
ANTHONY R. PUSTORINO Since 1986* 14 Certified Public Accountant; Professor Director of Lynch
Director Emeritus, Pace University Corporation
Age: 80 (diversified
manufacturing)
SALVATORE J. ZIZZA Since 1986*** 25 Chairman of Hallmark Electrical Supplies Corp. Director of
Director Hollis-Eden
Age: 60 Pharmaceuticals
(biotechnology) and
Earl Scheib, Inc.
(automotive services)
22
THE GABELLI EQUITY TRUST INC.
ADDITIONAL FUND INFORMATION (CONTINUED) (UNAUDITED)
TERM OF
OFFICE AND
NAME, POSITION(S) LENGTH OF
ADDRESS 1 TIME PRINCIPAL OCCUPATION(S)
AND AGE SERVED 2 DURING PAST FIVE YEARS
----------------- ---------- ----------------------
OFFICERS:
BRUCE N. ALPERT Since 2003 Executive Vice President and Chief Operating
President and Treasurer Officer of Gabelli Funds, LLC and an officer
Age: 54 of all of the registered investment companies
in the Gabelli Funds complex. Director and President
of Gabelli Advisers, Inc.
CARTER W. AUSTIN Since 2000 Vice President of the Trust since 2000. Vice President
Vice President of The Gabelli Dividend & Income Trust since 2003
Age: 39 and The Gabelli Global Gold, Natural Resources
& Income Trust since 2005. Vice President of
Gabelli Funds, LLC.
DAWN M. DONATO Since 2004 Assistant Vice President of Gabelli & Company, Inc.
Assistant Vice President since 2004, Registered Representative for Gabelli
Age: 38 & Company, Inc. since 2002. Prior to 2002, Senior
Sales Representative for Manulife Financial
JAMES E. MCKEE Since 1995 Vice President, General Counsel and Secretary
Secretary of GAMCO Investors, Inc. and GAMCO Asset
Age: 42 Management Inc.; Secretary of all of the
registered investment companies in the
Gabelli Funds complex.
PETER D. GOLDSTEIN Since 2004 Director of Regulatory Affairs for GAMCO Investors, Inc.
Chief Compliance Officer since 2004; Chief Compliance Officer of all the registered
Age: 52 investment companies in the Gabelli Funds complex;
Vice President of Goldman Sachs Asset Management
from 2000 through 2004.
----------
1 Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted.
2 The Trust's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term. The three year term for each class expires as follows:
* - Term expires at the Trust's 2006 Annual Meeting of Shareholders
and until their successors are duly elected and qualified.
** - Term expires at the Trust's 2007 Annual Meeting of Shareholders
and until their successors are duly elected and qualified.
*** - Term expires at the Trust's 2008 Annual Meeting of Shareholders
and until their successors are duly elected and qualified.
Each officer will hold office for an indefinite term until the
date he or she resigns or retires or until his or her successor is
elected and qualified.
3 "Interested person" of the Trust as defined in the Investment Company Act
of 1940. Mr. Gabelli is considered an "interested person" because of his
affiliation with Gabelli Funds, LLC which acts as the Trust's investment
adviser. Effective November 16, 2005, Mr. Karl Otto Pohl resigned from the
Board of Directors and now serves as Director Emeritus.
4 Represents holders of the Trust's Preferred Stock.
5 This column includes only directorships of companies required to report to
the SEC under the Securities Exchange Act of 1934 (i.e. public companies)
or other investment companies registered under the 1940 Act.
CERTIFICATIONS
The Equity Trust's Chief Executive Officer has certified to the New York
Stock Exchange that, as of June 6, 2005, he was not aware of any violation by
the Equity Trust of applicable NYSE corporate governance listing standards. The
Equity Trust reports to the SEC on Form N-CSR which contains certifications by
the Equity Trust's principal executive officer and principal financial officer
that relate to the Equity Trust's disclosure in such reports and that are
required by Rule 30a-2(a) under the Investment Company Act.
23
THE GABELLI EQUITY TRUST INC.
INCOME TAX INFORMATION (UNAUDITED)
DECEMBER 31, 2005
CASH DIVIDENDS AND DISTRIBUTIONS
TOTAL AMOUNT ORDINARY LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT CAPITAL REINVESTMENT
DATE DATE PER SHARE (a) INCOME (a) GAINS (a) PRICE
--------- ---- ------------- ---------- --------- ------------
COMMON SHARES
03/24/05 03/16/05 $0.18000 $0.02736 $0.15264 $8.59750
06/24/05 06/16/05 0.18000 0.01798 0.16202 8.48350
09/27/05 09/19/05 0.19000 0.01898 0.17102 8.51000
12/23/05 12/15/05 0.30000 0.02996 0.27004 8.20000
-------- -------- --------
$0.85000 $0.09428 $0.75572
7.20% PREFERRED SHARES
03/28/05 03/18/05 $0.45000 $0.06180 $0.38820
06/27/05 06/20/05 0.45000 0.04300 0.40700
09/26/05 09/19/05 0.45000 0.04300 0.40700
12/27/05 12/19/05 0.45000 0.04300 0.40700
-------- -------- --------
$1.80000 $0.19080 $1.60920
5.875% PREFERRED SHARES
03/28/05 03/18/05 $0.36719 $0.05037 $0.31682
06/27/05 06/20/05 0.36719 0.03512 0.33206
09/26/05 09/19/05 0.36719 0.03513 0.33206
12/27/05 12/19/05 0.36718 0.03513 0.33206
-------- -------- --------
$1.46875 $0.15575 $1.31300
SERIES C AND E AUCTION RATE PREFERRED SHARES
Auction Rate Preferred Shares pay dividends weekly based on a rate set at
auction, usually held every seven days. The percentage of 2005 distributions
derived from long-term capital gains for the Series C and Series E Auction Rate
Preferred Shares was 89.39%.
A Form 1099-DIV has been mailed to all shareholders of record which sets
forth specific amounts to be included in the 2005 tax returns. Ordinary income
distributions include net investment income and realized net short-term capital
gains. Ordinary income is reported in box 1a of Form 1099-DIV. Capital gain
distributions are reported in box 2a of Form 1099-DIV.
CORPORATE DIVIDENDS RECEIVED DEDUCTION, QUALIFIED DIVIDEND INCOME AND U.S.
GOVERNMENT SECURITIES INCOME
In 2005, the Equity Trust paid to common, 7.200% Series B, and 5.875%
Series D preferred shareholders ordinary income totaling $0.09428, $0.19080, and
$0.15575 per share, respectively. The Equity Trust paid weekly distributions to
Series C and Series E preferred shareholders at varying rates throughout the
year, including an ordinary income dividend totaling $89.74670 and $89.13380 per
share, respectively, in 2005. For the fiscal year ended December 31, 2005, 100%
of the ordinary income dividend qualified for the dividend received deduction
available to corporations, and 100% of the ordinary income distribution was
deemed qualified dividend income and is reported in box 1b on Form 1099-DIV. The
percentage of the ordinary income dividends paid by the Equity Trust during 2005
derived from U.S. Government Securities was 1.63%. Such income is exempt from
state and local tax in all states. However, many states, including New York and
California, allow a tax exemption for a portion of the income earned only if a
mutual fund has invested at least 50% of its assets at the end of each quarter
of the Equity Trust's fiscal year in U.S. Government Securities. The Equity
Trust did not meet this strict requirement in 2005. The percentage of U.S.
Government Securities held as of December 31, 2005 was 0.00%. The percentage of
U.S. Government Securities held as of December 31, 2005 was 4.09%.
24
THE GABELLI EQUITY TRUST INC.
INCOME TAX INFORMATION (CONTINUED) (UNAUDITED)
DECEMBER 31, 2005
HISTORICAL DISTRIBUTION SUMMARY
SHORT- LONG- UNDISTRIBUTED TAXES PAID ON
TERM TERM NON-TAXABLE LONG-TERM UNDISTRIBUTED ADJUSTMENT
INVESTMENT CAPITAL CAPITAL RETURN OF CAPITAL CAPITAL TOTAL TO
INCOME GAINS (b) GAINS CAPITAL GAINS GAINS (c) DISTRIBUTIONS (a) COST BASIS
---------- --------- ------- ----------- ------------- ------------- ----------------- ----------
COMMON STOCK
2005 ............. $ 0.08756 $ 0.00672 $ 0.75572 -- -- -- $ 0.85000 --
2004 ............. 0.01930 0.04990 0.73080 -- -- -- 0.80000 --
2003 ............. 0.01140 0.04480 0.63380 -- -- -- 0.69000 --
2002 ............. 0.05180 0.01550 0.88270 -- -- -- 0.95000 --
2001(d) .......... 0.06700 0.06400 0.94900 -- -- -- 1.08000 --
2000 ............. 0.04070 0.15500 1.11430 -- -- -- 1.31000 --
1999(e) .......... 0.03010 0.21378 0.99561 $0.91176 -- -- 2.15125 $0.91176-
1998 ............. 0.06420 -- 1.10080 -- -- -- 1.16500 --
1997 ............. 0.07610 0.00210 0.93670 0.02510 -- -- 1.04000 0.02500-
1996 ............. 0.10480 -- 0.78120 0.11400 -- -- 1.00000 0.11400-
1995(f) .......... 0.12890 -- 0.49310 0.37800 -- -- 1.00000 0.37800-
1994(g) .......... 0.13536 0.06527 0.30300 1.38262 -- -- 1.88625 1.38262-
1993(h) .......... 0.13050 0.02030 0.72930 0.22990 -- -- 1.11000 0.22990-
1992(i) .......... 0.20530 0.04050 0.29660 0.51760 -- -- 1.06000 0.51760-
1991(j) .......... 0.22590 0.03990 0.14420 0.68000 -- -- 1.09000 0.68000-
1990 ............. 0.50470 -- 0.22950 0.44580 -- -- 1.18000 0.44580-
1989 ............. 0.29100 0.35650 0.66250 -- $0.6288 $0.2138 1.31000 0.41500+
1988 ............. 0.14500 0.20900 0.19600 -- 0.2513 0.0854 0.55000 0.16590+
1987 ............. 0.25600 0.49100 0.33500 -- -- -- 1.08200 --
7.20% PREFERRED STOCK
2005 ............. $ 0.17650 $ 0.01430 $ 1.60920 -- -- -- $ 1.80000 --
2004 ............. 0.04340 0.11224 1.64436 -- -- -- 1.80000 --
2003 ............. 0.03000 0.11640 1.65360 -- -- -- 1.80000 --
2002 ............. 0.09800 0.02960 1.67240 -- -- -- 1.80000 --
2001 ............. 0.05870 0.05440 0.81690 -- -- -- 0.93000 --
5.875% PREFERRED STOCK
2005 ............. $ 0.14405 $ 0.01170 $ 1.31300 -- -- -- $ 1.46875 --
2004 ............. 0.03542 0.09159 1.34174 -- -- -- 1.46875 --
2003 ............. 0.00535 0.02086 0.29610 -- -- -- 0.32231 --
AUCTION RATE PREFERRED C SHARES
2005 ............. $83.01020 $ 6.73650 $756.60330 -- -- -- $846.35000 --
2004 ............. 9.15570 23.67550 346.83810 -- -- -- 379.66930 --
2003 ............. 5.42000 21.05000 298.41000 -- -- -- 324.88000 --
2002 ............. 12.28350 3.71450 209.89200 -- -- -- 225.89000 --
AUCTION RATE PREFERRED E SHARES
2005 ............. $82.44330 $ 6.69050 $751.43620 -- -- -- $840.57000 --
2004 ............. 9.30280 24.05620 352.41090 -- -- -- 385.76000 --
2003 ............. 1.07000 4.18000 59.32000 -- -- -- 64.57000 --
----------
(a) Total amounts may differ due to rounding.
(b) Taxable as ordinary income.
(c) Net Asset Value was reduced by this amount on the last business day of the
year.
(d) On January 10, 2001, the Company also distributed Rights equivalent to
$0.56 per share based upon full subscription of all issued shares.
(e) On July 9, 1999, the Company also distributed shares of The Gabelli
Utility Trust valued at $9.8125 per share.
(f) On October 19, 1995, the Company also distributed Rights equivalent to
$0.37 per share based upon full subscription of all issued shares.
(g) On November 15, 1994, the Company also distributed shares of The Gabelli
Global Multimedia Trust Inc. valued at $8.0625 per share.
(h) On July 14, 1993, the Company also distributed Rights equivalent to $0.50
per share based upon full subscription of all issued shares.
(i) On September 28, 1992, the Company also distributed Rights equivalent to
$0.36 per share based upon full subscription of all issued shares.
(j) On October 21, 1991, the Company also distributed Rights equivalent to
$0.42 per share based upon full subscription of all issued shares.
- Decrease in cost basis.
+ Increase in cost basis.
25
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLANS
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Equity Trust Inc. ("Trust") to
automatically reinvest dividends payable to common shareholders. As a
"registered" shareholder you automatically become a participant in the Trust's
Automatic Dividend Reinvestment Plan (the "Plan"). The Plan authorizes the Trust
to issue Common Stock 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 Trust. Plan participants may send their stock
certificates to Computershare Trust Company N.A. ("Computershare") 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 Computershare
P.O. Box 43010
Providence, RI 02940-3010
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 or requesting a copy of the terms of the
Plan may contact Computershare at (800) 336-6983.
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 distributions 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 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 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 ("NYSE") trading day, the next trading day. If the net asset
value of the Common Stock at the time of valuation exceeds the market price of
the Common Stock, participants will receive shares from the Trust valued at
market price. If the Trust should declare a dividend or capital gains
distribution payable only in cash, Computershare will buy Common Stock in the
open market, or on the NYSE or elsewhere, for the participants' accounts, except
that Computershare will endeavor to terminate purchases in the open market and
cause the 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.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the 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 Computershare for investments in the Trust's Common
Stock at the then current market price. Shareholders may send an amount from
$250 to $10,000. Computershare will use these funds to purchase shares in the
open market on or about the 1st and 15th of each month. Computershare 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 Computershare, P.O. Box 43010,
Providence, RI 02940-3010 such that Computershare receives such payments
approximately 10 days before the 1st and 15th of the month. Funds not received
at least five days before the investment date shall be held for investment until
the next purchase date. A payment may be withdrawn without charge if notice is
received by Computershare at least 48 hours before such payment is to be
invested.
SHAREHOLDERS WISHING TO LIQUIDATE SHARES HELD AT COMPUTERSHARE 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.
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 Trust.
The 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 Computershare on at least 90 days' written
notice to participants in the Plan.
------------------------------------------------------------------
The Annual Meeting of The Gabelli Equity Trust's stockholders will
be held at 9:00 A.M. on Monday, May 15, 2006 at the Greenwich
Library in Greenwich, Connecticut.
------------------------------------------------------------------
26
[GRAPHIC]
DIRECTORS AND OFFICERS
THE GABELLI EQUITY TRUST INC.
ONE CORPORATE CENTER, RYE, NY 10580-1422
DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN & CHIEF EXECUTIVE OFFICER,
GAMCO INVESTORS, INC.
Dr. Thomas E. Bratter
PRESIDENT, JOHN DEWEY ACADEMY
Anthony J. Colavita
ATTORNEY-AT-LAW,
ANTHONY J. COLAVITA, P.C.
James P. Conn
FORMER CHIEF INVESTMENT OFFICER,
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
Frank J. Fahrenkopf, Jr.
PRESIDENT & CHIEF EXECUTIVE OFFICER,
AMERICAN GAMING ASSOCIATION
Arthur V. Ferrara
FORMER CHAIRMAN & CHIEF EXECUTIVE OFFICER,
GUARDIAN LIFE INSURANCE COMPANY OF AMERICA
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT
PROFESSOR EMERITUS, PACE UNIVERSITY
Salvatore J. Zizza
CHAIRMAN, HALLMARK ELECTRICAL SUPPLIES CORP.
OFFICERS
Bruce N. Alpert
PRESIDENT & TREASURER
Carter W. Austin
VICE PRESIDENT
Dawn M. Donato
ASSISTANT VICE PRESIDENT
Peter D. Goldstein
CHIEF COMPLIANCE OFFICER
James E. McKee
SECRETARY
INVESTMENT ADVISER
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
CUSTODIAN
Mellon Trust of New England, N.A.
COUNSEL
Willkie Farr & Gallagher LLP
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company, N.A.
STOCK EXCHANGE LISTING
7.20% 5.875%
COMMON PREFERRED PREFERRED
------ --------- ---------
NYSE-Symbol: GAB GAB PrB GAB PrD
Shares Outstanding: 166,079,270 6,600,000 2,949,700
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) 921-5070.
--------------------------------------------------------------------------------
For general information about the Gabelli Funds, call 800-GABELLI
(800-422-3554), fax us at 914-921-5118, visit Gabelli Funds' Internet homepage
at: WWW.GABELLI.COM or e-mail us at: closedend@gabelli.com
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
PHONE: 800-GABELLI (800-422-3554)
FAX: 914-921-5118 INTERNET: WWW.GABELLI.COM
E-MAIL: CLOSEDEND@GABELLI.COM GAB AR 2005
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, that relates to one or more of the
items set forth in paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's Board of
Directors has determined that Anthony R. Pustorino is qualified to serve as an
audit committee financial expert serving on its audit committee and that he is
"independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$88,558 in 2005 and $60,274 in 2004.
AUDIT-RELATED FEES
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $20,600 in 3005 and $20,600 in 2004.
Audit-related fees represent services provided in the preparation of
Preferred Shares Reports.
TAX FEES
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $2,880 in 2005 and $2,550
in 2004.
Tax fees represent tax compliance services provided in connection with
the review of the Registrant's tax returns.
ALL OTHER FEES
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are $0
in 2005 and $0 in 2004.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pre-Approval Policies and Procedures. The Audit Committee ("Committee")
of the registrant is responsible for pre-approving (i) all audit and
permissible non-audit services to be provided by the independent
auditors to the registrant and (ii) all permissible non-audit services
to be provided by the independent auditors to the Adviser, Gabelli
Funds, LLC, and any affiliate of Gabelli Funds, LLC ("Gabelli") that
provides services to the registrant (a "Covered Services Provider") if
the independent auditors' engagement related directly to the operations
and financial reporting of the registrant. The Committee may delegate
its responsibility to pre-approve any such audit and permissible
non-audit services to the Chairperson of the Committee, and the
Chairperson must report to the Committee, at its next regularly
scheduled meeting after the Chairperson's pre-approval of such
services, his or her decision(s). The Committee may also establish
detailed pre-approval policies and procedures for pre-approval of such
services in accordance with applicable laws, including the delegation
of some or all of the Committee's pre-approval responsibilities to the
other persons (other than Gabelli or the registrant's officers).
Pre-approval by the Committee of any permissible non-audit services is
not required so long as: (i) the aggregate amount of all such
permissible non-audit services provided to the registrant, Gabelli and
any Covered Services Provider constitutes not more than 5% of the total
amount of revenues paid by the registrant to its independent auditors
during the fiscal year in which the permissible non-audit services are
provided; (ii) the permissible non-audit services were not recognized
by the registrant at the time of the engagement to be non-audit
services; and (iii) such services are promptly brought to the attention
of the Committee and approved by the Committee or Chairperson prior to
the completion of the audit.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) 100%
(c) 100%
(d) N/A
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was zero percent (0%).
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the registrant for each of the last two fiscal years of the
registrant was $0 in 2005 and $0 in 2004.
(h) The registrant's audit committee of the board of directors has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated audit committee consisting of the
following members: Anthony J. Colavita, Anthony R Pustorino and Salvatore J.
Zizza.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
THE VOTING OF PROXIES ON BEHALF OF CLIENTS
Rules 204(4)-2 and 204-2 under the Investment Advisers Act of 1940 and
Rule 30b1-4 under the Investment Company Act of 1940 require investment advisers
to adopt written policies and procedures governing the voting of proxies on
behalf of their clients.
These procedures will be used by GAMCO Asset Management Inc., Gabelli
Funds, LLC, Gabelli Securities, Inc., and Gabelli Advisers, Inc. (collectively,
the "Advisers") to determine how to vote proxies relating to portfolio
securities held by their clients, including the procedures that the Advisers use
when a vote presents a conflict between the interests of the shareholders of an
investment company managed by one of the Advisers, on the one hand, and those of
the Advisers; the principal underwriter; or any affiliated person of the
investment company, the Advisers, or the principal underwriter. These procedures
will not apply where the Advisers do not have voting discretion or where the
Advisers have agreed to with a client to vote the client's proxies in accordance
with specific guidelines or procedures supplied by the client (to the extent
permitted by ERISA).
I. PROXY VOTING COMMITTEE
The Proxy Voting Committee was originally formed in April 1989 for the purpose
of formulating guidelines and reviewing proxy statements within the parameters
set by the substantive proxy voting guidelines originally published by GAMCO
Investors, Inc. in 1988 and updated periodically, a copy of which are appended
as Exhibit A. The Committee will include representatives of Research,
Administration, Legal, and the Advisers. Additional or replacement members of
the Committee will be nominated by the Chairman and voted upon by the entire
Committee.
Meetings are held as needed basis to form views on the manner in
which the Advisers should vote proxies on behalf of their clients.
In general, the Director of Proxy Voting Services, using the Proxy
Guidelines, recommendations of Institutional Shareholder Corporate Governance
Service ("ISS"), other third-party services and the analysts of Gabelli &
Company, Inc., will determine how to vote on each issue. For non-controversial
matters, the Director of Proxy Voting Services may vote the proxy if the vote is
(1) consistent with the recommendations of the issuer's Board of Directors and
not contrary to the Proxy Guidelines; (2) consistent with the recommendations of
the issuer's Board of Directors and is a non-controversial issue not covered by
the Proxy Guidelines; or (3) the vote is contrary to the recommendations of the
Board of Directors but is consistent with the Proxy Guidelines. In those
instances, the Director of Proxy Voting Services or the Chairman of the
Committee may sign and date the proxy statement indicating how each issue will
be voted.
All matters identified by the Chairman of the Committee, the Director
of Proxy Voting Services or the Legal Department as controversial, taking into
account the recommendations of ISS or other third party services and the
analysts of Gabelli & Company, Inc., will be presented to the Proxy Voting
Committee. If the Chairman of the Committee, the Director of Proxy Voting
Services or the Legal Department has identified the matter as one that (1) is
controversial; (2) would benefit from deliberation by the Proxy Voting
Committee; or (3) may give rise to a conflict of interest between the Advisers
and their clients, the Chairman of the Committee will initially determine what
vote to recommend that the Advisers should cast and the matter will go before
the Committee.
A. CONFLICTS OF INTEREST.
The Advisers have implemented these proxy
voting procedures in order to prevent conflicts of interest
from influencing their proxy voting decisions. By following
the Proxy Guidelines, as well as the recommendations of ISS,
other third-party services and the analysts of Gabelli &
Company, the Advisers are able to avoid, wherever possible,
the influence of potential conflicts of interest.
Nevertheless, circumstances may arise in which one or more of
the Advisers are faced with a conflict of interest or the
appearance of a conflict of interest in connection with its
vote. In general, a conflict of interest may arise when an
Adviser knowingly does business with an issuer, and may appear
to have a material conflict between its own interests and the
interests of the shareholders of an investment company managed
by one of the Advisers regarding how the proxy is to be voted.
A conflict also may exist when an Adviser has actual knowledge
of a material business arrangement between an issuer and an
affiliate of the Adviser.
In practical terms, a conflict of interest may arise, for
example, when a proxy is voted for a company that is a client
of one of the Advisers, such as GAMCO Asset Management Inc. A
conflict also may arise when a client of one of the Advisers
has made a shareholder proposal in a proxy to be voted upon by
one or more of the Advisers. The Director of Proxy Voting
Services, together with the Legal Department, will scrutinize
all proxies for these or other situations that may give rise
to a conflict of interest with respect to the voting of
proxies.
A. OPERATION OF PROXY VOTING COMMITTEE.
For matters submitted to the Committee, each member of the
Committee will receive, prior to the meeting, a copy of the
proxy statement, any relevant third party research, a summary
of any views provided by the Chief Investment Officer and any
recommendations by Gabelli & Company, Inc. analysts. The Chief
Investment Officer or the Gabelli & Company, Inc. analysts may
be invited to present their viewpoints. IF THE DIRECTOR OF
PROXY VOTING SERVICES or the Legal Department believe that the
matter before the committee is one with respect to which a
conflict of interest may exist between the Advisers and their
clients, counsel will provide an opinion to the Committee
concerning the conflict. If the matter is one in which the
interests of the clients of one or more of Advisers may
diverge, counsel will so advise and the Committee may make
different recommendations as to different clients. For any
matters where the recommendation may trigger appraisal rights,
counsel will provide an opinion concerning the likely risks
and merits of such an appraisal action.
Each matter submitted to the Committee will be determined by the vote
of a majority of the members present at the meeting. Should the vote concerning
one or more recommendations be tied in a vote of the Committee, the Chairman of
the Committee will cast the deciding vote. The Committee will notify the proxy
department of its decisions and the proxies will be voted accordingly.
Although the Proxy Guidelines express the normal preferences for the
voting of any shares not covered by a contrary investment guideline provided by
the client, the Committee is not bound by the preferences set forth in the Proxy
Guidelines and will review each matter on its own merits. Written minutes of all
Proxy Voting Committee meetings will be maintained. The Advisers subscribe to
ISS, which supplies current information on companies, matters being voted on,
regulations, trends in proxy voting and information on corporate governance
issues.
If the vote cast either by the analyst or as a result of the
deliberations of the Proxy Voting Committee runs contrary to the recommendation
of the Board of Directors of the issuer, the matter will be referred to legal
counsel to determine whether an amendment to the most recently filed Schedule
13D is appropriate.
II. SOCIAL ISSUES AND OTHER CLIENT GUIDELINES
If a client has provided special instructions relating to the voting of
proxies, they should be noted in the client's account file and forwarded to the
proxy department. This is the responsibility of the investment professional or
sales assistant for the client. In accordance with Department of Labor
guidelines, the Advisers' policy is to vote on behalf of ERISA accounts in the
best interest of the plan participants with regard to social issues that carry
an economic impact. Where an account is not governed by ERISA, the Advisers will
vote shares held on behalf of the client in a manner consistent with any
individual investment/voting guidelines provided by the client. Otherwise the
Advisers will abstain with respect to those shares.
III. CLIENT RETENTION OF VOTING RIGHTS
If a client chooses to retain the right to vote proxies or if there is
any change in voting authority, the following should be notified by the
investment professional or sales assistant for the client.
- Operations
- Legal Department
- Proxy Department
- Investment professional assigned to the account
In the event that the Board of Directors (or a Committee thereof) of
one or more of the investment companies managed by one of the Advisers has
retained direct voting control over any security, the Proxy Voting Department
will provide each Board Member (or Committee member) with a copy of the proxy
statement together with any other relevant information including recommendations
of ISS or other third-party services.
IV. VOTING RECORDS
The Proxy Voting Department will retain a record of matters voted upon
by the Advisers for their clients. The Advisers' staff may request proxy-voting
records for use in presentations to current or prospective clients. Requests for
proxy voting records should be made at least ten days prior to client meetings.
If a client wishes to receive a proxy voting record on a quarterly,
semi-annual or annual basis, please notify the Proxy Voting Department. The
reports will be available for mailing approximately ten days after the quarter
end of the period. First quarter reports may be delayed since the end of the
quarter falls during the height of the proxy season.
A letter is sent to the custodians for all clients for which the
Advisers have voting responsibility instructing them to forward all proxy
materials to:
[Adviser name]
Attn: Proxy Voting Department
One Corporate Center
Rye, New York 10580-1433
The sales assistant sends the letters to the custodians along with the
trading/DTC instructions. Proxy voting records will be retained in compliance
with Rule 204-2 under the Investment Advisers Act.
V. VOTING PROCEDURES
1. Custodian banks, outside brokerage firms and Wexford Clearing Services
Corporation are responsible for forwarding proxies directly to GAMCO.
Proxies are received in one of two forms:
o Shareholder Vote Authorization Forms (VAFs) - Issued by ADP. VAFs must be
voted through the issuing institution causing a time lag. ADP is an outside
service contracted by the various institutions to issue proxy materials.
o Proxy cards which may be voted directly.
2. Upon receipt of the proxy, the number of shares each form represents is
logged into the proxy system according to security.
3. In the case of a discrepancy such as an incorrect number of shares, an
improperly signed or dated card, wrong class of security, etc., the issuing
custodian is notified by phone. A corrected proxy is requested. Any arrangements
are made to insure that a proper proxy is received in time to be voted
(overnight delivery, fax, etc.). When securities are out on loan on record date,
the custodian is requested to supply written verification.
4. Upon receipt of instructions from the proxy committee (see Administrative),
the votes are cast and recorded for each account on an individual basis.
Since January 1, 1992, records have been maintained on the Proxy Edge system.
The system is backed up regularly. From 1990 through 1991, records were
maintained on the PROXY VOTER system and in hardcopy format. Prior to 1990,
records were maintained on diskette and in hardcopy format.
PROXY EDGE records include:
Security Name and Cusip Number
Date and Type of Meeting (Annual, Special, Contest)
Client Name Adviser or Fund Account Number
Directors' Recommendation
How GAMCO voted for the client on each issue
The rationale for the vote when it appropriate
Records prior to the institution of the PROXY EDGE system include:
Security name
Type of Meeting (Annual, Special, Contest)
Date of Meeting
Name of Custodian
Name of Client
Custodian Account Number
Adviser or Fund Account Number
Directors' recommendation
How the Adviser voted for the client on each issue
Date the proxy statement was received and by whom
Name of person posting the vote
Date and method by which the vote was cast
o From these records individual client proxy voting records are compiled. It
is our policy to provide institutional clients with a proxy voting record
during client reviews. In addition, we will supply a proxy voting record at
the request of the client on a quarterly, semi-annual or annual basis.
5. VAFs are kept alphabetically by security. Records for the current proxy
season are located in the Proxy Voting Department office. In preparation for the
upcoming season, files are transferred to an offsite storage facility during
January/February.
6. Shareholder Vote Authorization Forms issued by ADP are always sent directly
to a specific individual at ADP.
7. If a proxy card or VAF is received too late to be voted in the conventional
matter, every attempt is made to vote on one of the following manners:
o VAFs can be faxed to ADP up until the time of the meeting. This is followed
up by mailing the original form.
o When a solicitor has been retained, the solicitor is called. At the
solicitor's direction, the proxy is faxed.
8. In the case of a proxy contest, records are maintained for each opposing
entity.
9. Voting in Person
a) At times it may be necessary to vote the shares in person. In this case, a
"legal proxy" is obtained in the following manner:
o Banks and brokerage firms using the services at ADP:
The back of the VAF is stamped indicating that we wish to vote in person.
The forms are then sent overnight to ADP. ADP issues individual legal proxies
and sends them back via overnight (or the Adviser can pay messenger charges). A
lead-time of at least two weeks prior to the meeting is needed to do this.
Alternatively, the procedures detailed below for banks not using ADP may be
implemented.
o Banks and brokerage firms issuing proxies directly:
The bank is called and/or faxed and a legal proxy is requested.
All legal proxies should appoint:
"REPRESENTATIVE OF [ADVISER NAME] WITH FULL POWER OF SUBSTITUTION."
b) The legal proxies are given to the person attending the meeting along with
the following supplemental material:
o A limited Power of Attorney appointing the attendee an Adviser
representative.
o A list of all shares being voted by custodian only. Client names and
account numbers are not included. This list must be presented, along with
the proxies, to the Inspectors of Elections and/or tabulator at least
one-half hour prior to the scheduled start of the meeting. The tabulator
must "qualify" the votes (i.e. determine if the vote have previously been
cast, if the votes have been rescinded, etc. vote have previously been
cast, etc.).
o A sample ERISA and Individual contract.
o A sample of the annual authorization to vote proxies form.
o A copy of our most recent Schedule 13D filing (if applicable).
APPENDIX A
PROXY GUIDELINES
===========================================
PROXY VOTING GUIDELINES
===========================================
GENERAL POLICY STATEMENT
It is the policy of GAMCO INVESTORS, INC. to vote in the best economic interests
of our clients. As we state in our Magna Carta of Shareholders Rights,
established in May 1988, we are neither for nor against management. We are for
shareholders.
At our first proxy committee meeting in 1989, it was decided that each proxy
statement should be evaluated on its own merits within the framework first
established by our Magna Carta of Shareholders Rights. The attached guidelines
serve to enhance that broad framework.
We do not consider any issue routine. We take into consideration all of our
research on the company, its directors, and their short and long-term goals for
the company. In cases where issues that we generally do not approve of are
combined with other issues, the negative aspects of the issues will be factored
into the evaluation of the overall proposals but will not necessitate a vote in
opposition to the overall proposals.
BOARD OF DIRECTORS
The advisers do not consider the election of the Board of Directors a routine
issue. Each slate of directors is evaluated on a case-by-case basis.
Factors taken into consideration include:
o Historical responsiveness to shareholders
This may include such areas as:
-Paying greenmail
-Failure to adopt shareholder resolutions receiving a majority of
shareholder votes
o Qualifications
o Nominating committee in place
o Number of outside directors on the board
o Attendance at meetings
o Overall performance
SELECTION OF AUDITORS
In general, we support the Board of Directors' recommendation for audit
BLANK CHECK PREFERRED STOCK
We oppose the issuance of blank check preferred stock.
Blank check preferred stock allows the company to issue stock and establish
dividends, voting rights, etc. without further shareholder approval.
CLASSIFIED BOARD
A classified board is one where the directors are divided into classes with
overlapping terms. A different class is elected at each annual meeting.
While a classified board promotes continuity of directors facilitating long
range planning, we feel directors should be accountable to shareholders on an
annual basis. We will look at this proposal on a case-by-case basis taking into
consideration the board's historical responsiveness to the rights of
shareholders.
Where a classified board is in place we will generally not support attempts to
change to an annually elected board.
When an annually elected board is in place, we generally will not support
attempts to classify the board.
INCREASE AUTHORIZED COMMON STOCK
The request to increase the amount of outstanding shares is considered on a
case-by-case basis.
Factors taken into consideration include:
o Future use of additional shares
-Stock split
-Stock option or other executive compensation plan
-Finance growth of company/strengthen balance sheet
-Aid in restructuring
-Improve credit rating
-Implement a poison pill or other takeover defense
o Amount of stock currently authorized but not yet issued or reserved for
stock option plans
o Amount of additional stock to be authorized and its dilutive effect
We will support this proposal if a detailed and verifiable plan for the use of
the additional shares is contained in the proxy statement.
CONFIDENTIAL BALLOT
We support the idea that a shareholder's identity and vote should be treated
with confidentiality.
However, we look at this issue on a case-by-case basis.
In order to promote confidentiality in the voting process, we endorse the use of
independent Inspectors of Election.
CUMULATIVE VOTING
In general, we support cumulative voting.
Cumulative voting is a process by which a shareholder may multiply the number of
directors being elected by the number of shares held on record date and cast the
total number for one candidate or allocate the voting among two or more
candidates.
Where cumulative voting is in place, we will vote against any proposal to
rescind this shareholder right.
Cumulative voting may result in a minority block of stock gaining representation
on the board. When a proposal is made to institute cumulative voting, the
proposal will be reviewed on a case-by-case basis. While we feel that each board
member should represent all shareholders, cumulative voting provides minority
shareholders an opportunity to have their views represented.
DIRECTOR LIABILITY AND INDEMNIFICATION
We support efforts to attract the best possible directors by limiting the
liability and increasing the indemnification of directors, except in the case of
insider dealing.
EQUAL ACCESS TO THE PROXY
The SEC's rules provide for shareholder resolutions. However, the resolutions
are limited in scope and there is a 500 word limit on proponents' written
arguments. Management has no such limitations. While we support equal access to
the proxy, we would look at such variables as length of time required to
respond, percentage of ownership, etc.
FAIR PRICE PROVISIONS
Charter provisions requiring a bidder to pay all shareholders a fair price are
intended to prevent two-tier tender offers that may be abusive. Typically, these
provisions do not apply to board-approved transactions.
We support fair price provisions because we feel all shareholders should be
entitled to receive the same benefits.
Reviewed on a case-by-case basis.
GOLDEN PARACHUTES
Golden parachutes are severance payments to top executives who are terminated or
demoted after a takeover.
We support any proposal that would assure management of its own welfare so that
they may continue to make decisions in the best interest of the company and
shareholders even if the decision results in them losing their job. We do not,
however, support excessive golden parachutes. Therefore, each proposal will be
decided on a case-by- case basis.
Note: Congress has imposed a tax on any parachute that is more than three times
the executive's average annual compensation.
ANTI-GREENMAIL PROPOSALS
We do not support greenmail. An offer extended to one shareholder should be
extended to all shareholders equally across the board.
LIMIT SHAREHOLDERS' RIGHTS TO CALL SPECIAL MEETINGS
We support the right of shareholders to call a special meeting.
CONSIDERATION OF NONFINANCIAL EFFECTS OF A MERGER
This proposal releases the directors from only looking at the financial effects
of a merger and allows them the opportunity to consider the merger's effects on
employees, the community, and consumers.
As a fiduciary, we are obligated to vote in the best economic interests of our
clients. In general, this proposal does not allow us to do that. Therefore, we
generally cannot support this proposal.
Reviewed on a case-by-case basis.
MERGERS, BUYOUTS, SPIN-OFFS, RESTRUCTURINGS
Each of the above is considered on a case-by-case basis. According to the
Department of Labor, we are not required to vote for a proposal simply because
the offering price is at a premium to the current market price. We may take into
consideration the long term interests of the shareholders.
MILITARY ISSUES
Shareholder proposals regarding military production must be evaluated on a
purely economic set of criteria for our ERISA clients. As such, decisions will
be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to
the client's direction when applicable. Where no direction has been given, we
will vote in the best economic interests of our clients. It is not our duty to
impose our social judgment on others.
NORTHERN IRELAND
Shareholder proposals requesting the signing of the MacBride principles for the
purpose of countering the discrimination of Catholics in hiring practices must
be evaluated on a purely economic set of criteria for our ERISA clients. As
such, decisions will be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to
client direction when applicable. Where no direction has been given, we will
vote in the best economic interests of our clients. It is not our duty to impose
our social judgment on others.
OPT OUT OF STATE ANTI-TAKEOVER LAW
This shareholder proposal requests that a company opt out of the coverage of the
state's takeover statutes. Example: Delaware law requires that a buyer must
acquire at least 85% of the company's stock before the buyer can exercise
control unless the board approves.
We consider this on a case-by-case basis. Our decision will be based on the
following:
o State of Incorporation
o Management history of responsiveness to shareholders
o Other mitigating factors
POISON PILL
In general, we do not endorse poison pills.
In certain cases where management has a history of being responsive to the needs
of shareholders and the stock is very liquid, we will reconsider this position.
REINCORPORATION
Generally, we support reincorporation for well-defined business reasons. We
oppose reincorporation if proposed solely for the purpose of reincorporating in
a state with more stringent anti-takeover statutes that may negatively impact
the value of the stock.
STOCK OPTION PLANS
Stock option plans are an excellent way to attract, hold and motivate directors
and employees. However, each stock option plan must be evaluated on its own
merits, taking into consideration the following:
o Dilution of voting power or earnings per share by more than 10%
o Kind of stock to be awarded, to whom, when and how much
o Method of payment
o Amount of stock already authorized but not yet issued under existing
stock option plans
SUPERMAJORITY VOTE REQUIREMENTS
Supermajority vote requirements in a company's charter or bylaws require a level
of voting approval in excess of a simple majority of the outstanding shares. In
general, we oppose supermajority-voting requirements. Supermajority requirements
often exceed the average level of shareholder participation. We support
proposals' approvals by a simple majority of the shares voting.
LIMIT SHAREHOLDERS RIGHT TO ACT BY WRITTEN CONSENT
Written consent allows shareholders to initiate and carry on a shareholder
action without having to wait until the next annual meeting or to call a special
meeting. It permits action to be taken by the written consent of the same
percentage of the shares that would be required to effect proposed action at a
shareholder meeting.
Reviewed on a case-by-case basis.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
PORTFOLIO MANAGER
Mr. Mario J. Gabelli, CFA, is primarily responsible for the day-to-day
management of The Gabelli Equity Trust Inc., (the Trust). Mr. Gabelli has served
as Chairman, Chief Executive Officer, and Chief Investment Officer -Value
Portfolios of GAMCO Investors, Inc. and its affiliates since their organization.
Additionally, Mr. Caesar M. P. Bryan manages a portion of the Trust's assets.
Mr. Bryan is a Senior Vice President and Portfolio Manager with GAMCO Asset
Management Inc. (a wholly owned subsidiary of GAMCO Investors, Inc.) since 1994.
MANAGEMENT OF OTHER ACCOUNTS
The table below shows the number of other accounts managed by the Portfolio
Managers and the total assets in each of the following categories: registered
investment companies, other paid investment vehicles and other accounts. For
each category, the table also shows the number of accounts and the total assets
in the accounts with respect to which the advisory fee is based on account
performance.
# of Accounts
Managed with Total Assets with
Total Advisory Fee Advisory Fee
Name of Portfolio # of Accounts Based on Based on
Manager Type of Accounts Managed Total Assets Performance Performance
-------- ---------------- ------- ------------ ----------- -----------
1. Mario J. Gabelli Registered Investment 24 $11.2B* 5 $2.9B
Companies:
Other Pooled Investment 20 $946.4M* 19 $704.6M
Vehicles:
Other Accounts: 1,882 $10.0B 5 $1.3B
2. Caesar M.P. Bryan Registered Investment 5 $1.0B 0 $0
Companies:
Other Pooled Investment 1 $6.6M 1 6.6M
Vehicles:
Other Accounts: 5 $45.5M 0 $0
* Represents the portion of assets for which the portfolio manager has primary
responsibility in the accounts indicated. The accounts indicated may contain
additional assets under the primary responsibility of other portfolio managers.
POTENTIAL CONFLICTS OF INTEREST
As reflected above, the Portfolio Managers manage accounts in addition to the
Trust. Actual or apparent conflicts of interest may arise when a Portfolio
Manager also has day-to-day management responsibilities with respect to one or
more other accounts. These potential conflicts include:
ALLOCATION OF LIMITED TIME AND ATTENTION. As indicated above, the Portfolio
Managers manage multiple accounts. As a result, they will not be able to devote
all of their time to management of the Trust. The Portfolio Manager, therefore,
may not be able to formulate as complete a strategy or identify equally
attractive investment opportunities for each of those accounts as might be the
case if he were to devote all of his attention to the management of only the
Trust.
ALLOCATION OF LIMITED INVESTMENT OPPORTUNITIES. As indicated above, the
Portfolio Managers manage managed accounts with investment strategies and/or
policies that are similar to the Trust. In these cases, if he identifies an
investment opportunity that may be suitable for multiple accounts, a Fund may
not be able to take full advantage of that opportunity because the opportunity
may be allocated among all or many of these accounts or other accounts managed
primarily by other Portfolio Managers of the Adviser, and their affiliates. In
addition, in the event the Portfolio Manager determines to purchase a security
for more than one account in an aggregate amount that may influence the market
price of the security, accounts that purchased or sold the security first may
receive a more favorable price than accounts that made subsequent transactions.
SELECTION OF BROKER/DEALERS. Because of Mr. Gabelli's position with the
Distributor and his indirect majority ownership interest in the Distributor, he
may have an incentive to use the Distributor to execute portfolio transactions
for a Fund.
PURSUIT OF DIFFERING STRATEGIES. At times, the Portfolio Manager may determine
that an investment opportunity may be appropriate for only some of the accounts
for which he exercises investment responsibility, or may decide that certain of
the funds or accounts should take differing positions with respect to a
particular security. In these cases, he may execute differing or opposite
transactions for one or more accounts which may affect the market price of the
security or the execution of the transaction, or both, to the detriment of one
or more other accounts.
VARIATION IN COMPENSATION. A conflict of interest may arise where the financial
or other benefits available to the Portfolio Managers differ among the accounts
that they manage. If the structure of the Adviser's management fee or the
Portfolio Manager's compensation differs among accounts (such as where certain
accounts pay higher management fees or performance-based management fees), the
Portfolio Manager may be motivated to favor certain accounts over others. The
Portfolio Manager also may be motivated to favor accounts in which he has an
investment interest, or in which the Adviser, or their affiliates have
investment interests. Similarly, the desire to maintain assets under management
or to enhance a Portfolio Manager's performance record or to derive other
rewards, financial or otherwise, could influence the Portfolio Manager in
affording preferential treatment to those accounts that could most significantly
benefit the Portfolio Manager. For example, as reflected above, if the Portfolio
Manager manages accounts which have performance fee arrangements, certain
portions of his compensation will depend on the achievement of performance
milestones on those accounts. The Portfolio Manager could be incented to afford
preferential treatment to those accounts and thereby by subject to a potential
conflict of interest.
The Adviser, and the Funds have adopted compliance policies and procedures that
are designed to address the various conflicts of interest that may arise for the
Adviser and their staff members. However, there is no guarantee that such
policies and procedures will be able to detect and prevent every situation in
which an actual or potential conflict may arise.
COMPENSATION STRUCTURE FOR MARIO J. GABELLI
Mr. Gabelli receives incentive-based variable compensation based on a percentage
of net revenues received by the Adviser for managing the Trust. Net revenues are
determined by deducting from gross investment management fees the firm's
expenses (other than Mr. Gabelli's compensation) allocable to this Trust. Five
closed-end registered investment companies (including this Trust) managed by Mr.
Gabelli have arrangements whereby the Adviser will only receive its investment
advisory fee attributable to the liquidation value of outstanding preferred
stock (and Mr. Gabelli would only receive his percentage of such advisory fee)
if certain performance levels are met. Additionally, he receives similar
incentive based variable compensation for managing other accounts within the
firm and its affiliates. This method of compensation is based on the premise
that superior long-term performance in managing a portfolio should be rewarded
with higher compensation as a result of growth of assets through appreciation
and net investment activity. The level of compensation is not determined with
specific reference to the performance of any account against any specific
benchmark. One of the other registered investment companies managed by Mr.
Gabelli has a performance (fulcrum) fee arrangement for which his compensation
is adjusted up or down based on the performance of the investment company
relative to an index. Mr. Gabelli manages other accounts with performance fees.
Compensation for managing these accounts has two components. One component is
based on a percentage of net revenues to the investment adviser for managing the
account. The second component is based on absolute performance of the account,
with respect to which a percentage of such performance fee is paid to Mr.
Gabelli. As an executive officer of the Adviser's parent company, GBL, Mr.
Gabelli also receives ten percent of the net operating profits of the parent
company. He receives no base salary, no annual bonus, and no stock options.
COMPENSATION STRUCTURE FOR CAESAR M. P. BRYAN
The compensation of Mr. Bryan for the Trust is structured to enable the Adviser
to attract and retain highly qualified professionals in a competitive
environment. The Portfolio Manager receives a compensation package that includes
a minimum draw or base salary, equity-based incentive compensation via awards of
stock options, and incentive based variable compensation based on a percentage
of net revenue received by the Adviser for managing the Trust to the extent that
the amount exceeds a minimum level of compensation. Net revenues are determined
by deducting from gross investment management fees certain of the firm's
expenses (other than the Portfolio Managers' compensation) allocable to the
Trust (the incentive-based variable compensation for managing other accounts is
also based on a percentage of net revenues to the investment adviser for
managing the account). This method of compensation is based on the premise that
superior long-term performance in managing a portfolio should be rewarded with
higher compensation as a result of growth of assets through appreciation and net
investment activity. The level of equity-based incentive and incentive-based
variable compensation is based on an evaluation by the Adviser's parent, GBL, of
quantitative and qualitative performance evaluation criteria. This evaluation
takes into account, in a broad sense, the performance of the accounts managed by
the Portfolio Manager, but the level of compensation is not determined with
specific reference to the performance of any account against any specific
benchmark. Generally, greater consideration is given to the performance of
larger accounts and to longer term performance over smaller accounts and
short-term performance.
OWNERSHIP OF SHARES IN THE FUND
Mario Gabelli and Caesar M. P. Bryan owned 1,827,970.27 and 0 respectively, of
the Trust as of December 31, 2005.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
REGISTRANT PURCHASES OF EQUITY SECURITIES
REGISTRANT PURCHASES OF EQUITY SECURITIES
=============================================================================================================================
(C) TOTAL NUMBER OF (D) MAXIMUM NUMBER (OR
SHARES (OR UNITS) APPROXIMATE DOLLAR VALUE) OF
(A) TOTAL NUMBER OF PURCHASED AS PART OF SHARES (OR UNITS) THAT MAY YET
SHARES (OR UNITS) (B) AVERAGE PRICE PAID PUBLICLY ANNOUNCED PLANS BE PURCHASED UNDER THE PLANS
PERIOD PURCHASED PER SHARE (OR UNIT) OR PROGRAMS OR PROGRAMS
=============================================================================================================================
=============================================================================================================================
Month #1 Common - N/A Common - N/A Common - N/A Common - 141,702,724
07/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 6,600,000
07/31/05
Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - 2,949,700
=============================================================================================================================
=============================================================================================================================
Month #2 Common - N/A Common - N/A Common - N/A Common - 141,702,724
08/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 6,600,000
08/31/05
Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - 2,949,700
=============================================================================================================================
=============================================================================================================================
Month #3 Common - N/A Common - N/A Common - N/A Common - 144,407,482
09/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 6,600,000
09/30/05
Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - 2,949,700
=============================================================================================================================
=============================================================================================================================
Month #4 Common - N/A Common - N/A Common - N/A Common - 164,932,995
10/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 6,600,000
10/31/05
Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - 2,949,700
=============================================================================================================================
=============================================================================================================================
Month #5 Common - N/A Common - N/A Common - N/A Common - 164,932,995
11/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 6,600,000
11/30/05
Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - 2,949,700
=============================================================================================================================
=============================================================================================================================
Month #6 Common - N/A Common - N/A Common - N/A Common - 166,079,270
12/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 6,600,000
12/31/05
Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - 2,949,700
=============================================================================================================================
=============================================================================================================================
Total Common - N/A Common - N/A Common - N/A N/A
Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A
Preferred Series D - N/A Preferred Series D - N/A Preferred Series D - N/A
=============================================================================================================================
Footnote columns (c) and (d) of the table, by disclosing the following
information in the aggregate for all plans or programs publicly announced:
a. The date each plan or program was announced - The notice of the
potential repurchase of common and preferred shares occurs quarterly in
the Fund's quarterly report in accordance with Section 23(c) of the
Investment Company Act of 1940, as amended.
b. The dollar amount (or share or unit amount) approved - Any or all
common shares outstanding may be repurchased when the Fund's common
shares are trading at a discount of 10% or more from the net asset
value of the shares.
Any or all preferred shares outstanding may be repurchased when the
Fund's preferred shares are trading at a discount to the liquidation
value of $25.00.
c. The expiration date (if any) of each plan or program - The Fund's
repurchase plans are ongoing.
d. Each plan or program that has expired during the period covered by the
table - The Fund's repurchase plans are ongoing.
e. Each plan or program the registrant has determined to terminate prior
to expiration, or under which the registrant does not intend to make
further purchases. - The Fund's repurchase plans are ongoing.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's Board of Directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) The Gabelli Equity Trust Inc.
--------------------------------------------------------------------
By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert, Principal Executive Officer
Date March 10, 2006
----------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert,
Principal Executive Officer & Principal
Financial Officer
Date March 10, 2006
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.