<PAGE>
THE GABELLI ASSET FUND
SEMI-ANNUAL REPORT - JUNE 30, 1998
* * * *
Morningstar rated The Gabelli Asset Fund 4 Stars overall and for the three,
five and ten year Periods ended 6/30/98 among 2545, 1462 and 707
domestic equity funds, respectively.
Mr. Gabelli Appeared in the August 1998 edition of Louis [Mr. Gabelli Photo]
Rukeyser's Mutual Funds newsletter. We have condensed the
article for your review. We encourage you to subscribe to
Louis Rukeyser's Mutual Funds newsletter.
TO OUR SHAREHOLDERS,
In the second quarter of 1998, there was a continuation of the best of
times for large cap stocks and the worst of times for small cap stocks. During
the quarter, the large cap market, as measured by the Standard & Poor's 500
Index, rose by 3.3% while small cap stocks, as measured by the Russell 2000
Index, declined by 4.7%. U.S. government bonds rallied in a classic global
"flight to quality", with the yield on the 30 year U.S. Treasury Bond falling to
5.57% in mid-June.
INVESTMENT PERFORMANCE
For the second quarter ended June 30, 1998, The Gabelli Asset Fund's (the
"Fund") total return was 1.1%. The Standard & Poor's ("S&P") 500 had a return of
3.3% while the Value Line Composite and Russell 2000 Index declined 3.0% and
4.7%, 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 32.6%. The S&P 500, Value Line Composite and Russell 2000 rose 30.2%, 20.6%
and 16.5%, respectively, over the same twelve month period.
For the ten year period ended June 30, 1998, the Fund's return averaged
16.7% annually, versus average annual returns of 18.5%, 14.4% and 13.6% for the
S&P 500, Value Line Composite and Russell 2000, respectively. Since inception on
March 3, 1986 through June 30, 1998, the Fund had a total return of 660.9%,
which equates to an average annual return of 17.9%.
continued on page 7...
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect historical risk adjusted performance as of June 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 and the next 22.5% receive four stars.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Returns - June 30, 1998(a)
-----------------------------------------
<S> <C>
1 Year ..................................................... 32.6%
5 Year ..................................................... 19.6%
10 Year ..................................................... 16.7%
Life of Fund (b) ............................................ 17.9%
</TABLE>
<TABLE>
<CAPTION>
Dividend History
- ---------------------------------------------------
Rate Reinvestment
Payment (ex) Date Per Share 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>
<TABLE>
<CAPTION>
INVESTMENT RESULTS (a)
- -------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th Year
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
1998: Net Asset Value $36.00 $36.41 - - -
Total Return.................... 13.0% 1.1% - - -
- -------------------------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------------------------
(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>
Mr. Gabelli Appeared in the August 1998 edition of Louis Rukeyser's Mutual
Funds newsletter. We have condensed the article for your review.
Excerpted from LOUIS
RUKEYSER'S
[PHOTO] MUTUAL FUNDS
August 1998
GROWTH OR VALUE? KEEPING YOUR COOL IS ALWAYS IN STYLE
BY LOUIS RUKEYSER
One of the most entertaining, and enlightening, confrontations at our Louis
Rukeyser Investment Conferences in recent years has been that between Foster
Friess and Mario Gabelli. I deliberately put them on the same panel, because
Foster, the lead manager of the Brandywine Fund, has been an outstandingly
articulate advocate of "growth" investing, while Mario, Chairman of Gabelli
Funds, is a similarly effective spokesman for the "value" camp.
Last year, for example, when Mario dramatized his then-current
recommendation of American Express by holding up his green credit card, Foster
got a roar out of the crowd of 10,000 by saying that if Mario had been a
growth-stock investor, he would have had a gold card by now. Gabelli was
unfazed: "That's a perfect example of the problem with 'growth' investors," he
said. "A 'value' investor knows that the green American Express card is the
better bargain."
Who's right about the best approach to investing? The only true answer is
that they both are. Over the years, stocks will respond to their companies'
increases in earnings, as the "growth" investors contend--and no sensible
"value" investor can afford to be indifferent to that trend. And no sensible
"growth" investor should want heedlessly to overpay for a stock, a rash act that
can make the unwary investor susceptible to some of the market's most jolting
downturns. At different periods, the market will favor one style of investing
over another. The most successful long-term managers stick to a consistent
style. But they don't ignore the rest of the equation, either: nothing is nicer
than buying what the market thinks of as a "value" stock and selling it long
after the market has perceived it as a "growth" stock. Bargains are sometimes in
the eye of the beholder; profits, on the other hand, cross party lines . . .
Which takes me to Mario's triumph. As you'll see in The Rukeyser Interview
this month, this self-described "stuck-in-the-wool, Graham & Dodd type"--an
old-fashioned "value" investor--had the year of his life in 1997, a period when
most prominent investors of similar bent were conspicuously missing large chunks
of the market's lavish profits, on the selfrighteous grounds that it had become
far too pricey to merit their august involvement.
It wasn't that Mario had no concerns about the market's valuation; he did,
and does. He knows that no market ever goes straight up, and he worries about
certain historical benchmarks. But he figures, as it were, that that's not what
he's being paid to do. He's being paid to discern meaningful business trends and
to find individual stocks that meet his standards. And that he has continued,
resolutely, to do. Far more important (and far more successful) than his overall
market judgments has been his ability to find stocks that most investors were
neglecting. As he put it to me in the interview, "It really was not what we
bought in 1997 but what we bought in 1995 and 1996: domestic businesses that
were somewhat out of favor."
No market timer could have told Mario precisely when the market would
vindicate these judgments. He clearly didn't know the answer to that himself.
But he held to what he did know, and was notably patient. That's something we
all can emulate. In my view, there is no one single way to make the most money
in Wall Street-- there is merit, over time, in both the "growth" and "value"
camps, and intelligently diversified mutual fund investors will keep a foot in
both--but there is one pretty certain way to lose money: panicking in the face
of temporary adversity...
More on the next page...
Reprinted with Permission * Louis Rukeyser's Mutual Funds * 1750 Old Meadow
Road, McLean, VA 22102 * August 1998
For Subscriptions, call (800) 892-9702 or (703) 905-8000 in Virginia.
(C) Financial Service Associates
3
<PAGE>
GABELLI FUNDS
Supplemental information to the excerpts from Louis Rukeyser's Mutual Funds,
August 1998
- --------------------------------------------------------------------------------
The views expressed in this article reflect those of Mario J. Gabelli,
Chairman and Chief Investment Officer of Gabelli Funds, Inc., only through July
15, 1998 as edited and selected by Louis Rukeyser. The Chief Investment
Officer's views are subject to change at any time based on market and other
conditions.
PAST PERFORMANCE OF ANY GABELLI FUND DOES NOT GUARANTEE FUTURE RESULTS. The
returns shown are historical and reflect changes in share price, reinvested
dividends, and are net of expenses. Investment results and the principal value
of an investment will fluctuate. When shares are redeemed, they may be worth
more or less than their original cost. A chart detailing the performance of each
of the Gabelli Funds mentioned in this article is set forth below.
A PROSPECTUS FOR EACH OF THE FUNDS AND A QUARTERLY REPORT DETAILING EACH OF
THE FUNDS' HOLDINGS MAY BE OBTAINED BY CALLING THE DISTRIBUTOR, GABELLI &
COMPANY, INC., AT 1-800-GABELLI (1-800-422-3554). THE PROSPECTUS CONTAINS MORE
COMPLETE INFORMATION, INCLUDING FEES AND EXPENSES. READ IT CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
Securities discussed in this article do not necessarily reflect holdings in
each of the mutual funds mentioned in the article. The chart below details the
funds' specific investments in the stocks mentioned by Mario J. Gabelli.
Performance as of 6/30/98 of the Gabelli Funds mentioned in the Louis
Rukeyser article is listed below. The Lipper Averages are provided for the same
periods to show the Funds' performance relative to these measures.
<TABLE>
<CAPTION>
3 Year 5 Year 10 Year Since
Average Average Average Inception
Nasdaq 1 Year 1 Year Annual Annual Annual Avg. Annual
Fund Name (Inception Date) Symbol 12/31/97 6/30/98 6/30/98 6/30/98 6/30/98 6/30/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gabelli Asset Fund (3/3/86) GABAX 38.1% 32.6% 25.5% 19.6% 16.7% 17.9%
Gabelli Value Fund (9/29/89) GABVX 48.2% 43.4% 27.8% 22.6% - 17.4%
adjusted for 5.5% front end sales charge 40.1%* 35.5%* 25.4%* 21.2%* - 16.7%*
Lipper Capital Appreciation Fund Average 20.3% 22.1% 21.0% 16.8% 15.1% -
Lipper Growth Fund Average 25.2% 25.4% 24.2% 19.3% 16.5% -
</TABLE>
* Total returns include the effect of any applicable sales charges. The Lipper
Analytical Services Averages are unmanaged indices of investment performance.
One cannot invest directly in the Lipper Analytical Services Averages.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERCENTAGE OF NET ASSETS - AS OF 6/30/98
Asset Fund Value Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
MediaOne Group Inc. 1.52% 6.16%
US West Inc. 0.04% -
Viacom Inc. 2.17% 9.01%
Eastern Enterprises 0.04% -
Frontier Corp. 0.18% 0.30%
Gaylord Entertainment Co. 0.32% 0.58%
Pioneer Group Inc. - 0.14%
BET Holdings Inc. 0.53% 1.40%
International Family Entertainment Inc. - -
Cablevision Systems Corp. 2.20% 6.39%
TCI-Liberty Media Group 2.07% -
American Express Co. 2.33% -
TOTAL 11.48% 23.98%
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
Excerpted from Louis Rukeyser's Mutual Funds
THE RUKEYSER INTERVIEW GABELLI IN FOCUS
Anyone who still thinks of
successful money management as a grim
and humorless business has clearly never [PHOTO]
encountered Mario Gabelli. Mario gets a
lot of fun out of life, whether running
his $15-billion-plus money-management MARIO GABELLI: "INSTEAD OF
operation in Rye, N.Y., fly-fishing near BUYING THE GROWTH COMPANY IN A
his home in Jackson Hole, Wyo., or SECTOR WE LIKE; WE BUY THE
entertaining and enlightening the POTENTIAL TAKEOUT COMPANY. DEALS
world's biggest financial audience as a ARE GOING TO CONTINUE TO BE VERY
perennial favorite at our annual Louis POWERFUL, AND I STILL WANT TO BE
Rukeyser Investment Conference. His IN FRONT OF THEM."
manner and mind are cutting edge, but
his approach to investing is rooted in
the old-fashioned "value" ideas of
Benjamin Graham: the search for bargains
that provide a margin of safety when the
market stumbles.
Mario's engaging smile was returned by the market in 1997; when his funds
(800-422-3554) had their best year ever, thanks both to rallies in some of his
favorite sectors (such as cable, telephone and media firms) and to his penchant
for picking companies that eventually get taken over at higher prices;
MORNINGSTAR named him "1997 Domestic Equity Fund Manager of the Year." Mario's
long-term method of investing, which typically involves holding periods of three
to five years, means that he won't always be manager of the year, and there will
be times when shareholders will have to show a fair amount of patience
themselves. But the evidence mounts that this kind of vision, which seeks to
discern enduring shifts in the investment climate, has worked far better over
time than trying to outguess every passing shift in the market winds. --LR
MARIO, YOU HAVE CARVED OUT A REPUTATION AS ONE OF THE MARKET'S MOST FORMIDABLE
"VALUE" INVESTORS, BUT YOU'VE SOMEHOW MANAGED TO OUTPERFORM LATELY EVEN WHILE
MANY VALUE INVESTORS HAVE BEEN CURSING THE MARKET AND CLAIMING THAT IT'S GONE
NUTS. WHAT ARE YOU DOING THAT THEY AREN'T?
Well, we just got lucky. The moon, the sun and the stars came together in
1997, but it really was not what we bought in 1997 but what we bought in 1995
and 1996: domestic businesses that were somewhat out of favor. And also, we
believe very strongly, Lou, that the third great wave of postwar takeovers
started four years ago, and so instead of buying the growth company in a sector
we like, we buy the potential takeout company. Deals are going to continue to be
very powerful, and I still want to be in front of them.
YOU'VE PLAYED MORE WINNING THEMES THAN TOMMY DORSEY OVER THE YEARS. WHAT DO YOU
SEE AS THE BEST NEW INVESTMENT THEMES TODAY -- AND THE STOCKS THAT WILL PROVIDE
THE SWEETEST MUSIC FOR INVESTORS?
One big theme I believe in now is speed and digital. Speed used to be
getting a product to the market ahead of the competition. Today, it's getting
what the consumer wants when he wants it. The kissing cousin of speed is
digital; we're going through a major revolution, involving electronic commerce,
entertainment on a global basis, and taking your dial tone and making it a web
tone. At your conference in April I recommended MEDI AONE, a
broadband-communications and Internet company, created as a tracking stock by
US West, that then went from $36 to $50; I still like it.
On the theme of integrated entertainment companies, I think there is
significant value in VIACOM, even though it's doubled since September. Its crown
jewels are the cable networks (including MTV, VH1, Nickelodeon and
Nick-at-Nite), with potential cash flow of a billion dollars from them next
year--which means you get the studio for free, at a time when "ER" and
"Seinfeld" and "Titanic" have underscored again the virtue of software
programming.
And I have a new theme to add to my four "B's"--bankers, brokers,
broadcasters and Bell operating companies--which I used to talk about as places
to be in front of the takeovers. I will now add BTU: the opportunity to take
advantage of the deregulation and restructuring of the gas and electric-utility
industries. We're buying companies at slightly over their book value (sometimes
5
<PAGE>
1.5 to 2.0 times), with very good yields. They're perceived to be defensive
plays. For example, I like EASTERN ENTERPRISES, which owns and operates the
Boston Gas Company, which has lots of cash and is in the middle of a geographic
area that's going through an accelerated consolidation. The whole electric area
around the country may see bigger companies gobbling up smaller ones.
Elsewhere in the area of possible takeovers, my favorite in the telephone
area is FRONTIER, which is the old Rochester Telephone; in the entertainment
area, GAYLORD ENTERTAINMENT, which is a Nashville, Tenn.-based entertainment
dynamo with the Opryland Hotel, Christian Contemporary music,
country-and-western music and a TV station in Dallas that alone is worth about
$450 million; and, among smaller companies, PIONEER GROUP, which is in the
money-management business.
WHEN YOU'RE PICKING NEW STOCKS, DO YOU THINK OF THE THEME FIRST, OR FIND THE
COMPANIES FIRST AND THEN DEVELOP THE THEME?
Well, take Gaylord. I started following Gaylord because I believed that
cable networks were very attractively valued. So I started looking within that
conviction, finding companies like Black Entertainment (we were the largest
shareholder), Pat Robertson's Family Entertainment, Cablevision (which has gone
up six times in the last two years) and Liberty Media (which I'm buying because
they own the best cable networks in the world). And that attracted me to
Gaylord, because they own the Nashville Network and Country Music Television.
After focusing on the stock, I analyze the parts: what can I get for each of
them, who's likely to buy it, what would they pay.
WHICH FUNDS ARE YOU RUNNING PERSONALLY TODAY?
Gabelli Asset was our first fund. It's a no-load, with a
middle-of-the-road, fundamental-value approach and no concentrated positions.
I've run it since its inception, emphasizing stock selection and trying to get
three-quarters of the market on the upside and be down only 60% of the market
when it goes down. Gabelli Value is a load fund, distributed by brokers, that is
concentrated in ten stocks, rep-resenting approximately 50% of the portfolio.
It's our most-concentrated portfolio in the value category.
WHICH TAKES ME TO A QUESTION ABOUT THE FUTURE OF THE GABELLI FUNDS: I KNOW YOU
CAN'T COMMENT RIGHT NOW ABOUT YOUR EFFORTS TO SELL A STAKE IN YOUR FIRM TO THE
PUBLIC. BUT SINCE YOU'RE MERELY A STRIPLING OF 56 YEARS YOURSELF, MANY PEOPLE
WONDER WHETHER THIS IS A SIGNAL THAT YOU THINK THE MARKET IS AT A PEAK.
Not at all. I've acknowledged that we are looking to monetize some of our
older partners--much the way Goldman Sachs is. We've filed an S-l form that said
we're going public--not selling our business. It's not a question of thinking
that the market is peaking (the record of companies calling that peak has been
pretty bad over the years!) but of getting fresh capital to accelerate our
growth.
<TABLE>
<CAPTION>
ENDURING VALUES?
STOCK RECENT 52-WEEK
(NYSE SYMBOL) PRICE HIGH/LOW
<S> <C> <C>
MediaOne (UMG) $48.44 $50.00/$19.81
Viacom (AMEX:VIA) 65.38 65.94/26.00
Eastern Enterprises (EFU) 42.19 45.63/35.06
Frontier (FRO) 34.31 37.13/19.00
Gaylord Entertainment (GET) 33.69 37.50/22.38
Pioneer Group (OTC:PIOG) 28.00 33.88/24.13
- --------------------------------------------------------
</TABLE>
* Consensus estimates. SOURCES: Bloomberg, Zacks.
HOW HAS YOUR MARKET PHILOSOPHY CHANGED OVER THE DECADES, IF AT ALL?
We are stuck-in-the-wool, Graham & Dodd types. But one thing did change
about 10 or 11 years ago. For 20 years we had followed industries around the
world, just to see what was going on; we never invested in them. I then made a
fundamental shift. I said, "Hey, if you follow beverages at Gabelli, you've got
to follow every beverage company around the world. If they drink it, you follow
it." And the same for other industries. We globalized our thought process and
internationalized the stock-selection proc ess.
FINALLY, MARIO, WHAT'S YOUR SINGLE BEST PIECE OF ADVICE FOR MUTUAL-FUND
INVESTORS OVER THE NEXT 12 MONTHS?
Continue to do your homework and be patient. And I hate to say it, but
don't extrapolate from the high returns of the last three years in terms of what
your future returns are likely to be. Don't get panicked by the first 30% down.
Important additional information is contained on page 4. Please read the
information carefully before investing or sending money.
6
<PAGE>
continued from page 1...
COMMENTARY
In compiling our thoughts for this shareholder letter, we looked forward by
looking through the rear view mirror. In the process, we witnessed the testimony
of Federal Reserve Board Chairman Alan Greenspan and we could not say it any
better. To quote Alan . . .
"Mr. Chairman and members of the Committee, I appreciate this opportunity
to present the Federal Reserve's midyear report on monetary policy.
Overall, the performance of the U.S. economy continues to be impressive.
Over the first part of the year, we experienced further gains in output and
employment, subdued prices, and moderate long-term interest rates.
important crosscurrents, however, have been impacting the economy. With
labor markets very tight and domestic final demand retaining considerable
momentum, the risks of a pickup in inflation remain significant. But
inventory investment, which was quite rapid late last year and early this
year, appears to have slowed, perhaps appreciably. Moreover, the economic
and financial troubles in asian economies are now demonstrably restraining
demands for U.S. goods and services -- and those troubles could intensify
and spread further. Weighting these forces, the Federal Open Market
Committee chose to keep the stance of policy unchanged over the first half
of 1998. However, should pressures on labor resources begin to show through
more impressively in cost increases, policy action may need to counter any
associated tendency for prices to accelerate before it undermines this
extraordinary expansion."
-- Excerpt from the Monetary Policy Testimony and Report to Congress Before
the Subcommittee on Domestic and International Monetary Policy of the
Committee on Banking and Financial Services, U.S. House of Representatives,
July 21, 1998.
BEATING UP THE LITTLE GUYS
While investors worry about a substantial correction or even a bear market
for the Dow Jones Industrial Average ("DJIA") and S&P 500, small cap stocks are
already experiencing one. Although as of the end of second quarter 1998, the
Russell 2000 is up modestly, approximately 60% of all Nasdaq listed stocks are
off 20% or more from their 52 week highs. What is wrong with small cap stocks?
In our opinion, nothing. In fact, we believe that small companies operating
primarily in the domestic market are far less vulnerable to Asian economic
problems than the large multinationals. This has not prevented investors from
abandoning small cap stocks to chase large cap stock returns. Is this likely to
change in the foreseeable future? We do not know and in a sense, do not care. We
are patient value investors who count on Mr. Market's mood swings to allow us to
buy quality companies at discount prices. The fact that Mr. Market, perhaps
fueled by the migration of assets into S&P index funds, is mindlessly lavishing
attention on large companies and ignoring more fundamentally attractive smaller
ones, makes it easier for us to pick up small cap stock bargains.
DEAL ACTIVITY SURFACES VALUE
One component of our investment methodology is to identify industry and
sector trends and themes ahead of the curve and position ourselves to benefit
from these developments. Industry consolidation is one such trend. As we have
discussed in previous letters, the continued strong merger and acquisition
activity is providing a tailwind to the excellent performance of the Fund this
year. The accompanying tables illustrate how deal activity surfaced value in a
small sample of the portfolio holdings.
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 COMPLETED DEALS
FUND HOLDING CLOSING DATE % RETURN(a)
- ------------ ------------ -----------
<S> <C> <C>
Ticketmaster Group Inc. 6/24 24.6%
Culligan Water Technologies Inc. 6/16 11.2
Handy & Harman 4/06 2.2
<CAPTION>
PERCENTAGE CHANGES THROUGH JUNE 30, 1998 FOR ANNOUNCED DEALS
SECOND YEAR-TO-DATE
CURRENT FUND HOLDINGS QUARTER RETURN(b) RETURN(b)
- --------------------- ----------------- ---------
<S> <C> <C>
Cable Michigan Inc. 52.9% 70.5%
360 Communications Co. 6.0 64.1
Tele-Communications Inc. 23.6 37.6
Echlin Inc. (6.4) 35.6
Southern New England Telecommunications Corp. (9.8) 30.2
Giant Food Inc. 10.9 27.1
Quaker State Corp. (13.0) 15.9
BET Holdings Inc. 3.0 15.2
PolyGram NV 9.7 6.7
</TABLE>
- --------------------------------------------------------------------------------
(a) Represents changes in share price and dividends paid from December 31,
1997 through the closing date.
(b) Represents changes in share price and dividends paid from the beginning
of the period through June 30, 1998. Note: See the Portfolio of Investments for
a complete listing of holdings.
- --------------------------------------------------------------------------------
THE ENVELOPE PLEASE. THE WINNERS ARE..
With only a few exceptions, our media, telecommunications and financial
holdings posted positive returns this quarter. These industry groups are all
benefiting from powerful trends. Leading media companies like Time Warner,
Seagram and News Corp. were applauded for making bold moves to extend their
global franchises. At the end of the quarter, cable television stocks like
Tele-Communications Inc., Comcast and Cablevision soared following the
announcement of the AT&T/TCI deal. Telecommunications stocks like Sprint and
AirTouch continued to make progress as investors acknowledged these companies'
competitive advantages in arguably the greatest growth industry worldwide.
Financial stocks such as American Express and Paine Webber posted strong gains.
AND SOME LOSERS
As can be expected in light of the Asian economic turmoil, Deere and Boeing
got hit hard this quarter. Deere's problem is not so much from international
competition for its state-of-the-art farm equipment, but from the impact of weak
foreign currencies and economies on the American farmer. American agricultural
exports to Asia and the former Soviet Union will likely trend down. Competition
from Latin American agricultural exporters will heat up. These global dynamics,
coupled with the absence of agricultural price supports, will likely pinch the
pockets of American farmers, who will probably be more reluctant to invest in
new Deere equipment. Boeing is seeing its backlog reduced by cancellation of
orders from Asian airlines. This comes at a time when the company is still
struggling with production problems. With the price of oil declining to a twelve
year low, oil service stocks like Halliburton took it on the chin.
Should we have followed momentum investors out of these stocks? That is not
our style. We believe these companies still have strong global franchises and
very attractive long term business prospects. We have always been willing to
tolerate poor short term, market related performance from portfolio companies we
believe are positioned to provide superior long term results.
THE BOTTOM OF THE BARREL?
The price of a barrel of oil declined to a twelve year low in the second
quarter of 1998. The market appears to have priced in all the bad news: the warm
El Nino winters, slackening Asian demand, and excess
8
<PAGE>
OPEC production. We point out that despite Asia's woes, worldwide demand for oil
is expected to be up modestly in 1998. According to the National Weather
Service, El Nino is not likely to revisit us next winter. OPEC has made some
modest production cuts already and will likely try to turn down the tap further
in the year ahead. We doubt oil prices will explode from current levels. But,
long term supply and demand trends support our increasingly positive view on the
energy sector. This should ultimately put some life in moribund energy stocks.
TOO MUCH OF A GOOD THING?
Investors' cool response to the Norwest/Wells Fargo and Citicorp/Travelers
mergers and the government's new found sensitivity to the further consolidation
of American industry has led some market observers to proclaim the end of what
we have termed the third great wave of takeovers.
Upon his widely rumored demise, Mark Twain said, "The reports of my death
are greatly exaggerated". We echo these sentiments in regard to the premature
obituary for deals. We will likely see fewer deals in those industries like
aerospace that have already undergone extensive consolidation. Also, with some
takeover yeast baked into bank stock valuations, future deals may not be at the
kind of premium prices seen in recent years.
But, we believe the "urge to merge" will remain strong in many other
industry groups. We expect to see more mega-deals in the telecommunications
arena as the big hitters jockey for position in this globally deregulated
business. We anticipate more big media deals as the leaders extend their global
franchises. Manufacturing companies are still looking to acquire complimentary
product lines and boost global market shares. Importantly, small companies have
become cheaper making them even more attractive targets at a time when lower
long term capital gains tax rates have made it more profitable for
owner/managers to cash in the chips.
As for government meddling? We agree with Federal Reserve Board Chairman
Alan Greenspan's recent comments to Congress that deals are a natural part of
the free market process. There is certainly ample evidence worldwide that
consolidation helps energize economies. As we expect the Clinton Administration
learned from the health care debacle, if it isn't broken, there is little
political incentive to try to fix it. While the job dislocation that generally
accompanies consolidation is an issue that lends itself to political football,
with today's strong labor market, we do not think it will evolve into any
government restraints on deals without legitimate antitrust implications.
DIALING UP A BIG DEAL - "MA BELL" IS NOW RIDING MOTORCYCLES
Deregulation and technology have been driving change in the global
telecommunications industry. The need for speed is swiftly changing the "dial
tone" into the "web tone" as the telephone, computer and television converge
into one all purpose interactive information and entertainment instrument.
Convergence has just taken a leap forward with the prospective merger of AT&T
and cable television leader Tele-Communications Inc.
Does the proposed AT&T/TCI combination make sense? We think so. The
transaction gives AT&T the digital platform to compete in the local telephone
business. It also allows them to bundle long distance, local telephony, Internet
access and entertainment programming services on one line, passing approximately
one-third of all U.S. homes.
How will this change the global telecommunications/media landscape? It
opens the door for other long distance companies to break into local telephone
monopolies and perhaps for local telephone operators to further their inroads to
the long distance business. It dramatically increases the value of the cable
television industry's millions of coaxial connections into homes worldwide. It
will push the pace in which telephone infrastructure is upgraded to match
cable's digital and high speed capacity. It puts increasing pressure on every
global telecommunications company to create business combinations that will
allow them to compete
9
<PAGE>
with the full range of services that AT&T/TCI would be capable of delivering.
Finally, as additional business combinations are formed, "content and
creativity" providers could continue to be viewed as appetizing targets.
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.
American Express Co. (AXP - $114.00 - NYSE) is a global travel, financial and
network services provider. Founded in 1850, the company operates in 160
countries around the world. Best known for its "green" charge card and its
travel-related services, American Express also offers financial planning,
brokerage services, mutual funds, insurance and other investment products.
Harvey Golub, Chairman and CEO, has refocused AXP on its core charge card and
investment management businesses. The company continues to expand the reach of
its credit card operations.
Cablevision Systems Corp. (CVC - $83.50 - ASE), based in Woodbury, NY, owns and
operates cable television systems in 18 states serving 2,844,000 basic service
subscribers at year end 1997. 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.
Chris-craft Industries Inc. (CCN - $54.6875 - NYSE), through its 79% ownership
of BHC Communications (BHC - $140.3125 - ASE), is primarily a television
broadcaster. BHC owns and operates UPN affiliated stations in New York (WWOR),
Los Angeles (KCOP) and Portland (KPTV). BHC also owns 59% of United Television
(UTVI - $114.50 - Nasdaq), which operates an NBC affiliate, an ABC affiliate and
four UPN affiliates. United Television has purchased WHSW in Baltimore for $80
million and has an agreement to purchase WRBW, a UPN affiliate in Orlando, for
$60 million. Chris-Craft's television stations constitute one of the nation's
largest television station groups, reaching approximately 22% of U.S.
households. The Chris-Craft complex is debt free and strongly positioned to
expand its operations with roughly $1.5 billion in cash and marketable
securities.
- ------------------------
Chris-Craft Industries
- ------------------------
79%
- -----------------------
BHC Communications
- -----------------------
59%
- -----------------------
United Television
- -----------------------
Tele-communications Inc./Liberty Media Group (LBTYA - $38.8125 - NASDAQ) owns a
collection of interests in some of the most powerful programming entities in the
world. Liberty Media is the second largest investor in Time Warner, the world's
largest media company. Liberty Media, News Corp. and Tele-Communications
International Inc. have created a global sports joint venture, Fox Sports, that
offers an integrated package of sports programming across network broadcast,
national cable, and regional cable channels. Liberty's 49%-owned Discovery
Communications is a major, advertiser-supported basic cable network that
includes the flagship Discovery Channel, The Learning Channel and developing
businesses such as Discovery Europe and Animal Planet. Liberty Media is to be
merged into AT&T (T - $57.125 - NYSE) as part of AT&T's acquisition of TCI.
Thereafter, AT&T will issue a "tracking stock" at a one-to-one ratio.
10
<PAGE>
Time Warner Inc. (TWX - $85.4375 - NYSE), having completed its acquisition of
Turner Broadcasting, is the global leader in media and entertainment. The
combined companies have more than $24 billion in revenues and almost $5.4
billion in EBITDA. Together they control a host of powerful media 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, Time Warner is
now focused on reducing its almost $12 billion in debt and simplifying its
capital structure.
United Television Inc. (UTVI - $114.50 - NASDAQ) is a television broadcasting
company which owns and operates six television stations: one ABC, one NBC and
four UPN affiliates. UTVI recently purchased WHSW in Baltimore for $80 million.
The purchase of WRBW, a UPN affiliate in Orlando, for $60 million is pending.
UTVI stations will cover approximately eight percent of the U.S. population.
UTVI is a 59%-owned subsidiary of BHC Communications (BHC - $140.3125 - ASE).
Strong advertising demand, prospects for favorable regulatory changes in the
industry and corporate cost controls should increase EBITDA growth going
forward.
MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no sub-sequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
IN CONCLUSION
We believe it is still too early to accurately assess the impact of Asian
economic distress on the U.S. economy and corporate earnings. However, Asia's
problems may prolong investment uncertainty and restrain stock prices, perhaps
for the balance of the year. Looking farther ahead, we believe equities will
still provide investors with superior risk adjusted returns relative to other
asset classes and that our value discipline will enable us to provide
satisfactory returns over the long term.
Sincerely,
/s/ Mario J. Gabelli
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
August 1, 1998
---------------------------------------------------------------------
TOP TEN HOLDINGS
JUNE 30, 1998
-------------
Time Warner Inc. Chris-Craft Industries Inc.
American Express Co. Neiman Marcus Group Inc.
Cablevision Systems Corp. MediaOne Group Inc.
TCI/Liberty Media Group DeKalb Genetics Corp.
United Television Inc. Century Telephone Enterprises
---------------------------------------------------------------------
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>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS--91.8%
AEROSPACE--0.4%
85,000 Boeing Co. ........................ $ 3,155,075 $ 3,787,813
40,000 Fairchild Corp., Cl. A............. 849,015 807,500
20,000 Northrop Grumman Corp. ............ 2,200,782 2,062,500
------------ --------------
6,204,872 6,657,813
------------ --------------
AGRICULTURE--1.9%
200,000 Archer-Daniels-Midland Co. ........ 3,770,565 3,875,000
17,000 Agribrands International Inc. ..... 201,637 514,250
257,500 DeKalb Genetics Corp., Cl. B....... 24,254,133 24,365,938
40,000 Monsanto Co. ...................... 1,670,518 2,235,000
------------ --------------
29,896,853 30,990,188
------------ --------------
AUTOMOTIVE--0.6%
140,000 General Motors Corp. .............. 4,054,621 9,353,750
------------ --------------
AUTOMOTIVE: PARTS AND ACCESSORIES--4.2%
15,000 Borg-Warner Automotive Inc. ....... 399,908 720,938
130,000 Echlin Inc. ....................... 1,759,438 6,378,125
125,000 Federal-Mogul Corp. ............... 2,427,549 8,437,500
600,000 GenCorp Inc. ...................... 3,684,662 15,750,000
260,000 Genuine Parts Co. ................. 6,338,975 8,970,000
120,000 Johnson Controls Inc. ............. 2,338,938 6,847,500
225,000 Modine Manufacturing Co. .......... 4,668,331 7,790,625
46,062 Myers Industries Inc. ............. 172,636 1,105,488
155,000 Quaker State Corp. ................ 2,061,857 2,538,125
160,000 Standard Motor Products Inc. ...... 1,849,337 3,560,000
20,000 Superior Industries International
Inc. ............................. 290,505 563,750
100,000 TransPro Inc. ..................... 788,321 743,750
210,000 UAP Inc., Cl. A.................... 2,339,116 2,533,700
90,000 Wynn's International Inc. ......... 1,140,063 1,732,500
------------ --------------
30,259,636 67,672,001
------------ --------------
AVIATION: PARTS AND SERVICES--1.3%
10,000 BE Aerospace Inc.+................. 193,625 291,250
360,000 Coltec Industries Inc.+............ 4,908,996 7,155,000
182,000 Curtiss-Wright Corp. .............. 2,287,271 7,132,125
60,000 Hi-Shear Industries Inc. .......... 510,932 161,250
40,000 Hudson General Corp. .............. 1,121,008 2,025,000
72,000 Precision Castparts Corp. ......... 2,725,279 3,843,000
------------ --------------
11,747,111 20,607,625
------------ --------------
BROADCASTING--4.7%
80,000 CBS Corp. ......................... 1,999,120 2,540,000
413,155 Chris-Craft Industries Inc. ....... 8,289,820 22,594,414
69,551 Chris-Craft Industries Inc., Cl.
B(a).............................. 1,132,440 3,803,570
5,000 Gray Communications Systems
Inc. ............................. 147,988 161,875
120,000 Gray Communications Systems Inc., Cl.
B................................. 2,333,656 3,705,000
190,000 Grupo Televisa SA, GDR+............ 3,954,966 7,148,750
100,000 Liberty Corp. ..................... 2,961,435 5,031,250
115,000 Paxson Communications Corp., Cl.
A+................................ 1,231,309 1,394,375
400,000 Television Broadcasting Ltd.,
ORD............................... 1,815,551 1,058,338
247,500 United Television Inc. ............ 15,847,291 28,338,750
------------ --------------
39,713,576 75,776,322
------------ --------------
BUILDING AND CONSTRUCTION--0.3%
165,300 Nortek Inc.+....................... 749,634 5,082,975
4,333 Nortek Inc., Special Common+(a).... 59,049 133,240
------------ --------------
808,683 5,216,215
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
BUSINESS SERVICES--0.8%
40,000 Avis Rent A Car Inc.+.............. $ 1,147,186 $ 990,000
50,000 Berlitz International Inc., New+... 725,813 1,350,000
35,000 Computer Sciences Corp.+........... 1,688,472 2,240,000
12,000 Dollar Thrifty Automotive Group
Inc.+............................. 237,537 159,000
100,000 Ecolab Inc. ....................... 1,571,512 3,100,000
16,546 Hach Co. .......................... 118,347 205,374
16,546 Hach Co., Cl. A.................... 113,613 179,938
17,000 Hertz Corp. ....................... 680,037 753,313
68,000 Landauer Inc. ..................... 422,093 2,031,500
72,000 Nashua Corp.+...................... 1,713,693 1,125,000
3,000 Republic Services Inc., Cl. A...... 72,000 72,000
------------ --------------
8,490,303 12,206,125
------------ --------------
CABLE--6.2%
56,125 Cable Michigan Inc. ............... 444,537 2,188,875
425,000 Cablevision Systems Corp., Cl.
A+................................ 8,510,747 35,487,500
40,000 Comcast Corp., Cl. A............... 593,113 1,590,000
560,000 MediaOne Group Inc. ............... 11,789,977 24,605,000
40,000 Shaw Communications Inc., Cl. B.... 363,398 778,470
30,000 Shaw Communications Inc., Cl. B,
Conv. ............................ 191,728 583,059
640,000 TCI Ventures Group................. 3,891,947 12,840,000
522,556 Tele-Communications Inc., Cl. A
New+.............................. 9,228,178 20,085,748
65,000 United International Holdings Inc.,
Cl. A+............................ 884,424 1,040,000
------------ --------------
35,898,049 99,198,652
------------ --------------
CLOSED-END FUNDS--0.1%
84,000 Royce Value Trust Inc. ............ 949,972 1,386,000
------------ --------------
COMMUNICATIONS EQUIPMENT--0.4%
110,000 Allen Telecom Inc.+................ 687,440 1,278,750
1,000 Bay Networks Inc.+................. 27,300 32,250
47,000 Motorola Inc. ..................... 622,493 2,470,438
45,000 Northern Telecom Ltd. ............. 845,500 2,553,750
------------ --------------
2,182,733 6,335,188
------------ --------------
CONSUMER PRODUCTS--4.3%
5,000 Avon Products Inc. ................ 307,750 387,500
600,000 Carter-Wallace Inc. ............... 9,397,764 10,837,500
2,000 Christian Dior SA.................. 240,425 251,749
220,000 Church & Dwight Co. Inc. .......... 4,983,260 7,122,500
44,000 Department 56 Inc.+................ 947,842 1,562,000
30,000 Eastman Kodak Co. ................. 1,747,063 2,191,875
65,000 First Brands Corp. ................ 910,851 1,665,625
250,000 Fortune Brands Inc. ............... 5,681,557 9,609,375
230,000 Gallaher Group plc, ADR+........... 2,857,199 5,031,250
25,000 General Cigar Holdings Inc. ....... 324,969 246,875
93,356 General Cigar Holdings Inc., Cl.
B+(a)............................. 917,834 921,891
90,000 Gillette Co. ...................... 1,276,334 5,101,875
40,000 Harley Davidson Inc. .............. 198,900 1,550,000
13,000 National Presto Industries Inc. ... 501,400 506,188
25,000 Nine West Group Inc. .............. 667,738 670,313
30,000 Philip Morris Companies Inc. ...... 1,186,688 1,181,250
170,000 Ralston Purina Group............... 5,949,594 19,858,125
41,700 Syratech Corp.+.................... 954,711 1,334,400
------------ --------------
39,051,879 70,030,291
------------ --------------
CONSUMER SERVICES--0.5%
106,000 Loewen Group Inc. ................. 2,758,755 2,862,000
50,000 Midas Inc.+........................ 376,453 1,006,250
5,000 Republic Industries Inc.+.......... 118,344 125,000
12,000 Response USA Inc.+................. 77,580 80,250
220,000 Rollins Inc. ...................... 3,030,595 4,510,000
------------ --------------
6,361,727 8,583,500
------------ --------------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
DIVERSIFIED INDUSTRIAL--3.6%
10,000 Anixter International Inc.+........ $ 90,088 $ 190,625
210,000 Crane Co. ......................... 3,712,294 10,198,125
205,000 GATX Corp. ........................ 4,329,860 8,994,375
20,000 General Electric Co. .............. 493,328 1,820,000
118,000 Honeywell Inc. .................... 6,297,010 9,860,375
253,000 ITT Industries Inc. ............... 5,699,039 9,455,875
145,000 Katy Industries Inc. .............. 1,312,250 2,646,250
6,500 Kyocera Corp., ADR ................ 448,063 631,719
350,000 Lamson & Sessions Co.+............. 1,899,408 2,165,625
227,000 Lawter International Inc. ......... 2,288,609 2,468,625
68,000 National Service Industries
Inc. ............................. 1,591,349 3,459,500
4,000 Pentair Inc. ...................... 172,138 170,000
125,000 Thomas Industries Inc. ............ 1,397,900 3,054,688
80,000 Trinity Industries Inc. ........... 977,970 3,320,000
------------ --------------
30,709,306 58,435,782
------------ --------------
ELECTRONICS--0.1%
3,000 Hitachi Ltd., ADR.................. 302,567 193,500
10,000 Imation Corp.+..................... 203,344 165,625
10,000 Sony Corp., ADR.................... 544,303 860,625
40,000 Ucar International Inc. ........... 1,260,253 1,167,500
------------ --------------
2,310,467 2,387,250
------------ --------------
ENERGY--3.5%
100,000 Atlantic Richfield Co. ............ 5,368,509 7,812,500
5,000 Barrett Resources Corp. ........... 140,500 187,500
50,000 British Petroleum Co. plc, ADR..... 1,110,595 4,412,500
25,000 Brown (Tom) Inc. .................. 472,820 470,313
30,000 Chevron Corp. ..................... 1,016,500 2,491,875
150,000 Eastern Enterprises................ 4,177,240 6,431,250
60,000 Enron Oil & Gas Co. ............... 548,976 1,215,000
180,000 Exxon Corp. ....................... 5,413,043 12,836,250
40,000 Halliburton Co. ................... 840,758 1,782,500
140,000 Pennzoil Co. ...................... 10,048,848 7,087,500
320,000 Southwest Gas Corp. ............... 5,833,498 7,820,000
55,000 Texaco Inc. ....................... 1,741,375 3,282,813
------------ --------------
36,712,662 55,830,001
------------ --------------
ENTERTAINMENT--10.2%
230,000 Ascent Entertainment Group Inc. ... 2,214,090 2,558,750
135,000 BET Holdings Inc., Cl. A+.......... 4,581,256 8,496,563
100,000 EMI Group plc, ADR................. 1,246,297 1,800,000
19,406 EMI Group plc, ORD................. 75,408 169,789
135,000 GC Companies Inc.+................. 4,484,752 7,003,125
130,000 Havas, ADR......................... 2,517,531 2,632,500
20,000 PolyGram NV........................ 574,275 1,017,500
862,500 Tele-Communications Inc./Liberty
Media Group, Cl. A+............... 9,062,411 33,475,781
615,000 Time Warner Inc. .................. 17,197,107 52,543,946
11,000 Todd-AO Corp., Cl. A............... 30,000 112,750
898,430 USA Networks Inc.+................. 13,049,054 22,573,054
360,000 Viacom Inc., Cl. A+................ 9,106,168 21,060,000
200,000 Viacom Inc., Cl. B+................ 5,598,151 11,650,000
------------ --------------
69,736,500 165,093,758
------------ --------------
EQUIPMENT AND SUPPLIES--10.3%
47,000 Aeroquip-Vickers Inc. ............. 1,931,616 2,743,625
300,000 AMETEK Inc. ....................... 3,455,782 8,793,750
95,000 AMP Inc. .......................... 3,621,606 3,265,625
90,000 Amphenol Corp., Cl. A+............. 2,333,250 3,510,000
20,000 AptarGroup Inc. ................... 335,705 1,243,750
95,000 Caterpillar Inc. .................. 1,273,555 5,023,125
110,000 CLARCOR Inc. ...................... 1,490,481 2,310,000
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
285,000 CTS Corp. ......................... $ 1,959,101 $ 8,496,563
410,000 Deere & Co. ....................... 6,454,360 21,678,750
235,000 Donaldson Co. Inc. ................ 1,486,479 5,537,188
40,000 EG&G Inc. ......................... 709,125 1,200,000
10,000 Fedders Corp. ..................... 59,939 66,875
47,500 Flowserve Corp. ................... 1,277,756 1,157,813
166,300 Gerber Scientific Inc. ............ 1,754,645 3,783,325
310,000 Hussmann International Inc. ....... 2,986,548 5,812,500
445,000 IDEX Corp. ........................ 3,661,463 15,352,500
95,000 Ingersoll-Rand Co. ................ 2,353,263 4,185,938
200,000 Kollmorgen Corp. .................. 1,861,980 4,012,500
90,000 Lufkin Industries Inc. ............ 1,627,761 2,970,000
45,000 Manitowoc Co. Inc. ................ 463,975 1,816,875
155,000 Mark IV Industries Inc. ........... 1,118,050 3,351,875
5,000 Met-Pro Corp. ..................... 72,938 74,688
370,000 Navistar International Corp.+...... 5,083,966 10,683,750
20,000 PACCAR Inc. ....................... 522,021 1,045,000
145,500 Pittway Corp. ..................... 2,849,535 11,094,375
160,000 Pittway Corp., Cl. A............... 1,471,386 11,820,000
88,455 Sequa Corp., Cl. A+................ 3,899,220 5,904,371
95,000 Sequa Corp., Cl. B+................ 4,792,290 7,505,000
172,000 SPS Technologies Inc.+............. 2,688,263 10,062,000
56,250 U.S. Filter Corp. ................. 688,282 1,578,516
30,000 Valmont Industries Inc. ........... 242,908 599,063
------------ --------------
64,527,249 166,679,340
------------ --------------
FINANCIAL SERVICES--7.0%
1 Al-Zar Ltd.+(a).................... 0 350
1,000 Alleghany Corp.+................... 201,573 233,250
127,900 Allied Group Inc. ................. 5,950,841 5,987,319
22,000 American Bankers Insurance Group
Inc. ............................. 1,336,350 1,322,750
330,000 American Express Co. .............. 7,645,187 37,620,000
10,000 Argonaut Group Inc. ............... 353,575 316,250
220 Berkshire Hathaway Inc.+........... 874,549 17,227,100
125,000 Block (H&R) Inc. .................. 4,235,380 5,265,625
3,000 Chicago Title Corp. ............... 129,877 138,563
70,000 Commerzbank AG, ADR................ 1,365,494 2,677,500
150,000 Deutsche Bank AG, ADR.............. 6,596,875 12,637,500
3,000 Exel Ltd. ......................... 218,353 233,438
190,000 Lehman Brothers Holdings Inc. ..... 3,427,475 14,736,875
5,000 Leucadia National Corp. ........... 185,050 165,313
2,000 Mellon Bank Corp. ................. 123,183 139,250
258,000 Midland Co. ....................... 2,706,145 5,901,750
50,000 Paine Webber Group Inc. ........... 1,351,388 2,143,750
43,000 State Street Corp. ................ 638,075 2,988,500
20,000 SunTrust Banks Inc. ............... 424,879 1,626,250
11,941 Transamerica Corp. ................ 583,636 1,373,215
8,000 Value Line Inc. ................... 115,500 306,000
------------ --------------
38,463,385 113,040,548
------------ --------------
FOOD AND BEVERAGE--6.9%
50,000 Bestfoods Inc. .................... 1,329,872 2,903,125
76,300 Brown-Forman Corp., Cl. A.......... 2,574,752 4,444,475
90,000 Chock Full o'Nuts Corp.+........... 554,148 613,125
45,000 Coca-Cola Co. ..................... 387,203 3,847,500
30,000 Corn Products International
Inc.+............................. 938,724 1,023,750
4,500 Farmer Brothers Co. ............... 476,380 1,075,500
75,000 General Mills Inc. ................ 2,152,766 5,128,125
60,000 Heinz (H.J) Co. ................... 2,332,648 3,367,500
48,000 Hershey Foods Corp. ............... 1,016,513 3,312,000
10,000 Keebler Foods Co.+................. 295,338 275,000
190,000 Kellogg Co. ....................... 4,286,318 7,136,875
30,000 LVHM Moet Hennessy Louis Vuitton,
ADR............................... 1,144,063 1,185,000
400,000 PepsiCo Inc. ...................... 12,686,750 16,475,000
390,000 Quaker Oats Co. ................... 13,375,414 21,425,625
20,000 Ralcorp Holdings Inc.+............. 98,588 377,500
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
300,000 Seagram Co. Ltd. .................. $ 9,018,197 $ 12,281,250
64,801 Tootsie Roll Industries Inc. ...... 2,074,905 4,973,477
10,000 Vlasic Foods International Inc.+... 240,488 201,250
560,000 Whitman Corp. ..................... 6,164,368 12,880,000
80,000 Wrigley (Wm.) Jr. Co. ............. 3,673,016 7,840,000
------------ --------------
64,820,451 110,766,077
------------ --------------
HEALTH CARE--2.2%
12,000 Amgen Inc. ........................ 220,320 784,500
18,000 Biogen Inc.+....................... 270,450 882,000
40,000 Chiron Corp.+...................... 550,315 627,500
100,000 Genentech Inc.+.................... 4,804,136 6,787,500
10,000 Glaxo Wellcome plc................. 549,120 598,125
70,000 IVAX Corp. ........................ 598,112 647,500
68,000 Johnson & Johnson.................. 1,404,049 5,015,000
55,000 Merck & Co. Inc. .................. 1,853,500 7,356,250
105,000 Pfizer Inc. ....................... 1,677,963 11,412,188
19,000 SmithKline Beecham plc............. 1,144,914 1,149,500
------------ --------------
13,072,879 35,260,063
------------ --------------
HOME FURNISHINGS--0.0%
10,000 Triangle Pacific Corp. ............ 548,438 550,000
------------ --------------
HOTELS AND GAMING--1.5%
155,000 Circus Circus Enterprises Inc.+.... 4,026,041 2,625,313
161,000 Gaylord Entertainment Co., Cl. A... 3,976,448 5,192,250
30,000 GTECH Holdings Corp.+.............. 545,938 1,010,625
12,000 Harrah's Entertainment Inc.+....... 113,002 279,000
280,000 Hilton Hotels Corp. ............... 4,140,292 7,980,000
203,389 Ladbroke Group plc................. 535,440 1,117,279
185,000 Mirage Resorts Inc.+............... 959,778 3,942,813
40,000 Starwood Hotels & Resorts Worldwide
Inc. ............................. 2,160,000 1,932,500
10,000 Trump Hotels & Casino Resorts
Inc.+............................. 98,000 70,625
------------ --------------
16,554,939 24,150,405
------------ --------------
METALS AND MINING--0.2%
30,000 Barrick Gold Corp. ................ 622,076 575,625
100,000 Echo Bay Mines Ltd. ............... 754,551 225,000
45,000 Homestake Mining Co. .............. 650,187 466,875
33,000 Newmont Gold Co. .................. 1,099,272 814,688
380,000 Pegasus Gold Inc.+................. 372,656 91,200
22,500 Placer Dome Inc. .................. 285,944 264,375
300,000 Royal Oak Mines Inc.+.............. 882,383 262,500
20,000 TVX Gold Inc.+..................... 53,063 61,250
------------ --------------
4,720,132 2,761,513
------------ --------------
PAPER AND FOREST PRODUCTS--1.1%
180,000 Greif Bros. Corp., Cl. A........... 3,637,710 6,727,500
65,000 Sealed Air Corp. .................. 2,587,528 2,388,750
312,000 St. Joe Corp. ..................... 3,601,269 8,541,000
------------ --------------
9,826,507 17,657,250
------------ --------------
PUBLISHING--2.8%
70,000 American Media Inc., Cl. A+........ 674,812 463,750
3,000 Central Newspapers Inc., Cl. A..... 219,863 209,250
60,000 Dow Jones & Co. Inc. .............. 2,776,047 3,345,000
225,000 Golden Books Family Entertainment
Inc.+............................. 2,905,223 864,844
38,000 Harcourt General Inc. ............. 1,749,900 2,261,000
50,000 McClatchy Newspapers Inc., Cl. A... 907,656 1,731,250
80,000 McGraw-Hill Companies Inc. ........ 2,603,081 6,525,000
327,000 Media General Inc., Cl. A.......... 7,517,970 16,104,750
90,000 Meredith Corp. .................... 1,821,494 4,224,375
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
71,000 New York Times Co., Cl. A.......... $ 1,161,977 $ 5,626,750
15,000 News Corp. Ltd., ADR............... 255,581 481,875
11,000 Reader's Digest Association Inc.,
Cl. A............................. 294,800 298,375
30,000 Reader's Digest Association Inc.,
Cl. B............................. 810,864 813,750
1,650,000 Seat SpA+.......................... 343,343 1,114,394
6,000 Scripps (E.W.) Co., Cl. A.......... 108,669 328,875
------------ --------------
24,151,280 44,393,238
------------ --------------
REAL ESTATE--0.6%
360,000 Catellus Development Corp.+........ 3,324,188 6,367,500
48,000 Florida East Coast Industries
Inc. ............................. 631,838 1,404,000
65,000 Griffin Land & Nurseries Inc.+..... 824,241 1,137,500
1,000 Lennar Corp. ...................... 13,369 29,500
1,000 LNR Property Corp. ................ 21,243 25,625
------------ --------------
4,814,879 8,964,125
------------ --------------
RETAIL--4.5%
41,000 Aaron Rents Inc. .................. 146,083 820,000
20,000 Aaron Rents Inc., Cl. A............ 83,263 362,500
30,000 Albertson's Inc. .................. 1,033,355 1,552,500
191,300 Amercian Stores Co. ............... 4,674,340 4,627,069
190,000 Burlington Coat Factory Warehouse
Corp.+............................ 2,180,142 4,275,000
40,000 Coldwater Creek Inc.+.............. 836,650 1,100,000
5,000 Dominick's Supermarkets Inc. ...... 188,357 223,125
50,000 Fingerhut Companies Inc. .......... 711,335 1,650,000
438,800 Giant Food Inc., Cl. A............. 17,889,253 18,895,825
70,000 Kroger Co.+........................ 818,000 3,001,250
150,000 Lillian Vernon Corp. .............. 2,201,747 2,493,750
575,000 Neiman Marcus Group Inc.+.......... 8,068,418 24,976,563
87,600 Mercantile Stores Co. ............. 6,894,955 6,914,925
200,000 Scheib (Earl) Inc.+................ 1,432,580 1,550,000
------------ --------------
47,158,478 72,442,507
------------ --------------
SPECIALTY CHEMICALS--0.6%
10,000 Arco Chemical Co. ................. 572,375 573,125
375,000 Ferro Corp. ....................... 5,437,040 9,492,188
------------ --------------
6,009,415 10,065,313
------------ --------------
TELECOMMUNICATIONS--6.3%
120,000 Aliant Communications Inc. ........ 1,847,138 3,292,500
4,000 Allegiance Telecom Inc. ........... 60,000 60,000
160,000 AT&T Corp. ........................ 5,665,161 9,140,000
80,000 BC Telecom Inc. ................... 1,415,173 2,991,160
200,000 BCE Inc. .......................... 3,202,960 8,537,500
18,000 BellSouth Corp. ................... 455,094 1,208,250
130,000 Cable & Wireless plc, ADR.......... 2,878,267 4,785,625
162,537 Citizens Utilities Co., Cl. B...... 1,654,865 1,564,419
113,000 Commonwealth Telephone Enterprises
Inc.+............................. 1,054,259 2,980,375
31,000 Commonwealth Telephone Enterprises
Inc., Cl. B+...................... 203,085 813,750
94,000 Frontier Corp. .................... 2,134,944 2,961,000
157,000 GTE Corp. ......................... 3,639,582 8,733,125
35,000 Hong Kong Telecommunications Ltd.,
ADR............................... 545,695 660,625
400,000 RCN Corp. ......................... 2,835,846 7,750,000
320,000 Rogers Communications Inc., Cl.
B+................................ 2,307,559 2,879,022
16,000 SBC Communications Inc. ........... 203,700 640,000
180,000 Southern New England
Telecommunications Corp. ......... 7,156,088 11,790,000
100,000 Sprint Corp. ...................... 1,934,997 7,050,000
67,500 Telecomumicacoes Brasileiras SA,
ADR............................... 1,979,139 7,370,156
500,000 Telecom Italia SpA................. 1,046,696 3,682,285
133,000 Telecom Italia SpA, ADR............ 2,937,985 9,775,500
15,272 Telefonica de Espana, ADR.......... 605,449 2,123,763
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
10,000 Telefonos de Mexico SA, Cl. L,
ADR............................... $ 281,828 $ 480,625
14,001 US West Inc.+...................... 418,583 658,028
------------ --------------
46,464,093 101,927,708
------------ --------------
TRANSPORTATION--0.8%
135,000 AMR Corp.+......................... 4,146,947 11,238,750
1,000 Burlington Northern Santa Fe
Corp. ............................ 94,519 98,188
15,000 CSX Corp. ......................... 844,563 682,500
10,000 Kansas City Southern Industries
Inc. ............................. 317,503 496,250
500 Norfolk Southern Corp. ............ 16,744 14,906
1,000 Providence & Worcester Railroad
Co. .............................. 18,050 14,625
1,000 RailAmerica Inc.+.................. 6,719 6,125
1,000 Wisconsin Central Transportation
Corp.+............................ 25,071 21,875
------------ --------------
5,470,116 12,573,219
------------ --------------
WIRELESS COMMUNICATIONS--3.9%
35,000 AirTouch Communications Inc.+...... 791,589 2,045,313
50,000 Associated Group Inc., Cl. A+...... 387,073 2,050,000
37,000 Associated Group Inc., Cl. B+...... 98,787 1,470,750
514,000 Century Telephone Enterprises
Inc. ............................. 8,060,556 23,579,750
200,000 COMSAT Corp. ...................... 3,731,935 5,662,500
100,000 Globalstar Telecommunications
Ltd. ............................. 423,210 2,700,000
55,000 NEXTEL Communications Inc., Cl.
A+................................ 660,330 1,368,125
24,000 Rogers Cantel Mobile Communications
Inc.+............................. 264,088 300,000
200,000 TCI Satellite Entertainment Inc.,
Cl. A+............................ 1,994,654 1,175,000
1,800,000 Telecom Italia Mobile SpA.......... 1,661,796 11,012,241
200,000 Telephone and Data Systems Inc. ... 4,165,316 7,875,000
130,000 360 degrees Communications Co.+.... 2,274,045 4,160,000
------------ --------------
24,513,379 63,398,679
------------ --------------
TOTAL COMMON STOCKS............................ 726,204,570 1,480,390,446
------------ --------------
PREFERRED STOCKS--0.2%
METALS AND MINING--0.0%
10,000 Freeport-McMoRan Inc., Depository
Shares, 7.00%, Cumulative Conv.
Pfd............................... 213,000 195,000
------------ --------------
TELECOMMUNICATIONS--0.2%
35,000 Sprint Corp., 8.25%, Conv. Pfd. ... 1,295,406 2,023,438
1,588,267 Telecomunicacoes de Sao Paulo SA
(Telesp), Preference Shares....... 152,310 373,532
1,588,267 Telecomunicacoes de Sao Paulo SA
(Telesp), Preference Shares, Cl.
B................................. 60,929 131,835
------------ --------------
1,508,645 2,528,805
------------ --------------
TOTAL PREFERRED STOCKS......................... 1,721,645 2,723,805
------------ --------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT COST VALUE
- ---------- ------------ --------------
<C> <S> <C> <C>
CORPORATE BONDS--0.1%
ENTERTAINMENT--0.1%
$2,300,000 Viacom Inc., Sub. Deb., 8.00% due
07/07/06.......................... $ 1,636,781 $ 2,380,500
------------ --------------
U.S. GOVERNMENT OBLIGATIONS--7.9%
128,633,000 U.S. Treasury Bills, 5.00% to
5.16%++ due 07/07/98 to
09/03/98.......................... 127,661,487 127,661,487
------------ --------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS.................... 100.0% $857,224,483 1,613,156,238
============
OTHER ASSETS AND LIABILITIES (NET)... 0.0% 377,092
----- --------------
NET ASSETS
(44,320,833 shares outstanding)...... 100.0% $1,613,533,330
===== ==============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE.......... $36.41
======
</TABLE>
FORWARD FOREIGN EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
EXPIRATION NET UNREALIZED
DATE DEPRECIATION
---------- --------------
<C> <S> <C> <C>
14,100,000(b) Deliver Hong Kong Dollars
in exchange for USD
1,793,665................. 08/26/98 $(16,714)
--------
</TABLE>
- ------------------------------
For Federal tax purposes:
<TABLE>
<S> <C>
Aggregate cost $857,224,483
============
Gross unrealized appreciation $769,212,388
Gross unrealized depreciation (13,280,633)
------------
Net unrealized appreciation $755,931,755
============
</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.
ADS -- American Depositary Share.
GDR -- Global Depositary Receipt.
ORD -- Ordinary Share.
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
THE GABELLI ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
- ------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $857,224,483)... $1,613,156,238
Cash and foreign currency (Cost $358,499)... 359,038
Dividends and interest receivable........... 1,593,055
Receivable for investments sold............. 2,071,916
Receivable for shares of beneficial interest
sold...................................... 3,506,238
--------------
TOTAL ASSETS.............................. 1,620,686,485
--------------
LIABILITIES:
Payable for investments purchased........... 2,092,424
Payable for shares of beneficial interest
redeemed.................................. 3,207,124
Payable for investment advisory fees........ 1,279,345
Payable for distribution fees............... 319,836
Net unrealized depreciation on forward
foreign exchange contracts................ 16,714
Other accrued expenses...................... 237,712
--------------
TOTAL LIABILITIES......................... 7,153,155
--------------
NET ASSETS applicable to 44,320,833 shares
outstanding............................. $1,613,533,330
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest, at par
value..................................... $ 443,208
Additional paid-in capital.................. 830,059,726
Undistributed net investment income......... 1,935,274
Accumulated net realized gain on investments
and foreign currency transactions......... 25,179,542
Net unrealized appreciation on investments
and foreign currency transactions......... 755,915,580
--------------
TOTAL NET ASSETS.......................... $1,613,533,330
==============
NET ASSET VALUE, offering and redemption
price per share ($1,613,533,330 /
44,320,833 shares outstanding; unlimited
number of shares authorized of $0.01 par
value).................................. $36.41
======
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- ------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes of $61,575)... $ 8,107,933
Interest...................................... 3,921,941
------------
TOTAL INVESTMENT INCOME..................... 12,029,874
------------
EXPENSES:
Investment advisory fees...................... 7,452,868
Distribution fees............................. 1,862,764
Shareholder services fees..................... 387,427
Legal and audit fees.......................... 94,694
Trustees' fees................................ 48,911
Miscellaneous expenses........................ 247,936
------------
TOTAL EXPENSES.............................. 10,094,600
------------
NET INVESTMENT INCOME....................... 1,935,274
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments and foreign
currency transactions....................... 26,218,257
Net change in unrealized appreciation on
investments and foreign currency
transactions................................ 171,240,019
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS................................ 197,458,276
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... $199,393,550
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
---------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 1,935,274 $ 2,547,863
Net realized gain on investments and foreign currency
transactions............................................ 26,218,257 166,963,760
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 171,240,019 207,587,959
-------------- --------------
Net increase in net assets resulting from operations.... 199,393,550 377,099,582
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income..................................... -- (2,481,578)
In excess of net investment income........................ -- (93,147)
Net realized gain on investments.......................... -- (166,963,945)
In excess of net realized gain on investments............. -- (40,227)
-------------- --------------
Total distributions to shareholders..................... -- (169,578,897)
-------------- --------------
SHARE TRANSACTIONS:
Net increase in net assets from shares of beneficial
interest transactions................................... 79,088,002 46,891,821
-------------- --------------
Net increase in net assets.............................. 278,481,552 254,412,506
NET ASSETS:
Beginning of period....................................... 1,335,051,778 1,080,639,272
-------------- --------------
End of period............................................. $1,613,533,330 $1,335,051,778
============== ==============
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
THE GABELLI ASSET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. DESCRIPTION. 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.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by the Adviser. When
market quotations are not readily available, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Board of Trustees. Short term debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, unless the Trustees determine such does not reflect the securities' fair
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Debt instruments having a greater maturity are
valued at the highest bid price obtained from a dealer maintaining an active
market in those securities.
FORWARD FOREIGN EXCHANGE CONTRACTS. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. Forward foreign exchange contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
included in unrealized appreciation/depreciation on investments. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate fluctuations in
the underlying prices of the Fund's portfolio securities, but it does establish
a rate of exchange that can be achieved in the future. Although forward foreign
exchange contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result should the
value of the currency increase. In addition, the Fund could be exposed to risks
if the counterparties to the contracts are unable to meet the terms of their
contracts.
FOREIGN CURRENCY TRANSLATION. The books and records of the 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 at the exchange rate prevailing
on the respective dates of such transactions. Unrealized gains and losses, which
result from changes in foreign exchange rates and/or changes in market prices of
securities, have been included in unrealized appreciation/depreciation on
investments. 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
17
<PAGE>
THE GABELLI ASSET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
- --------------------------------------------------------------------------------
fluctuation in exchange rates between the initial trade date and subsequent sale
trade date is included in realized gain/(loss) on investments.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. 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.
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.
Dividends and interest from non-U.S. sources received by the Fund are generally
subject to non-U.S. withholding taxes at rates ranging up to 30%. Such
withholding taxes may be reduced or eliminated under the terms of applicable
U.S. income tax treaties, and the Fund intends to undertake any procedural steps
required to claim the benefits of such treaties.
3. INVESTMENT ADVISORY AGREEMENT. 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% 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, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Trustees of the Fund who are its affiliates.
4. DISTRIBUTION PLAN. The Fund's Board of Trustees has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the six months
ended June 30, 1998 the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an indirect wholly-owned subsidiary of the Adviser, of
$1,862,764, or 0.25% of average daily net assets, the annual limitation under
the Plan. Such payments are accrued daily and paid monthly.
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the six months
ended June 30, 1998, other than short term securities, aggregated $168,722,479
and $111,954,082, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the six months ended June 30, 1998, the
Fund paid brokerage commissions of $100,093 to Gabelli & Company, Inc. and its
affiliates.
7. SHARES OF BENEFICIAL INTEREST. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold............................................. 19,420,291 $ 672,571,349 13,039,709 $ 421,881,081
Shares issued upon reinvestment of dividends............ -- -- 4,869,910 154,702,133
Shares redeemed......................................... (17,017,695) (593,483,348) (16,898,747) (529,691,393)
----------- ------------- ----------- -------------
Net increase.......................................... 2,402,596 $ 79,088,001 1,010,872 $ 46,891,821
=========== ============= =========== =============
</TABLE>
18
<PAGE>
THE GABELLI ASSET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 ----------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period..... $ 31.85 $ 26.42 $ 25.75 $ 22.21 $ 23.30 $ 19.88
---------- ---------- ---------- ---------- -------- --------
Net investment income.................... 0.04 0.07 0.15 0.26 0.26 0.16
Net realized and unrealized gain (loss)
on investments......................... 4.52 9.97 3.29 5.28 (0.30) 4.18
---------- ---------- ---------- ---------- -------- --------
Total from investment operations......... 4.56 10.04 3.44 5.54 (0.04) 4.34
---------- ---------- ---------- ---------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.................... -- (0.07) (0.15) (0.25) (0.25) (0.16)
In excess of net investment income....... -- (0.00)(a) -- -- (0.01) --
Net realized gain on investments......... -- (4.54) (2.61) (1.75) (0.76) (0.76)
In excess of net realized gain
on investments......................... -- (0.00)(a) (0.01) (0.00)(a) (0.03) --
---------- ---------- ---------- ---------- -------- --------
Total distributions...................... -- (4.61) (2.77) (2.00) (1.05) (0.92)
---------- ---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD........... $ 36.41 $ 31.85 $ 26.42 $ 25.75 $ 22.21 $ 23.30
========== ========== ========== ========== ======== ========
Total return+............................ 14.3% 38.1% 13.4% 24.9% (0.1)% 21.8%
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..... $1,613,533 $1,335,052 $1,080,639 $1,091,539 $982,250 $945,408
Ratio of net investment income
to average net assets.................. 2.60%(b) 0.22% 0.52% 0.95% 1.10% 0.82%
Ratio of operating expenses
to average net assets.................. 1.36%(b) 1.38% 1.34% 1.33% 1.28% 1.31%
Portfolio turnover rate.................. 8% 22% 15% 26% 19% 16%
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+ 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. Total return for the period of
less than one year is not annualized.
(a) Amount represents less than $0.005 per share.
(b) Annualized.
</TABLE>
See accompanying notes to financial statements.
19
<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 Investment Officer Former President
Gabelli Funds, Inc. Deutsche Bundesbank
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 Holdings Ltd. The Bethlehem Corp.
OFFICERS AND PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
Mario J. Gabelli, CFA
Portfolio Manager
Bruce N. Alpert
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 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.
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GABELLI ASSET FUND
- ----------------------------------------------------------------------------------------------------------------------------------
* * * *
Morningstar rated Gabelli Asset Fund 4 stars overall and for the 3, 5 and 10-year periods
ended 6/30/98 among 2545, 1462 and 707 domestic equity funds, respectively.
--------------------------------------------
Average Annual Returns as of 6/30/98
--------------------------------------------
1 Year 5 Year 10 Year Life of Fund*
+32.6% +19.6% +16.7% +17.9%
============================================
Please send a prospectus to:
___________________________________________________________
Name
For a prospectus, call:
___________________________________________________________ 1-800-GABELLI [Photograph]
Address City State Zip (1-800-422-3554) * fax: 1-914-921-5118
www.gabelli.com * [email protected] MARIO J. GABELLI, CFA
___________________________________________________________
Telephone Number
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar rating reflects historical risk adjusted performance as of 6/30/98
and is subject to change every month. Morningstar proprietary ratings are calculated from the 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 and the next 22.5%
receive four stars. The returns shown above are historical and reflect changes in share price, reinvested dividends and capital
gains and are net of expenses. 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.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING FEES AND EXPENSES. THE PROSPECTUS SHOULD BE READ CAREFULLY BEFORE
INVESTING OR SENDING MONEY.
Distributed by Gabelli & Company, Inc. One Corporate Center, Rye, NY 10580 * Inception: 3/3/86 GAFF8/98
- ----------------------------------------------------------------------------------------------------------------------------------
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-------------
NO POSTAGE
NECESSARY
IF MAILED
IN THE UNITED
STATES
-------------
_____________
_____________
_____________
---------------------------------------------------------- _____________
BUSINESS REPLY MAIL _____________
FIRST CLASS MAIL PERMIT No. 00066 RYE, NEW YORK _____________
---------------------------------------------------------- _____________
POSTAGE WILL BE PAID BY ADDRESSEE _____________
_____________
_____________
GABELLI & COMPANY, INC.
One Corporate Center
Rye, New York 10580-9804
[POSTAL BAR CODE]
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<PAGE>
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===================================================================================================================================
GLOBAL ENTERTAINMENT & MEDIA
GABELLI GLOBAL INTERACTIVE COUCH POTATO(R) FUND
[LOGO]
#1 GLOBAL FUND!
(as ranked by Lipper Analytical based on 1 year performance through 6/30/98 out of 189 global funds).
Please send a prospectus to:
______________________________________________
Name
--------------------------------------
______________________________________________ Average Annual Returns as of 6/30/98
Address City State Zip -------------------------------------- [Photograph]
1 Year 3 Year Life of Fund*
______________________________________________ +47.8% +27.6% +21.4% MARC J. GABELLI
Telephone Number ====================================== Porfolio Manager
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The returns shown above are historical For a prospectus, call:
and reflect changes in share price, reinvested dividends, and capital gains and are net of 1-800- GABELLI
expenses. Investment returns and the principal value of an investment will fluctuate, when (1-800-422-3554) * fax: 1-914-921-5118
shares are redeemed, they may be worth more or less than their original cost. Investing www.gabelli.com * [email protected]
overseas involves risks not ordinarily associated with investment in domestic issues,
including currency fluctuations, economic and political risks. Lipper rankings are based upon
12-month total returns at NAV. The Fund was ranked 4 out of 125 Funds by Lipper Analytical
for the 3 year period ended 6/30/98. Distributed by Gabelli & Company, Inc. One Corporate
Center, Rye, NY 10580 *Inception: 2/7/94
THIS PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING FEES AND EXPENSES. READ THE
PROSPECTUS CAREFULLY BEFORE INVESTING. 7/98
===================================================================================================================================
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-------------
NO POSTAGE
NECESSARY
IF MAILED
IN THE UNITED
STATES
-------------
_____________
_____________
_____________
---------------------------------------------------------- _____________
BUSINESS REPLY MAIL _____________
FIRST CLASS MAIL PERMIT No. 00066 RYE, NEW YORK _____________
---------------------------------------------------------- _____________
POSTAGE WILL BE PAID BY ADDRESSEE _____________
_____________
_____________
GABELLI & COMPANY, INC.
One Corporate Center
Rye, New York 10580-9804
[POSTAL BAR CODE]
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