<PAGE>
THE GABELLI ASSET FUND
One Corporate Center
Rye, New York 10580-1434
ANNUAL REPORT
DECEMBER 31, 1996
TO OUR SHAREHOLDERS,
In the fourth quarter of 1996, we experienced one of the most breathtaking
rallies in stock market history. Investors saw the Clinton victory, combined
with the Republicans retaining control of Congress, as the best of all possible
worlds and poured money into equities. Blue chip stocks led the post-election
charge, with the Standard & Poor's 500 Index (S&P 500) and the Dow Jones
Industrial Average (DJIA) surging to record levels. This strong fourth quarter
capped a second great year for U.S. equities, concluding one of the best
two-year periods in history.
INVESTMENT PERFORMANCE
For the fourth quarter ended December 31, 1996, The Gabelli Asset Fund's
total return was 4.5%. The Value Line Composite and Russell 2000 Indexes gained
5.3% and 4.1%, respectively over the same period. The S&P 500 was up 8.3%. Each
index is an unmanaged indicator of stock market performance. For the twelve
months ended December 31, 1996, the Fund returned 13.4%. The Value Line
Composite and Russell 2000 advanced 13.4% and 14.8% for the year; the S&P 500
returned 23.0% for the year. While we beat our long-term goal of adding ten
percent real to the portfolio, the results were admittedly dull.
For the five-year period ended December 31, 1996, the Fund's return
averaged 14.6% annually, versus average annual returns of 15.3%, 15.6% and 15.2%
for Value Line Composite, the Russell 2000 Index and the S&P 500, respectively.
For the ten years ended December 31, 1996, The Gabelli Asset Fund achieved
a total return of 327.4%, which equates to an average annual return of 15.6%, as
compared to 15.3%, 12.9% and 12.4% average annual returns over the same time
period for the S&P 500, Value Line Composite and Russell 2000, respectively. We
believe that the future will again witness our ability to attain and exceed our
long-term goal of ten percent real.
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI ASSET FUND AND THE S&P 500 INDEX
<CAPTION>
3/3/86 12/86 12/87 12/88 12/89
<S> <C> <C> <C> <C> <C>
Gabelli Asset Fund $10,000 $11,280 $13,107 $17,184 $21,686
S&P 500 Index $10,000 $10,930 $11,487 $13,383 $17,612
12/90 12/91 12/92 12/93 12/94 12/95 12/96
<S> <C> <C> <C> <C> <C> <C> <C>
Gabelli Asset Fund $20,602 $24,331 $27,956 $34,051 $34,017 $42,530 $48,229*
S&P 500 Index $17,066 $22,271 $23,384 $25,746 $26,081 $35,884 $44,137
<FN>
*Past performance is not predictive of future performance.
</TABLE>
<PAGE>
Since its inception on March 3, 1986 through December 31, 1996, the Fund
has had a total return of 382.1%, which equates to an average annual return of
15.6%. As of December 31, 1996, the Fund's total net assets were nearly $1.1
billion.
<TABLE>
INVESTMENT RESULTS (a)
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
QUARTER
---------------------------------------------
1ST 2ND 3RD 4TH YEAR
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1996: Net Asset Value.................. $27.44 $28.09 $27.92 $26.42 $26.42
Total Return..................... 6.6% 2.4% (0.6)% 4.5% 13.4%
- ----------------------------------------------------------------------------------------------------------------
1995: Net Asset Value.................. $23.84 $25.10 $26.76 $25.75 $25.75
Total Return..................... 7.3% 5.3% 6.6% 3.7% 24.9%
- ----------------------------------------------------------------------------------------------------------------
1994: Net Asset Value.................. $22.63 $22.36 $23.56 $22.21 $22.21
Total Return..................... (2.9)% (1.2)% 5.4% (1.2)% (0.1)%
- ----------------------------------------------------------------------------------------------------------------
1993: Net Asset Value.................. $21.10 $22.10 $23.63 $23.30 $23.30
Total Return..................... 6.1% 4.7% 6.9% 2.5% 21.8%
- ----------------------------------------------------------------------------------------------------------------
1992: Net Asset Value.................. $19.04 $18.91 $19.02 $19.88 $19.88
Total Return..................... 6.0% (0.7)% 0.6% 8.5% 14.9%
- ----------------------------------------------------------------------------------------------------------------
1991: Net Asset Value.................. $17.36 $17.36 $17.90 $17.96 $17.96
Total Return..................... 11.1% 0.0% 3.1% 3.2% 18.1%
- ----------------------------------------------------------------------------------------------------------------
1990: Net Asset Value.................. $16.48 $16.81 $15.21 $15.63 $15.63
Total Return..................... (4.5)% 2.0% (9.5)% 7.8% (5.0)%
- ----------------------------------------------------------------------------------------------------------------
1989: Net Asset Value.................. $16.46 $18.01 $18.73 $17.26 $17.26
Total Return..................... 12.0% 9.4% 4.0% (1.0)% 26.2%
- ----------------------------------------------------------------------------------------------------------------
1988: Net Asset Value.................. $13.49 $14.62 $14.94 $14.69 $14.69
Total Return..................... 14.4% 8.4% 2.2% 3.5% 31.1%
- ----------------------------------------------------------------------------------------------------------------
1987: Net Asset Value.................. $12.97 $13.93 $14.66 $12.61 $12.61
Total Return..................... 19.6% 7.4% 5.2% (14.0)% 16.2%
- ----------------------------------------------------------------------------------------------------------------
1986: Net Asset Value.................. $10.44 $11.21 $11.29 $11.28 $11.28
Total Return..................... 4.4%(b) 7.4% 0.7% (0.1)% 12.8%(b)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------
DIVIDEND HISTORY
AVERAGE ANNUAL RETURNS - DECEMBER 31, 1996(a) -----------------------------------------------------
- --------------------------------------------- PAYMENT (EX) DATE RATE PER SHARE REINVESTMENT PRICE
----------------- -------------- ------------------
<C> <C> <C> <C> <C>
1 Year............................... 13.4% December 31, 1996 $2.770 $26.42
5 Year............................... 14.6% December 29, 1995 $2.000 $25.75
10 Year............................... 15.6% December 30, 1994 $1.056 $22.21
Life of Fund (b)...................... 15.6% December 31, 1993 $0.921 $23.30
December 31, 1992 $0.755 $19.88
- --------------------------------------------- December 31, 1991 $0.505 $17.96
December 31, 1990 $0.770 $15.63
December 29, 1989 $1.278 $17.26
December 30, 1988 $0.775 $14.69
January 4, 1988 $0.834 $12.07
March 9, 1987 $0.505 $12.71
<FN>
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of operations on March 3, 1986.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
WHAT WE DO
We do what is described as bottom-up research: we read
annual reports; we visit the competition; we talk to
customers; we go belly to belly with management. We
structure our portfolio by picking stocks.
[Triangle Graphic]
In past reports, we have tried to articulate our
investment philosophy and methodology. The following graphic
further illustrates the interplay among the four components
of our valuation approach.
Our focus is on free cash flow; earnings before interest, taxes,
depreciation and amortization (EBITDA) minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value (PMV) estimates.
Finally, we look for a catalyst; something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing world-wide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as increased focus on productivity
enhancing goods and services.
3
<PAGE>
BARRON'S 1997 ROUNDTABLE
We thought we would share with you excerpts from BARRON'S 1997 Roundtable
interview with our Chief Investment Officer. Discussion of individual companies
is not necessarily reflective of the Fund's entire portfolio.
- --------------------------------------------------------------------------------
---------------------------
BARRON'S
ROUNDTABLE
*
MARIO GABELLI
ARCHIE MACALLASTER
JOHN NEFF
MARC PERKINS
MICHAEL PRICE
JIM ROGERS
OSCAR SCHAFER
CARLENE MURPHY ZIEGLER
FELIX ZULAUF
---------------------------
(the following has been excerpted:)
PLAYING THEMES
OUR PANELISTS SCOUR THE GLOBE FOR UNDERAPPRECIATED STOCKS
Barron's 1997 Investment Roundtable features an avalanche of ideas - mega-cap
and micro-, foreign and domestic, straight equity and derivative - about
profitable ways to engage with the markets this year. This second of three
Roundtable installments is a distillation of the mid-section of our marathon
Jan. 6 gabfest. And it's dominated by the four panelists we put on the
stockpicking hot seat during that stretch: Felix Zulauf, Mario Gabelli, Carlene
Ziegler and Mike Price (in the order that we grilled them). But it includes,
too, considerably more than two cents' worth of (frequently contrary) opinions
from the other five stalwarts who graced the table.
The stocks Felix, Mario, Carlene and Mike came prepared to talk about range
from a play on the Polish economy (no kidding) to a little company that's
tearing up the ski slopes; from restructuring stories to consolidation dreams.
Then there's Mario's "Hall of Shame," and even one single solitary short - but
it does encompass an entire market.
So what are they? For all the juicy details, read the Q&A that follows
these brief bios of the knights of the Roundtable who take their stockpicking
turns in this issue.
- KATHRYN M. WELLING
MARIO GABELLI: Iconoclastic, irrepressible, ingenious and indefatigable. The
erstwhile auto analyst from the Bronx is chairman
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
and chief investment officer of Gamco Inc., the money-management firm otherwise
known as Gabelli Asset Management. Mario is also chairman of Gabelli Funds Inc.,
the adviser to the Gabelli family of mutual funds.
PART 1: OUTLOOK ON THE ECONOMY AND STOCK MARKET
Q: Mario, what kind of economy do you see?
GABELLI: Oh, 1997 should be another good year, with GDP up about 2% to 3%. We
talked a year ago about seeing the early part of a global recovery in '97, but
that seems a little further off now. Still, with the currency changes taking
place, you could see a pretty decent economy in the second half in Germany and
France. Hungary, Poland, the Czech Republic are reasonably strong. Latin
America's reasonably good. Southeast Asia, ex-Japan, and the 3.5 billion new
consumers around the world, have a pretty good appetite for American goods.
Overall, the export side of the house - even with the recent strength of the
dollar vis-a-vis the yen and the mark - should be decent. The outlook for '98 is
not clear. But for '97, I'm in the 2% inflation camp, trickling up to 3% to
3 1/2% by year-end, and I see long interest rates backed up to a level of
stability around 6 3/4% to 7 1/4%.
Q: Everyone always says that.
GABELLI: No. A year ago, long rates were 6.05%, and I argued they would back
up to 6 1/2% to 6 3/4% - as they have.
Q: Mario, what's in store for the stock market?
GABELLI: I don't see the market helped by rate changes. Profits, I see up 7%,
more or less. So I don't see any gremlins there, though I watch for them.
Earnings surprises are clearly the wild card for the market. Valuations are not
outrageously high. The flow of funds is incredibly positive. The net inflow into
mutual funds in '96 was about $200 billion, compared with $100 billion net in
'95. Corporate buybacks announced were about $130 billion in '96. Only completed
about $30 billion. But even that is a big number. Corporate dividends were about
$100 billion. There are a couple of other elements. The buying of U.S. stocks by
non-U.S. holders I see accelerating. So I see the money flow into mutual funds
continuing, though it's hard to make the case that it will go up at a higher
incremental rate.
But the big number is not any of those. It is acquisitions. In 1996, we
announced $1 trillion on a global basis, $659 billion in the U.S. So whatever we
see in mutual fund inflows, dividends, buybacks, net foreign investments will be
a paltry number relative to transactions, many of which are for cash.
Q: Isn't that circular? One reason you've had this M&A boom is that the stock
market is so high. If it were to drop off for some reason, mergers would,
too.
GABELLI: No. In 1995, there were $200 billion in cash deals, retiring shares and
putting cash in investors' hands. In 1996, I don't have the final number.
Counterbalancing that, last year there was about $48 billion raised in IPOs,
which take cash out of the market and put shares in. And another big chunk of
cash left the U.S. in '95 to go into foreign markets. But that is a loop. In
1997, that flow of funds is still going to be enormously powerful. Deals will be
at an all-time record. Whether, as you saw Gillette do with Duracell, paper will
be swapped for paper, or whether cash is exchanged for paper, it's all recycled.
I would guess the entire world did $1.2 trillion worth of deals in 1996. In
1997, you are going to see more Boeing/McDonnells. Megadeals like Philip Morris
buying Pepsi-Cola. American Express and someone. GTE buying British Telecom.
Q: In any event, is your point that this is going to keep the stock market going
up?
GABELLI: Let me keep going. I don't think 1997 is going to be a year in
which "three-peats" happen. The Lakers and the Celtics and the Bulls may have
been able to do it. But I don't think the market is going to make it three
championship seasons in a row. So 1997, even with its powerful flow of funds,
will not see another big uplift. However, in light of the powerful flow of funds
and all the deal activity, it's going to be a fertile year to get in front of
themes like the consolidations in certain industries.
Q: Utilities?
GABELLI: They're one example. Banks. Brokers. Money managers. There's an
incredible consolidation
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
going on in the money-management business!
Q: Does lightning strike twice?
GABELLI: Hit me!
Q: So it will be a terrible market year except for investors?
GABELLI: I didn't say "terrible." I am not where John is, down 15% to 20%.
NEFF: I said zip, though, for the year.
GABELLI: That's where I am, as well, for the whole year. More volatility in the
market. The flow of funds is so powerful that it doesn't allow a material
downdraft from here. At the same time, the places you make money are in
spinoffs, split-ups, corporate transactions. On March 14, 1994, when GE went
after Kemper, I said that signaled a third wave of takeovers. Each year since,
we have seen progressively more, and 1997 is going to be the year of the global
behemoths. Scale economics on a global basis are at work. When you see British
Telecom buying MCI and then you see GTE thinking about buying British Telecom,
it's just phenomenal. The Boeing/ McDonnell Douglas and Gillette/Duracell are
just a taste of what you will see. And when you have a stock that's up 20 points
in a day, you're going to say, "Hey, what else can I buy that's going to be
bought?" You are going to have all the speculative fervor of 1986-87, or
1968-69. Whenever Charlie Bluhdorn was around and Jimmy Ling.
PART 2:
GABELLI TALKS STOCKS
In the 'Nineties, one of the themes is consolidation. That is, to buy a
fragmented industry, get the benefit of synergistic dynamics at work. Eliminate
overhead. Use scale economics in the financial and operating areas. We've talked
in years past about consolidations in the banks, the brokers, the broadcasters.
I added to that the defense industry, the Baby Bells and utilities a year ago.
Another area I've been looking at is supermarkets. I want to recommend a
couple today. Just as a backdrop, Royal Ahold bought, from Kohlberg Kravis
Roberts, Stop & Shop. Paid 8 1/2 times EBITDA [earnings before interest, taxes,
depreciation and amortization]. Vons is merging into Safeway at 10.1 times. Food
Lion just bought Kash 'n Karry. A whole bunch of deals. KKR bought 90% of
Bruno's. And so on. The two I am going to recommend today are GIANT FOOD and
DELCHAMPS. Giant Food has 60 million shares. The symbol is GSF.A. on the Amex.
The stock closed around 35. That is a $2 billion market cap. They have 174
supermarkets in the Baltimore-Washington, D.C., area. Revenues of about $4
billion. The balance sheet is over-financed. They have about $250 million cash,
about $170 million total debt, which is primarily capitalized leases. They own
17 of the shopping centers they operate. They have equity interests in four
others. Without factoring in a strike they're involved in, earnings for this
February year will be about $1.80, up from $1.72. Growing at glacial speed.
Q: That implies a pretty decent P/E, if the stock is at 35.
GABELLI: Here is the story: A U.K. company, J. Sainsbury, had 9.8 million
shares. They just bought two million more from Israel Cohen's estate. I can
see earnings accelerating to $1.95-$2.20. The management is marching to a
different drummer. They should use the balance sheet to leverage up, do many
of the things that KKR would do. I don't think they will. Henry Kravis should
be sniffing around at this deal. Sainsbury owns 20%-plus. I think they are
going to come in and take out the balance. The takeout price is somewhere
between $42 and $52.
MACALLASTER: That's an enormous price.
GABELLI: Only 8.4 times EBITDA. They dominate their market. Their margins are
terrific. Extremely well-run. They have $500 million of excess capital. My
own sense is that the family did a disservice to themselves and shareholders
by not taking the block of stock they sold to Sainsbury and selling it to
KKR, to create an auction. They got lousy investment-banking advice. They
should invite Henry in. He has a new fund, knows this business.
SCHAFER: What percentage do you own?
GABELLI: There is no vote. The voting stock, all 125,000 shares, is
controlled by four trustees. But everybody gets the same price as that stock.
We own two million shares out of 60 million. Not a big number.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
MACALLASTER: There are 60 million shares outstanding?
GABELLI: 59.5 million - for you, 60. The next company I'm recommending is
Delchamps. The stock is 20. The symbol is DLCH. It's in Alabama,
approximately 119 locations. The book is around $16 a share. A very good
balance sheet. It's selling at about 4.8 times EBITDA. Takeout value of
$35-$45.
MACALLASTER: They won't sell out, will they? Haven't they turned down two
bids?
GABELLI: You're going back five-seven years. The Delchamps family has
migrated two generations since then.
MACALLASTER: Two generations in five years? Talk about fast-forward!
GABELLI: Archie, 46% of the stock is held by - just punch out your 13F.
MACALLASTER: They were bid $26 for this company some years ago.
GABELLI: A&P bid in the low 30s. They brought in some investment bankers,
said it was not enough. Or they just didn't want the deal, they were going to
do it themselves. They screwed up, then changed management. I meant, there is
a second generation of management, not of the Delchamps.
MACALLASTER: A lot of employees own this stock, too.
GABELLI: Forty-six percent is held by four institutions. If someone comes
knocking at the door this time -
MACALLASTER: They'll have a vote.
Q: Do you know which four?
GABELLI: I happen to know which four institutions they are. You're
<TABLE>
- --------------------------------------------------------------------------------
GABELLI'S PICKS
- --------------------------------------------------------------------------------
<CAPTION>
PRICE
COMPANY SYM. EXCH. 1/6/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
GIANT FOOD GFSA ASE 35 1/8
- --------------------------------------------------------------------------------
DELCHAMPS DLCH NNM 20 1/4
- --------------------------------------------------------------------------------
GC COS. GCX NYSE 36 1/4
- --------------------------------------------------------------------------------
CURTIS-WRIGHT CW NYSE 49 5/8
- --------------------------------------------------------------------------------
JACKPOT ENT J NYSE 9 7/8
- --------------------------------------------------------------------------------
ROLLINS INC. ROL NYSE 19 1/2
- --------------------------------------------------------------------------------
GREIF BROS GBCOA NNM 28 5/8
- --------------------------------------------------------------------------------
BHC COMM BHC ASE 102 3/8
- --------------------------------------------------------------------------------
GRAY COMM GCS NYSE 19 1/4
- --------------------------------------------------------------------------------
BELDING HEMIN BHY NYSE 2 1/4
- --------------------------------------------------------------------------------
TYLER TYL NYSE 1 7/8
- --------------------------------------------------------------------------------
CORE MATERIALS CME ASE 2 17/16
- --------------------------------------------------------------------------------
GENERAL HOST GHN YSE 2 5/8
- --------------------------------------------------------------------------------
RAYTECH RAY NYSE 4 3/8
- --------------------------------------------------------------------------------
THOMAS IND TII NYSE 21 1/8
- --------------------------------------------------------------------------------
AZTAR AZR NYSE 7 3/8
- --------------------------------------------------------------------------------
GOULDS PUMPS GULD NNM 24
- --------------------------------------------------------------------------------
QUAKER OATS OAT NYSE 38 1/8
- --------------------------------------------------------------------------------
INT'L FAMILY ENT FAM NYSE 16 5/8
- --------------------------------------------------------------------------------
BET BTV NYSE 29 1/2
- --------------------------------------------------------------------------------
LIBERTY MEDIA LBTYA NNM 28 3/8
- --------------------------------------------------------------------------------
HSN HSNI NNM 23
- --------------------------------------------------------------------------------
VIACOM VIA ASE 34
- --------------------------------------------------------------------------------
TIME WARNER TWX NYSE 37 1/4
- --------------------------------------------------------------------------------
SOUTHWEST GAS SWX NYSE 19 1/4
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
"HALL OF SHAME"
- --------------------------------------------------------------------------------
PRICE
COMPANY SYM. EXCH. 1/6/97
- --------------------------------------------------------------------------------
SANTA ANITA SAR NYSE 26 7/8
- --------------------------------------------------------------------------------
KERR GROUP KGM NYSE 2 1/2
- --------------------------------------------------------------------------------
MEDIA GENERAL MEGA ASE 30 1/2
- --------------------------------------------------------------------------------
</TABLE>
seeing about a 30% stake at this end of the table. You know, the number of
transactions taking place, the locations they are in, the fact that people like
Albertson's are looking in the area, it makes a lot of sense. Those are my two
takeout food plays for individuals who want to make a return.
MACALLASTER: You never did say what this $20 stock earned.
GABELLI: Not enough. They're just going through a restructuring. Earning 68
cents a share from continuing operations.
Neff: Why is this worth so much?
GABELLI: Cash flow. I'm going to give you a bunch of stocks in discrete
industries, but all have one common characteristic: a lot of cash. The first is
GC COS., symbol GCX, the old General Cinema. Harcourt spun it off to their
shareholders. The stock closed last week [Jan. 3] at 35. There are 7.8 million
shares; fiscal year ends October. They operate theaters, 1,159 screens in 189
locations. The company has about $10 a share in cash, no debt. They have $50
million invested in venture capital, where their record has been lackluster.
They will sell a deal, take writeoffs and obfuscate all of the values. EBITDA in
the theater business is about $40 million. You could probably sell those
theaters today for $320 million-$480 million. The company announced a major
change in direction within the last month or so: They are going to buy back one
million shares. This is a classic value investment.
Q: The stock hasn't done much, has it?
GABELLI: No, it's traded between 28 and 40. Full disclosure: I own a million
shares and I'm nibbling at it; constantly buying.
CURTISS-WRIGHT. An aircraft-parts manufacturer that was going nowhere,
liquidating. That changes, obviously, with the Boeing-
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
McDonnell Douglas merger; obviously, with the growing backlog of airplane orders
- - they are a vendor of choice on the 737-700, on a lot of the new products
coming along. They are specified for the F22, the next generation of fighter
aircraft. The reason I'm recommending it: There are five million shares, $70
million in cash; that's $14 a share. No debt. Substantial real-estate holdings,
like a tw o-million-square-foot building down in New Jersey that is rented out.
Earnings will be around $3.50-$4. They should do $7-$8 in earnings by 2000.
Basically, it is positioned to become a part of the consolidation play. The
third company is located in Las Vegas, JACKPOT ENTERPRISES. The stock is $10,
with 9.4 million shares out, a $94 million market value. Again, no debt. About
$45 million in cash - $42 million at the last 10Q. Book equity of $65.
Basically, instead of cigarette machines on a route, they operate slots. You go
into a supermarket, in a little corner you sit down and pull the slots. They do
approximately $16 million of EBITDA and a consolidation is going on. The fellow
who runs Jackpot, D.R. Kornstein, is looking for a bunch of acquisitions and
will probably pull it off.
Q: Mario, that's very interesting, obviously. What do you think about cable?
GABELLI: My next company is ROLLINS - I'll get to cable later. Rollins has 35
million shares. The stock is 19, symbol is ROL. Two businesses. One is Orkin
Pest Control, the other is burglar alarms, Rollins Protective. They have $113
million in cash, almost $3 a share, no debt. The alarm business is
consolidating. Theirs is probably worth $150 million. They can't run it. They
should sell it. That's another four bucks. You are going to wind up with about
$7 in cash. The remaining business, Orkin, they've done a lousy job of running,
day-to-day. It'll probably earn 80 cents this year, but should in theory earn
$1.20-$1.50. They should sell the company.
ZEIGLER: Mario, what's their revenue in burglar alarms?
GABELLI: Sixty million dollars, $5 million a month. So they go for 30 times
monthly revenues, the going rate; $28-$35 is the sellout price. Others in the
business are Westinghouse -- Pittston-Brinks is probably the best pure play,
though I'm speculating a little bit in ADT at the moment. Next, GREIF BROTHERS.
It's a perennial, biannual. In everyone's value portfolio. Greif has a new
management. This guy is terrific. Mike Gasser is energizing all the lazy assets.
Just stay on board.
NEFF: You're stealing Phil Carret's stock.
GABELLI: I was there before him.
Neff: He was 100 in November. Not likely.
GABELLI: I knew Carret when he was young. Don't tell me you knew Carret!
MACALLASTER: Did you know Clarence Barron, too?
GABELLI: There are 21 million shares. The stock is at 28. A $580 million
market cap; $70 million in cash, or three bucks a share.
ZIEGLER: What do they do?
GABELLI: Be patient. They have $400 million of land value in the South. Very
good land where trees do grow at night, Oscar. They have operating earnings from
two businesses. They are the largest container manufacturer in the U.S. All
types. They also have a corrugated plant down in Virginia, Virginia Fiber - and
OCC [old corrugated containers] is an important part of their ingredient costs.
That business is, on a normalized-earnings basis,worth about $25 a share. In
all, about $50 or $55 in value.
Q: What's wrong with the stock?
GABELLI: OCC. Earnings have come down substantially.
ROGERS: Read last week's installment, you'll know.
SCHAFER: This is the opposite of Stone Container. Linerboard prices coming down
has really hurt them.
MACALLASTER: There's no market in the stock, either, unless you are a seller.
SCHAFER: It is very thin.
GABELLI: No, I'm a buyer of the stock. Have been for seven years.
One last company in this cash camp, which will segue into an area that you
might have an interest in. I'm going to talk about BHC COMMUNICATIONS. Stock is
at 100, on the Amex. There are 23.9 million shares outstanding - 24 million for
Archie. That's a $2.4 billion market cap. What you get is a company with $1.3
billion in cash, no debt. A company that owns three television stations, in
L.A., New York and
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Portland, probably worth another $1.2 billion. Then they own five million shares
of United Television Inc., which sells at 87. So, marked to market, that's
another $500 million. Marked to model.
Q: Marked to what?
ROGERS: To valuations he made up in his model.
GABELLI: Marked to my model of the value of the business, based on what would be
paid by a company that wanted to buy the entire enterprise, the company is worth
$130 million more than market.
MACALLASTER: Herb Siegel [chairman and CEO] is never going to sell.
GABELLI: My point is, you get their network for free. They own a half-interest -
and Paramount Television Group owns the other - in the United Paramount Network,
UPN, which is the fifth network, or fourth or sixth, depending on who's
counting, but most likely the fifth or sixth. That network, if it works, could
have substantial value down the road. So BHC is attractive. That leads me into
the consolidation in the broadcasting industry. Last year, we talked about three
broadcasters. They were taken over. This year, I'll just talk about one in a
little more detail, GRAY COMMUNICATIONS SYSTEMS. Gray operates in what I call
"Bubba country," Lexington and Hazard, Ky.; Augusta, Albany and Thomasville,
Ga.; Panama City and Tallahassee, Fla.; and Knoxville, Tenn. There are 8.1
million shares. It's run by two outstanding value managers. The stock is 17 1/2.
Earnings for 1997 should be 55 cents. They go to 90 cents, $1.25, $1.65. By
2000, the company will have only $140 million of debt. They will have a
private-market value - marked to model based on a terminal multiple for both its
newspapers and TV stations - of about $60 a share. I'm buying as much as I can.
Q: What's the cash flow?
GABELLI: Substantial. EBITDA in 1997 is $40 million, by the year 2001 it goes
to $55 million.
Q: Do you have another stock, Mario?
GABELLI: I was just warming up. Those were my teasers. I have five companies
that sell at $2 each that could be deals. First one is BELDING HEMINGWAY. The
stock is $2.25. There are 7.5 million shares. A spinoff from the Noel Group.
They have threads, buttons. They're in the process of selling the thread
business. This will become a pure play on buttons.
Q: Threadbare.
GABELLI: Pro forma for this deal, they will have no debt. The preferred will be
taken out. They'll have $5.5 million of EBITDA, or about $3 million after-tax.
They'll earn 50 cents.
MACALLASTER: That's a lot of buttons.
GABELLI: They dominate the business. Margins are like 25%. The problem is, it's
not a big business.
PERKINS: At $2.25, that's a $20 million market cap.
GABELLI: Be patient, Marc. If you want a smaller-cap, I'll get there. TYLER
CORP. is at $2; 20 million shares out. By the way, both of these are on the
NYSE. When you see the annual report, you'll see a buck in cash, no debt. They
have two operating business. The auto parts, I could sell for them at a buck a
share. They have another business, kind of silly. They paid $4 a share for it
and it's worth a buck. They're going to sell it. An incentives business. Tyler
is attracting a lot of entrepreneurially oriented managers. It's worth a
look-see.
Another company along this line, hitchhiking on what John said [in last
week's installment], is CORE MATERIALS. The stock sells at 2 1/4. They just
bought from Navistar all of their fiber-glass business - panels, sheets, etc.
About $65 million of revenues. They paid $25 million in cash and 4.5 million
shares. So Navistar now owns 4.5 million of the 9.5 million shares. There is a
$33 million NOL [net operating loss carryforward]. Pro forma they should earn
around 50 cents a share in 18 months.
Another $2-$2.50 stock is GENERAL HOST, which operates Frank's Nursery &
Crafts. Harris Ashton has done a poor job of running the company. They have
170-odd Frank's. The aging population, the right locations, everything is right.
Sears Roebuck should look at this one.
The final one is very speculative, trades at $4.
Q: What are these $2 numbers, longs?
NEFF: Solid investments.
GABELLI: Long-term warrants.
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RAYTECH CORP. Remember Raymark Industries and asbestos and 20 years of
litigation? Raytech sells at $4, there are three million shares. They are at the
tail end of long litigation over a whole series of issues. It'll report $4.50,
fully taxed, for '96. Big Board-listed. Will earn more in 1997.
ROGERS: Wait a minute. The stock sells at 4 and they'll earn $4?
GABELLI: $4.50. You didn't listen. The symbol is RAY. The obvious question is
the litigation, still going on, with regard to successor liability. Does the
company that exists today, which tried to get out of the asbestos claims, have
successor liability? The litigation should wind up in the next 12 months.
Assuming the creditors get 80% of Newco, that will take the stock from 4 to 10.
If they get less, the stock will go materially higher. I like these ideas,
because they are ignored in the world. You can't put any big money in them, so
everybody is going to be bored. But if the market is going, as I think it is,
from individual investors wanting to buy packaged products to individuals
wanting to buy stocks, I want to offer up some low- priced long-term calls.
Finally, a couple of special situations, one of which is my favorite, down
in Louisville, Ky. For you Doubting Thomases on this one, the company is called
THOMAS INDUSTRIES. The symbol is TII. The stock is at 21; 10.7 million shares.
Two businesses. Outdoor, residential and industrial lighting, with revenues of
about $340 million, $24 million of EBITDA and $200 million of assets. Tim Brown,
who has been running the company for five years, has done a decent job of taking
assets out, growing EBITDA, operating it.
The part I like, which is where all the values are, is specialty
compressors and pumps, particularly oxygen concentrators. The population of the
U.S. is graying. The older you get, the more likely you are to have lung
problems and need oxygen concentrators. This company has 80% of that market.
Overall revenues there are $165 million, EBITDA is $37 million. Combined
revenues for 1997, $505 million, and we'll see them march up by 2000 to $650
million. Earnings, $1.25, going to $1.55, $1.85, $2.20, $3. The value is $40
today, $60 in 2000. What I think the company will do, particularly if they read
this, is take a piece of their oxygen-concentrator business public. Obtain a
Puritan Bennett-type multiple and use that currency for acquisitions. The stock
is a very attractive special situation selling at 12 times projected earnings.
Decent balance sheet.
Second special situation, I will hitch on just because I think it's a
takeover: AZTAR, which operates the Tropicana and Trop World. There are 45
million shares, the stock is $7. A $300 million market cap. On the Tropicana,
they make no money. But it's in one of the best locations in Las Vegas. On Trop
World, in Atlantic City, they make about $100 million of EBITDA in a normal
year. They have a couple of other small locations. The takeout value is $14-$17.
Management should just roll over. They belong in my Hall of Shame. However, for
1997, that's been reserved for three other companies, for more appropriate
reasons.
Q: Are you going to talk about cable?
GABELLI: Not yet. Another special situation is GOULDS PUMPS. A wonderful
water-technologies business, 21 million shares, $24 stock, $718 million of
revenues, of which water pumps are $341 million. They dominate on a global
basis; $1.60 in earnings going to $1.85. New management has been there for a
couple of years. It is time to sell out and move on. I'll mention cigars. The
industry now has four public companies: Ron Perelman took CONSOLIDATED CIGAR
public. SWISHER and CARIBBEAN CIGAR just went public. And CULBRO, which is
Partagas and Macanudo, the premium cigar business. I've made the argument that
if every male between the ages of 25 and 35 smoked one more cigar per week - and
one woman out of every 100 started smoking - the industry would grow fourfold.
Q: To say nothing of the Chinese.
GABELLI: Right. Culbro stock sells at 65. There are 4.7 million shares. The
company woke up and has decided to take the cigar business, General Cigar
Holdings, public in an IPO. They're going to spin off the non-cigar business. As
part of the process, they bought a competitor. Culbro also has the rights to
Cohiba. This story is very simple. It's pricing power based on shortages.
Earnings in '97, $4.
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Q: Have you more?
GABELLI: The last special situation is another I mentioned last year. But it is
going to happen. QUAKER OATS. Either he turns it, or the company is sold. Quaker
Oats has 135 million shares outstanding. Stock's around 38. Earnings for 1997
will be about $2.75 a share, up from around $1.55 in '96.
Q: Why should profits go up so much?
GABELLI: Snapple is going to be packaged with Gatorade and sold off for $3
billion. They paid $1.7 billion for Snapple, which is worth a buck. Remember
what ING did with Barings. If the buyer or the seller is smart, Quaker sells
Snapple for a buck. They get a $1.7 billion tax loss, which recovers $700
million in cash on taxes. So I'd give them the $700 million. For Gatorade, they
can get 15 times EBITDA in this world. That gives you a total private market
value of close to $3 billion.
ROGERS: So why don't they keep it?
GABELLI: Well, I don't think the shareholders of Quaker Oats are going to stay
with Chairman W.D. Smithburg much longer, unless he does something. However, I
doubt he'd like to sell Snapple for a buck - make the right decision and say, "I
made a mistake," then buy back a significant amount of stock. The non-Snapple
businesses are reasonably attractive. The company is worth somewhere in the
mid-50s.
PRICE: When have you ever seen someone give something away for less than they
paid?
GABELLI: Once, twice.
PRICE: When?
GABELLI: In LIN Television in 1979-80, the CEO walked away from his
telephone-answering business. In 1983, Herb Siegel walked away from Chris-Craft
boats for the tax value. It's absolutely the right thing to do.
PRICE: But they hadn't paid $1.7 billion two years earlier.
GABELLI: Now, to Alan's favorite subject: cable. I want to talk about 3.5
billion new eyeballs, i.e., consumers around the world who have an insatiable
appetite for American goods and services.
PERKINS: Are they interactive couch potatoes?
GABELLI: As you know that is a trademark of Gabelli & Co. and you should bow
your head when you say it.
Q: Or pay a royalty.
GABELLI: We all know about what happened to cable in 1996: Satellite bloodied
the industry. The concern that telephone was going into cable damaged it. Cable
stocks, on balance, fell 40%. But let's look at the positives. First, satellite
has four million new consumers. Anyone who has a DirecTV views it as an
exceptionally attractive product. I bought it for my house in Moose, Wyo. It
works. It's fabulous. Easy to use.
GABELLI: That four-million-user delivery system is growing probably 25%-50% a
year over the next several years. But DirecTV has to pay for programs. So if
you're an INTERNATIONAL FAMILY ENTERTAINMENT with the Family Network, they have
to pay you. And, since they don't have nearly as many subscribers as, say, TCI
[Tele-Communications Inc.], they pay you a higher-than-average rate. So Family
Entertainment is getting 20 cents per set of eyeballs as opposed to 11 cents.
Secondly, it's getting incremental growth in eyeballs at an accelerating rate.
Enlarging its advertising base. So a Family Entertainment has a powerful uplift
to its revenue stream. Family Entertainment, symbol FAM, is run by our dear
friends in Virginia. It closed Friday [Jan. 3] up 1 3/8, to $17. And 17 times 48
million shares is an $850 million market value. There's about $140 million of
debt. The Family Channel itself had a cash-flow run rate in the fourth quarter
of $100 million. So it's selling at 8.5 times. They also own 72% of FiT TV,
which is 10% owned by Liberty, 10% by Reebok, and is cash-flow negative. They
have a piece of a cable channel in China. They gave up on the Pakistani
telephone venture after they read my comments last year in BARRON'S. Have a
piece of an equity in Latin America. They got out of their cable channel in the
U.K., but took back a 5% stake in the buyer, Flextech PLC, a U.K. company
controlled by TCI's TCI International unit. Bottom line: This stock, if they had
nothing else, would be worth probably $28-$30 a share. Family Channel's EBITDA
margins are growing substantially. They've started originating better
programming through MTM Entertainment, their Mary Tyler Moore production
company, on Family Channel. That's increasing its penetration. I think the
company will be sold. Pat Robinson has a problem. He doesn't want to give up
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the 700 Club, which has a time slot in prime time. The buyer has to find a way
to let him not give that up. The second cable programmer I like is Black
Entertainment, or BET HOLDINGS. I recommended it at 16. I recommended it at 23.
It's 29. This wonderful niche market, Bob Johnson dominates. He's in front of
98% of African-American households in the U.S. He bought back three million
shares from Warner. There are 17.5 million outstanding. They had $1.20 in fiscal
'96 earnings, the year ends in July. This year they'll do about $1.40-$1.45.
They have some start-up ventures, BET On Jazz. It is going cash-flow negative by
about $6 million.
The third company I want to talk about is LIBERTY MEDIA, my favorite in
this area. There are 185 million shares; the stock is 28. But they've just
announced a 3-for-2 split.
Q: Where did you recommend that last year?
GABELLI: At 29, probably. FAM has also split since last year, I recommended it
at the equivalent of 13 1/2. Liberty Media has about $45 of asset values [all
figures pre-split]. They converted their ownership of Turner into about 55
million shares of Time Warner. They've announced plans to spin that off to the
shareholders. That's about $11 of value in Spinco. So I'm really buying the
stock at $28 today minus the $11, or for $17 a share, pre-split. There are 185
million shares, no debt, $300 million in cash. You get 49% of the Discovery
Channel, which is one of the best in cable - travels well globally. You get a
piece of QVC. A piece of Family, of Black Entertainment. A piece of a whole
series of sports networks. The company is buying back its own stock. This is a
terrific way to capture eyeballs on a global basis.
Another company I'm going to recommend is new, HSN INC., symbol HSNI. It's
the merger of Silver King Communications, Savoy Pictures and Home Shopping
Network, Barry Diller's vehicle for fame and success, or ignominy and defeat.
There are about 57 million shares out not including Diller's 10 million options.
He is motivated to make this succeed! The stock is trading at 24. There's a
273-page merger document out, you can read it. But there are only two pages you
need to read.
Q: You're not going to read it.
GABELLI: I've read it; you can, too.
Q: We meant here.
GABELLI: Only page 141, which has the projections, and page 171, which has the
balance sheet. There are a couple of technical issues dealing with their
ownership of TV stations. But essentially, I think Home Shopping Network becomes
a wonderful vehicle for Barry Diller. I don't have any numbers. It's a $1
billion speculation. The station licenses could have substantial value, if
something called duopoly - that is, the one-TV-station-per-market rule is
changed. Also a lot of changes could take place in cable because of something
called "must-carry," an FCC rule that the Supreme Court is looking at. If
duopoly happens and must-carry stays, the stock triples.
Q: And if it's the other way around?
GABELLI: You will have some short-term fluctuations in the stock.
Q: Let me ask, is this going to be home shopping exclusively?
GABELLI: No. Home Shopping has been turned around. They're doing a good job on
the basics. Getting more per consumer in terms of fulfillment, cash flow. I'll
give you some numbers that are very achievable based on what he created at QVC
and what it did: EBITDA in Home Shopping Network in 1996 were estimated at $70
million on $1.1 billion of revenues. They go to $125-$165-$200-$235-$275
million. This will become much more visible when QVC, which Comcast owns, goes
public at some point. I think Barry is thinking of creating "city television,"
something that appeals to the urban viewer, because that's where his stations
are. He clearly is one of those gifted individuals who understand in a three-,
four-,five-dimensional way, what the viewer wants to see. He has done it at
Paramount, Disney, Fox. He is terrific. He's going to do it again, even if he
doesn't have scale economies.
Q: What else, dare we ask?
GABELLI: TIME WARNER and VIACOM. Viacom at 35. I think Sumner Redstone sells a
piece of the radio stations, or all of them, sells a piece of Blockbuster,
focuses on the basic business. It's not a cable play
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but a cable-network play. Time Warner, I can always talk about. With the Turner
deal behind them, they will resolve their issues with US West Media and that
should work exceptionally well.
Utilities - I do need to throw in what's going on there - as a
consolidation play. I'll just leave you with one name, because of time:
SOUTHWEST GAS. It has 23-24 million shares. Headquartered in Las Vegas. They
have gas distribution companies in Las Vegas, Phoenix. They made a questionable
acquisition, of a pipeline construction company. The book is around $16 and the
takeout value is probably $28-$33. Enormous consolidation going on. I'll stop
there.
Q: Are you sure?
ROGERS: Don't ask! They keep finding more.
GABELLI: Just my 1996 Hall of Shame. These are companies in the areas I follow
that have done their best to try to disengage shareholders from the value of
their enterprises. Either because of their own monetaristic motives, stupidity,
hubris. I have three candidates - I had four or five last year and each did
something. No. 1 is Santa Anita. I have never seen such - what was the word you
used, Jim?
ROGERS: Codswallop.
GABELLI: This one was pure horse droppings. Santa Anita tried to sell the
company at $14. We tried to tell them the company is worth $30. Bay Meadows
tried to do the same thing at 18, but backed off and the stock today is 40.
Santa Anita has a wonderful tax vehicle. Santa Anita and Bay Meadows have the
same paired-REIT tax structure. Santa Anita stock today is $26. Management did
everything in their power to convince the world that they had the right deal at
$14. It was an inside deal, stank to the high paddocks. The second one is Kerr
Group, but the management finally got fired, so I have to put them in the Hall
of Shame posthumously. The third one is Media General. This one is pure hubris.
The stock is $30; it's worth $80.
ROGERS: You're dreaming.
GABELLI: I know. It's worth $80-$120, actually.
MACALLASTER: After a 1-for-3.
GABELLI: No way. They bought Parc Communications and leveraged up the company
without adding to EPS or PMV for five years. Lost all flexibility and they
belong in the Hall of Shame for that. Tomorrow, they will try and explain it to
the world. I doubt they'll do a good job. I think they could lose three
directors out of seven and that may get their attention.
SCHAFER: Are there still an A and a B stock?
GABELLI: Yes. The family owns 250,000 shares, which control four of the seven
board votes. The A stock, which has 26 million shares outstanding, controls
three. All the directors should resign because of what they allowed management
to do.
PRICE: Wish you'd never heard of it?
GABELLI: Wait till you go up, Michael. A quarter for your cup. I rest.
Q: Well, thank heavens. I mean, thanks, Mario.
REPRINTED BY PERMISSION.
The views expressed in this article
reflect those of the portfolio
manager as of its writing. The
manager's views are subject to
change at any time based on market
and other conditions.
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LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Fund.
Favorable EBITDA prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
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American Express Company (AXP - $56.50 - NYSE), founded in 1850, is a
diversified travel and financial services company operating in 160 countries
around the world. The company is best known for its American Express charge card
and travel-related services. Another important operation is Minneapolis-based
American Express Financial Advisors, Inc. (formerly IDS Financial Services)
which sells financial products ranging from mutual funds to annuities. Harvey
Golub, Chairman and CEO, has refocused AXP on its core charge card and
investment management businesses. The company has significantly expanded the
range of merchants who welcome its cards. Management's objective is virtual
parity with bankcard networks. Last July, the company joined forces with
Microsoft to start an on-line corporate travel service. Additionally, the
company has launched FINANCIAL DIRECT, a financial services operation that
provides self-directed, on-line trading. We believe that American Express has
been repositioned to enjoy double-digit earnings growth over the balance of this
decade.
American Brands, Inc. (AMB - $49.625 - NYSE), based in Old Greenwich,
Connecticut, is currently a holding company for five separate business units:
international tobacco (Gallaher, the leading tobacco company in the U.K.),
distilled spirits (Jim Beam bourbon), hardware and home improvement products
(Moen faucets), office products (Acco) and golf products (Titleist and Pinnacle
golf balls and Cobra golf clubs). Management has announced its intention to
spin-off its Gallaher business unit to shareholders. This should occur during
the summer of 1997. After the spin off, American Brands will be renamed Fortune
Brands which we estimate should be able to grow earnings about 15% per year. All
units are strong cash flow generators and are leaders in their respective
fields. Guided by Thomas C. Hays, American Brands has become a focused,
marketing-oriented consumer products company.
Chris-Craft Industries, Inc. (CCN - $41.875 - NYSE), through its 76% ownership
of BHC Communications, Inc., is primarily a television broadcaster. BHC owns and
operates UPN-affiliated TV stations in New York (WWOR), Los Angeles (KCOP) and
Portland (KPTV). BHC also controls over 58% of United Television, Inc., which
operates an NBC affiliate, an ABC affiliate and three UPN affiliates. BHC had
owned 100% of United Paramount Network (UPN), but Viacom exercised its option to
purchase 50% of UPN for $160 million, which is equal to about one-half of UPN's
operating losses to date. With about $1.5 billion in cash and marketable
securities, the Chris-Craft complex is strongly positioned to expand its
operations. CCN's station group covers almost 20% of U.S. TV households.
----------------------
Chris-Craft Industries
----------------------
76%
----------------------
BHC Communications
----------------------
58%
----------------------
United Television
----------------------
Deere & Company (DE - $40.625 - NYSE) is the largest manufacturer of farm
equipment in the world. The company's products include tractors and planting,
harvesting and crop handling equipment. With bountiful harvests, farm income
should show substantial increases in 1997. Global demand for U.S. wheat and
other crops should further boost farm income. With raw material costs under
control, Deere's near-term earnings should be impressive. Long-term prospects
for farm equipment manufacturers like Deere are enhanced as incomes, diets and
standards of living improve overseas. Since the U.S. government no longer
restricts plantings, additional land is likely to be cultivated by the nation's
farmers.
14
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General Electric Company (GE - $98.875 - NYSE), with an equity market valuation
of over $170 billion, is the largest U.S. company. GE has passed Nippon
Telegraph & Telephone Corp. to become the world's largest industrial company as
well. The company is poised to become the world's most profitable company.
Operating segments include aircraft engines, appliances, broadcasting (NBC),
industrial products, plastic materials, power generating turbines and a hugely
successful financial services business. Under Jack Welch's guidance, GE has
recorded a series of impressive earnings gains which are anticipated to continue
into the next century.
General Motors Corporation (GM - $55.75 - NYSE), the world's largest auto
manufacturer, is materially undervalued. Its North American operations have been
profitable for two years. International profits continue to grow. With Jack
Smith at the helm, GM is improving the style and quality of its cars,
rationalizing its production processes and greatly reducing its costs. The
company is poised to outsource more of its parts, realizing lower labor costs
and better quality components. Peak earnings power is likely to exceed $12 per
share. A reorganization of GM along the lines of ITT and AT&T becomes an
intriguing possibility.
Neiman Marcus Group, Inc. (NMG - $25.50 - NYSE) operates 27 high-fashion Neiman
Marcus stores and two Bergdorf Goodman stores in New York City. NMG has an
extensive mail order business. Harcourt General is the company's majority
shareholder, holding more than 51% of the outstanding common equity after a
recent public offering of eight million shares. The proceeds from the offering
are being used to partially fund the repurchase of its outstanding preferred
stock which was held by Harcourt General. Notwithstanding a disappointing
Christmas selling season, Neiman Marcus is positioned to be an important
participant in the trend to higher-scale consumer spending. We see earnings
increasing to $2.00 per share in the next few years.
Pittway Corporation (PRY - $52.125 - NYSE; PRY'A - $53.50 - NYSE) has undergone
significant changes over the past few years, selling or spinning off businesses
representing half its sales volume and over 60% of its income. The company has
two remaining core businesses: manufacturing and distributing professional
burglar and fire alarm equipment and publishing trade magazines and directories.
Its Ademco Security Group, approximately 75% of revenues, is growing rapidly.
Penton Publishing is emerging from years of difficult operating conditions and
operating margins are showing improvement. Pittway is also involved in real
estate and other promising ventures, including a 37% interest in Cylink (Pittway
owns 8.9 million shares), a leading manufacturer of encryption equipment, and a
4.5% equity interest in U.S. Satellite Broadcasting (Pittway owns 4.2 million
shares), a direct-to-the-home (DTH) satellite broadcast company. PRY now has its
securities listed on the New York Stock Exchange.
United Television, Inc. (UTVI - $86.125 - NASDAQ) is a television broadcasting
company which owns and operates five television stations: one ABC, one NBC and
three UPN affiliates. Its stations cover approximately 6% of the U.S.
population. UTVI is a 58%-owned subsidiary of BHC Communications. Strong
advertising demand, prospects for favorable regulatory changes in the industry
and corporate cost controls will magnify EBITDA growth going forward. Our 1996
PMV is estimated at $126 per share, $23 of which is cash. UTVI's PMV is expected
to approach $170 by the year 2000.
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MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
GABELLI U.S. TREASURY MONEY MARKET FUND
Shareholders of any of the Gabelli Funds may invest in The Gabelli U.S.
Treasury Money Market Fund with an initial investment of $3,000 or more. The
Fund provides checkwriting and exchange privileges. The Fund's expenses are
capped at .30% of average net assets, making it one of the most attractive U.S.
Treasury-only money market funds. With dividends that are exempt from state and
local income taxes in all states, the Fund is an excellent vehicle in which to
store idle cash. An investment in The Gabelli U.S. Treasury Money Market Fund is
neither insured nor guaranteed by the U.S. Government. There can be no assurance
that the Fund will maintain a stable $1 per share net asset value. Call us at
1-800-GABELLI (1-800-422-3554) for a prospectus which gives a more complete
description of the Fund, including management fees and expenses. Read it
carefully before you invest or send money.
INTERNET
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Mutual Funds, quarterly reports, closing prices, IRAs, 401(k)s and other
current news. You can also send us e-mail at [email protected].
IN CONCLUSION
If we may borrow former N.Y. Knicks and current Miami Heat coach Pat
Riley's trademarked expression, we don't think the market will "three-peat" in
1997. We see less risk and higher return potential in selected small and mid cap
stocks, which are priced much more reasonably than the large cap growth stocks
that benefited most from the "irrational exuberance" that so concerns Fed
Chairman Greenspan. Corporate restructurings of every variety from mergers to
asset sales and spin-offs will provide a tailwind for value oriented investors.
We remind ourselves and our shareholders that investing is not a sprint but
a marathon. The swift hare will shine during many stages. But, the tortoise, who
carries the heavy protective shell of fundamental discipline, will triumph in
the end. We will continue to do what we do best: work hard to identify
fundamentally undervalued companies that will, over the long term, provide
consistently attractive investment returns.
16
<PAGE>
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's NASDAQ symbol is GABAX. Please call us during the
day for further information.
Best wishes for a financially successful 1997!
Sincerely,
/s/ Mario J. Gabelli, CFA
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
February 3, 1997
-----------------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1996
-----------------
Time Warner, Inc. Chris-Craft Industries, Inc.
American Express Company Pittway Corporation
United Television, Inc. American Brands
General Electric Company Neiman Marcus Group, Inc.
General Motors Corporation Deere & Company
-----------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager,
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
17
<PAGE>
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.
- --------------------------------------------------------------------------------
27
<PAGE>
THE GABELLI ASSET FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
BOARD OF TRUSTEES
Mario J. Gabelli, CFA Karl Otto Pohl
Chairman and Chief Former President
Investment Officer Deutsche Bundesbank
Gabelli Funds, Inc.
Felix J. Christiana Anthony R. Pustorino
Former Senior Certified Public Accountant
Vice President Professor, Pace University
Dollar Dry Dock Savings Bank
Anthony J. Colavita Anthonie C. van Ekris
Attorney-at-Law Managing Director
Anthony J. Colavita, P.C. BALMAC International, Inc.
James P. Conn Salvatore J. Zizza
Managing Director and Chairman, Chief
Chief Investment Officer Executive Officer
Financial Security Assurance The Lehigh Group, Inc.
Holdings Ltd.
OFFICERS AND PORTFOLIO MANAGERS
Mario J. Gabelli, CFA Bruce N. Alpert
Portfolio Manager President and Treasurer
James E. McKee
Secretary
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli Asset Fund. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
[PICTURE OF MARIO J. GABELLI]
THE
GABELLI
ASSET
FUND
ANNUAL REPORT
DECEMBER 31, 1996
