THE
GABELLI
ASSET
FUND
PROSPECTUS
May 1, 1997
GABELLI FUNDS, INC.
Investment Adviser
GABELLI & COMPANY, INC.
Distributor
<PAGE>
TABLE OF CONTENTS
Page
Table of Fees and Expenses.............................................2
Financial Highlights...................................................3
The Fund and Its Investment Policies...................................4
Special Investment Methods.............................................6
Management of the Fund.................................................7
Distribution Plan......................................................9
Purchase of Shares....................................................9
Redemption of Shares..................................................12
Retirement Plans......................................................13
Dividends, Distributions and Taxes....................................14
Calculation of Investment Performance.................................14
General Information...................................................15
Custodian, Transfer Agent and Dividend Disbursing Agent...............15
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No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained in
this Prospectus, the Statement of Additional Information and in the Fund's
official sales literature, and if given or made, such information or
representation may not be relied upon as authorized by the Fund, its
Investment Adviser, Distributor or any affiliate thereof. This Prospectus
does not constitute an offer to sell or a solicitation of any offer to buy
any of the securities offered hereby in any state to any person to whom it
is unlawful to make such offer in such state.
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<PAGE>
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19
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THE GABELLI ASSET FUND
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com
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PROSPECTUS
May 1, 1997
The Gabelli Asset Fund (the "Fund") is an open-end, no-load mutual fund, the
primary investment objective of which is growth of capital. Current income
is a secondary investment objective. See "The Fund and its Investment
Policies". ---------------
Shares of the Fund may be purchased without a sales load at the next determined
per share net asset value (see "Purchase of Shares"). There is no deferred sales
or other charge on the redemption of shares. The Fund pays 0.25% of its average
net assets in any fiscal year for certain promotional and distribution expenses
and shareholder services (see "Distribution Plan"). The minimum initial
investment is $1,000 except for investments made through the Automatic
Investment Plan (see "Purchase of Shares - Automatic Investment Plan"). For
further information, contact Gabelli & Company, Inc. at the address or telephone
number shown above.
----------------
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information,
dated May 1, 1997, containing additional and more complete information about the
Fund (the "Additional Statement") has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated in its entirety by reference
into this Prospectus. For a free copy, write or call the Fund at the telephone
number or address set forth above. Also, the Additional Statement is available
for reference, along with other materials, on the SEC Internet web site
(http://www.sec.gov).
----------------
Shares of the Fund are not deposits or obligations of or guaranteed by any bank,
and are not insured or guaranteed by any bank, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. An investment in
the Fund involves investment risks, including the possible loss of principal.
----------------
This Prospectus should be retained by investors for
future reference.
----------------
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF FEES AND EXPENSES
<S> <C>
Shareholder Transaction Expenses:
Maximum sales load imposed on purchases or reinvestment of dividends................................ None
Contingent deferred sales load upon redemption of investments........................................ None
Redemption Fees...................................................................................... None *
Exchange Fees........................................................................................ None
Annual Fund Operating Expenses:
(Percent of average net assets)
Management Fees...................................................................................... 1.00%
Distribution (Rule 12b-1) Expenses (a)............................................................... .24%
Other Expenses...................................................................................... .10%
----
Total Operating Expenses........................................................................ 1.34%
=====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example: ** 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and redemption at the end of each time period: $14 $42 $73 $161
.........
* Broker-dealers holding a shareholder's shares may charge a fee for redemptions.
** The amounts listed in this example should not be considered as
representative of past or future expenses and actual expenses may be
greater or less than those indicated. Moreover, while the example assumes a
5% annual return, the Fund's actual performance will vary and may result in
an actual return greater or less than 5%.
(a) The foregoing table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
expenses shown are at the levels incurred during the past fiscal year. The
maximum level of distribution expenses which may be borne by the Fund is
0.25% of its average net assets (see "Distribution Plan"). As a result,
long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. ("NASD").
</TABLE>
Management's Discussion and Analysis of the Fund's performance during the fiscal
year ended December 31, 1996 is included in the Fund's Annual Report to
Shareholders dated December 31, 1996. The Fund's Annual Report to Shareholders
may be obtained upon request and without charge by writing or calling the Fund
at the address or telephone number listed on the Prospectus cover.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following information, insofar as it pertains to each of the five years in
the period ended December 31, 1996, has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report appears in the Additional
Statement. This table should be read in conjunction with the Financial
Statements and related notes that are included in the Additional Statement.
Per share amounts for a Fund share outstanding throughout each year ended
December 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of year.. $25.75 $22.21 $23.30 $19.88 $17.96 $15.63 $17.26 $14.69 $12.61 $11.28
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income (a)........... 0.15 0.26 0.26 0.16 0.26 0.39 0.76 0.55 0.24 0.14
Net realized and unrealized gain/(loss)
on investments................. 3.29 5.28 (0.30) 4.18 2.41 2.45 (1.62) 3.30 3.45 1.69
--------- ------- ------- ----- ----- ----- ------- ----- ----- -----
Total from investment operations.... 3.44 5.54 (0.04) 4.34 2.67 2.84 (0.86) 3.85 3.69 1.83
--------- ------- ------- ----- ----- ----- ------- ----- ----- -----
Distributions to shareholders from:
Net investment income.......... (0.15) (0.25) (0.25) (0.16) `(0.25)` (0.39) `(0.77) (0.56) (0.38) (0.09)
Distributions in excess of net
investment income.......... __ __ (0.01) __ __ __ __ __ __ __
Net realized gains............. (2.61) (1.75) (0.76) (0.76) (0.50) (0.12) __ (0.72) (1.23) (0.41)
Distributions in excess of net
realized gains............. (0.01) (0.00)(c) (0.03) ---- ---- ---- ---- ---- ---- ----
------ ------- ------- ---- ---- ---- ---- ---- ---- ----
Total distributions................. (2.77) (2.00) (1.05) (0.92) (0.75) (0.51) (0.77) (1.28) (1.61) (0.50)
------ ------- ------- ------ ------- ------- ------- ------- ------- -------
Net asset value, end of year........ $26.42 $25.75 $ 22.21 $23.30 $19.88 $17.96 $15.63 $17.26 $14.69 $12.61
====== ====== ======= ====== ====== ====== ====== ====== ====== ======
Total return*....................... 13.4% 24.9% (0.1%) 21.8% 14.9% 18.1% (5.0%) 26.2% 31.1% 16.2%
======== ===== ====== ====== ====== ===== ======= ===== ====== ======
Ratios to average net
assets/supplemental data:
Net assets, end of year (in 000's)$1,080,639 $1,091,539$982,250 $945,408$632,575$483,865 $342,710 $359,443 $143,050 $76,810
Ratio of net investment income to
average net assets......... 0.52% 0.95% 1.10% 0.82% 1.42% 2.34% 4.51% 4.17% 2.04% 1.19%
Ratio of operating expenses to
average net assets (b)..... 1.34% 1.33% 1.28% 1.31% 1.31% 1.30% 1.20% 1.26% 1.31% 1.26%
Portfolio turnover rate............. 14.9% 26.4% 18.7% 16.0% 14.4% 20.1% 55.7% 49.3% 47.3% 89.9%
Average commission rate
(per share of security) (d)... $0.0484 N/A N/A N/A N/A N/A N/A N/A N/A N/A
.........
* Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends.
(a) Net investment income before expenses reimbursed by Adviser for the years ended December 31, 1988 and 1987
was $0.23 and $0.11, respectively.
(b) Operating expense ratios before expenses reimbursed by Adviser for the
years ended December 31, 1988 and 1987 were 1.38% and 1.52%, respectively.
(c) Amount represents less than $0.005 per share.
(d) Average commission rate (per share of security) as required by amended SEC
disclosure requirements effective for fiscal years beginning after
September 1, 1995.
.........
</TABLE>
THE FUND AND ITS INVESTMENT POLICIES
The Fund is an open-end, no-load, diversified management investment company
organized as a Massachusetts Business Trust on November 25, 1985. The primary
investment objective of the Fund is to seek growth of capital and investments
will be made based on management's perception of their potential for capital
appreciation. Current income, to the extent it may affect potential growth of
capital, is a secondary objective. There is no assurance that the Fund will
achieve its investment objectives. The investment objectives of the Fund
together with the percentage restrictions set forth below under "Special
Investment Methods" and its investment restrictions which are described in the
Additional Statement, are fundamental and may not be changed without shareholder
approval. Its other investment policies indicated below may be changed by the
Board of Trustees without shareholder approval.
The Fund expects that its assets will be invested primarily in a diversified
portfolio of readily marketable equity securities (including common stock,
preferred stocks and securities representing the right to acquire stocks), at
least 80% of which will be listed on a nationally recognized securities exchange
or traded on the NASDAQ National Market System of the National Association of
Securities Dealers. Gabelli Funds, Inc. (the "Adviser") will invest in companies
that, in the public market, are selling at a significant discount to their
private market value or that value the Adviser believes an informed
industrialist would be willing to pay to acquire companies with similar
characteristics. Factors considered by the Adviser include price, earnings
expectations, earnings and price histories, balance sheet characteristics and
perceived management skills. Also considered are changes in economic and
political outlooks as well as individual corporate developments. Fund
investments which lose their perceived value relative to other investment
alternatives are sold.
When deemed appropriate by the Adviser, the Fund may without limit invest
temporarily in defensive securities such as preferred stocks, high-grade debt
securities, obligations of the U.S. Government, its agencies or
instrumentalities, or in short-term (maturing less than one year) money market
instruments, including commercial paper rated A-1 or better by Standard & Poor's
Ratings Services, a division of McGraw-Hill Companies, Inc.
("S&P"), or P-1 or better by Moody's Investors Service, Inc. ("Moody's").
Corporate Reorganizations
Subject to the diversification requirements of its investment restrictions, the
Fund may invest not more than 35% of its total assets in securities for which a
tender or exchange offer has been made or announced and in the securities of
companies for which a merger, consolidation, liquidation or similar
reorganization proposal has been announced if, in the judgment of the Adviser,
there is a reasonable prospect of capital appreciation significantly greater
than the added portfolio turnover expenses inherent in the short-term nature of
such transactions. The 35% limitation does not apply to the securities of
companies which may be involved in simply consummating an approved or agreed
upon merger, acquisition, consolidation, liquidation or reorganization. The
principal risk is that such offers or proposals may not be consummated within
the time and under the terms contemplated at the time of the investment in which
case, unless replaced by an equivalent or increased offer or proposal which is
consummated, the Fund may sustain a loss. For further information on such
investments, see "Special Investment Methods - Corporate Reorganizations" in the
Additional Statement.
Convertible Securities
Convertible securities may include corporate notes or preferred stock but are
ordinarily a long-term debt obligation of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. Convertible
securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks on an issuer's capital
structure and are consequently of higher quality and entail less risk than the
issuer's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security.
The Fund may invest in convertible securities when it appears to the Adviser
that it may not be prudent to be fully invested in common stocks. In evaluating
a convertible security, the Adviser places primary emphasis on the
attractiveness of the underlying common stock and the potential for capital
appreciation through conversion. See "Special Investment Methods - Convertible
Securities" in the Additional Statement.
The Fund will normally purchase only investment grade convertible securities
having a rating of, or equivalent to, at least an S&P rating of BBB (which
securities may have speculative characteristics) or, if unrated, judged by the
Adviser to be of comparable quality. However, the Fund may also invest up to 25%
of its assets in more speculative convertible debt securities which appear to
present an advantageous means of acquiring common stock having potential capital
appreciation provided such securities have a rating of, or equivalent to, at
least an S&P rating of B or, if unrated, judged by the Adviser to be of
comparable quality. Corporate debt obligations having a B rating will likely
have some quality and protective characteristics which, in the judgment of the
rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions. Although lower rated debt securities generally
have higher yields, they are also more subject to market price volatility based
on increased sensitivity to changes in interest rates and economic conditions or
the liquidity of their secondary trading market. A description of corporate debt
ratings is contained in the Additional Statement.
Debt Securities
The Fund may invest up to 5% of its assets in low rated and unrated corporate
debt securities (often referred to in the financial press as "junk bonds") which
are perceived by the Adviser to present an opportunity for significant capital
appreciation, if, in the judgment of the Adviser, the ability of the issuer to
repay principal and interest when due is underestimated by the market. See
"Special Investment Methods - Debt Securities" in the Additional Statement.
Investments in Small, Unseasoned Companies
The Fund may invest in small, less well-known companies which have operated less
than three years (including predecessors). The securities of such companies may
have limited liquidity.
Warrants and Rights
The Fund may invest in warrants or rights (other than those acquired in units or
attached to other securities) which entitle the holder to buy equity securities
at a specific price for a specific period of time but will do so only if such
equity securities are deemed appropriate by the Adviser for inclusion in the
Fund's portfolio.
Foreign Securities
The Fund may invest up to 25% of its total assets in the securities of non-U.S.
issuers. These investments involve certain risks not ordinarily associated with
investments in securities of domestic issuers. These risks include fluctuations
in foreign exchange rates (which the Fund will not seek to hedge), future
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. In addition, with
respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
Theremay be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Non-U.S. securities
markets, while growing in volume have, for the most part, substantially
less volume than U.S. markets, and securities of many foreign companies are
less liquid and their prices more volatile than securities of comparable
U.S. companies. Transaction costs of investing in non-U.S. securities
markets are generally higher than in the U.S. There is generally less
government supervision and regulation of exchanges, brokers and issuers
than there is in the U.S. The Fund might have greater difficulty taking
appropriate legal action in non-U.S. courts. Non-U.S. markets also have
different clearance and settlement procedures which in some markets have at
times failed to keep pace with the volume of transactions, thereby creating
substantial delays and settlement failures that could adversely affect the
Fund's performance.
Dividend and interest income from non-U.S. securities will generally be subject
to withholding taxes by the country in which the issuer is located and may not
be recoverable by the Fund or the investor.
Other Investment Companies
The Fund does not intend to purchase the shares of other open-end investment
companies but reserves the right to invest up to 10% of its total assets in the
securities of closed-end investment companies including small business
investment companies (not more than 5% of its total assets may be invested in
more than 3% of the securities of any investment company). To the extent that
the Fund invests in the securities of other investment companies, shareholders
in the Fund may be subject to duplicative advisory and administrative fees.
SPECIAL INVESTMENT METHODS
The Fund will not invest, in the aggregate, more than 10% of its net assets in
small, unseasoned companies, securities which are restricted for public sale,
securities for which market quotations are not readily available, and in
repurchase agreements maturing or terminable in more than seven days. Securities
freely salable among qualified institutional investors under special rules
adopted by the SEC may be treated as liquid if they satisfy liquidity standards
established by the Board of Trustees. The continued liquidity of such securities
is not as well assured as that of publicly traded securities, and accordingly,
the Board of Trustees monitors their liquidity. Further information on the
investment methods and policies of the Fund are set forth in the Additional
Statement.
The Fund may purchase and sell securities on a "when, as and if issued basis"
under which the issuance of the security depends upon the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization or debt
restructuring. For further information, see "Special Investment Methods - When
Issued, Delayed Delivery Securities & Forward Commitments" in the Additional
Statement.
Repurchase Agreements
The Fund may enter into repurchase agreements with "primary dealers" in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. In a repurchase agreement, an investor (e.g., the
Fund) purchases a debt security from a seller which undertakes to repurchase the
security at a specified resale price on an agreed future date (ordinarily a week
or less). The resale price generally exceeds the purchase price by an amount
which reflects an agreed-upon market interest rate for the term of the
repurchase agreement. The principal risk is that, if the seller defaults, the
Fund might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by the Fund are less than the
repurchase price. Except for repurchase agreements for a period of a week or
less in respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, not more than 5% of the Fund's total assets may
be so invested.
Borrowing
The Fund may not borrow money except for (i) short-term credits from banks as
may be necessary for the clearance of portfolio transactions, and (ii)
borrowings from banks for temporary or emergency purposes, including the meeting
of redemption requests, which would otherwise require the untimely disposition
of its portfolio securities. Borrowing for any purpose including redemptions may
not, in the aggregate, exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5%, of the value of the Fund's total assets at the
time a borrowing is made. The Fund will not make any additional purchases of
portfolio securities at any time its borrowings exceed 5% of its assets. The
Fund will not mortgage, pledge or hypothecate any of its assets except that, in
connection with the foregoing, not more than 20% of the assets of the Fund may
be used as collateral.
MANAGEMENT OF THE FUND
The Fund's Board of Trustees (who, with its officers, are described in the
Additional Statement) has overall responsibility for the management of the Fund.
The Trustees decide upon matters of general policy and review the actions of the
Adviser and Gabelli & Company, Inc., the Fund's distributor (the "Distributor").
Pursuant to an Investment Advisory Contract (the "Advisory Contract") with the
Fund, the Adviser provides a continuous investment program for the Fund's
portfolio; provides all facilities and personnel, including officers, required
for its administrative management; and pays the compensation of all officers and
Trustees of the Fund who are its affiliates. As compensation for its services
and the related expenses borne by the Adviser, the Fund pays the Adviser a fee,
computed daily and payable monthly, equal, on an annual basis, to 1.00% of the
Fund's average net assets. The advisory fee paid by the Fund for its fiscal year
ended December 31, 1996 was 1.00% of its average net assets and its total
expenses for the same period were 1.34% of its average net assets.
The Additional Statement contains further information about the Advisory
Contract including a more complete description of the advisory and expense
arrangements, exculpatory and brokerage provisions, as well as information on
the brokerage practices of the Fund.
Gabelli Funds, Inc. acts as Adviser to the Fund. The Adviser was formed in 1980
and as of April 1, 1997 acts as investment adviser to the following funds
with aggregate assets of $4.0 billion:
Net Assets
04/01/97
Open-end funds: (in millions)
------------
Gabelli Asset Fund $1,027
Gabelli Growth Fund 615
Gabelli Value Fund Inc. 437
Gabelli Small Cap Growth Fund 205
Gabelli Equity Income Fund 60
Gabelli U.S. Treasury Money Market Fund 261
Gabelli ABC Fund 23
Gabelli Global Telecommunications Fund 99
Gabelli Global Convertible Securities Fund 11
Gabelli Global Interactive Couch Potato(R)Fund 29
Gabelli Gold Fund, Inc. 16
Gabelli Capital Asset Fund 52
Gabelli International Growth Fund, Inc. 18
Closed-end funds:
Gabelli Equity Trust Inc. 1,005
Gabelli Convertible Securities Fund, Inc. 90
Gabelli Global Multimedia Trust Inc. 91
GAMCO Investors, Inc. ("GAMCO"), a majority-owned subsidiary of the Adviser,
acts as investment adviser for individuals, pension trusts, profit-sharing
trusts and endowments, having aggregate assets in excess of $4.9 billion as of
April 1, 1997. Teton Advisers LLC, an affiliate of the Adviser, acts as
investment adviser to the Westwood Funds and had aggregate assets in excess of
$123 million as of April 1, 1997. The Distributor, which is the principal
distributor of the Fund for the sale of its shares, is an indirect
majority-owned subsidiary of the Adviser. Mr. Mario J. Gabelli may be deemed a
"controlling person" of the Adviser and the Distributor on the basis of his
ownership of stock of the Adviser. Mario J. Gabelli, CFA has been designated by
the Adviser to be primarily responsible for the day to day management of the
Fund. The Adviser relies to a considerable extent on the expertise of Mr.
Gabelli, who may be difficult to replace in the event of his death, disability
or resignation. Mr. Gabelli has been Chairman, Chief Executive Officer and Chief
Investment Officer of the Adviser since its inception in 1980. The Adviser's
address is the same as the Fund as shown on the cover of this Prospectus.
Affiliates of the Adviser may, in the ordinary course of their business, acquire
for their own account or for the accounts of their advisory clients, significant
(and possibly controlling) positions in the securities of companies that may
also be suitable for investment by the Fund. The securities in which the Fund
might invest may thereby be limited to some extent. For instance, many companies
in the past several years have adopted so-called "poison pill" or other
defensive measures designed to discourage or prevent the completion of
non-negotiated offers for control of the company. Such defensive measures may
have the effect of limiting the shares of the company which might otherwise be
acquired by the Fund if the affiliates of the Adviser or their advisory accounts
have or acquire a significant position in the same securities. However, the
Adviser does not believe that the investment activities of its affiliates will
have a material adverse effect upon the Fund in seeking to achieve its
investment objectives. Securities purchased or sold pursuant to contemporaneous
orders entered on behalf of the investment company accounts of the Adviser or
the advisory accounts managed by its affiliates for their unaffiliated clients
are allocated pursuant to principles believed to be fair and not disadvantageous
to any such accounts. In addition, all such orders are accorded priority of
execution over orders entered on behalf of accounts in which the Adviser or its
affiliates have a substantial pecuniary interest. The Adviser may on occasion
give advice or take action with respect to other clients that differ from the
actions taken with respect to the Fund. The Fund may invest in the securities of
companies which are investment management clients of GAMCO. In addition,
portfolio companies or their officers or directors may be minority shareholders
of the Adviser or its affiliates.
The Advisory Contract contains provisions relating to the selection of
securities brokers to effect the portfolio transactions of the Fund. Under those
provisions, subject to applicable law and procedures adopted by the Trustees,
the Adviser may (i) direct Fund portfolio brokerage to the Distributor, a
broker-dealer affiliate of the Adviser; (ii) pay commissions to brokers other
than the Distributor which are higher than might be charged by another qualified
broker to obtain brokerage and/or research services considered by the Adviser to
be useful or desirable for its investment management of the Fund and/or other
advisory accounts of itself and any investment adviser affiliated with it; and
(iii) consider the sales of shares of the Fund by brokers other than the
Distributor as a factor in its selection of brokers for Fund portfolio
transactions.
The Adviser has entered into a Sub-Administration Agreement with First Data
Investor Services Group, Inc., a subsidiary of First Data Corporation (the
"Sub-Administrator"). Under the Sub-Administration Agreement, the
Sub-Administrator provides certain administrative services necessary for the
Fund's operations including the preparation and distribution of materials for
meetings of the Fund's Board of Trustees, compliance testing of Fund activities
and assistance in the preparation of proxy statements, reports to shareholders
and other documentation. For such services and related expenses borne by the
Sub-Administrator, the Adviser pays the Sub-Administrator a monthly fee based on
the aggregate average daily net assets of all Funds under its administration
managed by the Adviser as follows: up to $1 billion--0.10%; $1 billion to $1.5
billion--0.08%; $1.5 billion to $3 billion--0.03%; over $3 billion--0.02%. No
additional amount will be paid by the Fund for services by the
Sub-Administrator. The Sub-Administrator has its principal office at Exchange
Place, Boston, Massachusetts 02109.
DISTRIBUTION PLAN
On May 11, 1992, the shareholders of the Fund approved a Distribution Plan which
authorizes payments by the Fund in connection with the distribution of its
shares at an annual rate, as determined from time to time by the Board of
Trustees, of up to .25% of the Fund's average daily net assets. Payments may be
made by the Fund under the Distribution Plan for the purpose of financing any
activity primarily intended to result in the sales of shares of the Fund as
determined by the Board of Trustees. Such activities typically include
advertising; compensation for sales and marketing activities of the Distributor
and other banks, broker-dealers and service providers; shareholder account
servicing; production and dissemination of prospectus and sales and marketing
materials; and capital or other expenses of associated equipment, rent,
salaries, bonuses, interest and other overhead. To the extent any activity is
one which the Fund may finance without a Distribution Plan, the Fund may also
make payments to compensate such activity outside of the Plan and not be subject
to its limitations. On February 26, 1997, the Trustees of the Fund approved an
amendment to the Plan such that payments under the Plan are not solely dependent
on distribution expenses actually incurred by the Distributor.
The Plan has been implemented by written agreements between the Fund and/or the
Distributor and each person (including the Distributor) to which payments may be
made. Administration of the Plan is regulated by Rule 12b-1 under the Investment
Company Act of 1940 (the "Act"), which includes requirements that the Board of
Trustees receive and review at least quarterly reports concerning the nature and
qualification of expenses which are made, that the Board of Trustees approve all
agreements implementing the Plan and that the Plan may be continued from year to
year only if the Board of Trustees concludes at least annually that continuation
of the Plan is likely to benefit shareholders.
To the extent that payments under the Plan are based on allocation by the
Distributor, the Fund may be considered to be participating in joint
distribution activities with other funds distributed by the Distributor. Any
such allocations would be subject to approval by the Fund's non-interested
Trustees and would be based on such factors as the net assets of each Fund, the
number of shareholders, inquiries and similar pertinent criteria.
In approving the Plan, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
During the fiscal year ended December 31, 1996, the distribution fees paid to
the Distributor totaled $2,706,466 or 0.24% of the Fund's average daily net
assets.
PURCHASE OF SHARES
Shares of the Fund are offered without a sales load as an investment vehicle for
individuals, institutions, fiduciaries and retirement plans. Prospectuses, sales
material and applications can be obtained from the Distributor. The Fund and the
Distributor are authorized to reject any purchase order.
The minimum initial investment is $1,000 for all accounts. Accounts establishing
an Automatic Investment Plan require no initial minimum investment (see
"Automatic Investment Plan"). There is no minimum for subsequent investments.
All purchase payments accompanied by a purchase order in proper form as
described below will be effective as of the date received by the Transfer Agent
and will be invested in full and fractional shares at the per share net asset
value of the Fund next determined after such receipt. Although most shareholders
elect not to receive stock certificates, certificates for whole shares only can
be obtained on specific written request to the Transfer Agent. The Fund may
waive or reduce the minimum initial investment for certain accounts or classes
of accounts from time to time.
Shares of the Fund may also be purchased through authorized broker-dealers who
may charge for their services. No such charge is imposed by the Fund or the
Distributor. Such charges may vary among broker-dealers who may impose higher
initial or subsequent minimum investment requirements than those established by
the Fund. Services provided by such broker-dealers may include holding Fund
shares in the name of the broker-dealer for the brokerage accounts of its
customers and allowing investors to borrow on the value of their Fund shares by
establishing a margin account with the broker-dealer. Shares so held may be
redeemed or transferred only by arrangement with the broker-dealer. It is the
responsibility of the shareholder's agent to establish procedures which would
assure that upon receipt of an order to purchase shares of the Fund, the order
will be transmitted so that it will be received by the Distributor before the
time when the price applicable to the buy order expires.
The Fund's net asset value per share is calculated on each day, Monday through
Friday, except days on which the New York Stock Exchange ("NYSE") is closed. The
NYSE is currently scheduled to be closed on New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas and on the preceding Friday or subsequent Monday when a holiday falls
on a Saturday or Sunday, respectively.
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE, normally 4:00 p.m., New York time and is computed by
dividing the value of the Fund's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued by
excluding capital stock and surplus) by the total number of shares outstanding
at the time the determination is made. The Fund uses market quotations in
valuing its portfolio securities. Short-term investments that mature in 60 days
or less are valued at amortized cost. See the Additional Statement for further
information.
<PAGE>
Mail
To make an initial purchase of shares of the Fund, send a completed subscription
order form with a check for the amount of the investment payable to "The Gabelli
Asset Fund" to: The Gabelli Funds, P.O. Box 8308, Boston, MA 02266-8308.
Subsequent purchases do not require a completed application and can be made by
(i) mailing a check to the same address noted above; (ii) bank wire; (iii)
personal delivery; or (iv) by telephone as indicated below. The exact name and
number of the shareholder's account should be clearly indicated.
Checks will be accepted if drawn in U.S. currency on a domestic bank for less
than $100,000. U.S. dollar checks drawn against a non-U.S. bank may be
subject to collection delays and will be accepted only upon actual receipt
of funds by the Fund's Transfer Agent. Bank collection fees may apply. Bank
or certified checks for investments of $100,000 or more will be required
unless the investor elects to invest by bank wire as described below.
Checks made payable to a third party are not acceptable.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, the investor should instruct a Federal Reserve System member bank
to wire funds to:
State Street Bank and Trust Company
ABA # 011-0000-28 REF DDA # 9904-6187
Attn.: Shareholder Services
Re: The Gabelli Asset Fund
A/C # ______________________________
(Registered Owner)
Account of ___________________________
SS # / Tax I.D. # ______________________
225 Franklin Street, Boston, MA 02110
For initial purchases, an investor should first telephone the Fund at
1-800-GABELLI (422-3554) to obtain a new account number. The investor should
then mail a completed subscription order form to the Gabelli Funds at the
address shown above for mail purchases. State Street Bank and Trust Company does
not charge investors in the Fund for the receipt of wire transfers but there may
be a charge by the investor's bank for transmitting the money by bank wire. If
the investor is planning to wire funds, it is suggested that the investor
instruct his or her bank early in the day so the wire transfer can be
accomplished the same day.
Personal Delivery
Deliver a check made payable to "The Gabelli Asset Fund" (with a completed
subscription order form for an initial purchase) to: The Gabelli Funds, The BFDS
Building, 7th Floor, Two Heritage Drive, North Quincy, MA 02171.
Telephone Investment Plan
An investor may purchase additional shares of the Fund by telephone through the
Automated Clearing House ("ACH") system as long as the investor's bank is a
member of the ACH system and the investor has a completed, approved Investment
Plan application on file with the Fund's Transfer Agent. The funding for the
investor's purchase will be automatically deducted from the ACH eligible account
the investor designates on the application. The investor's investment will
normally be credited to his or her mutual fund account on the first business day
following his or her telephone request. The investor's request must be received
no later than 4:00 p.m., Eastern time. There is a minimum of $100 for each
telephone investment. Any subsequent changes in banking information must be
submitted in writing and accompanied by a sample voided check. To initiate an
ACH purchase, the investor should call 1-800-GABELLI (422-3544) or
1-800-872-5365. Fund shares purchase through the Investment Plan will not be
available for redemption for fifteen (15) days following the purchase date.
Automatic Investment Plan
The Fund offers an automatic monthly investment plan through the ACH system,
details of which can be obtained from the Distributor. There is no minimum
initial investment for accounts establishing an automatic investment plan.
Systematic Withdrawal Plan
Any shareholder who owns shares of the Fund with an aggregate value of $10,000
or more may establish a Systematic Withdrawal Plan under which he or she offers
to sell to the Fund at net asset value the number of full and fractional shares
which will produce the monthly, quarterly or annual payments specified.
Systematic withdrawals deplete the investor's principal and are treated as
redemptions, which may be taxable transactions. Investors contemplating
participation in this plan should consult their tax advisers.
Shareholders wishing to utilize this plan may do so by completing an application
which may be obtained by writing or calling the Distributor. No additional
charge to the shareholder is made for this service.
Other Investors
No minimum initial investment is required for (i) officers or Trustees of the
Fund; (ii) officers, directors or full-time employees of the Adviser, the
Distributor or their affiliates, including members of the "immediate family" of
such employees. The term "immediate family" refers to spouses, children and
grandchildren adopted or natural, parents, grandparents, siblings, a spouse's
siblings, a sibling's spouse and a sibling's children; (iii) retirement plans
established for such employees; or (iv) investments made through the Fund's
Automatic Investment Plan.
REDEMPTION OF SHARES
Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of the Fund will be redeemed at their next determined net asset value.
Checks for redemption proceeds will normally be mailed to the shareholder's
address of record within seven days, but will not be mailed until all checks in
payment for the purchase of the shares to be redeemed have been honored, which
may take up to 15 days. There is no charge on the redemption of shares
regardless of when purchased. The proceeds of a redemption may be more or less
than the amount invested and, therefore, a redemption may result in gain or loss
for income tax purposes.
By Letter
Redemption requests may be made by letter to the Transfer Agent, specifying the
name of the Fund, the dollar amount or number of shares to be redeemed, and the
account number. The letter must be signed in exactly the same way the account is
registered (if there is more than one owner of the shares, all must sign) and,
if any certificates for the shares to be redeemed are outstanding, presentation
of such certificates properly endorsed is also required. Signatures on a
redemption request and/or certificates must be guaranteed by an eligible
guarantor institution which includes a domestic bank, a savings and loan
institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange; pursuant to the
Fund's Transfer Agent's standards and procedures (signature guarantees by
notaries public are not acceptable). Further documentation, such as copies of
corporate resolutions and instruments of authority, are normally requested from
corporations, administrators, executors, personal representatives, trustees or
custodians to evidence the authority of the person or entity making the
redemption request.
<PAGE>
Telephone Redemption By Check
The Fund accepts telephone requests for redemption of uncertificated shares from
shareholders subject to a $25,000 limitation. By calling either 1-800-GABELLI
(442-3554) or 1-800-872-5365, an investor may request that a check be mailed to
the address of record on the account provided that the address has not changed
within thirty (30) days prior to the investor's request. The check will be made
payable as the account is registered and mailed within seven (7) days.
By Bank Wire
The Fund accepts telephone requests for wire redemption in excess of $1,000 but
subject to a $25,000 limitation to a predesignated bank either on the
subscription order form or in a subsequent written authorization with the
signature guaranteed. The Fund accepts signature guaranteed written requests for
redemptions by bank wire without limitation. The proceeds are normally wired on
the following business day. The investor's bank must be either a member of the
Federal Reserve System or have a correspondent bank which is a member. Any
change to the banking information made at a later date must be submitted in
writing with a signature guarantee.
Requests for telephone redemption must be received between 9:00 a.m. and 4:00
p.m., Eastern time. If the investor's telephone call is received after this time
or on a day when the NYSE is not open, the request will be processed the
following business day. Shares are redeemed at the net asset value next
determined following the investor's request. Fund shares purchased by check or
through the automatic purchase plan will not be available for redemption for
fifteen (15) days following the purchase. Shares held in certificate form must
be returned to the Transfer Agent for redeposit prior to the redemption of
shares. Telephone redemption is not available for Individual Retirement
Accounts. The proceeds of a telephone redemption may be directed to an existing
account in another mutual fund advised by Gabelli Funds, Inc. provided the
registration of such account is the same. Such a purchase will be made at the
respective net asset value plus applicable sales charge, if any.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to the shareholder's address of record and generally
will be mailed within seven days after receipt of the request.
Shareholders may also redeem Fund shares through registered broker-dealers
holding such shares who have made arrangements with the Fund permitting them to
redeem such shares by telephone or facsimile transmission and who may charge a
fee for this service.
The Fund may suspend the right of redemption during any period when (i) trading
on the NYSE is restricted or the NYSE is closed, other than customary weekend
and holiday closings; (ii) the SEC has by order permitted such suspension or
(iii) an emergency, as defined by rules of the SEC, exists making disposal of
portfolio investments or determination of the value of the net assets of the
Fund not reasonably practicable. The Fund may postpone for more than seven days
the date of payment for redemptions during any period the right to redeem has
been suspended.
To minimize expenses, the Fund reserves the right to redeem, upon not less than
30 days' notice, all shares of the Fund in an account (other than an IRA) which
has a value below $500 due to prior shareholder redemptions. However, a
shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.
The Fund and its Transfer Agent will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard the Fund and its
Transfer Agent require personal identification information before accepting a
telephone redemption. If the Fund or its Transfer Agent fail to use reasonable
procedures, the Fund may be liable for losses due to fraudulent instructions.
<PAGE>
RETIREMENT PLANS
The Fund has available a form of IRA for investment in Fund shares which may be
obtained from its Distributor. The minimum investment required to open an IRA
for investment in shares of the Fund is $1,000. There is no minimum for
additional investment in an IRA account. Self-employed investors may purchase
shares of the Fund through tax-deductible contributions to existing retirement
plans for self-employed persons, known as Keogh or H.R. 10 plans. The Fund does
not currently act as sponsor to such plans. Fund shares may be a suitable
investment for other types of qualified pension or profit-sharing plans which
are employer sponsored, including deferred compensation or salary reduction
plans known as "401(k) Plans" which give participants the right to defer
portions of their compensation for investment on a tax-deferred basis until
distributions are made from the plans. The minimum initial investment for an
individual under such plans is $1,000 and there is no minimum for additional
investments.
Under the Internal Revenue Code of 1986, as amended (the "Code"), individuals
may make wholly or partly tax deductible IRA contributions of up to $2,000
annually, depending on whether they are active participants in an
employer-sponsored retirement plan and on their income level. However, dividends
and distributions held in the account are not taxed until withdrawn in
accordance with the provisions of the Code. An individual with a non-working
spouse may establish a separate IRA for the spouse under the same conditions and
contribute a combined maximum of $4,000 annually to both IRAs provided that no
more than $2,000 may be contributed to the IRA of either spouse. Other
provisions permit additional IRA contributions which are not tax deductible but
the tax on reinvested dividends and distributions is deferred while held in the
account. There are also rules on the amount of tax deductible contributions
which may be made to other retirement plans.
Investors should be aware that they may be subject to penalties or additional
tax on contributions to or withdrawals from IRAs or other retirement plans which
are not permitted by the applicable provisions of the Code and prior to a
withdrawal, shareholders may be required to certify their age and awareness of
such restrictions in writing. Persons desiring information concerning
investments through IRAs or other retirement plans should write or telephone the
Distributor.
DIVIDENDS, DISTRIBUTION AND TAXES
Each dividend and capital gains distribution, if any, declared by the Fund on
its outstanding shares will, at the election of each shareholder, be paid on the
payment date fixed by the Board of Trustees in additional shares of the Fund
having an aggregate net asset value as of the ex-dividend date of such dividend
or distribution equal to the cash amount of such dividend or distribution. An
election to receive dividends and distributions in cash or shares is made at the
time shares are subscribed for and may be changed by notifying the Fund in
writing at any time prior to the record date for a particular dividend or
distribution. There are no sales or other charges in connection with the
reinvestment of dividends and capital gains distributions. There is no fixed
dividend rate, and there can be no assurance that the Fund will pay any
dividends or realize any capital gains.
The Fund has qualified and intends to continue to qualify for tax treatment as a
"Regulated Investment Company" under the Code in order to be relieved of Federal
income tax on that part of its net investment income and realized capital gains
which it pays out to its shareholders. To qualify, the Fund must meet certain
relatively complex tests, including the requirement that less than 30% of its
gross income must be derived from gains from the sale or other disposition of
securities held for less than three months. Because of such requirements,
qualification in any given year may not be feasible.
Dividends out of net investment income and distributions of realized short-term
capital gains are taxable to the recipient shareholders as ordinary income. In
the case of corporate shareholders, all or a portion of such distributions may
be eligible for the dividends-received deduction. Dividends and distributions
declared by the Fund may also be subject to state and local taxes. Distributions
out of long-term capital gains, of which shareholders will be notified, are
taxable to the recipient as long-term capital gains. The foregoing summary of
Federal income tax consequences is intended for general informational purposes
only. Prior to investing in shares of the Fund, prospective shareholders should
consult their tax advisers concerning the Federal, state and local tax
consequences of such an investment.
CALCULATION OF INVESTMENT PERFORMANCE
The investment performance of the Fund quoted in advertising for the sale of its
shares will be calculated on a "total return" basis which assumes the
reinvestment of all dividends and distributions. Total return is generally
quoted as a percentage calculated by combining the income and principal changes
of an assumed investment in shares of the Fund during the period specified and
dividing by the amount of the assumed initial investment. To illustrate the
components of its overall performance, investment performance may be given on a
cumulative basis (for periods greater than one year); for consecutive annual
periods; for consecutive quarterly or semi-annual periods as well as for the
year including such interim periods; or separately for investment income results
and capital gain or loss. Such performance quotations will reflect all recurrent
charges.
In each case, the average annual total return of the Fund for the past ten
years, the past five years, and the twelve-month period through the most recent
calendar quarter will also be given. The average annual total return will be
calculated pursuant to a standardized formula to reflect the hypothetical
annually compounded rate of return which would have produced the same cumulative
total return. Investors should recognize that an average annual return tends to
smooth out variations in the Fund's performance level and is therefore not the
same as actual year by year results. The Fund's average annual total return for
the 1-year, 5-year and 10-year periods ended December 31, 1996 were 13.4%, 14.6%
and 15.6%, respectively.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
As a Massachusetts Business Trust, the Fund is not required, and does not
intend, to hold regular annual shareholder meetings but may hold special
meetings for the consideration of proposals requiring shareholder approval such
as changing fundamental policies or, upon the written request of the
recordholders of 331/3% of outstanding shares (10% in the case of removing one
or more Trustees) for any other purpose. The Fund will facilitate shareholder
communications in this regard. Shares of the Fund have equal rights with respect
to voting and each share represents an equal proportionate interest in the Fund
with each other share. The Fund may issue an unlimited number of full and
fractional shares of beneficial interest (par value $.01 per share) and the
Trustees may divide or combine the shares into a greater or lesser number of
shares without changing the proportionate beneficial interests in the Fund. When
issued, shares are fully paid and non-assessable (except as described in the
Additional Statement under "General Information") and have no pre-emptive or
conversion rights.
The Fund sends semi-annual unaudited and annual audited reports to all its
shareholders which include a list of portfolio securities. Unless it is clear
that a shareholder holds as nominee for the account of an unrelated person or a
shareholder otherwise specifically requests in writing, the Fund may send a
single copy of semi-annual, annual and other reports to shareholders to all
accounts at the same address and all accounts of any person at that address.
Information for Shareholders
All shareholder inquiries regarding administrative procedures including the
purchase and redemption of shares should be directed to the Distributor. For
assistance, call 1-800-GABELLI (422-3554). The Distributor's address is Gabelli
& Company, Inc., One Corporate Center, Rye, New York 10580-1435.
Upon request, Gabelli & Company will provide, without charge, a paper copy of
this Prospectus to investors or their representatives who received this
Prospectus in an electronic format.
This Prospectus omits certain information contained in the Registration
Statement filed with the SEC. Copies of the Registration Statement, including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. The Additional Statement included in
such Registration Statement may be obtained without charge from the Fund or the
Distributor.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, MA 02110, is the Custodian for the Fund's cash and securities. Boston
Financial Data Services, Inc., located at Two Heritage Drive, North Quincy, MA
02171, an affiliate of State Street, performs the services of Transfer and
Dividend Disbursing Agent for the Fund on behalf of State Street. State Street
does not assist in and is not responsible for investment decisions involving
assets of the Fund.
THE GABELLI ASSET FUND
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information ("Additional Statement") is not a
prospectus and is only authorized for distribution when preceded or accompanied
by The Gabelli Asset Fund's (the "Fund") prospectus dated May 1, 1997, as
supplemented from time to time (the "Prospectus"). This Additional Statement
contains additional and more detailed information than that set forth in the
Prospectus and should be read in conjunction with the Prospectus, additional
copies of which may be obtained without charge by writing or telephoning the
Fund at the address and telephone number set forth above. Also, this Additional
Statement is available for reference, along with other materials, on the
Securities and Exchange Commission ("SEC") Internet web site
(http://www.sec.gov).
TABLE OF CONTENTS
Investment Policies................................................2
Special Investment Methods.........................................2
Convertible Securities........................................2
Debt Securities...............................................2
Investments in Warrants and Rights...........................3
Investments in Small, Unseasoned Companies....................3
Corporate Reorganizations.....................................3
When Issued, Delayed Delivery Securities & Forward Commitments.4
Repurchase Agreements..........................................4
Investment Restrictions.............................................5
Trustees and Officers...............................................6
Investment Adviser.................................................11
Distributor........................................................12
Distribution Plan..................................................12
Portfolio Transactions and Brokerage..........................13
Redemption of Shares...............................................15
Net Asset Value....................................................16
Investment Performance Information.................................16
Counsel and Independent Accountants................................18
General Information................................................18
Financial Statements...............................................19
Appendix A - Description of Corporate Debt Ratings.................A-1
<PAGE>
INVESTMENT POLICIES
The Fund expects that, for most periods, a substantial portion, if not
all, of its assets will be invested in a diversified portfolio of common stocks
judged by Gabelli Funds, Inc. (the "Adviser") to have favorable value to price
characteristics. The Fund may also invest in U.S. Government or Government
Agency obligations, investment grade corporate bonds, preferred stocks,
convertible securities, foreign securities, debt securities and/or short term
money market instruments when deemed appropriate by the Adviser.
SPECIAL INVESTMENT METHODS
Convertible Securities
The Fund may, as an interim alternative to investment in common stocks,
purchase investment grade convertible debt securities having a rating of, or
equivalent to, at least "BBB" by Standard & Poor's Ratings Service ("S&P") or,
if unrated, judged by the Adviser to be of comparable quality. Securities rated
less than "A" by S&P may have speculative characteristics. The Fund may also
invest up to 25% of its assets in convertible debt securities which have a
lesser rating or are unrated. However, the Adviser will not purchase securities
rated lower than "B" by S&P or "Caa" by Moody's Investors' Services, Inc.
("Moody's"). Unrated convertible securities which, in the judgment of the
Adviser, have equivalent credit worthiness may also be purchased for the Fund.
Although lower rated bonds generally have higher yields, they are more
speculative and subject to a greater risk of default with respect to the
issuer's capacity to pay interest and repay principal than are higher rated debt
securities.
In selecting convertible securities for the Fund, the Adviser relies
primarily on its own evaluation of the issuer and the potential for capital
appreciation through conversion. It does not rely on the rating of the security
or sell because of a change in rating absent a change in its own evaluation of
the underlying common stock and the ability of the issuer to pay principal and
interest or dividends when due without disrupting its business goals. Interest
or dividend yield is a factor only to the extent it is reasonably consistent
with prevailing rates for securities of similar quality and thereby provides a
support level for the market price of the security. The Fund will purchase the
convertible securities of highly leveraged issuers only when, in the judgment of
the Adviser, the risk of default is outweighed by the potential for capital
appreciation.
The issuers of debt obligations having speculative characteristics may
experience difficulty in paying principal and interest when due in the event of
a downturn in the economy or unanticipated corporate developments. The market
prices of such securities may become increasingly volatile in periods of
economic uncertainty. Moreover, adverse publicity or the perceptions of
investors over which the Adviser has no control, whether or not based on
fundamental analysis, may decrease the market price and liquidity of such
investments. Although the Adviser will attempt to avoid exposing the Fund to
such risks, there is no assurance that it will be successful or that a liquid
secondary market will continue to be available for the disposition of such
securities.
Debt Securities
Non-convertible corporate debt securities which are either unrated or
have a predominantly speculative rating (often referred to in the financial
press as "junk bonds") may present opportunities for significant long-term
capital appreciation if the ability of the issuer to repay principal and
interest when due is underestimated by the market or the rating organizations.
Because of its perceived credit weakness, the issuer is generally required to
pay a higher interest rate and/or its debt securities may be selling at a
significantly lower market price than the debt securities of issuers actually
having similar strength. When the inherent value of such securities is
recognized, the market value of such securities may appreciate significantly.
The Adviser believes that its research on the credit and balance sheet strength
of certain issuers may enable it to select a limited number of corporate debt
securities, which in certain markets, will better serve the objective of capital
appreciation than alternative investments in common stocks. Of course, there can
be no assurance that the Adviser will be successful. In its evaluation, the
Adviser will not rely exclusively on ratings and the receipt of income is only
an incidental consideration.
As in the case of the convertible debt securities discussed above, low
rated and unrated corporate debt securities are generally considered to be more
subject to default and therefore significantly more speculative than those
having an investment grade rating. They also are more subject to market price
volatility based on increased sensitivity to changes in interest rates and
economic conditions or the liquidity of their secondary trading market. The Fund
does not intend to purchase debt securities for which a liquid trading market
does not exist but there can be no assurance that such a market will exist for
the sale of such securities.
Investments in Warrants and Rights
Warrants basically are options to purchase equity securities at a
specified price valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights are
similar to warrants, but normally have a short duration and are distributed
directly by the issuer to its shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
Investment in Small, Unseasoned Companies
The securities of small, unseasoned companies may have a limited
trading market, which may adversely affect their disposition and can result in
their being priced lower than might otherwise be the case. If other investment
companies and investors who invest in such issuers trade the same securities
when the Fund attempts to dispose of its holdings, the Fund may receive lower
prices than might otherwise be obtained.
Corporate Reorganizations
The Fund may invest up to 35% of its total assets in securities for
which a tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced if, in the judgment of the Adviser, there is
reasonable prospect of capital appreciation significantly greater than the
brokerage and other transaction expenses involved. The 35% limitation does not
apply to the securities of companies which may be involved in simply
consummating an approved or agreed upon merger, acquisition, consolidation,
liquidation or reorganization. The primary risk of such investments is that if
the contemplated transaction is abandoned, revised, delayed or becomes subject
to unanticipated uncertainties, the market price of the securities may decline
below the purchase price paid by the Fund.
In general, securities which are the subject of such an offer or
proposal sell at a premium to their historic market price immediately prior to
the announcement of the offer or proposal. However, the increased market price
of such securities may also discount what the stated or appraised value of the
security would be if the contemplated transaction were approved or consummated.
Such investments may be advantageous when the discount significantly overstates
the risk of the contingencies involved; significantly undervalues the
securities, assets or cash to be received by shareholders of the prospective
portfolio company as a result of the contemplated transaction; or fails
adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Adviser which must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offeror as well as the dynamic of the business
climate when the offer or proposal is in progress.
In making such investments, the Fund will not violate any of its
diversification requirements or investment restrictions (see below, "Investment
Restrictions") including the requirements that, except for the investment of up
to 25% of its assets in any one company or industry, not more than 5% of its
assets may be invested in the securities of any issuer. Since such investments
are ordinarily short term in nature, they will tend to increase the Fund's
portfolio turnover ratio thereby increasing its brokerage and other transaction
expenses as well as make it more difficult for the Fund to meet the tests for
favorable tax treatment as a "Registered Investment Company" specified by the
Internal Revenue Code of 1986, as amended (the "Code") (see the Prospectus,
"Dividends, Distributions and Taxes"). The Adviser intends to select investments
of the type described which, in its view, have a reasonable prospect of capital
appreciation which is significant in relation to both the risk involved and the
potential of available alternate investments as well as monitor the effect of
such investments on the tax qualification tests of the Code.
When Issued, Delayed Delivery Securities & Forward Commitments
The Fund is authorized to buy and sell when issued securities as an
additional investment strategy in furtherance of its investment objectives.
In utilizing this strategy, the Fund may enter into forward commitments
for the purchase or sale of securities, including on a "when issued" or "delayed
delivery" basis in excess of customary settlement periods for the type of
securities involved. In some cases, a forward commitment may be conditioned upon
the occurrence of a subsequent event, such as approval and consummation of a
merger, corporate reorganization or debt restructuring, i.e., a when, as and if
issued security. When such transactions are negotiated, the price is fixed at
the time of the commitment, with payment and delivery taking place in the
future, generally a month or more after the date of the commitment. While the
Fund will only enter into a forward commitment with the intention of actually
acquiring the security, the Fund may sell the security before the settlement
date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market
fluctuation and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate cash or liquid high-grade debt
securities with its custodian in an aggregate amount at least equal to the
amount of its outstanding forward commitments.
Repurchase Agreements
The Fund may engage in repurchase agreements as set forth in the
Prospectus. A repurchase agreement is an instrument under which the purchaser
(i.e., the Fund) acquires a debt security and the seller agrees, at the time of
the sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period. The underlying securities are ordinarily U.S. Treasury or other
government obligations or high quality money market instruments. The Fund will
require that the value of such underlying securities, together with any other
collateral held by the Fund, always equals or exceeds the amount of the
repurchase obligations of the counter party. While the maturities of the
underlying securities in repurchase agreement transactions may be more than one
year, the term of each repurchase agreement will always be less than one year.
The Fund's risk is primarily that, if the seller defaults, the proceeds from the
disposition of underlying securities and other collateral for the seller's
obligation are less than the repurchase price. If the seller becomes bankrupt,
the Fund might be delayed in selling the collateral. Under the Investment
Company Act of 1940, as amended (the "1940 Act"), repurchase agreements are
considered loans. Repurchase agreements usually are for short periods, such as
one week or less, but could be longer. The Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together with
restricted securities and other securities for which there are no readily
available quotations, more than 10% of its total assets would be so invested.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which may
not be changed without the approval of the Fund's shareholders. Under such
restrictions, the Fund may not:
(1)......Purchase the securities of any one issuer, other than the
United States Government, or any of its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total assets
would be invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to such 5% and 10%
limitations;
(2)......Invest more than 25% of the value of its total assets in any particular
industry;
(3)......Purchase securities on margin, but it may obtain such short-term
credits from banks as may be necessary for the clearance of purchase and
sales of securities;
(4)......Make loans of its assets except for the purchase of debt securities;
(5)......Borrow money except subject to the restrictions set forth in the
prospectus under "Special Investment Methods - Borrowing";
(6)......Mortgage, pledge or hypothecate any of its assets except that,
in connection with permissible borrowings mentioned in paragraph 5 above, not
more than 20% of the assets of the Fund (not including amounts borrowed) may be
used as collateral;
(7)......Invest more than 5% of its total assets in more than 3% of the
securities of another investment company or invest more than 10% of its total
assets in the securities of other investment companies, nor make any such
investments other than through purchase in the open market where to the best
information of the Fund no commission or profit to a sponsor or dealer (other
than the customary broker's commission) results from such purchase;
(8)......Act as an underwriter of securities of other issuers;
(9)......Invest, in the aggregate, more than 10% of the value of its
total assets in securities for which market quotations are not readily
available, securities which are restricted for public sale, or in repurchase
agreements maturing or terminable in more than seven days;
(10).....Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral exploration or
development programs;
(11).....Sell securities short or invest in puts, calls, straddles, spreads or
combination thereof;
(12).....Purchase or acquire commodities or commodity contracts;
(13).....Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security in connection with any permitted borrowing;
(14).....Participate on a joint, or a joint and several, basis in any securities
trading account; or
(15).....Invest in companies for the purpose of exercising control.
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Fund, and their principal
occupations for the past five years, are listed below. Unless otherwise
specified, the address of each such person is One Corporate Center, Rye, New
York 10580-1434. Trustees deemed to be "interested persons" of the Fund for
purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
<S> <C>
Name, Address, Age and
Position(s) with Fund Principal Occupations During Past Five Years
Mario J. Gabelli,* 54 Chairman of the Board, Chief Executive Officer and Chief
Trustee Investment Officer of Gabelli Funds, Inc. and of GAMCO
Investors, Inc.; Chairman
of the Board, President
and Chief Investment
Officer of Gabelli
Capital Series Fund,
Inc., The Gabelli Equity
Trust Inc., The Gabelli
Global Multimedia Trust
Inc. and The Gabelli
Value Fund Inc.;
President, Director and
Chief Investment Officer
of Gabelli Global Series
Funds, Inc., Gabelli
Investor Funds, Inc.,
Gabelli Equity Series
Funds, Inc. and The
Gabelli Convertible
Securities Fund, Inc.;
Trustee of The Gabelli
Growth Fund and The
Gabelli Money Market
Funds; Director of
Gabelli Gold Fund, Inc.,
Gabelli International
Growth Fund, Inc. and The
Treasurer's Fund, Inc.;
and Chairman and Chief
Executive Officer of
Lynch Corporation.
<PAGE>
Name, Address, Age and
Position(s) with Fund Principal Occupations During Past Five Years
Felix J. Christiana, 72 Formerly Senior Vice President of Dry Dock Savings Bank in
Trustee White Plains, New York; Director of Gabelli Global Series
Funds, Inc., The Gabelli
Equity Trust Inc., The
Gabelli Global Multimedia
Trust Inc., The Gabelli
Convertible Securities
Fund, Inc., Gabelli
Equity Series Funds,
Inc., The Gabelli Value
Fund Inc. and The
Treasurer's Fund, Inc.;
and Trustee of The
Gabelli Growth Fund.
Anthony J. Colavita, 62 President and Attorney at Law in the law firm of Anthony J.
Trustee Colavita, P.C.; Director of Gabelli Equity Series Funds,
Inc., Gabelli Global
Series Funds, Inc.,
Gabelli Investor Funds,
Inc., The Gabelli
Convertible Securities
Fund, Inc., The Gabelli
Value Fund Inc., Gabelli
Gold Fund, Inc., Gabelli
International Growth
Fund, Inc., Gabelli
Capital Series Funds,
Inc., and The Treasurer's
Fund, Inc.; and Trustee
of The Gabelli Growth
Fund, The Gabelli Money
Market Funds and the
Westwood Funds.
James P. Conn, 59 Managing Director/Chief Investment Officer of Financial
Trustee Security Assurance Holdings Ltd. since 1992; Director of
Santa Anita Operating
Company since 1995;
Director of California
Jockey Club since 1983;
President and Chief
Executive Officer of Bay
Meadows Operating Company
from 1988 through 1992;
Director of The Gabelli
Equity Trust Inc. and The
Gabelli Global Multimedia
Trust Inc.; and Trustee
of The Gabelli Growth
Fund and the Westwood
Funds.
Karl Otto Pohl,*+ 67 Managing Partner of Sal. Oppenheim jr. & Cie. (private
Trustee investment bank); Board Member of IBM World Trade
Europe/Middle East/Africa
Corp., Bertelsmann AG;
Zurich Versicherungs -
Gesellschaft (insurance);
the International
Advisory Board of General
Electric Company and JP
Morgan & Co.; Supervisory
Board Member of Royal
Dutch ROBECo/o Group
(petroleum company);
Advisory Director of
Unilever N.V. and
Unilever Deutschland;
Director or Trustee of
all Funds advised by
Gabelli Funds, Inc. and
The Treasurer's Fund,
Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Name, Address, Age and
Position(s) with Fund Principal Occupations During Past Five Years
Anthony R. Pustorino, CPA, 71 Certified Public Accountant; Professor of Accounting, Pace
Trustee University; Trustee of The Gabelli Growth Fund; and
Director of The Gabelli
Value Fund Inc., The
Gabelli Convertible
Securities Fund, Inc.,
Gabelli Equity Series
Funds, Inc., The Gabelli
Equity Trust Inc., The
Gabelli Global Multimedia
Trust Inc., Gabelli
Capital Series Funds,
Inc. and The Treasurer's
Fund, Inc.
Anthonie C. van Ekris, 63 Managing Director of Balmac International; Director of
Trustee Stahel Hardmeyer AG; Trustee of The Gabelli Growth Fund and
The Gabelli Money Market
Funds; and Director of
The Gabelli Convertible
Securities Fund, Inc.,
Gabelli Equity Series
Funds, Inc., Gabelli
Global Series Funds,
Inc., Gabelli Gold Fund,
Inc., Gabelli Capital
Series Funds, Inc.,
Gabelli International
Growth Fund, Inc. and The
Treasurer's Fund, Inc.
Salvatore J. Zizza*+, 51 President and Chief Executive Officer of The Lehigh Group,
Trustee Inc. (an electric supply wholesaler), Director of The
Gabelli Equity Trust Inc., The Gabelli Global Multimedia
Trust Inc., Gabelli Convertible Securities Fund, Inc., Debe
Computer Systems Corp. and Binnings Building Products, Inc.
Bruce N. Alpert, 45 Vice President and Chief Operating Officer of the
President and Treasurer investment advisory division of the Adviser; President and
Treasurer of The Gabelli
Growth Fund; Vice
President and Treasurer
of The Gabelli Equity
Trust Inc., The Gabelli
Global Multimedia Trust
Inc., The Gabelli Value
Fund Inc., Gabelli Global
Series Funds, Inc.,
Gabelli Investor Funds,
Inc., Gabelli Capital
Series Funds, Inc.,
Gabelli Equity Series
Funds, Inc., The Gabelli
Convertible Securities
Fund, Inc., and The
Gabelli Money Market
Funds; Vice President of
the Westwood Funds; and
Manager of Teton Advisers
LLC.
<PAGE>
Name, Address, Age and
Position(s) with Fund Principal Occupations During Past Five Years
James E. McKee, 33 Vice President and General Counsel of GAMCO Investors, Inc.
Secretary since 1993 and of Gabelli Funds, Inc. since August 1995;
Secretary of all Funds
advised by Gabelli Funds,
Inc. and Teton Advisers
LLC since August 1995.
Branch Chief with the SEC
in New York (1992-1993);
Staff attorney with the
SEC in New York
(1989-1992).
..................
+ Mr. Pohl receives fees from the Adviser but has no obligation to provide
any services to the Adviser. Although this relationship does not appear to
require designation of Mr. Pohl as an interested person, the Fund is
currently making such designation in order to avoid the possibility that
Mr. Pohl independence would be questioned. Mr. Zizza may be an "interested
person" as a result of his association with Binnings Building Products,
Inc., an entity controlled by GCI, Inc., an affiliate of the Adviser.
</TABLE>
No director, officer or employee of Gabelli & Company, Inc. or the
Adviser or of any affiliate of Gabelli & Company, Inc. or the Adviser receives
any compensation from the Fund for serving as an officer or Trustee of the Fund.
The Fund pays each of its Trustees who is not a director, officer or employee of
the Adviser or any of their affiliates, $6,000 per annum plus $500 per meeting
attended and reimburses each Trustee for related travel and out-of-pocket
expenses. The Fund also pays each Trustee serving as a member of the Audit,
Proxy or Nominating Committees a fee of $500 per committee meeting if held on a
day other than a regularly scheduled board meeting, and the Chairman of each
committee receives $1,000 per annum. For the fiscal year ended December 31,
1996, such fees totaled $64,107.
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ------------------------------------- ---------------------------------------
(1) (2) (3)
Total Compensation
Aggregate Compensation from from Registrant and Fund Complex Paid
Registrant for to Trustees
Name of Person, Position Fiscal Year for Calendar Year*
<S> <C> <C> <C>
Mario J. Gabelli $ 0 $ 0
Trustee
Anthony J. Colavita $ 9,000 $70,000 (14)
Trustee
Felix J. Christiana $ 9,000 $74,000 (11)
Trustee
James P. Conn $ 8,000 $36,500 (5)
Trustee
Anthony R. Pustorino $ 11,000 $84,500 (9)
Trustee
Karl Otto Pohl $ 7,000 $77,750 (16)
Trustee
Anthonie C. van Ekris $ 8,000 $49,000 (12)
Trustee
Salvatore J. Zizza $ 8,000 $42,500 (5)
Trustee
* The total compensation paid to such persons during the calendar year ending
December 31, 1996 by investment companies (including the Fund) from which
such person receives compensation that are part of the same Fund complex as
the Fund, because they have common or affiliated investment advisers. The
number in parentheses represents the number of such investment companies.
</TABLE>
As a group, the officers and Trustees of the Fund owned beneficially,
directly or indirectly, less than 1% of its outstanding voting shares.
Set forth below is certain information as to persons who owned 5%
or more of the Fund's outstanding
shares as of April 1, 1997.
<PAGE>
Name and Address % of Fund Nature of Ownership
Charles Schwab & Co. Inc. 9.21% Record (a)
101 Montgomery Street
San Francisco, CA 94104-4122
(a) Charles Schwab & Co. disclaims beneficial ownership and no one underlying
shareholder owns beneficially more than 5% of the shares of the Fund.
INVESTMENT ADVISER
The Adviser is a New York corporation with principal offices located at
One Corporate Center, Rye, New York 10580-1434. The Adviser also serves as
Adviser to The Gabelli Growth Fund, The Gabelli Value Fund Inc., The Gabelli
Equity Income Fund, The Gabelli U.S. Treasury Money Market Fund, The Gabelli
Small Cap Growth Fund, Inc., The Gabelli ABC Fund, The Gabelli Global
Telecommunications Fund, The Gabelli Global Convertible Securities Fund, The
Gabelli Global Interactive Couch Potato (R) Fund, Gabelli Gold Fund Inc.,
Gabelli Capital Asset Fund and Gabelli International Growth Fund, Inc., open-end
investment companies, and The Gabelli Equity Trust Inc., The Gabelli Convertible
Securities Fund, Inc., and The Gabelli Global Multimedia Trust Inc., closed-end
investment companies. The Adviser is a registered investment adviser under the
Investment Advisers Act of 1940, as amended.
Pursuant to an Amended and Restated Investment Advisory Contract, which
was approved by the shareholders of the Fund at a meeting held on May 11, 1992
(the "Contract"), the Adviser furnishes a continuous investment program for the
Fund's portfolio, makes the day-to-day investment decisions for the Fund,
arranges the portfolio transactions of the Fund and generally manages the Fund's
investments in accordance with the stated policies of the Fund, subject to the
general supervision of the Board of Trustees of the Fund.
Under the Contract, the Adviser also (i) provides the Fund with the
services of persons competent to perform such supervisory, administrative, and
clerical functions as are necessary to provide effective administration of the
Fund, including maintaining certain books and records and overseeing the
activities of the Fund's Custodian and Transfer Agent; (ii) oversees the
performance of administrative and professional services to the Fund by others,
including the Fund's Sub-Administrator, Custodian, Transfer Agent and Dividend
Disbursing Agent, as well as accounting, auditing and other services performed
for the Fund; (iii) provides the Fund with adequate office space and facilities;
(iv) prepares, but does not pay for, the periodic updating of the Fund's
registration statement, Prospectus and Additional Statement, including the
printing of such documents for the purpose of filings with the SEC and state
securities administrators, the Fund's tax returns, and reports to the Fund's
shareholders and the SEC; (v) calculates the net asset value of shares in the
Fund; (vi) prepares, but does not pay for, all filings under the securities or
"Blue Sky" laws of such states or countries as are designated by the
Distributor, which may be required to register or qualify, or continue the
registration or qualification, of the Fund and/or its shares under such laws;
and (vii) prepares notices and agendas for meetings of the Fund's Board of
Trustees and minutes of such meetings in all matters required by the Act to be
acted upon by the Board.
Pursuant to a contract with the Adviser, First Data Investor Services
Group, Inc. (the "Sub-Administrator"), a subsidiary of First Data Corporation
(which is located at Exchange Place, Boston, Massachusetts 02109), administers
on behalf of the Adviser the operations of the Fund which do not concern the
investment advisory and portfolio management services of the Adviser. For such
services and the related expenses borne by the Sub-Administrator, the Adviser
pays an annual fee based on the aggregate average daily net assets of the Funds
under its administration advised by the Adviser as follows: up to $1 billion -
0.10%; $1 billion to $1.5 billion - 0.08%; $1.5 billion to $3 billion - 0.03%;
over $3 billion - 0.02%. The Sub-Administrator's fee is paid by the Adviser and
will result in no additional expense to the Fund.
The Contract provides that absent willful misfeasance, bad faith, gross
negligence or reckless disregard of its duty, the Adviser and its employees,
officers, directors and controlling persons are not liable to the Fund or any of
its investors for any act or omission by the Adviser or for any error of
judgment or for losses sustained by the Fund. However, the Contract provides
that the Fund is not waiving any rights it may have with respect to any
violation of law which cannot be waived. The Contract also provides
indemnification for the Adviser and each of these persons for any conduct for
which they are not liable to the Fund. The Contract in no way restricts the
Adviser from acting as Adviser to others. The Fund has agreed by the terms of
the Contract that the word "Gabelli" in its name is derived from the name of the
Adviser which in turn is derived from the name of Mario J. Gabelli; that such
name is the property of the Adviser for copyright and/or other purposes; and
that, therefore, such name may freely be used by the Adviser for other
investment companies, entities or products. The Fund has further agreed that in
the event that for any reason, the Adviser ceases to be its investment adviser,
the Fund will, unless the Adviser otherwise consents in writing, promptly take
all steps necessary to change its name to one which does not include "Gabelli."
The Contract is terminable without penalty by the Fund on sixty days'
written notice when authorized either by majority vote of its outstanding voting
shares or by a vote of a majority of its Board of Trustees, or by the Adviser on
sixty days' written notice, and will automatically terminate in the event of its
"assignment" as defined by the Act. The Contract provides that, unless
terminated, it will remain in effect from year to year as long as such
continuance is annually approved by the Board of Trustees or the shareholders of
the Fund and, in either case, by a majority vote of the Trustees who are not
parties to the Agreement or "interested persons", as defined by the 1940 Act, of
any such party cast in person at a meeting called specifically for the purpose
of voting on the continuance of the Contract.
For the Fund's fiscal years ended December 31, 1994, December 31, 1995
and December 31, 1996, the fee paid to the Adviser was $9,992,690, $10,714,960
and $11,146,282, respectively.
DISTRIBUTOR
To implement the Fund's 12b-1 Plan, the Fund has entered into a
Distribution Agreement with Gabelli & Company, Inc. (the "Distributor"), a New
York corporation which is an indirect majority owned subsidiary of the Adviser,
having principal offices located at One Corporate Center, Rye, New York
10580-1434. The Distributor acts as agent of the Fund for the continuous
offering of its shares on a best efforts basis.
DISTRIBUTION PLAN
On February 26, 1997, the Fund adopted a Second Amended and Restated
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Under its terms, the Plan remains in effect so long as its continuance is
specifically approved at least annually by vote of the Fund's Board of Trustees,
including a majority of the Trustees who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Fund ("Independent Trustees"). The Plan may not be amended to increase
materially the amount to be spent for services provided by the Distributor
thereunder without shareholder approval, and all material amendments of the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without penalty, by vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act). Under the Plan, the
Distributor will provide the Trustees periodic reports of amounts expanded under
the Plan and the purpose for which expenditures were made.
No interested person of the Fund or any Independent Trustee of the Fund
had a direct or indirect financial interest in the operation of the Plan or
related agreements.
During the fiscal year ended December 31, 1996, the Fund reimbursed the
Distributor for distribution expenses under the Plan in the amount of
$2,706,466. Pursuant to the Plan, the Distributor incurred the following
expenses: $1,310,500 was spent on advertising, $228,800 on printing, postage and
stationary, $599,366 on overhead support expenses and $567,800 on salaries of
personnel of the Distributor.
Portfolio Transactions and Brokerage
Under the Contract, the Adviser is authorized on behalf of the Fund to
employ brokers to effect the purchase or sale of portfolio securities with the
objective of obtaining prompt, efficient and reliable execution and clearance of
such transactions at the most favorable price obtainable ("best execution") at
reasonable expense. Transactions in securities other than those for which a
securities exchange is the principal market are generally executed through a
brokerage firm and a commission is paid whenever it appears that the broker can
obtain a more favorable overall price. In general, there may be no stated
commission on principal transactions in over-the-counter securities, but the
prices of such securities may usually include undisclosed commissions or
markups.
When consistent with the objective of obtaining best execution, Fund
brokerage may be directed to brokers or dealers which furnish brokerage or
research services to the Fund or the Adviser of the type described in Section
28(e) of the Securities Exchange Act of 1934, as amended. The commissions
charged by a broker furnishing such brokerage or research services may be
greater than that which another qualified broker might charge if the Adviser
determines, in good faith, that the amount of such greater commission is
reasonable in relation to the value of the additional brokerage or research
services provided by the executing broker, viewed in terms of either the
particular transaction or the overall responsibilities of the Adviser or its
advisory affiliates to the accounts over which they exercise investment
discretion. Since it is not feasible to do so, the Adviser need not attempt to
place a specific dollar value on such services or the portion of the commission
which reflects the amount paid for such services but must be prepared to
demonstrate a good faith basis for its determinations.
Investment research obtained by allocations of Fund brokerage is used
to augment the scope and supplement the internal research and investment
strategy capabilities of the Adviser but does not reduce the overall expenses of
the Adviser to any material extent. Such investment research may be in written
form or through direct contact with individuals and includes information on
particular companies and industries as well as market, economic or institutional
activity areas. Research services furnished by brokers through which the Fund
effects securities transactions are used by the Adviser and its advisory
affiliates in carrying out their responsibilities with respect to all of their
accounts over which they exercise investment discretion. Such investment
information may be useful only to one or more of the other accounts of the
Adviser and its advisory affiliates, and research information received for the
commissions of those particular accounts may be useful both to the Fund and one
or more of such other accounts.
Neither the Fund nor the Adviser has any agreement or legally binding
understanding with any broker regarding any specific amount of brokerage
commissions which will be paid in recognition of such services. However, in
determining the amount of portfolio commissions directed to such brokers, the
Adviser does consider the level of services provided and, based on such
determinations, has allocated brokerage commissions of $494,944 on portfolio
transactions in the principal amounts of $359,241,795 during 1996. The average
commission on these transactions was $0.0484 per share.
The Adviser may also place orders for the purchase or sale of portfolio
securities with Gabelli and Company, Inc. ("Gabelli"), a broker-dealer member of
the National Association of Securities Dealers which is an affiliate of the
Adviser, when it appears that, as an introducing broker or otherwise, Gabelli
can obtain a price and execution which is at least as favorable as that
obtainable by other qualified brokers. As required by Rule 17e-1 under the 1940
Act, the Board of Trustees has adopted "Procedures" which provide that
commissions paid to Gabelli on stock exchange transactions may not exceed that
which would have been charged by another qualified broker or member firm able to
effect the same or a comparable transaction at an equally favorable price and
contains a schedule setting forth maximum commission charges for such
transactions designed to reflect that standard. Rule 17e-1 and the Procedures
contain requirements that the Board, including its "independent" Trustees,
conduct periodic compliance reviews of such brokerage allocations and review
such schedule at least annually for its continuing compliance with the foregoing
standard. The Adviser and Gabelli are also required to furnish reports and
maintain records in connection with such reviews.
To obtain the best execution of portfolio transactions on the New York
Stock Exchange ("NYSE"), Gabelli controls and monitors the execution of such
transactions on the floor of the NYSE through independent "floor brokers" or
through the Designated Order Turnaround System of the NYSE. Such transactions
are then cleared, confirmed to the Fund for the account of Gabelli, and settled
directly with the Custodian of the Fund by a clearing house member firm which
remits the commission less its clearance charges to Gabelli. Pursuant to an
agreement with the Fund, Gabelli pays all charges incurred for such services and
reports at least quarterly to the Board the amount of such expenses and
commissions. The net compensation realized by Gabelli for its brokerage services
is subject to the approval of the Board and the Independent Trustees of the Fund
who must approve the continuance of the arrangement at least annually.
Commissions paid by the Fund pursuant to the arrangement may not exceed the
commission level specified by the Procedures described above. Gabelli may also
effect Fund portfolio transactions in the same manner and pursuant to the same
arrangements on other national securities exchanges which adopt direct order
access rules similar to those of the NYSE.
The following table sets forth certain information regarding the Fund's
payment of brokerage commissions including commissions paid to Gabelli & Company
and Keeley Investment Corp. ("Keeley"). A significant shareholder of Keeley is a
director of a company that is an affiliate of the Adviser.
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended Commissions
December 31, Paid
<S> <C> <C>
Total Brokerage Commissions.................................................. 1994 $355,059
1995 $438,241
1996 $494,944
Commissions paid to Gabelli & Company........................................ 1994 $ 24,043
1995 $ 93,418
1996 $130,061
Commissions paid to Keeley Investment Corp................................... 1994 $ 11,650
1995 $ 3,578
1996 $ 5,550
% of Total Brokerage Commissions paid to Gabelli & Company................... 1996 26.3%
% of Total Brokerage Commissions paid to Keeley Investment Corp.............. 1996 1.11%
% of Total Transactions involving Commissions paid to Gabelli & Company 1996 27.4%
% of Total Transactions involving Commissions paid to Keeley Investment Corp. 1996 0.89%
</TABLE>
The Fund's portfolio turnover rate for the fiscal years ended December 31, 1995
and December 31, 1996 were 26.4% and 14.9%, respectively.
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either
in cash or in portfolio securities (selected in the discretion of the Board of
Trustees of the Fund and taken at their value used in determining the Fund's net
asset value per share as described under "Net Asset Value"), or partly in cash
and partly in portfolio securities. However, payments will be made wholly in
cash unless the Board of Trustees believes that economic conditions exist which
would make such a practice detrimental to the best interests of the Fund. If
payment for shares redeemed is made wholly or partly in portfolio securities,
brokerage costs may be incurred by the investor in converting the securities to
cash. The Fund will not distribute in-kind portfolio securities that are not
readily marketable. The Fund has filed a formal election with the SEC pursuant
to which the Fund will only effect a redemption in portfolio securities where
the particular shareholder of record is redeeming more than $250,000 or 1% of
the Fund's total net assets, whichever is less, during any 90 day period. In the
opinion of the Fund's management, however, the amount of a redemption request
would have to be significantly greater than $250,000 before a redemption wholly
or partly in portfolio securities would be made.
Cancellation of purchase orders for Fund shares (as, for example, when
checks submitted to purchase shares are returned unpaid) causes a loss to be
incurred when the net asset value of the Fund shares on the date of cancellation
is less than on the original date of purchase. The investor is responsible for
such loss, and the Fund may reimburse itself or the Distributor for such loss by
automatically redeeming shares from any account registered at any time in that
shareholder's name, or by seeking other redress. In the event shares held in the
account of such shareholder are not sufficient to cover such loss, the
Distributor will promptly reimburse the Fund for the amount of such unrecovered
loss.
NET ASSET VALUE
For purposes of determining the Fund's net asset value per share,
readily marketable portfolio securities listed on the NYSE are valued, except as
indicated below, at the last sale price reflected at the close of the regular
trading session of the NYSE on the business day as of which such value is being
determined. If there has been no sale on such day, the securities are valued at
the mean of the closing bid and asked prices on such day. If no asked prices are
quoted on such day, then the security is valued at the closing bid price on such
day. If no bid or asked prices are quoted on such day, then the security is
valued by such method as the Board of Trustees shall determine in good faith to
reflect its fair market value. Readily marketable securities not listed on the
NYSE but listed on other national securities exchanges or admitted to trading on
the National Association of Securities Dealers Automated Quotations, Inc.
("NASDAQ") National List are valued in like manner.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Adviser to
be over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Trustees deems appropriate to reflect their fair value. If no asked prices are
quoted on such day, then the security is valued at the closing bid price on such
day. If no bid or asked prices are quoted on such day, then the security is
valued by such method as the Board of Trustees 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 the Adviser. Securities traded primarily on foreign
exchanges are valued at the closing price on such foreign exchange immediately
prior to the close of the NYSE.
United States Government obligations and other debt instruments having
60 days or less remaining until maturity are stated at amortized cost. Debt
instruments having a greater remaining maturity will be valued at the highest
bid price obtained from a dealer maintaining an active market in that security
or on the basis of prices obtained from a pricing service approved as reliable
by the Board of Trustees. All other investment assets, including restricted and
not readily marketable securities, are valued under procedures established by
and under the general supervision and responsibility of the Fund's Board of
Trustees designed to reflect in good faith the fair value of such securities.
INVESTMENT PERFORMANCE INFORMATION
The investment performance of the Fund quoted in advertising or sales
literature for the sale of its shares will be calculated on a total return basis
which assumes the reinvestment of all dividends and distributions. Total return
is computed by comparing the value of an assumed investment in Fund shares at
the offering price in effect at the beginning of the period shown with the
redemption price of the same investment at the end of the period (including
share(s) accrued thereon by the reinvestment of dividends and distributions).
Performance quotations given as a percentage will be derived by dividing the
amount of such total return by the amount of the assumed investment. When the
period shown is greater than one year, the result is referred to as cumulative
performance or cumulative total return.
Performance quotations will ordinarily be accompanied by the average
annual total return of the Fund for the past ten years as well as its total
return for the past five years and for the twelve months as of the end of the
most recent calendar quarter. Quotations of average annual total return for
periods greater than one year will be the compounded annual rate of return which
equates to the result of the previously described calculation of cumulative
total return. Computed in the manner described, the total return of the Fund has
been:
Year ended Total Return
---------- ------------
12/31/87 16.2%
12/31/88 31.1%
12/31/89 26.2%
12/31/90 (5.0)%
12/31/91 18.1%
12/31/92 14.9%
12/31/93 21.8%
12/31/94 (0.1)%
12/31/95 24.9%
12/31/96 13.4%
The Fund's average annual total return figures are as follows:
13.4% for the one year period from January 1, 1996 through December 31, 1996
14.6% for the five year period from January 1, 1992 through December 31, 1996
15.6% for the ten year period from January 1, 1987 through December 31, 1996
15.6%for the period from the Fund's inception on March 3, 1986 through December
31, 1996
The formula for computing the foregoing annual rate of total return is:
P (1 + T) n = ERV
P = Investment at the beginning of the period. T = Compounded annual rate of
total return.
n = Number of years.
ERV = Redemption value of the same investment at the end of the period
assuming the reinvestment of all dividends and distributions.
Investors are cautioned that past results are not necessarily representative of
future results; that investment returns and principal value will fluctuate; that
investment performance is primarily a function of portfolio management (which is
affected by the economic and market environment as well as the volatility of
portfolio investments) and operating expenses; and that performance information,
such as that described above, may not provide a valid basis of comparison with
other investments and investment companies using a different method of computing
performance data.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New
York 10022, is counsel to the Fund.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York,
10036, independent accountants, have been selected to audit, and express their
opinion on, the Fund's annual financial statements.
GENERAL INFORMATION
The Fund's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for a trust's obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself is
unable to meet its obligations since the Declaration of Trust provides for
indemnification and reimbursement of expenses out of the property of the Fund to
any shareholder held personally liable for any obligation of the Fund and also
provides that the Fund shall, if requested, assume the defense of any claim made
against any shareholder for any act or obligation of the Trust and satisfy any
judgment recovered thereon.
The Fund reserves the right to create and issue a number of series of
shares, in which case the shares of each series would participate equally in the
earnings, dividends and assets of the particular series and would vote
separately to approve management agreements or changes in investment policies,
but shares of all series would vote together in the election or selection of
Trustees, principal underwriters and accountants and on any proposed material
amendment to the Fund's Declaration of Trust. Upon liquidation of the Fund,
shareholders of each series would be entitled to share pro rata in the net
assets of their respective series available for distribution to shareholders.
Shareholders are entitled to one vote for each share held (and
fractional vote for fractional shares) and may vote on the election of Trustees
and on other matters submitted to meetings of shareholders. It is not
contemplated that regular annual meetings of shareholders will be held. The
Declaration of Trust provides that the Fund's shareholders have the right, upon
the declaration in writing or vote of more than two thirds of its outstanding
shares, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote upon the written request of the shareholders of 33 1/3 % of its shares (10%
in the case of removal of a Trustee). In addition, ten shareholders holding the
lesser of $25,000 worth or one percent of Fund shares may advise the Trustees in
writing that they wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then, if requested
by the applicants, mail at the applicants' expense, the applicants'
communication to all other shareholders. Except for a change in the name of the
Trust, no amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of more than 50% of its outstanding shares.
Shareholders have no preemptive or conversion rights. The Fund may be terminated
upon the sale of its assets to another issuer, if such sale is approved by the
vote of the holders of more than 50% of its outstanding shares. If not so
terminated, the Fund intends to continue indefinitely.
<PAGE>
FINANCIAL STATEMENTS
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- -----
<C> <S> <C> <C>
COMMON STOCKS--98.3%
AEROSPACE--0.5%
75,000 Honeywell, Inc. .......... $ 3,267,189 $ 4,931,250
----------- -------------
AGRICULTURE--0.3%
130,000 Archer-Daniels-Midland
Co. ..................... 2,312,058 2,860,000
----------- -------------
AUTOMOTIVE--1.4%
264,500 General Motors
Corporation.............. 8,982,890 14,745,875
----------- -------------
AUTOMOTIVE: PARTS AND ACCESSORIES--5.5%
33,500 APS Holding Corporation,
Class A+................. 519,250 519,250
33,000 Borg-Warner Automotive,
Inc...................... 842,685 1,270,500
200,000 Echlin Inc. .............. 2,607,499 6,325,000
200,000 Federal-Mogul
Corporation.............. 3,786,560 4,400,000
675,000 GenCorp Inc. ............. 3,881,263 12,234,375
245,000 Genuine Parts Company..... 8,476,926 10,933,125
129,032 Handy & Harman............ 1,785,529 2,258,060
100,000 Johnson Controls, Inc. ... 2,659,139 8,287,500
20,000 LucasVarity plc, ADR+..... 474,638 760,000
130,000 Modine Manufacturing
Company.................. 1,259,406 3,477,500
39,875 Myers Industries, Inc. ... 139,536 672,890
165,000 Quaker State
Corporation.............. 2,229,022 2,330,625
40,000 Republic Automotive Parts,
Inc.+.................... 230,625 675,000
115,000 Standard Motor Products,
Inc. .................... 1,008,713 1,595,625
13,200 Superior Industries
International, Inc. ..... 76,515 305,250
100,000 TransPro Inc. ............ 784,174 912,500
148,000 UAP Inc., Class A......... 1,601,202 1,726,333
18,000 Wynn's International,
Inc. .................... 344,142 569,250
----------- -------------
32,706,824 59,252,783
----------- -------------
AVIATION: PARTS AND SERVICES--3.4%
88,000 Boeing Co. ............... 5,766,017 9,361,000
10,000 BE Aerospace Inc.+........ 193,625 271,250
420,000 Coltec Industries Inc.+... 5,738,871 7,927,500
101,000 Curtiss-Wright
Corporation.............. 2,532,272 5,087,875
115,000 General Motors
Corporation, Class H..... 5,355,433 6,468,750
60,000 Hi-Shear Industries
Inc. .................... 510,932 157,500
36,100 Hudson General
Corporation.............. 972,612 1,344,725
115,000 Precision Castparts
Corp. ................... 4,372,225 5,706,875
----------- -------------
25,441,987 36,325,475
----------- -------------
BROADCASTING--6.0%
13,200 BHC Communications, Inc.,
Class A.................. 1,162,780 1,338,150
397,206 Chris-Craft Industries,
Inc. .................... 8,421,873 16,633,001
65,560 Chris-Craft Industries,
Inc., Class B(a)......... 1,132,465 2,745,325
115,000 Gray Communications
Systems, Inc., Class B... 2,212,406 1,955,000
291,400 Grupo Televisa S.A.,
GDR+..................... 5,953,245 7,467,125
76,000 Liberty Corporation....... 1,759,798 2,983,000
53,000 LIN Television
Corporation+............. 587,795 2,239,250
14,100 Osborn Communications
Corporation+............. 71,426 209,958
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- -----
<C> <S> <C> <C>
BROADCASTING (CONTINUED)
100,000 Paxson Communications
Corporation, Class A+.... $ 1,104,809 $ 787,500
10,000 Providence Journal
Company, Class A+........ 182,037 306,250
100,000 Renaissance Communication
Corporation+............. 3,555,000 3,575,000
420,000 Television Broadcasting
Ltd. ORD................. 1,893,731 1,677,937
247,500 United Television,
Inc. .................... 15,847,291 21,315,938
75,000 Westinghouse Electric
Corp. . 1,121,126 1,490,625
----------- -------------
45,005,782 64,724,059
----------- -------------
BUSINESS SERVICES--1.8%
42,000 BBN Corporation+.......... 926,548 945,000
50,000 Berlitz International,
Inc., New+............... 725,813 1,043,750
50,000 Ecolab Inc. .............. 1,571,512 1,881,250
12,546 Hach Company ............. 148,380 238,374
85,000 International Business
Machines Corporation..... 4,090,224 12,835,000
71,000 Landauer, Inc. ........... 441,367 1,739,500
72,000 Nashua Corporation........ 2,313,818 864,000
----------- -------------
10,217,662 19,546,874
----------- -------------
CABLE--3.6%
70,000 BET Holdings, Inc., Class
A+....................... 1,285,712 2,012,500
160,000 Cablevision Systems
Corporation, Class A+.... 6,920,649 4,900,000
40,000 Comcast Corporation, Class
A........................ 593,113 705,000
35,791 Comcast Corporation, Class
A, Special............... 663,913 637,527
400,000 International Family
Entertainment, Inc.,
Class B+................. 4,832,941 6,200,000
40,000 Shaw Communications Inc.,
Class B.................. 363,398 221,971
30,000 Shaw Communications Inc.,
Class B, Conv............ 191,728 166,478
100,000 TCI Satellite
Entertainment
Inc., Class A+........... 1,374,608 987,500
810,000 Tele-Communications, Inc.,
Class A+................. 12,127,597 10,580,625
383,000 Tele-Communications,
Inc./Liberty Media Group,
Class A+................. 8,971,422 10,939,438
60,000 United International
Holdings, Inc., Class
A+....................... 824,424 735,000
50,000 US WEST Media Group+...... 832,425 925,000
----------- -------------
38,981,930 39,011,039
----------- -------------
CLOSED-END FUNDS--0.1%
85,322 Royce Value Trust,
Inc. .................... 962,762 1,077,190
----------- -------------
COMMUNICATIONS
EQUIPMENT--0.4%
115,000 Allen Group Inc. ......... 712,812 2,558,750
40,000 Lucent Technologies
Inc. .................... 1,777,872 1,850,000
----------- -------------
2,490,684 4,408,750
----------- -------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- -----
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS--8.9%
375,000 American Brands, Inc. .... $13,164,115 $ 18,609,375
400,000 Carter-Wallace, Inc. ..... 6,253,615 6,250,000
220,000 Church & Dwight Co.,
Inc. .................... 4,983,260 5,032,500
22,000 Culbro Corporation+....... 1,055,143 1,427,250
45,000 Department 56, Inc.+...... 1,053,389 1,113,750
22,000 Duracell International
Inc. .................... 625,711 1,537,250
65,000 Eastman Kodak Company..... 3,662,540 5,216,250
155,000 Fieldcrest Cannon,
Inc.+.................... 2,212,147 2,480,000
70,000 First Brands
Corporation.............. 948,401 1,986,250
215,000 General Electric
Company.................. 10,455,131 21,258,125
50,000 Gillette Company.......... 1,420,489 3,887,500
23,000 Harley Davidson, Inc...... 227,175 1,081,000
230,000 Ralston Purina Group...... 8,779,158 16,876,250
90,000 Scotts Company, Class
A+....................... 1,566,705 1,788,750
120,000 Syratech Corporation+..... 2,409,981 3,780,000
100,000 Tambrands Inc. ........... 4,083,475 4,087,500
----------- -------------
62,900,435 96,411,750
----------- -------------
CONSUMER SERVICES--0.5%
50,000 HSN, Inc.+................ 1,174,841 1,187,500
205,000 Rollins, Inc.............. 2,676,982 4,100,000
45,000 Ticketmaster Group
Inc.+.................... 635,000 545,625
----------- -------------
4,486,823 5,833,125
----------- -------------
DIVERSIFIED
INDUSTRIAL--3.8%
12,000 Anixter International
Inc.+.................... 108,105 193,500
225,000 Crane Co. ................ 3,970,482 6,525,000
76,100 GATX Corporation.......... 2,443,121 3,690,850
170,000 ITT Industries Inc. ...... 2,780,236 4,165,000
150,000 Katy Industries, Inc. .... 1,357,500 2,175,000
6,500 Kyocera Corporation,
ADR...................... 448,062 793,000
360,000 Lamson & Sessions Co.+.... 1,947,317 2,610,000
166,000 Lawter International,
Inc. .................... 1,599,025 2,095,750
75,000 Minnesota Mining and
Manufacturing Company.... 4,613,390 6,215,625
79,000 National Service
Industries, Inc. ........ 1,844,836 2,952,625
80,000 Thomas Industries Inc. ... 1,298,410 1,670,000
200,000 Trinity Industries,
Inc. .................... 2,724,402 7,500,000
----------- -------------
25,134,886 40,586,350
----------- -------------
ELECTRONICS--0.1%
2,000 Hitachi, Ltd., ADR........ 221,767 185,000
11,000 Imation Corporation+...... 224,636 309,375
10,000 Sony Corporation, ADR..... 544,303 656,250
----------- -------------
990,706 1,150,625
----------- -------------
ENERGY--3.8%
50,000 Atlantic Richfield
Company.................. 5,368,509 6,631,250
35,000 British Petroleum Company
plc, ADR................. 1,568,033 4,948,125
50,000 Burlington Resources
Inc. .................... 2,097,021 2,518,750
30,000 Chevron Corporation....... 1,016,500 1,950,000
165,000 Eastern Enterprises....... 4,444,700 5,836,875
60,000 Enron Oil & Gas Company... 548,976 1,515,000
105,000 Exxon Corporation......... 6,387,342 10,290,000
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- -----
<C> <S> <C> <C>
ENERGY (CONTINUED)
20,000 Halliburton Company....... $ 840,758 $ 1,205,000
120,000 Kaneb Services, Inc.+..... 361,400 390,000
40,000 PacifiCorp................ 778,355 820,000
80,000 Southwest Gas
Corporation.............. 1,378,722 1,540,000
30,000 Texaco Inc. .............. 1,890,875 2,943,750
----------- -------------
26,681,191 40,588,750
----------- -------------
ENTERTAINMENT--5.6%
110,000 EMI Group plc, Sponsored
ADR...................... 1,251,853 2,611,400
220,458 Gaylord Entertainment
Company, Class A......... 4,548,699 5,042,977
100,000 GC Companies, Inc.+....... 2,897,746 3,462,500
150,000 Havas, Sponsored ADR...... 2,933,915 2,568,750
20,000 PolyGram NV............... 574,275 995,000
690,000 Time Warner Inc. ......... 20,062,217 25,875,000
11,000 Todd-AO Corporation,
Class A.................. 30,000 112,750
200,000 Viacom Inc., Class A+..... 4,479,891 6,900,000
210,000 Viacom Inc., Class B+..... 5,698,160 7,323,750
75,000 Walt Disney Company....... 3,540,448 5,221,875
----------- -------------
46,017,204 60,114,002
----------- -------------
EQUIPMENT AND SUPPLIES--11.4%
355,000 AMETEK, Inc. ............. 5,065,510 7,898,750
100,000 AMP Incorporated.......... 3,799,733 3,837,500
22,000 Amphenol Corporation,
Class A+................. 253,636 489,500
195,000 AptarGroup, Inc. ......... 2,813,792 6,873,750
60,000 Caterpillar Inc. ......... 1,619,251 4,515,000
65,000 CLARCOR Inc. ............. 1,239,362 1,438,125
100,000 CTS Corporation........... 2,084,351 4,275,000
420,000 Deere & Company........... 6,531,193 17,062,500
230,000 Donaldson Company, Inc. .. 2,699,344 7,705,000
40,000 EG&G Inc. ................ 709,125 805,000
163,600 Gerber Scientific, Inc. .. 1,642,712 2,433,550
340,000 IDEX Corporation.......... 4,097,480 13,557,500
86,000 Ingersoll-Rand Company.... 3,250,039 3,827,000
200,000 Kollmorgen Corporation.... 1,861,980 2,200,000
90,000 Lufkin Industries, Inc. .. 1,627,761 2,250,000
60,000 Manitowoc Company, Inc. .. 889,180 2,430,000
240,000 Mark IV Industries,
Inc. .................... 1,745,369 5,430,000
400,000 Navistar International
Corporation+............. 6,347,992 3,650,000
10,000 PACCAR Inc. .............. 522,021 680,000
120,000 Pittway Corporation....... 1,529,486 6,255,000
241,000 Pittway Corporation,
Class A.................. 2,175,914 12,893,500
50,000 Sequa Corporation,
Class A+................. 1,974,636 1,962,500
86,000 Sequa Corporation,
Class B+................. 4,177,785 4,300,000
84,000 SPS Technologies, Inc.+... 2,480,544 5,397,000
21,500 TRINOVA Corporation....... 628,063 782,063
15,000 Valmont Industries,
Inc. .................... 242,908 618,750
----------- -------------
62,009,167 123,566,988
----------- -------------
FINANCIAL SERVICES--5.7%
1 Al-Zar Ltd.+ (a).......... 0 350
450,000 American Express
Company.................. 10,365,809 25,425,000
220 Berkshire Hathaway
Inc.+.................... 874,549 7,502,000
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- -----
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
70,000 Commerzbank AG,
Sponsored ADR............ $ 1,365,494 $ 1,767,500
140,000 Deutsche Bank AG,
Sponsored ADR............ 6,094,375 6,440,000
100,000 H&R Block Inc. ........... 3,218,021 2,900,000
255,000 Lehman Brothers Holdings
Inc. .................... 4,600,725 8,000,625
86,000 Midland Company........... 2,706,145 3,311,000
60,000 Salomon Inc. ............. 2,259,574 2,827,500
25,000 State Street Boston
Corporation.............. 717,712 1,612,500
20,000 SunTrust Banks, Inc. ..... 424,879 985,000
11,941 Transamerica Corporation.. 583,636 944,832
8,000 Value Line, Inc. ......... 115,500 354,000
----------- -------------
33,326,419 62,070,307
----------- -------------
FOOD AND BEVERAGE--7.4%
76,300 Brown-Forman Corporation,
Class A.................. 2,574,752 3,462,113
74,263 Chock Full o'Nuts
Corporation.............. 451,406 371,315
46,000 Coca-Cola Company......... 395,569 2,420,750
17,000 CPC International Inc. ... 602,088 1,317,500
50,000 Delchamps, Inc. .......... 1,171,317 968,750
4,500 Farmer Brothers Company... 476,380 684,000
62,500 General Mills, Inc. ...... 1,396,165 3,960,937
35,000 Heinz Company (H.J.)...... 897,409 1,260,000
64,000 Hershey Foods
Corporation.............. 1,360,163 2,800,000
82,000 Kellogg Company........... 3,106,755 5,381,250
25,000 LVHM Moet Hennessy Louis
Vuitton, Sponsored ADR... 971,562 1,400,000
530,000 PepsiCo, Inc. ............ 11,550,232 15,502,500
300,000 Quaker Oats Company....... 9,569,551 11,437,500
60,000 Ralcorp Holdings, Inc.+... 895,290 1,267,500
20,000 Rykoff-Sexton, Inc. ...... 316,400 317,500
285,000 Seagram Company Ltd. ..... 8,381,697 11,043,750
59,140 Tootsie Roll Industries,
Inc. .................... 1,978,948 2,343,423
300,000 Whitman Corporation....... 2,746,742 6,862,500
130,000 Wrigley (Wm.) Jr.
Company.................. 5,904,862 7,312,500
----------- -------------
54,747,288 80,113,788
----------- -------------
HEALTH CARE--2.9%
13,000 Amgen Inc.+............... 237,446 706,875
20,000 Biogen, Inc.+............. 299,450 775,000
10,000 BioWhittaker, Inc.+....... 40,787 80,000
48,000 Chiron Corporation+....... 663,895 894,000
100,000 Genentech, Inc.+.......... 4,804,136 5,362,500
160,000 Johnson & Johnson......... 3,213,734 7,960,000
70,000 Mallinckrodt Group,
Inc. .................... 2,175,407 3,088,750
75,000 Merck & Co., Inc. ........ 2,539,850 5,943,750
85,000 Pfizer Inc. .............. 2,841,294 7,044,375
----------- -------------
16,815,999 31,855,250
----------- -------------
HOTELS/GAMING--2.8%
35,000 Circus Circus Enterprises,
Inc.+.................... 973,791 1,203,125
40,000 GTECH Holdings
Corporation+............. 755,188 1,280,000
14,000 Harrah's Entertainment
Inc.+.................... 131,836 278,250
500,000 Hilton Hotels
Corporation.............. 6,829,916 13,062,500
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- -----
<C> <S> <C> <C>
HOTELS/GAMING (CONTINUED)
200,000 ITT Corporation, New+..... $ 7,289,764 $ 8,675,000
200,000 Ladbroke Group plc........ 522,219 791,174
210,000 Mirage Resorts,
Incorporated+............ 1,079,227 4,541,250
30,000 Santa Anita Realty
Enterprises, Inc. ....... 473,664 787,500
----------- -------------
18,055,605 30,618,799
----------- -------------
HOUSING RELATED--0.3%
165,000 Nortek, Inc.+............. 659,077 3,300,000
4,333 Nortek, Inc., Special
Common+(a)............... 59,049 60,662
----------- -------------
718,126 3,360,662
----------- -------------
METALS AND MINING--0.6%
34,350 Barrick Gold Corporation.. 733,755 983,269
105,000 Echo Bay Mines Ltd. ...... 1,104,369 695,625
45,000 Homestake Mining Company.. 776,062 641,250
33,000 Newmont Gold Company...... 1,375,428 1,443,750
220,000 Pegasus Gold Inc.+........ 3,093,995 1,663,750
17,500 Placer Dome Inc. ......... 336,400 380,625
200,000 Royal Oak Mines Inc.+..... 840,247 650,000
----------- -------------
8,260,256 6,458,269
----------- -------------
PAPER AND FOREST PRODUCTS--1.1%
160,000 Greif Bros. Corporation,
Class A.................. 3,084,010 4,560,000
115,000 St. Joe Corp. ............ 3,925,871 7,475,000
----------- -------------
7,009,881 12,035,000
----------- -------------
PUBLISHING--2.9%
75,000 American Media Inc.,
Class A+................. 732,562 440,625
5,000 E.W. Scripps Company,
Class A.................. 62,219 175,000
300,000 Golden Books Family
Entertainment, Inc.+..... 4,201,294 3,337,500
35,000 McClatchy Newspapers,
Inc., Class A............ 723,251 1,225,000
138,000 McGraw-Hill Companies,
Inc. .................... 3,924,626 6,365,250
372,000 Media General, Inc.,
Class A.................. 9,109,696 11,253,000
45,000 Meredith Corporation...... 1,821,494 2,373,750
90,000 New York Times Company,
Class A.................. 1,419,273 3,420,000
15,000 News Corporation Limited,
ADS...................... 255,587 313,125
70,000 Reader's Digest
Association, Inc.,
Class B.................. 2,793,360 2,537,500
----------- -------------
25,043,362 31,440,750
----------- -------------
REAL ESTATE--0.4%
280,000 Catellus Development
Corporation+............. 2,215,000 3,185,000
12,000 Florida East Coast
Industries, Inc. ........ 631,838 1,048,500
----------- -------------
2,846,838 4,233,500
----------- -------------
RETAIL--2.1%
46,000 Aaron Rents, Inc. ........ 159,101 546,250
20,000 Aaron Rents, Inc.,
Class A.................. 83,263 280,000
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- -----
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
RETAIL (CONTINUED)
160,000 Burlington Coat Factory
Warehouse Corporation+... $ 2,109,612 $ 2,080,000
125,000 Earl Scheib, Inc.+........ 885,924 875,000
50,000 Fingerhut Companies,
Inc. .................... 711,335 612,500
91,000 Lillian Vernon
Corporation.............. 1,287,334 1,114,750
675,000 Neiman Marcus Group,
Inc.+.................... 9,760,037 17,212,500
27,500 Thorn plc, ADR+........... 357,147 470,938
----------- -------------
15,353,753 23,191,938
----------- -------------
RETAIL: FOOD AND DRUG--1.0%
80,000 Albertson's, Inc. ........ 2,645,875 2,850,000
100,000 American Stores Company... 2,530,213 4,087,500
46,000 Giant Food Inc.,
Class A.................. 1,565,675 1,587,000
45,000 Kroger Co.+............... 1,043,500 2,092,500
----------- -------------
7,785,263 10,617,000
----------- -------------
SPECIALTY CHEMICAL--1.1%
50,000 E.I. du Pont de Nemours
and Company.............. 3,122,625 4,718,750
240,000 Ferro Corporation......... 5,146,540 6,810,000
----------- -------------
8,269,165 11,528,750
----------- -------------
TELECOMMUNICATIONS--8.5%
120,000 Aliant Communications
Inc. .................... 1,725,367 2,040,000
170,000 AT&T Corp. ............... 6,333,990 7,395,000
100,000 BC TELECOM Inc. .......... 1,768,699 2,164,944
290,000 BCE Inc. ................. 9,927,875 13,847,500
22,500 BellSouth Corporation..... 577,998 908,437
100,000 Cable & Wireless plc,
Sponsored ADR............ 2,083,454 2,462,500
275,000 C-TEC Corporation+........ 5,507,314 6,668,750
46,500 C-TEC Corporation,
Class B+................. 730,744 1,104,375
70,000 Frontier Corporation...... 1,286,117 1,583,750
27,000 Globalstar
Telecommunications+...... 488,250 1,701,000
235,000 GTE Corporation........... 5,019,945 10,692,500
35,000 Hong Kong
Telecommunications Ltd.,
Sponsored ADR............ 545,695 568,750
55,000 Motorola, Inc. ........... 753,575 3,375,625
25,000 Northern Telecom Limited.. 941,875 1,546,875
40,000 NYNEX Corporation......... 1,728,725 1,925,000
15,000 Pacific Telesis Group
Inc. .................... 404,013 551,250
140,000 Rogers Communications,
Inc., Class B+........... 1,259,862 997,500
25,000 Royal PTT Nederland,
Sponsored ADR............ 668,718 946,875
55,000 SBC Communications Inc. .. 1,400,393 2,846,250
28,000 Southern New England
Telecommunications
Corporation.............. 942,025 1,088,500
180,000 Sprint Corporation........ 3,495,790 7,177,500
165,000 STET -- Societa
Finanziaria Telefonica
SpA, Sponsored ADR....... 3,943,073 7,321,875
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- -----
<C> <S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
1,400,000 Telecom Italia SpA ORD.... $ 1,635,559 $ 3,636,124
98,000 Telecomunicacoes
Brasileiras SA
(Telebras), Sponsored
ADR...................... 2,989,234 7,497,000
65,224 Telecomunicacoes de Sao
Paulo SA (Telesp)+....... 10,474 14,099
1,521,945 Telecomunicacoes de Sao
Paulo SA (Telesp)
Preference Shares........ 190,268 329,552
17,500 Telefonica de Espana,
Sponsored ADR............ 595,858 1,211,875
18,000 Telefonos De Mexico SA,
Class L, ADR............. 598,837 594,000
----------- -------------
57,553,727 92,197,406
----------- -------------
TRANSPORTATION--0.9%
105,000 AMR Corporation+.......... 6,535,020 9,253,125
----------- -------------
WIRELESS COMMUNICATIONS--3.5%
200,000 AirTouch Communications
Inc.+.................... 4,649,781 5,050,000
22,500 Associated Group, Inc.,
Class A+................. 201,448 691,875
18,500 Associated Group, Inc.,
Class B+................. 98,787 550,375
398,000 Century Telephone
Enterprises, Inc. ....... 9,074,938 12,288,250
200,000 COMSAT Corporation,
Series 1................. 4,344,970 4,925,000
65,000 NEXTEL Communications,
Inc., Class A+........... 798,199 849,062
2,400,000 Telecom Italia Mobile
SpA...................... 2,171,791 6,067,238
150,000 Telephone and Data
Systems, Inc. ........... 1,821,004 5,437,500
100,000 360 degrees Communications
Company+................. 1,285,093 2,312,500
----------- -------------
24,446,011 38,171,800
----------- -------------
TOTAL COMMON STOCKS..................... 685,356,893 1,062,281,229
----------- -------------
PREFERRED STOCKS--0.3%
CONSUMER PRODUCTS--0.1%
35,000 Fieldcrest Cannon, Inc.,
Series A, 6.00%, Conv.
Pfd., 144A(c)............ 1,933,750 1,373,750
----------- -------------
EQUIPMENT AND SUPPLIES--0.1%
20,000 Sequa Corporation, $5.00,
Cumulative Conv. Pfd. ... 1,538,833 1,400,000
----------- -------------
METALS AND MINING--0.0%
10,000 Freeport-McMoRan Inc.,
Depository Shares, 7.00%,
Cumulative Conv. Pfd. ... 213,000 277,500
----------- -------------
TELECOMMUNICATIONS--0.1%
13,500 Sprint Corporation, 8.25%,
Conv. Pfd. .............. 430,312 484,312
----------- -------------
TOTAL PREFERRED STOCKS.................. 4,115,895 3,535,562
----------- -------------
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- -----
<C> <S> <C> <C>
COMMON STOCK WARRANTS--0.0%
115,000 Jacor Communications
Inc., Warrants,
expires 09/18/2001+... $ 301,875 $ 230,000
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C> <C>
CORPORATE BONDS--0.3%
AUTOMOTIVE PARTS AND ACCESSORIES--0.1%
$ 400,000 GenCorp Inc., Conv.
Sub. Deb., 8.00% due
08/01/2002............ 396,055 457,000
------------ --------------
ENTERTAINMENT--0.2%
FRF 593,750 Havas, Conv. Bonds,
Payment-in-kind, 3.00%
due 12/31/1997........ 158,702 147,759
$ 2,700,000 Viacom Inc., Sub. Deb.,
8.00% due 07/07/2006.. 1,845,888 2,608,875
------------ --------------
2,004,590 2,756,634
------------ --------------
TOTAL CORPORATE BONDS................ 2,400,645 3,213,634
------------ --------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- -----
<C> <S> <C> <C>
U.S. TREASURY BILLS--2.7%
$28,935,000 4.71% to 5.06%++ due
01/09/1997
-- 02/06/1997........ $ 28,851,448 $ 28,851,448
------------ --------------
TOTAL INVESTMENTS............. 101.6% $721,026,756(b) 1,098,111,873
============
OTHER ASSETS AND LIABILITIES
(NET)........................ (1.6) (17,472,601)
----- --------------
NET ASSETS.................... 100.0% $1,080,639,272
===== ==============
</TABLE>
- ---------------
(a) Security fair valued by the Board of Trustees.
(b) Aggregate cost for Federal tax purposes was $722,056,749. Net unrealized
appreciation for Federal tax purposes was $376,055,124 (gross unrealized
appreciation was $392,187,132 and gross unrealized depreciation was
$16,132,008).
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. The market value
of these securities at December 31, 1996 was $1,373,750, representing 0.13%
of total net assets.
+ Non-income producing security
++ Represents annualized yield at date of purchase.
ADR -- American Depositary Receipt ADS -- American Depositary Share
FRF -- French Franc GDR -- Global Depositary Receipt ORD -- Ordinary Share
See Notes to Financial Statements.
22
<PAGE>
THE GABELLI ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- ----------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost
$721,026,756)................... $1,098,111,873
Cash.............................. 123,772
Receivable for investments sold... 5,327,352
Dividends and interest
receivable...................... 1,628,996
Receivable for Fund shares sold... 541,221
--------------
Total Assets.................... 1,105,733,214
--------------
LIABILITIES:
Payable for investments
purchased....................... 13,849,400
Dividend payable.................. 7,676,685
Payable for Fund shares redeemed.. 2,236,593
Payable for investment advisory
fee............................. 929,039
Payable for distribution fees..... 272,000
Accrued expenses and other
payables........................ 130,225
--------------
Total Liabilities............... 25,093,942
--------------
Net assets applicable to
40,907,365 shares of
beneficial interest
outstanding................... $1,080,639,272
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest at
par value....................... $ 409,074
Additional paid-in capital........ 704,247,412
Distributions in excess of net
realized gain on investments.... (1,104,816)
Net unrealized appreciation of
investments..................... 377,087,602
--------------
Total Net Assets................ $1,080,639,272
==============
Net Asset Value, offering and
redemption price per share
($1,080,639,272 / 40,907,365
shares outstanding; unlimited
number of shares authorized of
$0.01 par value).................. $26.42
=====
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- ----------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income (net of foreign
withholding taxes of $238,039).... $ 17,652,082
Interest income..................... 3,042,593
------------
Total Investment Income........... 20,694,675
------------
EXPENSES:
Investment advisory fee............. 11,146,282
Distribution fees................... 2,706,466
Shareholder services fees........... 896,639
Trustees' fees...................... 64,107
Legal and audit fees................ 39,300
Other............................... 93,976
------------
Total Expenses.................... 14,946,770
------------
NET INVESTMENT INCOME................. 5,747,905
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on securities
sold.............................. 97,354,924
Net realized gain on foreign
currency transactions............. 3,292
------------
Net realized gain on
investments..................... 97,358,216
------------
Net unrealized appreciation of
securities, foreign currency and
other assets and liabilities:
Beginning of year................. 341,177,313
End of year....................... 377,087,602
------------
Change in net unrealized
appreciation of securities,
foreign currency and other
assets and liabilities........ 35,910,289
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS......................... 133,268,505
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS..................... $139,016,410
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/96 12/31/95
-------------- --------------
<S> <C> <C>
Net investment income.................................................................... $ 5,747,905 $ 10,225,688
Net realized gain on investments......................................................... 97,358,216 69,013,606
Net change in unrealized appreciation of investments..................................... 35,910,289 157,165,724
-------------- --------------
Net increase in net assets resulting from operations..................................... 139,016,410 236,405,018
Distributions to shareholders from:
Net investment income.................................................................. (5,681,295) (10,040,428)
Net realized gain on investments....................................................... (97,358,216) (69,013,606)
Distributions in excess of net realized gain on investments............................ (410,434) (94,875)
Net decrease in net assets from Fund share transactions.................................. (46,466,539) (47,966,474)
-------------- --------------
Net increase/(decrease) in net assets.................................................... (10,900,074) 109,289,635
NET ASSETS:
Beginning of year........................................................................ 1,091,539,346 982,249,711
-------------- --------------
End of year.............................................................................. $1,080,639,272 $1,091,539,346
============== ==============
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
THE GABELLI ASSET FUND -- NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES. The Gabelli Asset Fund (the "Fund") was
organized on November 25, 1985 as a Massachusetts business trust. The Fund is a
diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), whose primary
objective is growth of capital. The Fund commenced operations on March 3, 1986.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements.
SECURITY VALUATION. Portfolio securities which are traded only on a nationally
recognized securities exchange or in the over-the-counter market which are
National Market System Securities are valued at the last sale price as of the
close of business on the day the securities are being valued, or lacking any
sales, at the mean between closing bid and asked prices. Other over-the-counter
securities are valued at the mean between current bid and asked prices as
reported by NASDAQ, the National Quotation Bureau or such other comparable
sources as the Board of Trustees deems appropriate to reflect their fair value.
Portfolio securities which are traded both in the over-the-counter market and on
a stock exchange are valued according to the broadest and most representative
market, as determined by Gabelli Funds, Inc. (the "Adviser"). Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Trustees of the Fund. Short-term investments that mature in more than 60 days
are valued at the highest bid price obtained from a dealer maintaining an active
market in that security. Short-term investments that mature in 60 days or fewer
are valued at amortized cost, unless the Board of Trustees determines that such
valuation does not constitute fair value. Debt instruments having a greater
maturity are valued at the highest bid price obtained from a dealer maintaining
an active market in those securities or on the basis of prices obtained from a
pricing service approved as reliable by the Board of Trustees.
FOREIGN CURRENCY. The books and records of the Fund are maintained in United
States (U.S.) dollars. Foreign currencies, investments and other assets and
liabilities are translated into U.S. dollars at the exchange rates prevailing at
the end of the period, and purchases and sales of investment securities, income
and expenses are translated on the respective dates of such transactions.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/depreciation of foreign currency and other assets and liabilities.
Unrealized gains and losses of securities, which result from changes in foreign
exchange rates as well as changes in market prices of securities, have been
included in unrealized appreciation/depreciation of investment securities. 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 Fund 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 sold.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined using specific identification as the cost method. Interest income
(including amortization of premium and accretion of discount) is recorded as
earned. Dividend income is recorded on the ex-dividend date.
24
<PAGE>
THE GABELLI ASSET FUND -- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund. Permanent
differences incurred during the year ended December 31, 1996 resulting from
different book and tax accounting policies for currency gains and losses and
capital gain distributions, are reclassified between net investment income and
net realized gains at year end. The reclassifications for the year ended
December 31, 1996 were a decrease to undistributed net investment income of
$64,802 and a decrease to distributions in excess of net realized gain on
investments of $64,802.
PROVISION FOR INCOME TAXES. The Fund has qualified and intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.
2. AGREEMENTS WITH AFFILIATED PARTIES. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00 percent of the value of the Fund's average daily net
assets. In accordance with the Advisory Agreement, the Adviser provides a
continuous investment program for the Fund's portfolio, provides all facilities
and personnel, including offices, required for its administrative management,
and pays the compensation of all officers and Trustees of the Fund who are its
affiliates. The Adviser is obligated to reimburse the Fund in the event the
Fund's expenses exceed the most restrictive expense ratio limitation imposed by
any state. No such reimbursement was required during the year ended December 31,
1996.
3. DISTRIBUTION PLAN. The Fund has adopted a plan of distribution (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Pursuant to this Plan, the
Distributor, Gabelli & Company, Inc. ("Gabelli & Company"), an indirect
majority-owned subsidiary of the Adviser, is authorized to purchase advertising,
sales literature and other promotional material and to pay its own salespeople.
The Fund will reimburse the Distributor for these expenditures up to 0.25
percent on an annual basis of the value of the Fund's average daily net assets.
In addition, if and to the extent that the fee the Fund pays to the Adviser, as
well as other payments the Fund makes, are considered as indirectly financing
any activity which is primarily intended to result in the sale of the Fund's
shares, such payments are authorized under the Plan. For the year ended December
31, 1996, the Fund incurred distribution costs under the Plan of $2,706,466,
representing 0.24 percent of the value of the Fund's average daily net assets.
4. PORTFOLIO SECURITIES. Cost of purchases and proceeds from sales of
securities for the year ended December 31, 1996, other than U.S. government and
short-term securities, aggregated $158,882,028 and $297,698,687, respectively.
5. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1996, the
Fund paid brokerage commissions of $135,611 to Gabelli & Company and its
affiliates.
25
<PAGE>
THE GABELLI ASSET FUND -- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
6. SHARES OF BENEFICIAL INTEREST. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/96 12/31/95
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold............................................... 6,138,309 $ 168,589,644 6,338,311 $ 156,103,869
Shares issued upon reinvestment of dividends.............. 3,624,998 95,772,441 2,772,475 71,391,947
Shares redeemed........................................... (11,251,210) (310,828,624) (10,946,512) (275,462,290)
----------- ------------- ------------ -------------
Net decrease.............................................. (1,487,903) $ (46,466,539) (1,835,726) $ (47,966,474)
=========== ============= ============ =============
</TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per share amounts for a Fund share outstanding throughout each year ended
December 31,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year........................ $ 25.75 $ 22.21 $ 23.30 $ 19.88 $ 17.96
---------- ---------- -------- -------- --------
Net investment income..................................... 0.15 0.26 0.26 0.16 0.26
Net realized and unrealized gain/(loss) on investments.... 3.29 5.28 (0.30) 4.18 2.41
---------- ---------- -------- -------- --------
Total from investment operations.......................... 3.44 5.54 (0.04) 4.34 2.67
---------- ---------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................... (0.15) (0.25) (0.25) (0.16) (0.25)
Distributions in excess of net investment income........ -- -- (0.01) -- --
Net realized gains...................................... (2.61) (1.75) (0.76) (0.76) (0.50)
Distributions in excess of net realized gains........... (0.01) (0.00)(a) (0.03) -- --
---------- ---------- -------- -------- --------
Total distributions....................................... (2.77) (2.00) (1.05) (0.92) (0.75)
---------- ---------- -------- -------- --------
Net asset value, end of year.............................. $ 26.42 $ 25.75 $ 22.21 $ 23.30 $ 19.88
========== ========== ======== ======== ========
Total return*............................................. 13.4% 24.9% (0.1)% 21.8% 14.9%
========== ========== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)........................ $1,080,639 $1,091,539 $982,250 $945,408 $632,575
Ratio of net investment income to average net assets.... 0.52% 0.95% 1.10% 0.82% 1.42%
Ratio of operating expenses to average net assets....... 1.34% 1.33% 1.28% 1.31% 1.31%
Portfolio turnover rate................................... 14.9% 26.4% 18.7% 16.0% 14.4%
Average commission rate (per share of security)(b)........ $ 0.0484 N/A N/A N/A N/A
</TABLE>
- ---------------
* Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends.
(a) Amount represents less than $0.005 per share.
(b) Average commission rate (per share of security) as required by amended SEC
disclosure requirements effective for fiscal years beginning after September
1, 1995.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
THE GABELLI ASSET FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Asset Fund (the "Fund")
at December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund'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 generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 14, 1997
- --------------------------------------------------------------------------------
1996 TAX NOTICE TO SHAREHOLDERS (UNAUDITED
For the year ended December 31, 1996, the Fund paid to shareholders, on December
31, 1996, ordinary income dividends (comprised of net investment income and
short-term capital gains) totaling $0.273 per share. Additionally, on that date,
the Fund paid $2.497 per share in long-term capital gains. For 1996, 63.06% of
the ordinary income dividend qualifies for the dividend received deduction
available to corporations.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividend paid by the Fund during fiscal
1996 which was derived from U.S. Treasury securities was 10.16%. Such income may
be exempt from state and local income 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 Fund's fiscal year in U.S. Government securities.
The Gabelli Asset Fund did not meet this strict requirement in 1996. Due to the
diversity in state and local tax law, it is recommended that you consult your
personal tax advisor for the applicability of the information provided as to
your own situation.
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues. Aa:
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat large than
in Aaa securities. A: Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future. Baa: Bonds which are
rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Ba:
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. B Bonds which are rated B
generally lack characteristics of a desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small. Caa: Bonds which are
rated Caa ae of poor standing. Such issues may be in default or there may
be present elements of danger with respect to principal or interest. Ca:
Bonds which are rated Ca represent obligations which are speculative in
high degree. Such issues are often in default or have other marked
shortcomings. C: Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
<PAGE>
Unrated: Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted. 2. The issue or
issuer belongs to a group of securities that are not rated as a matter of
policy. 3. There is a lack of essential data pertaining to the issue or
issuer. 4. The issue was privately placed, in which case the rating is not
published in Moody's Investors Services, Inc.'s publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa A, Baa Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa-1, A-1, Baa-1 and B-1.
<PAGE>
STANDARD & POOR'S RATINGS SERVICE
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's
Ratings Service, a division of McGraw Hill Companies, Inc. Capacity to pay
interest and repay principal is extremely strong. AA: Bonds rated AA have a
very strong capacity to pay interest and repay principal and differ from
the higher rated issues only in small degree. A: Bonds rated A have a
strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories. BBB: Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories. BB, B Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with CCC, respect to capacity to pay
interest and repay principal in accordance with the terms of this CC, C:
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, they are outweighed by large uncertainties of
major risk exposures to adverse conditions. C1: The rating C1 is reserved
for income bonds on which no interest is being paid. D: Bonds rated D are
in default, and payment of interest and/or repayment of principal is in
arrears. Plus (+) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show Or relative standing within the
major rating categories. Minus (-) NR: Indicates that no rating has been
requested, that there is insufficient information on which to base a
rating, or that S&P does not rate a particular type of obligation as a
matter of policy.
