<PAGE> 1
THE GABELLI ASSET FUND
THIRD QUARTER REPORT
SEPTEMBER 30, 1998
* * * *
Morningstar rated The Gabelli Asset Fund 4 stars overall and for the three year
period ended 9/30/98 among 2678 domestic equity funds, and for the five and ten
year periods ended 9/30/98 among 1584 and 713 domestic equity funds,
respectively.
TO OUR SHAREHOLDERS,
In the third quarter of 1998, ongoing international economic distress,
diminished corporate earnings prospects, our prime time political crisis and the
collapse of one of the world's largest hedge funds combined to send the stock
market sharply lower. Somewhat uncharacteristically, the richly priced large cap
growth stocks that dominate the Standard & Poor's 500 stock index held up better
than more reasonably valued market sectors. The yield on the 30 year Treasury
bond dropped below 5.0% as international and U.S. investors sought the safety of
the world's most secure credit.
INVESTMENT PERFORMANCE
For the third quarter ended September 30, 1998, The Gabelli Asset Fund's
(the "Fund") net asset value declined 14.2%. The Standard & Poor's ("S&P") 500,
Value Line Composite and Russell 2000 Index declined 9.9%, 17.2% and 20.2%,
respectively, over the same period. Each index is an unmanaged indicator of
stock market performance. Over the trailing twelve month period, the Fund was up
2.3%. The S&P 500 rose 9.1% while the Value Line Composite and Russell 2000
declined 11.4% and 19.0%, respectively, over the same twelve month period.
For the ten year period ended September 30, 1998, the Fund's return
averaged 14.7% annually versus average annual returns of 17.3%, 12.4% and 11.2%
for the S&P 500, Value Line Composite and Russell 2000, respectively. Since
inception on March 3, 1986 through September 30, 1998, the Fund has a total
return of 552.9%, which equates to an average annual return of 16.1%.
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect historical risk adjusted performance as of September 30, 1998
and are subject to change every month. Morningstar ratings are calculated from a
Fund's three, five and ten year average annual returns in excess of 90-day
T-Bill returns with appropriate fee adjustments and a risk factor that reflects
fund performance below 90-day T-Bill returns. The top 10% of the funds in an
investment category receive five stars, the next 22.5% receive four stars, the
next 35% receive three stars, the next 22.5% receive two stars and the last 10%
receive one star.
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\
INVESTMENT RESULTS (a)
<TABLE>
<CAPTION>
Quarter
------------------------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1998: Net Asset Value.................. $36.00 $36.41 $31.24 - -
Total Return..................... 13.0% 1.1% (14.2)% - -
- ------------------------------------------------------------------------------------------------------------------------------
1997: Net Asset Value.................. $27.00 $31.45 $34.99 $31.85 $31.85
Total Return..................... 2.2% 16.5% 11.3% 4.3% 38.1%
- ------------------------------------------------------------------------------------------------------------------------------
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%
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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%
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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%
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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%
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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>
AVERAGE ANNUAL RETURNS - SEPTEMBER 30, 1998 (a)
-----------------------------------------------
<S> <C>
1 Year 2.3%
5 Year 14.4%
10 Year 14.7%
Life of Fund (b) 16.1%
</TABLE>
<TABLE>
<CAPTION>
Dividend History
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Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
<S> <C> <C>
December 30, 1997 $4.610 $31.73
December 31, 1996 $2.770 $26.42
December 29, 1995 $2.000 $25.75
December 30, 1994 $1.056 $22.21
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
</TABLE>
(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 investment operations on March 3,
1986.
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WHAT WE DO
The success of momentum investing in recent years and investors' desire
for instant gratification have combined to make value investing appear dull. At
the risk of being dull, we will once again describe the "boring" value approach
that has seen us through both good and bad markets over the last 12 years at The
Gabelli Asset Fund and for over 20 years at Gabelli Asset Management Company. In
past reports, we have tried to articulate our investment philosophy and
methodology. The accompanying graphic further illustrates the interplay among
the four components of our valuation approach.
[GRAPH]
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 worldwide 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 the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
COMMENTARY
LOOKING FORWARD THROUGH A REAR VIEW MIRROR
Is the stock market bottoming or has the retreat from equities just
begun? Equity valuations pivot on the outlook for earnings and on the multiple
accorded those earnings. The earnings picture has been muddied by global
economic turmoil. However, we continue to believe that on a longer term secular
basis, U.S. corporations should grow earnings at high single digit rates. In
light of this favorable long term secular earnings forecast and the positive
outlook for inflation and interest rates, we believe at
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current prices, most stocks are now quite reasonably valued. So, going forward,
we believe the outlook for equity owners is favorable.
THE FOUR M'S
In the third quarter of 1998, consumers and investors focused on the
Four M's:
Market
McGwire
Monica
Meriwether
M AS IN MARKET
The sharp crack in U.S. equities during the third quarter raises several
questions. Will the economy be impacted either through a reduction in consumer
spending or a cutback in corporate expenditures? Since the U.S. economy has been
the engine of global growth, will a slowdown accentuate a global spiral?
We are concerned, but we see glimmers of relief from this conundrum
through signs that the Japanese are finally addressing the issues in their
economic system. Stimulation in Japan should buttress overall economic activity,
particularly in Southeast Asia. The same applies to Euroland (the new name for
the countries participating in European Monetary Union). Moreover, part of the
global economic disequilibrium we have been experiencing stems from the strong
dollar. With the dollar weakening against the mark and the yen, some global
economic balance should be restored. We believe the average publicly traded
security has discounted a modest profits recession in 1999.
MCGWIRE
Mark McGwire and Sammy Sosa's heroics put baseball back on the front
pages. In places other than New York, Boston, Los Angeles and San Francisco,
most people were more captivated by the historic home run record chase than what
was occurring in the economy and the stock market. Will they continue to focus
on the day-to-day elements that impact their lives and their own individual
economic expectations? Job security, low inflation, low interest rates
(resulting in much lower mortgage payments) and the prospects of reduced taxes
should make most people feel relatively good.
MONICA
The histrionics associated with the President's current predicament have
also taken center stage. Will the U.S. be in a position to provide moral
leadership on such issues as nuclear armaments? (Most of us now understand
Kashmir is not a sweater). Will President Clinton be able to energize the new
Congress and focus on critical economic issues in a timely fashion? Will Robert
Rubin and Alan Greenspan resign if Clinton is not in power?
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We have long maintained the view that a great democracy like ours has
many flaws. But, the underpinnings of our system, being rooted in personal
freedom and ownership of capital, will survive flaws and sometimes even flourish
in the absence of credible leadership.
MERIWETHER
We, like virtually everyone in the financial community, were surprised
by the extent of leverage that an organization could accomplish and the extent
of damage that leverage could have on the financial system. A shutdown in
lending, so vital to both domestic and global growth, is occurring. We have a
liquidity crisis, but one different than past "credit crunches". When asked how
to become a millionaire, Warren Buffett quipped, "Start with $1 billion and buy
an airline." We now offer our version, "Start with $1 billion and give it to a
hedge fund manager who focuses on emerging market debt with leverage."
While the first chapter is still being written on the Long Term Capital
Management debacle, we will wait for the smoke to clear, the floor boards to be
lifted and the foundation inspected before commenting further. However, we
believe global cooperation will help curtail the damage.
THE FOUR LEGGED MARKET STOOL--NOW A ROCKING CHAIR!
In previous market discussions, we described low inflation, low interest
rates, a powerful flow of funds and strong corporate profit growth as the four
legs supporting the stock market stool. Three of these legs remain stable, but
the fourth is wobbling considerably. Inflation is low and with deflationary
forces at work overseas if not yet here, inflation may go even lower. Long term
government bond yields are already at lows not seen in a generation, and if the
Federal Reserve drops short term rates again, long rates could recede even
farther. Individual investors' increased use of 401(k)s and IRAs continues to
provide a relatively steady flow of funds into stocks, seemingly irrespective of
market gyrations. However, corporate profit growth is endangered by weak Asian
markets and the possibility that the American consumer, who now has a
substantial portion of his/her savings invested in the stock market, may lose
confidence and stop spending.
The outlook for the domestic economy and corporate profits is further
complicated by the spreading international currency crisis. As more light is
shed on Japan's inability to crank its economic engine, the focus has shifted
from Asian currencies and the Russian ruble to Latin American currencies, in
particular the Brazilian real. Brazil's currency has been under pressure and
their government's chosen remedy of much higher interest rates may send the
Brazilian economy into recession. U.S. and international financial authorities
appear committed to supporting Brazil and doing everything in their power to
make sure Brazil and our other important Latin American trading partners do not
go the way of emerging market economies in Southeast Asia. It is too early to
tell whether they will succeed. Serious economic problems for our Latin American
trading partners would have a far greater impact on the American economy and
corporate profits than did economic disruption in Southeast Asia. We had looked
to Asia for future growth--the prospect of millions of new consumers for
American goods and services. We depend on Latin America for sustenance--millions
of people already buying our products.
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HEDGE FUNDS--THE "CARD COUNTERS" IN THE GLOBAL FINANCIAL CASINO
In general, we are in favor of free markets and are confident that the
free market system can control and ultimately correct speculative excesses.
However, in recent years, some new players have come to the table--large hedge
funds employing sophisticated and highly leveraged investment strategies. Many
view them as the "card counters" in the global financial casino. Few people,
including many of the banks and brokerage firms that stake them, fully
understand how they operate. But one thing is abundantly clear, the hedge funds
play to win and do not appear concerned about how their strategies may impact
the financial health of the "house" (the free market system itself). Perhaps,
even Adam Smith would agree to limit their presence.
The collapse of Long Term Capital Management ("LTCM"), the most visible
of these hedge funds, has potentially severe ramifications not only for their
partners, but for the entire global financial community. In recent testimony to
Congress explaining the Federal Reserve Bank of New York's role in helping to
arrange a bail out of Long Term Capital Management, Federal Reserve Board
Chairman Alan Greenspan said, "Had the failure of LTCM triggered the seizing up
of markets, substantial damage could have been inflicted on many market
participants, including some not directly involved with the firm, and could have
potentially impaired the economies of many nations, including our own."
In his testimony before Congress, Mr. Greenspan concludes that direct
U.S. regulation of hedge funds is probably not practical because they would
simply move offshore. He does not advocate further policing of banks and
brokerage firms but encourages them to more adequately evaluate the risks
inherent in highly leveraged, derivatives-based trading strategies. He reminds
them of one of the great investment truths, "No matter how skillful the trading
scheme, over the long haul, abnormal returns are sustained only through abnormal
exposure to risk." We think the dangers of hedge funds are best mitigated by the
losses that will be sustained by their backers.
WHERE DO WE GO FROM HERE?
Is the stock market bottoming or has the retreat from equities just
begun? We have opinions, not answers. Bear markets generally anticipate either a
recession or a serious crack in the financial infrastructure. While the U.S.
economy is starting to slow, it is still advancing at a respectable pace. If
Latin America remains stable--as aforementioned, a very big and critical IF--and
if the American consumer shrugs off the market decline and continues to spend,
the U.S. economy should continue to expand, albeit at a slower pace than in
recent years. High "real interest rates" (the spread between interest rates and
inflation) would indicate the Federal Reserve has room to lower rates to provide
some stimulus if it sees the economy weakening. But, timing is an issue. This
would auger against recession.
Despite volatility and the sharp decline from this year's highs, the
market has retreated in a relatively orderly fashion--essentially doing what it
is supposed to do, respond to changing economic circumstances, most notably
diminished earnings prospects. We have not seen panic selling. If we were to
experience a real jolt to the financial infrastructure such as a major hedge
fund collapse sending shock waves through the banking system, this could change.
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If the economy keeps chugging along and financial institutions remain
relatively healthy, the market should stabilize. If this is a correction, one
would argue it is long overdue and may be setting the stage for the next leg up
in the bull market. Even if the market continues to drift, we could see
accelerated merger and acquisition activity buoying returns for value oriented
investors.
FINALLY, SOME MARGIN OF SAFETY
We leave it to others to forecast the short to intermediate term
direction of the market. We have a longer term perspective. We are encouraged by
the fact that Ben Graham's "margin of safety" has returned to the market. We now
see many more good companies trading at much more reasonable valuations relative
to their intrinsic value. This does not necessarily mean they have bottomed, as
stocks can go from being substantially overvalued to significantly undervalued.
But, the long term investor should take some comfort in the fact that some of
the speculative excess has departed many stocks, if not those in the S&P 500
Index. Whether the investing public will take comfort in this is another
question. Thus far, despite the market's sharp decline and continued volatility,
we have not seen substantial redemptions from equity mutual funds. Investors
have been conditioned by the extended bull market to buy on dips. However, if
the pain gets more severe, they may react differently. For those who are tempted
to walk away from equities, we point out that the stocks you loved six months
ago are now a lot less expensive. We think this improves the odds for achieving
respectable long term returns going forward.
IS THE TAKEOVER WAVE CRESTING?
Is this the end of what we have dubbed "the third great takeover wave"?
Like any other market, the market for businesses is impacted by liquidity (How
much money is available to go shopping?), prices (Are there appealing
bargains?), and necessity (Do prospective corporate buyers merely want a
business or do they really need it?). The liquidity that has fueled merger and
acquisition activity may be shrinking. With the quality of their loan portfolios
declining, banks may take a more cautious approach to financing deals. Stock has
lost some of its purchasing power as a deal currency and the market may prove
less receptive to secondary issues underwritten for the purpose of corporate
acquisitions.
However, there are now many more true business bargains available,
particularly in the beaten down small cap sector, and we believe financially
robust companies will continue to snap up bargains in their own and related
industries. Also, deals are being done in some industries (telecommunications is
a prime example) due to necessity rather than simply a desire for growth. A
telecommunications company that does not offer a full range of services (long
distance and local telephony, Internet access and transmission and home
entertainment services) will likely have a very bleak future. Going forward, due
to diminishing liquidity, we expect that deal activity may slow somewhat from
the feverish pace we have experienced over the last several years. But, we
believe the great takeover wave is still far from cresting.
TELECOMMUNICATIONS, MEDIA, AND ENERGY--PORTS IN THE MARKET STORM
On a relative basis, telecommunications stocks performed extraordinarily
well in the third quarter of 1998. A dozen of our portfolio holdings in the
telecommunications group finished the quarter in the black
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and a few, including SBC Communications, Southern New England Telecommunications
and BellSouth, posted quality gains. Ongoing industry consolidation free from
the interference of antitrust regulators is providing a tailwind for the group.
Cable television holdings such as Comcast and MediaOne Group (the cable spin-off
from US West) performed well, while the proposed AT&T/Tele-Communications Inc.
merger made it quite clear that cable companies will be major players in the
telecommunications revolution. Entertainment and information software stocks
like Time Warner also delivered respectable gains. Energy holdings including
Texaco, Exxon and Chevron held up well as oil prices stabilized.
HIGH END RETAILERS, CAPITAL GOODS, AGRICULTURE AND ENERGY SERVICES COMPANIES
STOCKS GET BATTERED
High end retailers like Neiman Marcus were hurt as investors began
anticipating a crisis in consumer confidence. Agricultural and energy services
companies like Deere and Halliburton declined with falling grain and oil prices.
Capital goods producers like Aeroquip-Vickers and IDEX sold off as capital
spending slowed as a result of global economic weakness.
Although agricultural companies are currently under pressure, we believe
there is a diversified company in the industry poised for growth. We would like
to provide an overview of Deere & Company, which categorizes its operations into
six business segments. The worldwide agricultural equipment segment manufactures
and distributes a full line of farm equipment (tractors, combines and cotton
harvesters). The worldwide construction equipment segment, formerly the
worldwide industrial equipment segment, manufactures and distributes a broad
range of machines used in construction, earthmoving and forestry (backhoe
loaders, crawler dozers and loaders, excavators and log skidders). This segment
also includes the manufacture and distribution of engines and drivetrain
components for the original equipment manufacturer ("OEM") market. The worldwide
commercial and consumer equipment segment manufactures and distributes equipment
for commercial and residential uses (small tractors for lawn, garden, commercial
and utility purposes, riding and walk-behind mowers, golf course equipment and
snowblowers). The products produced by the equipment segments are marketed
primarily through independent retail dealer networks and major retail outlets.
The credit segment primarily finances sales and leases by John Deere dealers of
new and used equipment. The insurance segment issues policies primarily for
general and specialized lines of commercial property and casualty insurance. The
health care segment provides health management programs and related
administrative services. The company's agricultural equipment operations are
cyclical. Worldwide farm commodity prices are on a downward course. U.S. crop
conditions are generally good, with federal financial assistance expected to
offset some of the drought-related losses being experienced in the South. The
company is well-positioned to show solid results despite the current slowdown in
the farm economy.
When we are confronted by temporary weakness in industries and
individual companies we believe have favorable long term prospects, we have the
option of diving overboard or riding out the storm. Our long term perspective
and focus on quality companies generally biases us toward the latter. Owning
good companies in out-of-favor industries is an integral part of the value
discipline. We note that some of
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our best performing stocks in 1997 and 1998 were those that most had abandoned
in 1994 and 1995. Our investment loyalty to dominant franchise companies has
generally worked in our favor over the longer term.
LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
Cablevision Systems Corp. (CVC - $43.1875 - AMEX), based in Woodbury, NY, is one
of the nation's leading telecommunications and entertainment companies, with
operations including high speed multimedia delivery, subscription cable
television services, professional sports teams and national cable television
program networks. Cablevision serves over 3.3 million cable customers primarily
in three core media markets: New York, Boston and Cleveland. CVC's revenue per
subscriber is the highest in the cable industry. CVC has exercised its option to
purchase ITT's 50% stake in MSG (Madison Square Garden) Properties, including
the NY Knicks and NY Rangers. In March, Cablevision purchased
Tele-Communications Inc.'s New York area cable properties with 829,000
subscribers by issuing almost 24.5 million shares (adjusted for the March 30,
1998 two-for-one stock split) and assuming $670 million of TCI's debt. These
shares represent a one-third stake in CVC. The company's new, vigorous activity
includes the sale of a 40% stake in Rainbow Sports to a News Corp./TCI joint
venture with the proceeds used to pay down a significant portion of MSG's debt.
With its upgraded cable systems, CVC is well-positioned to offer telephony, high
speed data and enhanced video services.
Giant Food Inc. (GFS'A - $43.1875 - AMEX) operates a chain of over 170
supermarkets, mostly food and drug combination stores, primarily in the
Washington, DC and Baltimore metropolitan areas. The company is expanding from
this base into New Jersey, Pennsylvania and Delaware. J. Sainsbury plc, one of
the largest supermarket retailers in the United Kingdom, was the owner of a
non-controlling 50% of Giant's voting shares, in addition to approximately 20%
of the non-voting shares. The Dutch food retailer Royal Ahold NV (AHO - $29.0625
- - NYSE) paid Sainsbury $613 million for its Giant Food stake and is purchasing
the remaining Giant Food shares for $43.50 per share.
MediaOne Group Inc. (UMG - $44.4375 - NYSE), formerly US West Media Group, has
finalized its split from the parent company US West. UMG is involved in domestic
and international cable and telephony and international wireless communications.
It is the third largest broadband cable company in the U.S. with over 5 million
subscribers and 8 million homes passed. Its Directory and Informational business
has been transferred to US West. MediaOne's strong financial position should
allow the company to be one of the leaders in the upgrading of cable
infrastructures. The Group has a variety of investment interests including 25%
of Time Warner Entertainment (which includes Warner Brothers Studio and Home Box
Office), 24% of PCS Prime Co. and almost 27% of TeleWest plc.
Quaker Oats Co. (OAT - $59.00 - NYSE) manufactures hot cereals, pancake mixes,
grain-based snacks, value-added rice products, sports beverages, syrups and
pasta products. Its Gatorade brand is a global
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brand with worldwide sales of approximately $1.5 billion. Sales are growing
approximately 12% per year. In the U.S., Gatorade maintains a dominant market
share of over 80%, despite competition from Coca-Cola and PepsiCo. The
unprofitable Snapple Beverages unit was sold to Triarc Co.
Time Warner Inc. (TWX - $87.5625 - NYSE), with its 1996 acquisition of Turner
Broadcasting System, is further entrenched as the global leader in media and
entertainment with interests in filmed entertainment, television production and
broadcasting, recorded music, cable television programming, magazine and book
publishing, direct marketing and cable television systems. The combined
companies have more than $24 billion in revenues and nearly $5.5 billion in
EBITDA. Time Warner controls a host of powerful brands, such as CNN, Warner
Brothers, HBO, Cinemax and Time and People magazines. Under the leadership of
Chairman Gerald Levin and Vice Chairman Ted Turner, the company is now focused
on reducing its almost $10 billion in debt and simplifying its capital
structure.
Viacom Inc. (VIA - $57.50 - AMEX; VIA'B - $58.00 - AMEX), long a major provider
of entertainment "content", has evolved into one of the world's dominant media
companies. Paramount Communications and Blockbuster Entertainment were acquired.
Non-core assets are being divested and debt has been reduced to approximately $8
billion. Viacom is focusing on global expansion of its media franchises. Viacom
is particularly well-positioned in music (notably MTV) and cable networks (such
as Nickelodeon).
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.
THE ROTH IRA
The Taxpayer Relief Act of 1997 included new tax incentives and more
opportunities to save for retirement and other major expenditures. The Roth IRA
is just one of these new opportunities now available at Gabelli Funds. Our
investor representatives are available at 1-800-GABELLI (1-800-422-3554) to
speak with you about establishing a new Roth IRA and to discuss your investment
choices. Ask our representatives about the advantage of converting to a Roth IRA
before 1999.
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, IRAs, 401(k)s, quarterly reports, closing prices and other
current news. You can send us e-mail at [email protected].
Shareholders will soon be able to receive quarterly reports from Gabelli
Funds via e-mail. We anticipate that this service will be available in early
1999. If you are interested in receiving your quarterly report via e-mail,
please send an e-mail to [email protected] with your name and address and
we will provide you with the appropriate forms. Our investor representatives are
available at 1-800-GABELLI (1-800-422-3554) to assist you as well.
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IN CONCLUSION
We have gone from a "best of all possible worlds" economic backdrop for
stocks to a world of economic and market uncertainty. There are plenty of real
things to worry about, with growth in corporate profits and the unraveling of
hedge funds being at the top of our list. And, some far less critical issues,
such as our current political soap opera, are unnerving investors. We would not
describe stocks in general as being inexpensive. However, they are no longer
grossly overvalued. We believe there is once again a "margin of safety" in the
equity market. In the midst of the current market storm, we are keeping a level
head and focusing on quality companies trading at substantial discounts to our
appraisal of their present and future values. This value discipline has helped
preserve shareholder assets during these troubled times and will ultimately
contribute to satisfactory long term results.
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
business day for further information.
Sincerely,
/s/ MARIO J. GABELLI
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
October 30, 1998
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
SEPTEMBER 30, 1998
------------------
Time Warner Inc. United Television Inc.
Viacom Inc. American Express Co.
Cablevision Systems Corp. MediaOne Group Inc.
Giant Food Inc. DeKalb Genetics Corp.
TCI/Liberty Media Group Quaker Oats Co.
- --------------------------------------------------------------------------------
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.
11
<PAGE> 12
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS--94.6%
AEROSPACE--0.6%
120,000 Boeing Co. ................................ $ 4,117,500
40,000 Fairchild Corp., Cl. A..................... 565,000
45,000 Northrop Grumman Corp. .................... 3,285,000
--------------
7,967,500
--------------
AGRICULTURE--2.1%
236,250 Archer-Daniels-Midland Co. ................ 3,957,187
17,000 Agribrands International Inc. ............. 401,625
263,000 DeKalb Genetics Corp., Cl. B............... 24,196,000
--------------
28,554,812
--------------
AUTOMOTIVE--0.6%
140,000 General Motors Corp. ...................... 7,656,250
--------------
AUTOMOTIVE: PARTS AND ACCESSORIES--4.0%
15,000 Borg-Warner Automotive Inc. ............... 555,937
120,809 Dana Corp. ................................ 4,507,686
110,000 Federal-Mogul Corp......................... 5,142,500
600,000 GenCorp Inc. .............................. 11,550,000
260,000 Genuine Parts Co. ......................... 7,816,250
120,000 Johnson Controls Inc. ..................... 5,580,000
235,000 Modine Manufacturing Co. .................. 6,815,000
46,062 Myers Industries Inc. ..................... 1,059,426
140,000 Quaker State Corp. ........................ 2,038,750
170,000 Standard Motor Products Inc. .............. 4,143,750
25,000 Superior Industries International Inc. .... 571,875
100,000 TransPro Inc. ............................. 500,000
170,000 UAP Inc., Cl. A............................ 1,978,105
40,000 UAP Inc., Cl. A, ADR....................... 472,939
90,000 Wynn's International Inc. ................. 1,681,875
--------------
54,414,093
--------------
AVIATION: PARTS AND SERVICES--1.3%
10,000 BE Aerospace Inc.+......................... 220,000
370,000 Coltec Industries Inc.+.................... 5,596,250
181,000 Curtiss-Wright Corp........................ 7,183,438
60,000 Hi-Shear Industries Inc. .................. 161,250
40,000 Hudson General Corp........................ 2,020,000
72,000 Precision Castparts Corp. ................. 2,970,000
--------------
18,150,938
--------------
BROADCASTING--4.6%
75,000 CBS Corp. ................................. 1,818,750
428,655 Chris-Craft Industries Inc. ............... 18,941,193
69,551 Chris-Craft Industries Inc., Cl. B (a)..... 3,073,285
5,500 Gray Communications Systems Inc. .......... 155,719
120,000 Gray Communications Systems Inc., Cl. B.... 2,985,000
190,000 Grupo Televisa SA, GDR+.................... 3,669,375
109,000 Liberty Corp. ............................. 4,530,312
115,000 Paxson Communications Corp., Cl. A+........ 1,056,562
400,000 Television Broadcasting Ltd., ORD.......... 1,022,094
247,500 United Television Inc. .................... 26,420,625
--------------
63,672,915
--------------
BUILDING AND CONSTRUCTION--0.3%
165,300 Nortek Inc.+............................... 4,504,425
4,333 Nortek Inc., Special Common+ (a)........... 118,074
--------------
4,622,499
--------------
BUSINESS SERVICES--0.7%
40,000 Avis Rent A Car Inc.+...................... 862,500
50,000 Berlitz International Inc., New+........... 1,318,750
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
110,000 Cendant Corp. ............................. $ 1,278,750
17,000 Dollar Thrifty Automotive Group Inc.+...... 197,625
100,000 Ecolab Inc. ............................... 2,843,750
10,000 EnviroSource Inc. ......................... 81,250
16,546 Hach Co. .................................. 186,143
16,546 Hach Co., Cl. A............................ 150,982
17,000 Hertz Corp. ............................... 703,375
68,000 Landauer Inc. ............................. 1,734,000
73,300 Nashua Corp.+.............................. 1,081,175
--------------
10,438,300
--------------
CABLE--7.1%
56,125 Cable Michigan Inc. ....................... 1,950,344
820,000 Cablevision Systems Corp., Cl. A+.......... 35,413,750
40,000 Comcast Corp., Cl. A....................... 1,865,000
560,000 MediaOne Group Inc. ....................... 24,885,000
40,000 Shaw Communications Inc., Cl. B............ 679,434
30,000 Shaw Communications Inc., Cl. B, Conv. .... 501,491
640,000 TCI Ventures Group......................... 11,480,000
522,556 Tele-Communications Inc., Cl. A New+....... 20,445,005
65,000 United International Holdings Inc., Cl.
A+........................................ 629,687
--------------
97,849,711
--------------
CLOSED-END FUNDS--0.1%
84,000 Royce Value Trust Inc. .................... 1,081,500
--------------
COMMUNICATIONS EQUIPMENT--0.3%
110,000 Allen Telecom Inc.+........................ 735,625
47,000 Motorola Inc. ............................. 2,006,313
43,000 Northern Telecom Ltd. ..................... 1,376,000
--------------
4,117,938
--------------
CONSUMER PRODUCTS--4.3%
10,000 Avon Products Inc. ........................ 280,625
600,000 Carter-Wallace Inc. ....................... 9,412,500
2,000 Christian Dior SA.......................... 160,720
215,000 Church & Dwight Co. Inc. .................. 6,315,625
35,000 Department 56 Inc.+........................ 945,000
25,000 Eastman Kodak Co. ......................... 1,932,812
65,000 First Brands Corp. ........................ 1,417,813
250,000 Fortune Brands Inc. ....................... 7,406,250
230,000 Gallaher Group plc, ADR+................... 6,756,250
93,356 General Cigar Holdings Inc................. 600,979
45,000 General Cigar Holdings Inc., Cl. B+ (a).... 289,688
90,000 Gillette Co. .............................. 3,442,500
40,000 Harley Davidson Inc. ...................... 1,175,000
13,000 National Presto Industries Inc............. 487,500
60,000 Nine West Group Inc. ...................... 573,750
40,000 Philip Morris Companies Inc. .............. 1,842,500
525,000 Ralston Purina Group....................... 15,356,250
41,700 Syratech Corp.+............................ 834,000
--------------
59,229,762
--------------
CONSUMER SERVICES--0.7%
200,600 Loewen Group Inc. ......................... 2,958,850
50,000 Midas Inc.+................................ 1,212,500
12,000 Response USA Inc.+......................... 60,000
312,500 Rollins Inc. .............................. 5,546,875
--------------
9,778,225
--------------
DIVERSIFIED INDUSTRIAL--3.4%
10,000 Anixter International Inc.+................ 155,625
6,000 Cooper Industries Inc. .................... 244,500
315,000 Crane Co. ................................. 7,402,500
</TABLE>
12
<PAGE> 13
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
DIVERSIFIED INDUSTRIAL (CONTINUED)
205,000 GATX Corp. ................................ $ 6,777,812
18,000 General Electric Co. ...................... 1,432,125
118,000 Honeywell Inc. ............................ 7,559,375
280,000 ITT Industries Inc. ....................... 9,485,000
145,000 Katy Industries Inc. ...................... 2,383,438
13,000 Kyocera Corp., ADR ........................ 565,500
350,000 Lamson & Sessions Co.+..................... 1,596,875
255,000 Lawter International Inc. ................. 1,848,750
68,000 National Service Industries Inc. .......... 2,167,500
8,000 Pentair Inc. .............................. 258,000
125,000 Thomas Industries Inc...................... 2,679,688
80,000 Trinity Industries Inc. ................... 2,595,000
--------------
47,151,688
--------------
ELECTRONICS--0.2%
3,000 Hitachi Ltd., ADR.......................... 130,125
10,000 Imation Corp.+............................. 185,000
10,000 Sony Corp., ADR............................ 687,500
100,000 UCAR International Inc. ................... 1,800,000
--------------
2,802,625
--------------
ENERGY--3.9%
100,000 Atlantic Richfield Co. .................... 7,093,750
5,000 Barrett Resources Corp. ................... 100,938
50,000 British Petroleum Co. plc, ADR............. 4,362,500
28,000 Brown (Tom) Inc. .......................... 343,000
30,000 Chevron Corp. ............................. 2,521,875
153,000 Eastern Enterprises........................ 6,445,125
15,000 Energy East Corp. ......................... 765,000
60,000 Enron Oil & Gas Co. ....................... 1,050,000
180,000 Exxon Corp. ............................... 12,633,750
30,000 Global Marine Inc. ........................ 331,875
40,000 Halliburton Co. ........................... 1,142,500
15,000 Niagara Mohawk Power Corp. ................ 230,625
195,000 Pennzoil Co. .............................. 6,837,187
325,000 Southwest Gas Corp. ....................... 6,642,187
55,000 Texaco Inc. ............................... 3,447,813
--------------
53,948,125
--------------
ENTERTAINMENT--10.6%
230,000 Ascent Entertainment Group Inc. ........... 1,840,000
100,000 EMI Group plc, ADR......................... 1,250,000
19,406 EMI Group plc, ORD......................... 119,680
138,000 GC Companies Inc.+......................... 5,330,250
20,000 PolyGram NV................................ 1,135,000
862,500 Tele-Communications Inc./Liberty Media
Group, Cl. A+............................. 31,642,969
606,000 Time Warner Inc. .......................... 53,062,875
11,000 Todd-AO Corp., Cl. A....................... 81,125
898,430 USA Networks Inc.+......................... 17,463,233
360,000 Viacom Inc., Cl. A+........................ 20,700,000
220,000 Viacom Inc., Cl. B+........................ 12,760,000
--------------
145,385,132
--------------
EQUIPMENT AND SUPPLIES--9.6%
155,000 Aeroquip-Vickers Inc. ..................... 4,456,250
300,000 AMETEK Inc. ............................... 5,175,000
185,000 AMP Inc. .................................. 6,613,750
92,000 Amphenol Corp., Cl. A+..................... 3,208,500
24,000 AptarGroup Inc. ........................... 546,000
90,000 Caterpillar Inc. .......................... 4,010,625
110,000 CLARCOR Inc. .............................. 1,691,250
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
285,000 CTS Corp. ................................. $ 8,407,500
410,000 Deere & Co. ............................... 12,402,500
235,000 Donaldson Co. Inc. ........................ 3,760,000
35,000 EG&G Inc. ................................. 791,875
10,000 Fedders Corp. ............................. 51,250
100,000 Flowserve Corp. ........................... 2,025,000
166,300 Gerber Scientific Inc. .................... 4,490,100
315,000 Hussmann International Inc. ............... 4,469,062
445,000 IDEX Corp. ................................ 11,820,313
80,000 Ingersoll-Rand Co. ........................ 3,035,000
200,000 Kollmorgen Corp. .......................... 3,125,000
88,000 Lufkin Industries Inc. .................... 2,288,000
40,000 Manitowoc Co. Inc. ........................ 1,205,000
160,000 Mark IV Industries Inc. ................... 2,330,000
25,000 Met-Pro Corp. ............................. 281,250
365,000 Navistar International Corp.+ ............. 8,258,125
20,000 PACCAR Inc. ............................... 823,750
291,000 Pittway Corp. ............................. 7,238,625
313,000 Pittway Corp., Cl. A....................... 7,472,875
88,455 Sequa Corp., Cl. A+........................ 4,981,122
95,500 Sequa Corp., Cl. B+........................ 6,962,547
172,000 SPS Technologies Inc.+ .................... 8,008,750
56,250 U.S. Filter Corp. ......................... 900,000
30,000 Valmont Industries Inc. ................... 367,500
--------------
131,196,519
--------------
FINANCIAL SERVICES--6.0%
1 Al-Zar Ltd.+ (a)........................... 350
1,000 Alleghany Corp.+........................... 187,000
148,000 Allied Group Inc. ......................... 7,113,250
50,000 American Bankers Insurance Group Inc. ..... 2,125,000
329,000 American Express Co. ...................... 25,538,625
25,000 Argonaut Group Inc. ....................... 637,500
220 Berkshire Hathaway Inc.+ .................. 13,112,000
130,000 Block (H&R) Inc. .......................... 5,378,750
70,000 Commerzbank AG, ADR........................ 1,898,750
150,000 Deutsche Bank AG, ADR...................... 7,687,500
185,000 Lehman Brothers Holdings Inc. ............. 5,226,250
5,000 Leucadia National Corp. ................... 146,563
2,000 Mellon Bank Corp. ......................... 110,125
15,920 Metris Companies Inc. ..................... 742,270
258,000 Midland Co. ............................... 5,853,375
50,000 Paine Webber Group Inc. ................... 1,500,000
10,000 Pioneer Group Inc. ........................ 165,000
43,000 State Street Corp. ........................ 2,346,187
20,000 SunTrust Banks Inc. ....................... 1,240,000
11,941 Transamerica Corp. ........................ 1,265,746
8,000 Value Line Inc. ........................... 314,000
--------------
82,588,241
--------------
FOOD AND BEVERAGE--7.0%
50,000 Bestfoods Inc. ............................ 2,421,875
76,300 Brown-Forman Corp., Cl. A.................. 4,291,875
90,000 Chock Full o'Nuts Corp.+................... 562,500
45,000 Coca-Cola Co. ............................. 2,593,125
52,000 Corn Products International Inc.+.......... 1,313,000
4,500 Farmer Brothers Co. ....................... 967,500
75,000 General Mills Inc. ........................ 5,250,000
62,000 Heinz (H.J.) Co. .......................... 3,169,750
48,000 Hershey Foods Corp. ....................... 3,285,000
15,000 Keebler Foods Co.+......................... 390,000
212,000 Kellogg Co. ............................... 6,982,750
30,000 LVHM Moet Hennessy Louis Vuitton, ADR...... 817,500
</TABLE>
13
<PAGE> 14
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
410,000 PepsiCo Inc. .............................. $ 12,069,375
400,000 Quaker Oats Co. ........................... 23,600,000
20,000 Ralcorp Holdings Inc.+..................... 280,000
300,000 Seagram Co. Ltd. .......................... 8,606,250
129,602 Tootsie Roll Industries Inc. .............. 4,568,471
20,000 Vlasic Foods International Inc.+........... 373,750
560,000 Whitman Corp. ............................. 8,925,000
80,000 Wrigley (Wm.) Jr. Co. ..................... 6,075,000
--------------
96,542,721
--------------
HEALTH CARE--2.6%
12,000 Amgen Inc. ................................ 906,750
18,000 Biogen Inc.+............................... 1,184,625
40,000 Chiron Corp.+.............................. 795,000
100,000 Genentech Inc.+............................ 7,187,500
10,000 Glaxo Wellcome plc......................... 571,250
100,000 IVAX Corp. ................................ 875,000
65,000 Johnson & Johnson.......................... 5,086,250
55,000 Merck & Co. Inc. .......................... 7,125,938
105,000 Pfizer Inc. ............................... 11,123,437
19,000 SmithKline Beecham plc..................... 1,040,250
--------------
35,896,000
--------------
HOTELS AND GAMING--1.5%
165,000 Circus Circus Enterprises Inc.+............ 1,557,188
215,000 Gaylord Entertainment Co., Cl. A........... 6,409,687
30,000 GTECH Holdings Corp.+...................... 796,875
12,000 Harrah's Entertainment Inc.+............... 159,750
350,000 Hilton Hotels Corp. ....................... 5,971,875
203,389 Ladbroke Group plc......................... 757,261
220,000 Mirage Resorts Inc.+....................... 3,685,000
40,000 Starwood Hotels & Resorts Worldwide
Inc. ..................................... 1,220,000
44,400 Trump Hotels & Casino Resorts Inc.+........ 163,725
--------------
20,721,361
--------------
METALS AND MINING--0.3%
30,000 Barrick Gold Corp. ........................ 600,000
100,000 Echo Bay Mines Ltd. ....................... 237,500
45,000 Homestake Mining Co. ...................... 545,625
37,500 Newmont Gold Co. .......................... 958,594
30,000 Newmont Mining Corp. ...................... 727,500
360,000 Pegasus Gold Inc.+......................... 19,800
22,500 Placer Dome Inc. .......................... 310,781
300,000 Royal Oak Mines Inc.+...................... 206,250
40,000 TVX Gold Inc.+ ............................ 107,500
--------------
3,713,550
--------------
PAPER AND FOREST PRODUCTS--1.1%
180,000 Greif Bros. Corp., Cl. A................... 5,940,000
45,000 Sealed Air Corp. .......................... 1,434,375
312,000 St. Joe Corp. ............................. 7,449,000
--------------
14,823,375
--------------
PUBLISHING--2.9%
70,000 American Media Inc., Cl. A+................ 389,375
4,000 Central Newspapers Inc., Cl. A............. 228,000
60,000 Dow Jones & Co. Inc. ...................... 2,790,000
215,000 Golden Books Family Entertainment Inc.+.... 33,594
38,000 Harcourt General Inc. ..................... 1,838,250
50,000 McClatchy Newspapers Inc., Cl. A........... 1,500,000
80,000 McGraw-Hill Companies Inc. ................ 6,340,000
325,000 Media General Inc., Cl. A.................. 12,593,750
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
90,000 Meredith Corp. ............................ $ 2,880,000
140,000 New York Times Co., Cl. A.................. 3,850,000
15,000 News Corp. Ltd., ADR....................... 384,375
305,000 Penton Media Inc. ......................... 4,155,625
50,000 Reader's Digest Association Inc., Cl. A.... 956,250
40,000 Reader's Digest Association Inc., Cl. B.... 760,000
1,650,000 Seat-Pagine Gialle SpA+.................... 1,212,522
6,000 Scripps (E.W.) Co., Cl. A.................. 261,000
--------------
40,172,741
--------------
REAL ESTATE--0.5%
380,000 Catellus Development Corp.+................ 4,940,000
48,000 Florida East Coast Industries Inc. ........ 1,392,000
65,000 Griffin Land & Nurseries Inc.+............. 719,062
1,000 Lennar Corp. .............................. 22,313
1,000 LNR Property Corp. ........................ 19,313
--------------
7,092,688
--------------
RETAIL--4.7%
41,000 Aaron Rents Inc. .......................... 615,000
20,000 Aaron Rents Inc., Cl. A.................... 246,250
150,000 Amercian Stores Co. ....................... 4,828,125
190,000 Burlington Coat Factory Warehouse Corp.+... 2,802,500
44,000 Coldwater Creek Inc.+...................... 836,000
5,000 Dominick's Supermarkets Inc. .............. 213,750
50,000 Fingerhut Companies Inc. .................. 550,000
803,500 Giant Food Inc., Cl. A..................... 34,701,156
70,000 Kroger Co.+................................ 3,500,000
150,000 Lillian Vernon Corp. ...................... 2,034,375
575,000 Neiman Marcus Group Inc.+.................. 12,434,375
70,000 Republic Industries Inc .+................. 1,019,375
200,000 Scheib (Earl) Inc.+........................ 1,075,000
--------------
64,855,906
--------------
SPECIALTY CHEMICALS--1.5%
163,800 BetzDearborn Inc. ......................... 11,322,675
375,000 Ferro Corp. ............................... 7,453,125
77,000 Sybron Chemicals Inc. ..................... 1,164,625
--------------
19,940,425
--------------
TELECOMMUNICATIONS--6.8%
122,000 Aliant Communications Inc. ................ 3,019,500
5,000 Allegiance Telecom Inc. ................... 41,875
85,000 Alltel Corp. .............................. 4,026,875
160,000 AT&T Corp. ................................ 9,350,000
50,000 BC Telecom Inc. ........................... 1,179,980
30,000 BC Telecom Inc., ADR....................... 719,401
200,000 BCE Inc. .................................. 5,587,500
18,000 BellSouth Corp. ........................... 1,354,500
130,000 Cable & Wireless plc, ADR.................. 3,566,875
190,906 Citizens Utilities Co., Cl. B.............. 1,551,111
130,000 Commonwealth Telephone Enterprises Inc.+... 3,111,875
31,000 Commonwealth Telephone Enterprises Inc.,
Cl. B+.................................... 813,750
105,000 Frontier Corp. ............................ 2,874,375
157,000 GTE Corp. ................................. 8,635,000
32,000 Hong Kong Telecommunications Ltd., ADR..... 612,000
400,000 RCN Corp. ................................. 5,200,000
10,000 Rogers Communications Inc., Cl. B+......... 54,738
310,000 Rogers Communications Inc., Cl. B, ADR+.... 1,724,375
16,000 SBC Communications Inc. ................... 711,000
160,000 Southern New England Telecommunications
Corp. .................................... 12,500,000
100,000 Sprint Corp. .............................. 7,200,000
67,500 Telecomunicacoes Brasileiras SA, ADR....... 4,657,500
500,000 Telecom Italia SpA......................... 3,445,612
</TABLE>
14
<PAGE> 15
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
125,000 Telecom Italia SpA, ADR.................... $ 8,375,000
15,000 Telefonica de Espana, ADR.................. 1,619,062
10,000 Telefonos de Mexico SA, Cl. L, ADR......... 442,500
8,000 US West Inc.+.............................. 419,500
--------------
92,793,904
--------------
TRANSPORTATION--0.6%
135,000 AMR Corp.+................................. 7,484,062
3,000 Burlington Northern Santa Fe Corp. ........ 96,000
20,000 CSX Corp. ................................. 841,250
10,000 Kansas City Southern Industries Inc. ...... 350,000
1,000 Norfolk Southern Corp. .................... 29,063
1,000 Providence & Worcester Railroad Co. ....... 11,500
1,000 RailAmerica Inc.+.......................... 5,875
3,000 Wisconsin Central Transportation Corp.+.... 42,000
--------------
8,859,750
--------------
WIRELESS COMMUNICATIONS--4.6%
35,000 AirTouch Communications Inc.+.............. 1,995,000
50,000 Associated Group Inc., Cl. A+.............. 1,650,000
37,000 Associated Group Inc., Cl. B+.............. 1,165,500
495,000 Century Telephone Enterprises Inc. ........ 23,388,750
200,000 COMSAT Corp. .............................. 7,050,000
100,000 Globalstar Telecommunications Ltd. ........ 1,156,250
55,000 NEXTEL Communications Inc., Cl. A+......... 1,110,312
24,000 Rogers Cantel Mobile Communications
Inc.+..................................... 184,500
200,000 TCI Satellite Entertainment Inc., Cl. A+... 575,000
1,800,000 Telecom Italia Mobile SpA.................. 10,490,413
405,000 Telephone and Data Systems Inc. ........... 14,124,375
12,000 United States Cellular Corp. .............. 357,750
--------------
63,247,850
--------------
TOTAL COMMON STOCKS........................ 1,299,267,044
--------------
PREFERRED STOCKS--0.2%
METALS AND MINING--0.0%
10,000 Freeport-McMoRan Inc., 7.00% Conv. Pfd. ... 161,250
--------------
TELECOMMUNICATIONS--0.2%
35,000 Sprint Corp., 8.25% Conv. Pfd. ............ 2,362,500
1,588,267 Telecomunicacoes de Sao Paulo SA (Telesp),
Preference Shares......................... 230,446
1,588,267 Telecomunicacoes de Sao Paulo SA (Telesp),
Preference Shares, Cl. B.................. 65,650
--------------
2,658,596
--------------
TOTAL PREFERRED STOCKS..................... 2,819,846
--------------
RIGHTS--0.0%
30,200 Commonwealth Telephone Enterprises Inc. ... 86,825
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
CORPORATE BONDS--0.2%
ENTERTAINMENT--0.2%
$ 2,300,000 Viacom Inc., Sub. Deb., 8.00% due 07/07/06 $ 2,351,750
--------------
U.S. GOVERNMENT OBLIGATIONS--5.0%
70,246,000 U.S. Treasury Bills, 4.29% to 5.13%++
due 10/15/98-02/18/99..................... 69,552,475
--------------
TOTAL INVESTMENTS--100.0%
(Cost $856,805,590)....................... 1,374,077,940
OTHER ASSETS AND
LIABILITIES (NET)--(0.0)%................. (368,020)
--------------
NET ASSETS--100.00%
(43,971,801 shares outstanding)........... $1,373,709,920
==============
NET ASSET VALUE,
OFFERING AND REDEMPTION
PRICE PER SHARE........................... $31.24
======
</TABLE>
<TABLE>
<CAPTION>
FORWARD FOREIGN EXCHANGE CONTRACTS
NET
EXPIRATION UNREALIZED
DATE DEPRECIATION
---------- ------------
<S> <C> <C> <C>
12,100,000(b) Deliver Hong Kong Dollars
in exchange for
USD 1,538,801 02/26/99 $(30,543)
</TABLE>
- ------------------------------
<TABLE>
<S> <C>
(a) Security fair valued as determined by the Board of Trustees.
(b) Principal amount denoted in Hong Kong Dollars.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR-- American Depositary Receipt.
GDR-- Global Depositary Receipt.
ORD-- Ordinary Share.
</TABLE>
15
<PAGE> 16
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.)
<TABLE>
<S> <C>
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 Vice President Certified Public Accountant
Dollar Dry Dock Savings Bank Professor, Pace University
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
Chief Investment Officer Chairman
Financial Security Assurance The Bethlehem Corp.
Holdings Ltd.
OFFICERS AND PORTFOLIO MANAGERS
Mario J. Gabelli, CFA Bruce N. Alpert
Portfolio Manager President and Treasurer
James E. McKee
Secretary
</TABLE>
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND
AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
LLP
- ---------------------------------------
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.
- ---------------------------------------
[PHOTO]
THE
GABELLI
ASSET
FUND
THIRD QUARTER REPORT
SEPTEMBER 30, 1998
