The Gabelli Asset Fund
First Quarter Report
March 31, 1999
* * * *
Morningstar Rating(TM) of The Gabelli Asset Fund was 4 stars overall and
for the three-year period ended 3/31/99 among 2947 domestic equity
funds, and for the five and ten-year periods ended 3/31/99 among
1810 and 743 domestic equity funds, respectively.
To Our Shareholders,
The first quarter of 1999 was an up, then down, and then up again period
for stocks. January's gains eroded in February as a much stronger than expected
U.S. economy sparked inflationary concerns. Bonds declined, ultimately dragging
stocks down with them. Then, in March, a favorable employment report coupled
with positive comments on inflation from Federal Reserve Chairman Greenspan
encouraged investors and, as a result, stocks and bonds rallied.
The market advance continued to be uneven, strongly favoring large cap
stocks over mid caps and small caps, and growth stocks over the value sector
across the market capitalization spectrum. Mid cap and small cap indices closed
the quarter with losses.
Investment Performance
For the first quarter ended March 31, 1999, The Gabelli Asset Fund's
(the "Fund") total return was 4.8%. The Standard & Poor's ("S&P") 500 Index had
a total return of 5.0% while the Value Line Composite and Russell 2000 Indices
declined 3.7% and 5.4%, respectively, over the same period. Each index is an
unmanaged indicator of stock market performance. The Fund was up 7.5% over the
trailing twelve-month period. The S&P 500 rose 18.5% while the Value Line
Composite and Russell 2000 declined 8.7% and 16.3%, respectively, over the same
twelve-month period.
For the ten-year period ended March 31, 1999, the Fund's total return
averaged 15.4% annually versus average annual total returns of 19.0%, 13.0% and
11.5% for the S&P 500, Value Line Composite and Russell 2000, respectively.
Since inception on March 3, 1986 through March 31, 1999, the Fund had a
cumulative total return of 708.9%, which equates to an average annual total
return of 17.3%.
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Past Performance Is No Guarantee Of Future Results. Morningstar proprietary
ratings reflect historical risk adjusted performance as of March 31, 1999 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 a
broad asset class receive five stars, the next 22.5% receive four stars, the
next 35% receive three stars, the next 22.5% receive two stars and the bottom
10% receive one star.
INVESTMENT RESULTS (a)
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarter
1st 2nd 3rd 4th Year
--- --- --- --- ----
1999: Net Asset Value..................................... $37.18 __ __ __ __
Total Return........................................ 4.8% __ __ __ __
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1998: Net Asset Value..................................... $36.00 $36.41 $31.24 $35.47 $35.47
Total Return........................................ 13.0% 1.1% (14.2)% 18.2% 15.9%
- -------------------------------------------------------------------------------------------------------------------
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%
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1988: Net Asset Value..................................... $13.49 $14.62 $14.94 $14.69 $14.69
Total Return........................................ 14.4% 8.4% 2.2% 3.5% 31.1%
- -------------------------------------------------------------------------------------------------------------------
1987: Net Asset Value..................................... $12.97 $13.93 $14.66 $12.61 $12.61
Total Return........................................ 19.6% 7.4% 5.2% (14.0)% 16.2%
- -------------------------------------------------------------------------------------------------------------------
1986: Net Asset Value..................................... $10.44 $11.21 $11.29 $11.28 $11.28
Total Return........................................ 4.4%(b) 7.4% 0.7% (0.1)% 12.8%(b)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Average Annual Returns - March 31, 1999 (a)
--------------------------------------------
1 Year .............................. 7.5%
5 Year .............................. 19.6%
10 Year .............................. 15.4%
Life of Fund (b) ...................... 17.3%
Dividend History
- -----------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
December 28, 1998 $1.419 $34.60
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
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of investment operations on March 3, 1986.
2
Why Did We Do So Well?
With our small to mid cap value bias, how did we outperform our
benchmark and the Russell 2000 and Value Line Composite Indices? The answer is
simple. We buy high-quality companies run by shareholder sensitive managements
at opportunistic prices. We benefit directly when corporate acquirers scoop up
the bargains in our portfolio, and indirectly, when merger and acquisition
activity alerts investors to value in our portfolio holdings' industry groups.
To wit, take our investment in Aeroquip-Vickers, where we applaud Chairman
Darryl Allen for agreeing to sell the company to Eaton Corp. at a price of $58
per share, 88.6% higher than our average investment cost of $30.75 on the
700,000 shares held. In the cable trenches, we also saw substantive gains in
Tele-Communications Inc., TCI Ventures and MediaOne Group as deal activity
helped surface values throughout the sector.
What We Do
The success of momentum investing in recent years and investors' desire
for instant gratification have combined to make value investing appear dull. At
the risk of being dull, we will once again describe the "boring" value approach
that has seen us through both good and bad markets over the last 13 years at The
Gabelli Asset Fund and for over 22 years at Gabelli Asset Management Company. In
past reports, we have tried to articulate our investment philosophy and
methodology. The accompanying graphic further illustrates the interplay among
the four components of our valuation approach.
[GRAPHIC]
Our focus is on free cash flow; earnings before interest, taxes,
depreciation and amortization ("EBITDA") minus the capital expenditures
necessary to grow the business. We believe free cash flow is the best barometer
of a business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value ("PMV") estimates.
Finally, we look for a catalyst; something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing worldwide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long term
method for preserving and enhancing wealth in the U.S. equity markets. At the
margin, our new investments are focused on businesses that are well-
3
managed and will benefit from sustainable long term economic dynamics. These
include macro trends, such as the globalization of the market in filmed
entertainment and telecommunications, and micro trends, such as an increased
focus on productivity enhancing goods and services.
COMMENTARY
The Economy and the Market--A Reversal of Fortunes?
In 1998, the drivers of the market were declining interest rates and
continued liquidity as opposed to corporate earnings. For the year, S&P 500
earnings rose a modest 2.0% and if calculated on a non-weighted basis, earnings
were flat. However, the 30-year Treasury bond yield dropped nearly a full
percentage point from its March 1998 high, resulting in a significant expansion
of equities' price/earnings multiples and a 28.7% annual gain for the S&P 500.
We are faced with a mirror image situation today. We believe S&P
earnings can grow in the 8.0% to 10.0% range, a terrific showing compared to
1998. If interest rates hold relatively steady near current levels, the S&P
500's current lofty price/earnings multiple could be sustained and the market
could advance in line with earnings gains. The less optimistic picture would be
rising inflation, materially higher interest rates, rapidly contracting equity
multiples and a meaningful correction in the S&P 500. At this stage, we think
either scenario is plausible and will leave market forecasting to the Wall
Street gurus.
American Consumers: Will The Engine of Global Economic Growth Continue Steaming
Along?
In our September 30, 1998 report, we pondered the impact of our "Four
M's" (Market, McGwire, Monica and Meriwether) on the American consumer. Would
the American consumer stop spending because of global economic turmoil,
accentuated in the U.S. and global capital markets by John Meriwether (the head
of ill-fated Long Term Capital Management), and the domestic political crisis
spawned by President Clinton's relationship with Monica Lewinsky? Or, would the
consumer be buoyed by rising capital markets resulting from a strong domestic
economy along with the heroics of baseball slugger Mark McGwire and continue to
help sustain economic momentum here and overseas. We favored the latter
conclusion. In retrospect, the American consumer continued to be the engine
driving global economic growth.
Today, we still ask the same question. Will the American consumer
continue to carry the rest of the world, or will the consumer eventually run low
on confidence and/or the resources required to nourish the global economy? Put
another way, can the U.S. continue to run enormous balance of payment deficits
that provide hope and sustenance for the other economies of the world as they
attempt to emerge from their economic malaise?
Reflation Versus Deflation
Another critical economic and market question is whether domestic
inflation will continue to be subdued. Thus far, deflationary pressures from
abroad have kept inflation in check at home. A question to keep in mind though
is how long will the "price dumping" of exports from Asian and Latin American
4
nations continue? Oil has already spiked up. Asian and European economies are in
the process of being reflated--the Japanese are essentially giving money away in
an attempt to revive their moribund economy while Euroland is cutting interest
rates in order to accelerate economic momentum. We also wonder how much longer
productivity gains will continue to offset rising wages in fully employed
America. We have our fingers crossed, but suspect that at some point, inflation
may once again raise its ugly head and create a headwind for the American
financial markets.
We remain focused on values and individual investment opportunities. If
one looks exclusively at the S&P 500, which is trading at more than 30 times
trailing earnings, stocks would have to be characterized as richly valued. But
in reality, the S&P 500 is a narrow gauge of the market, with the largest 25
component stocks having an enormous influence on the performance of the index.
The same can be said about the Nasdaq Composite Index, which is driven by a
relative handful of large technology stocks. However, there are many cheap
stocks available, as reflected in the much more reasonable valuations of broader
market indices. It is anyone's guess as to when the investing public will stop
chasing the high priced market favorites and begin gravitating toward more
realistically priced stocks. Nonetheless, we note that corporate buyers are out
in force, searching for business bargains. As we have repeatedly stated over the
past several years, quality companies trading at low valuations--the type of
stocks we favor--should continue to attract corporate bargain hunters and
provide a tailwind for our portfolio.
Flow of Funds ($ Billions)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Sources 1993 1994 1995 1996 1997 1998
- ------- ---- ---- ---- ---- ---- ----
U.S. Deals $ 234 $ 340 $ 511 $ 652 $ 919 $1,620
Stock Buybacks 37 46 99 176 181 207
Equity Mutual Funds (Net) 130 119 128 222 232 159
Dividends 158 182 205 262 275 279
----- ----- ----- ------ ------ ------
Total Sources: 558 688 943 1,312 1,607 2,265
----- ----- ----- ------ ------ ------
Uses
- ----
IPOs 103 62 82 115 118 108
U.S./International Equity Capital Flow
U.S. Purchases of Non-U.S. Equities (net) 63 48 50 60 41 (25)
International Purchases of U.S. Equities (net) 21 1 17 11 64 (22)
----- ----- ----- ------ ------ -------
Net Flow: 43 47 34 49 (23) (3)
----- ----- ----- ------ ------- -------
Total Uses: 146 109 116 164 95 105
----- ----- ----- ------ ------ ------
Net Flow of Funds: $ 413 $ 579 $ 827 $1,148 $1,513 $2,160
===== ===== ===== ====== ====== ======
Sources: Securities Data Corp, Investment Company Institute, Birinyi Associates.
(C) 1999 Gabelli Asset Management Inc.
</TABLE>
5
A Fly (or A Flyspeck) in the Merger and Acquisition Ointment?
The accounting profession is once again meddling with the "deal" world.
The pencil pushers have decided to take a hard look at "pooling of interest"
accounting that minimizes the consequences on reported earnings of many
corporate mergers by essentially allowing companies to merge at book value, thus
eliminating goodwill charges. We suspect the rules will be changed within the
next several years. In the short term, a change will likely ignite deal fervor.
In the long run, we doubt it will restrain merger and acquisition activity for
long, if at all. We recall that in the late 1960s and early 1970s, changes in
the accounting standards for amortizing goodwill had a negative impact on
reported net earnings for merging companies. In fact, that is what inspired us
to begin focusing on EBITDA instead of net earnings in valuing stocks. By the
time the accounting rules changes were on the books, the investment bankers and
financial engineers had figured out how to thwart the new rules and deals
continued to be transacted.
We think the same thing will happen this time. By the time the
accountants develop new rules for pooling of interest in mergers, smart money
will have figured out how to circumvent the new rules and structure deals so
that they still make economic sense. In fact, we may see mergers and
acquisitions accelerate as companies scramble to get deals done before the rules
change.
Rest in Peace
During the first quarter, we bid a sad (tongue firmly planted in cheek)
farewell to Aeroquip-Vickers, which passed on to Eaton Corp., and AirTouch
Communications, which succumbed to a premium bid from Vodafone. We also mourn
the impending demise of Hudson General to Lufthansa, Southwest Gas to Oneok or
Southern Union, Frontier Corp. to Global Crossing and MediaOne to AT&T. Amongst
our foreign friends, Olivetti is preparing the last rites as an independent
company for Telecom Italia. We will miss these portfolio friends, but are
comforted by their generous bequests to portfolio performance this quarter.
A component of our investment methodology is to identify industry and
sector trends and themes ahead of the curve and position ourselves to take
advantage of these developments. Industry consolidation is one such trend. As we
have discussed in previous letters, the continued high level of activity in
mergers and acquisitions contributed significantly to the solid performance of
the Asset Fund. The accompanying table illustrates how deal activity surfaced
value in a small sample of the portfolio holdings.
6
FIRST QUARTER 1999 COMPLETED DEALS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Number Average Cost Closing
Fund Holding of Shares (a) Per Share (b) Price (c) Closing Date %Return (d)
- ------------ ------------- ------------- --------- ------------ -----------
Hudson General Corp. 40,000 $28.03 $76.00 3/19/99 171.19%
Fingerhut Companies Inc. 100,000 14.61 25.00 3/17/99 71.75
TCI Ventures Group 640,000 7.63 28.00 3/10/99 266.88
TCI/Liberty Media Group 850,000 10.33 54.44 3/10/99 426.99
Tele-Communications Inc., Cl. A 470,000 14.29 67.88 3/10/99 375.15
First Brands Corp. 10,000 13.09 40.13 1/28/99 206.53
- --------------------------------------------------------------------------------
(a) Number of shares held by the Fund on the final day of trading for the
issuer.
(b) Average purchase price of issuer's shares held by the Fund on the final
day of trading for the issuer.
(c) Closing price on the final day of trading for the issuer or the tender
price on the closing date of the tender offer.
(d) Represents average estimated return based on average cost per share and
closing price per share.
Note: See the Portfolio of Investments for a complete listing of holdings.
</TABLE>
Going forward, we expect accelerating deal activity from large companies
using high price/earnings multiple stock as currency to buy smaller companies
with much lower P/Es. This is accounting magic. If your stock is trading at 30
times earnings, you can pay a 100% premium for a smaller company trading at 10
times earnings and the transaction will still be accretive to earnings. This is
before factoring in any potential cost savings from combining the two companies'
operations. This price/earnings multiple arbitrage will be a deal too good for
many savvy business buyers to pass up.
First Quarter Scorecard
In addition to the aforementioned "Rest in Peace" companies, our big
hits this quarter include Liberty Media Group, the former Tele-Communication
Inc.'s ("TCI") cable programming subsidiary, now trading as a tracking stock of
AT&T. Former TCI Chairman John Malone has been given free reign to put Liberty
Media's $5.5 billion in cash to work, doing what he has always done best,
investing in media companies. Our cable television ("CATV") holdings, United
International Holdings, Cablevision Systems, Comcast and Time Warner also
contributed handsomely to returns. Additionally, we received a performance boost
from the recovery in our Latin American telecommunications and media
investments, most notably Telecomunicacoes Brasileiras, Telefonos de Mexico and
Grupo Televisa.
Commodity oriented holdings such as Archer-Daniels-Midland and Corn
Products International; capital goods investments such as Gerber Scientific and
Federal-Mogul; aerospace component suppliers such as AMETEK and SPS
Technologies; and energy positions such as PennzEnergy must be scored as
portfolio errors this quarter. Funeral home and cemetery owner/operator Loewen
Group, which turned down an attractive takeover offer from Service Corp.
International two years ago and embarked on an ill-advised acquisition rampage,
deserves Hall of Shame recognition for burying more investors than clients this
quarter.
7
Tuning in to Cable Values
As aforementioned, our cable television holdings continued to contribute
to portfolio returns. A flurry of smaller private acquisitions in the CATV
industry, Adelphia's purchase of Century Communications and AT&T's bid for
MediaOne, have resulted in the average transactional value of a cable subscriber
(as measured by acquisition price) jumping from $2,500 to nearly $4,000 in the
last year.
Are these values economically justifiable? If you believe, as we do,
that cable television will become the dominant Internet transmission pipeline
and the most effective way for long distance telephone giants to enter the local
telephone business, then today's cable values may look cheap compared to
tomorrow's. An examination of AT&T's recent agreement with Time Warner provides
an illustration. AT&T has agreed to pay Time Warner $1.50 per cable
subscriber/per month for exclusive access to its cable network this year. Over
the next five years, this price escalates to $6.00 per cable subscriber/per
month. Theoretically, this adds $12 billion of economic value to Time Warner's
cable television business five years hence! Despite the strong gains of recent
years, if you plug these types of numbers into other large cable holdings such
as Cablevision Systems and Comcast, these operators look dirt cheap at today's
prices. We are not suggesting that AT&T will strike similar deals with these
companies. However, AT&T is not the only company in the world seeking access to
the cable television pipeline.
THE INTERNET--A REALITY THAT IS CHANGING OUR WORLD
As the Internet becomes more firmly entrenched in our everyday lives, we
would like to share with you a sampling of past technological advances that
contributed to improved quality of life and productivity.
INVENTION DATE INVENTOR
--------- ---- --------
Internal Combustion Engine 1860 Jean Joseph Etienne Lenoir
Stock Ticker 1869 Thomas Edison
Telephone 1876 Alexander Graham Bell
Incandescent Electric Lamp 1879 Thomas Edison
Electric Motor 1881 Thomas Edison
Radio 1895 Guglielmo Marconi
Talking Motion Picture 1913 Thomas Edison
Television 1926 Philo Farnsworth
Nylon 1935 DuPont and Co.
Internet 1969 BBN Corp.
Internet stocks have dominated the business and consumer headlines.
There are two widely divergent schools of thought on Internet stocks. The bulls,
led by a whole new category of investors (aggressive on-line day traders), seem
to believe that even the most optimistic projections fall well short of
accurately reflecting the true growth potential of Internet companies. Their
approach seems to be one
8
of discounting valuations because no price is too high to pay for a stock with
a "dot.com" at the end of its name. Stodgy investment traditionalists, who were
brought up believing that stock prices should have some rational relationship
to current as well as future value, are, of course, appalled at the notion that
any young company in even the most explosive growth industry should trade at
100 times revenues.
We fall somewhere in between. We think some of the current Internet
stars (and perhaps a few "garage stage" companies we do not even know about),
will go on to become giant, highly profitable companies. At some point down the
road, we may look back and realize that a few Internet companies would have been
bargains at 200 times revenues. Unfortunately, we do not know which Internet
companies will end up in the S&P 500 and which will end up on the market trash
heap.
So, we will continue to pass on the richly priced pure Internet plays.
But, we hope to continue to profit from reasonably valued companies that can
benefit from the growth of the Internet. In recent years, we have reaped
tremendous gains from cable television stocks, which as we anticipated, have
become legitimate Internet players. More recently, we added Reader's Digest to
the portfolio--remember the company that publishes the wholesome little magazine
your grandparents and parents loved. Reader's Digest as an Internet company? We
will see. The company has aggressive new management, which has shed money losing
and marginally profitable businesses. Management also has a new business plan to
capitalize on its data bank of 140 million names concentrated in the 50 year old
and over demographic, which controls 70% of America's net worth. Reader's Digest
will be on the Internet, selling home improvement, health care, financial and
religious products--the kind of products in demand by its customer base. Over
the next five years, the company's goal is to increase revenues from $2.8
billion to $5.0 billion, and profits from $100 million to $500 million. We think
new Chairman and CEO Thomas Ryder, an American Express veteran who knows a few
things about leveraging sales to an existing customer base, may be able to meet
these goals.
Another favorite is Navistar, which has a 38% share of the medium sized
trucking market. If e-commerce lives up to growth expectations, the demand for
medium sized trucks to deliver smaller packages over a wider distribution
network should increase. Navistar's balance sheet is now more stable, and over
the last two years, earnings have exceeded consensus estimates. If e-commerce
helps improve demand in the medium sized truck market that Navistar dominates,
earnings may continue to surprise on the upside. There is also some potential
takeover speculation with Sweden's Volvo reportedly on the prowl for an
acquisition in the trucking industry.
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.
Aeroquip-Vickers Inc. (ANV - $57.3125 - NYSE) is a leading worldwide
manufacturer and distributor of components and systems to industrial, automotive
and aerospace markets. Aeroquip's products include pressure hoses, fittings,
adapters, couplings, fluid connectors and precision molded and extruded plastic
9
products. Vickers' products include hydraulic pumps, motors and cylinders,
electric motors and drivers, electronic controls, filters, and fluid-evaluation
products and services. Eaton Corp. (ETN - $71.50 - NYSE) completed its
acquisition of Aeroquip in April for $2 billion, or $58 per share.
Aliant Communications Inc. (ALNT - $40.9375 - Nasdaq), headquartered in Lincoln,
Nebraska, is a diversified communications company providing service and retail
products to consumers, businesses, educational institutions and government
agencies, as well as wholesale network services to other communications
companies. Cellular subscribers at the end of the first quarter totaled 308,000,
a 14% increase from the year earlier period. Landline access line growth,
including competitive local exchange ("CLEC") operations, increased 5.7% from
first quarter 1998 to 293,000 lines.
Allen Telecom Inc. (ALN - $6.0625 - NYSE) is a leading supplier to the worldwide
two-way wireless communications industry. The company manufactures system
expansion products, site management products and antennas. Frequency planning,
system engineering services and software design programs are also developed and
marketed through current and emerging wireless markets. ALN should be a
beneficiary of the next generation technology for wireless communications, known
as 3-G (for third generation). 3-G is a broadband technology that will provide
wireless applications for data, Internet and video.
American Express Co. (AXP - $117.50 - NYSE) and its subsidiaries provide
travel-related services, financial advisory services and international banking
services worldwide. Founded in 1850, the company operates in 160 countries
around the world. Best known for its "green" charge card and its travel-related
services, including travelers checks, American Express also offers financial
planning, brokerage services, mutual funds, insurance and other investment
products. Harvey Golub, Chairman and CEO, has focused AXP on its core charge
card and investment management businesses. The company is expanding the
competitive reach of its credit card operations which should benefit if the U.S.
Department of Justice prevails in its antitrust suit against the Visa and
MasterCard associations.
Atlantic Richfield Co. (ARCO) (ARC - $73.00 - NYSE) is the leading gasoline
marketer on the U.S. west coast, with 1,760 retail sites spread across
California, Arizona, Nevada, Oregon and Washington. Two refineries are operated
in the region. ARCO has proven oil reserves of 2.8 billion barrels, mainly in
Alaska. The company's proven gas reserves total 9.8 trillion cubic feet, but gas
reserves of a further 15 trillion cubic feet, mainly in Southeast Asia, are
unbooked. BP Amoco (BPA - $100.9375 - NYSE) has reached an agreement to combine
with ARCO in an all-share transaction valuing ARCO at almost $27 billion. The
deal will give BP Amoco the largest oil output of any non-state company.
AT&T Corp. (T - $79.8125 - NYSE), the world's second-largest telephone company,
is a global provider of telecommunications services. Chairman Michael Armstrong
is positioning the company to participate more dynamically in the growth of the
telecommunications industry. AT&T has completed a merger with cable operator TCI
and has announced a strategy to leverage cable assets with telephone services.
The company recently bid for another cable operator, MediaOne Group (UMG -
$63.50 - NYSE), endeavoring to become a major provider of high-speed Internet
access via cable. The introduction of the
10
Digital One rate for its wireless service has created momentum in its cellular
and PCS segments with revenues growing more than 40%.
Cablevision Systems Corp. (CVC - $74.125 - AMEX) is one of the nation's leading
communications and entertainment companies, with a portfolio of operations that
span state-of-the-art, high-speed multimedia delivery, subscription cable
television services, championship professional sports teams and national cable
television networks. Headquartered in Bethpage, NY, Cablevision serves more than
3.4 million cable customers primarily in three core markets: New York, Boston
and Cleveland. Cablevision is a leader in delivering cutting-edge technological
innovation, such as Optimum TV, to the home. Through its Rainbow Media Holdings
subsidiary, Cablevision manages and develops internationally recognized content
offerings such as the popular national television networks American Movie
Classics, Bravo and The Independent Film Channel. Cablevision has a controlling
interest in New York City's famed Madison Square Garden which includes the arena
complex, the NY Knicks, the NY Rangers and the MSG network. Cablevision operates
Radio City Entertainment and holds a long term lease for Radio City Music Hall,
home of the world famous Radio City Rockettes.
Coltec Industries Inc. (COT - $18.1875 - NYSE) manufactures a diversified range
of engineered aerospace and industrial products. The aerospace division is a
leading producer of landing gear systems, engine fuel controls, cockpit seating,
turbine blades and fuel injectors for commercial and military aircraft. The
industrial division manufactures seals, gaskets, packaging products and
self-lubricating bearings. The B.F. Goodrich Co. (GR - $34.3125 - NYSE) is in
the process of acquiring Coltec for $2.2 billion, or $20.125 per share.
Ferro Corp. (FOE - $24.75 - NYSE), established in 1919 and based in Cleveland,
Ohio, is a leading producer of porcelain enamel frit, powder coating and plastic
compounds. Ferro is being repositioned as a premier specialty chemical company,
producing specialty materials for industry including coatings, colors, ceramics,
chemicals and plastics. Ferro's major markets are building and renovation, major
appliances, household furnishings, transportation, industrial products,
packaging and leisure products.
Liberty Media Group (LMG'A - $52.625 - NYSE) is engaged in businesses which
provide programming services, including production, acquisition and distribution
through all available media formats, and businesses engaged in electronic
retailing, direct marketing and other services. LMG holds interests in globally
branded entertainment networks such as Discovery Channel, USA, QVC, Encore and
STARZ!. Liberty's assets also include interests in international video
distribution businesses; international telephony and domestic wireless; plant
and equipment manufacturers; and other businesses related to broadband services.
Liberty Media Group Class A and Class B common stock are tracking stocks of AT&T
Corp. (T - $79.8125 - NYSE) and are now traded on the New York Stock Exchange.
MediaOne Group Inc. (UMG - $63.50 - NYSE) is one of the nation's leading
broadband services companies. UMG provides more than five million subscribers in
17 states with basic and premium cable television services and has recently
introduced high speed Internet access, telephone services and digital television
in some of its service areas. MediaOne was created from the 1996 union of
11
telecommunications company MediaOne Group (formerly US West Media Group) and
Continental Cablevision. Headquartered in Englewood, Colorado, MediaOne provides
high quality cable television services. The company is conducting a national
upgrade of its hybrid fiber optic/coaxial cable ("HFC") network to broadband
technology which improves traditional cable service and enables next-generation
products and services. The Group's investment interests include 25% of Time
Warner Entertainment (which includes Warner Brothers Studio and Home Box
Office), 24% of PCS Prime Co. and almost 27% of TeleWest plc. The number three
U.S. cable television company recently agreed to be acquired by AT&T Corp. (T -
$79.8125 - NYSE) for $54 billion.
Mirage Resorts Inc. (MIR - $21.25 - NYSE) owns and operates casino-based
entertainment resorts primarily in Las Vegas and Laughlin, Nevada. These resorts
include Bellagio, Golden Nugget, The Mirage, Treasure Island and the Golden
Nugget Laughlin. The $1.6 billion Bellagio hotel-casino next to Caesars Palace
was opened in October. The $600 million Beau Rivage is set to open in Biloxi,
Mississippi. A resort is planned for Atlantic City.
Nortek Inc. (NTK - $24.75 - NYSE) is a leading international manufacturer and
distributor of high-quality, competitively-priced building, remodeling and
indoor environmental control products for the residential and commercial
markets. The company's products include range hoods and other spot ventilation
products, heating and air conditioning systems, wood and vinyl windows and
doors, vinyl siding products, indoor air quality systems and specialty
electronic products. In April, Nortek announced it had agreed to acquire three
businesses from Caradon plc: Peachtree Doors and Windows, Thermal-Gard and
Caradon Windows and Doors Canada.
Sybron Chemicals Inc. (SYC - $12.75 - AMEX), based in Birmingham, New Jersey, is
an international developer, producer and marketer of specialty chemicals used
primarily in textile wet processing, environmental, coating, adhesives, plastics
and molded goods markets. The company operates three business segments: textile
chemical specialties, polymer intermediates and environmental products and
services. In 1998, the company acquired Ruco Polymer. Ruco participates in the
fast growing powder coating and high-solids polyester markets.
Telephone & Data Systems Inc. (TDS - $56.375 - AMEX) is a diversified
telecommunications company with established cellular and local telephone
operations and a developing personal communications services ("PCS") business.
TDS provides high quality telecommunications services to 3 million customers in
35 states. TDS owns 81.1% of United States Cellular Corp. (USM - $44.00 - AMEX),
the nation's seventh largest cellular telephone company. It also owns 82.4% of
Aerial Communications Inc. (AERL - $7.75 - Nasdaq), TDS's PCS subsidiary which
owns the licenses to provide PCS service in six major trading areas ("MTAs")
encompassing approximately 27.6 million population equivalents. On December 8,
1998, TDS announced its intent to spin-off its Aerial stake to existing TDS
shareholders on a tax-free basis and focus on its core wireline and cellular
operations. The transaction is expected to close by the end of the year.
12
Time Warner Inc. (TWX - $71.0625 - NYSE), with its 1996 acquisition of Turner
Broadcasting System, became entrenched as the global leader in media and
entertainment with interests in filmed entertainment, television production and
broadcasting, recorded music, cable television programming, magazine and book
publishing, direct marketing and cable television systems. The combined
companies have almost $27 billion in revenues and $4.5 billion in EBITDA. Time
Warner controls a host of powerful brands, such as Warner Brothers, CNN, HBO,
Cinemax and Time and People magazines. Under the leadership of Chairman Gerald
Levin and Vice Chairman Ted Turner, the company is focused on reducing its debt
(now approximately $11 billion) and simplifying its capital structure.
Minimum Initial Investment - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Proposals to Shareholders
The Fund's Board of Trustees has asked shareholders to consider a
proposal to amend the Fund's Declaration of Trust to permit the Fund to offer
additional classes of shares, and a proposal to amend the Fund's investment
policy with respect to options on securities that it holds or has the right to
obtain. We believe that all of these proposals would benefit the shareholders,
and we urge you to give them your careful consideration.
For existing shareholders we intend to remain a no-load fund. At the
same time, mutual fund distributors are increasingly employing a variety of
different types and combinations of sales charge arrangements for different
classes of shares that are targeted to the needs of particular types of
investors. Your Board of Trustees believes that the Fund should be able to
provide the distribution alternatives and investment flexibility provided by
other similarly situated funds that offer multiple classes of shares. We believe
that approval of the proposal to permit the Fund to offer additional classes of
shares will enhance the potential for the Fund to attract additional investors
in a manner that could provide additional benefits for all investors in the
Fund. Again, to repeat, approval of this proposal will not diminish the ability
of existing and future shareholders to purchase and redeem shares at net asset
value.
The second proposal relates to the use of options. If approved, the Fund
would be allowed to sell "covered" call options and to purchase put options in
securities, currencies or other assets owned by the Fund. Among other benefits,
this should enable the Fund to generate additional premium income which would
serve to enhance the Fund's total return and to protect against any anticipated
declines in the value of its assets.
13
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Asset Management Inc.,
the Gabelli Mutual Funds, IRAs, 401(k)s, quarterly reports, closing prices and
other current news. You can send us e-mail at [email protected].
In Conclusion
We are pleased with our competitive returns versus the growth oriented
S&P 500 and superior returns relative to broader market indices and most of our
value peers. We believe the S&P 500, where valuations have been growing much
faster than earnings, is vulnerable at current levels. However, we are
continuing to find what we view as great values in an otherwise reasonably
priced stock market.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's Nasdaq symbol is GABAX. Please call us during the
business day for further information.
Sincerely,
/s/ MARIO J. GABELLI
Mario J. Gabelli, CFA
Portfolio Manager and
Chief Investment Officer
April 30, 1999
Top Ten Holdings
March 31, 1999
--------------
Time Warner Inc. AT&T Corp.
Liberty Media Group American Express Co.
Cablevision Systems Corp. MediaOne Group Inc.
Telephone & Data Systems USA Networks Inc.
Aeroquip-Vickers Inc. Viacom Inc.
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
14
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS -- MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Market
Shares Value
------ ------
COMMON STOCKS--95.9%
Aerospace--0.7%
170,000 Boeing Co. ..................... $ 5,801,250
100,000 Northrop Grumman Corp. ......... 5,987,500
--------------
11,788,750
--------------
Agriculture--0.5%
20,000 Agribrands International
Inc. ......................... 657,500
500,000 Archer-Daniels-Midland Co. ..... 7,343,750
10,000 Monsanto Co. ................... 459,375
5,000 Pioneer Hi-Bred International
Inc. ......................... 188,125
--------------
8,648,750
--------------
Automotive--0.7%
140,000 General Motors Corp. ........... 12,162,500
--------------
Automotive: Parts and Accessories--3.4%
25,000 Borg-Warner Automotive Inc. .... 1,195,313
205,809 Dana Corp. ..................... 7,820,742
120,000 Federal-Mogul Corp. ............ 5,160,000
620,000 GenCorp Inc. ................... 11,160,000
265,000 Genuine Parts Co. .............. 7,635,313
115,000 Johnson Controls Inc. .......... 7,173,125
300,000 Modine Manufacturing Co. ....... 8,418,750
200,000 Standard Motor Products Inc. ... 4,137,500
60,000 Superior Industries
International Inc. ........... 1,395,000
100,000 TransPro Inc. .................. 431,250
90,000 Wynn's International Inc. ...... 1,569,375
--------------
56,096,368
--------------
Aviation: Parts and
Services--0.9%
10,000 Be Aerospace Inc.+.............. 147,500
340,000 Coltec Industries Inc.+......... 6,183,750
181,000 Curtiss-Wright Corp. ........... 5,622,313
60,000 Fairchild Corp., Cl. A.......... 611,250
60,000 Hi-Shear Industries Inc. ....... 153,750
72,000 Precision Castparts Corp. ...... 2,898,000
--------------
15,616,563
--------------
Broadcasting--4.3%
65,000 CBS Corp. ...................... 2,660,938
460,613 Chris-Craft Industries Inc. .... 21,015,452
71,638 Chris-Craft Industries Inc., Cl.
B (a)......................... 3,268,462
10,900 Gray Communications Systems
Inc. ......................... 181,213
183,300 Gray Communications Systems
Inc., Cl. B................... 2,451,638
175,000 Grupo Televisa SA, GDR+......... 5,490,625
3,000 Infinity Broadcasting Corp. .... 77,250
132,400 Liberty Corp. .................. 6,942,725
115,000 Paxson Communications Corp., Cl.
A+............................ 984,688
400,000 Television Broadcasting Ltd. ... 1,458,159
247,500 United Television Inc. ......... 25,740,000
--------------
70,271,150
--------------
Building and Construction--0.3%
175,000 Nortek Inc.+.................... $ 4,331,250
4,333 Nortek Inc., Special Common
(a)........................... 107,242
--------------
4,438,492
--------------
Business Services--0.9%
45,000 Avis Rent A Car Inc.+........... 1,245,938
54,100 Berlitz International Inc.,
New+.......................... 1,224,013
225,000 Cendant Corp. .................. 3,543,750
13,000 Dollar Thrifty Automotive Group
Inc.+......................... 224,250
100,000 Ecolab Inc. .................... 3,550,000
23,046 Hach Co......................... 262,148
16,546 Hach Co., Cl. A................. 136,505
20,000 Hertz Corp. .................... 1,070,000
66,500 Landauer Inc. .................. 1,604,313
200,000 Nashua Corp.+................... 2,300,000
--------------
15,160,917
--------------
Cable--5.7%
732,000 Cablevision Systems Corp., Cl.
A+............................ 54,259,500
40,000 Comcast Corp., Cl. A............ 2,460,000
540,000 MediaOne Group Inc. ............ 34,290,000
70,000 Shaw Communications Inc., Cl.
B............................. 2,251,395
10,000 United International Holdings
Inc., Cl. A+.................. 435,000
--------------
93,695,895
--------------
Closed-End Funds--0.1%
84,000 Royce Value Trust Inc. ......... 950,250
--------------
Communications Equipment--0.6%
275,000 Allen Telecom Inc.+............. 1,667,188
45,000 Motorola Inc. .................. 3,296,250
43,000 Northern Telecom Ltd. .......... 2,671,375
20,000 RELTEC Corp. ................... 588,750
50,000 Xylan Corp. .................... 1,840,625
--------------
10,064,188
--------------
Computer Software and Services--0.0%
11,000 PLATINUM Technology
International Inc.+........... 280,500
--------------
Consumer Products--4.0%
10,000 Avon Products Inc. ............. 470,625
607,000 Carter-Wallace Inc. ............ 11,001,875
2,750 Christian Dior SA............... 353,297
190,000 Church & Dwight Co. Inc. ....... 7,742,500
15,000 Department 56 Inc.+............. 456,563
35,000 Eastman Kodak Co. .............. 2,235,625
260,000 Fortune Brands Inc. ............ 10,058,750
230,000 Gallaher Group plc, ADR......... 5,405,000
160,000 General Cigar Holdings Inc. .... 1,490,000
93,356 General Cigar Holdings Inc., Cl.
B+ (a)........................ 869,378
76,000 Gillette Co. ................... 4,517,250
40,000 Harley Davidson Inc. ........... 2,300,000
15
The Gabelli Asset Fund
Portfolio of Investments (Continued) -- March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
CONSUMER PRODUCTS (CONTINUED)
10,000 Mattel Inc. .................... $ 248,750
22,000 National Presto Industries
Inc. ......................... 779,625
5,000 Nike Inc., Cl. B................ 288,438
25,000 Nine West Group Inc. ........... 617,188
80,000 Philip Morris Companies Inc. ... 2,815,000
505,000 Ralston Purina Group............ 13,477,189
41,700 Syratech Corp.+................. 667,200
--------------
65,794,253
--------------
Consumer Services--0.4%
400,000 Loewen Group Inc. .............. 725,000
370,000 Rollins Inc. ................... 6,220,625
--------------
6,945,625
--------------
Diversified Industrial--3.1%
10,000 Anixter International Inc.+..... 119,375
10,000 Cooper Industries Inc. ......... 426,250
270,000 Crane Co. ...................... 6,530,625
205,000 GATX Corp. ..................... 6,752,189
12,000 General Electric Co. ........... 1,327,500
118,000 Honeywell Inc. ................. 8,945,875
190,000 ITT Industries Inc. ............ 6,721,250
145,000 Katy Industries Inc. ........... 1,885,000
13,000 Kyocera Corp., ADR.............. 684,125
350,000 Lamson & Sessions Co.+.......... 1,728,125
270,000 Lawter International Inc. ...... 1,890,000
46,062 Myers Industries Inc. .......... 973,060
68,000 National Service Industries
Inc. ......................... 2,316,250
8,000 Pentair Inc. ................... 270,000
200,000 Tenneco Inc. ................... 5,587,500
125,000 Thomas Industries Inc. ......... 2,343,750
15,000 TI Group plc.................... 97,506
80,000 Trinity Industries Inc. ........ 2,350,000
--------------
50,948,380
--------------
Electronics--0.4%
15,000 Advanced Micro Devices Inc...... 232,500
3,000 Hitachi Ltd., ADR............... 218,250
10,000 Imation Corp.+.................. 165,000
900,000 Oak Technology Inc.+............ 2,756,250
10,000 Sony Corp., ADR................. 913,125
130,000 UCAR International Inc. ........ 1,836,250
--------------
6,121,375
--------------
Energy and Utilities--3.4%
10,000 AGL Resources Inc. ............. 175,625
100,000 Atlantic Richfield Co. ......... 7,300,000
45,000 BP Amoco plc, ADR............... 4,542,189
38,000 Brown (Tom) Inc. ............... 460,750
30,000 Chevron Corp. .................. 2,653,125
250,412 Citizens Utilities Co., Cl. B... 1,940,693
153,000 Eastern Enterprises............. 5,565,375
15,000 Energy East Corp. .............. 788,439
60,000 Enron Oil & Gas Co. ............ 997,500
170,000 Exxon Corp. .................... 11,995,625
30,000 Global Marine Inc. ............. 352,500
40,000 Halliburton Co. ................ 1,540,000
40,000 Niagara Mohawk Power Corp. ..... 537,500
250,000 PennzEnergy Co. ................ 2,625,000
180,000 Pennzoil-Quaker State Co. ...... 2,227,500
325,000 Southwest Gas Corp. ............ 8,937,500
55,000 Texaco Inc. .................... 3,121,250
--------------
55,760,571
--------------
Entertainment--13.8%
230,000 Ascent Entertainment Group
Inc. ......................... 2,515,625
19,406 EMI Group plc................... 138,518
100,000 EMI Group plc, ADR.............. 1,387,500
19,000 Fisher Companies Inc. .......... 1,102,000
10,000 Florida Panthers Holdings
Inc.+......................... 77,500
38,000 Fox Entertainment Group Inc. ... 1,030,750
150,000 GC Companies Inc.+.............. 4,715,625
3,000 King World Productions Inc.+.... 91,688
1,180,000 Liberty Media Group, Cl. A...... 62,097,500
25,000 Spelling Entertainment Group
Inc. ......................... 218,750
1,050,000 Time Warner Inc. ............... 74,615,626
11,000 Todd-AO Corp., Cl. A............ 86,625
900,000 USA Networks Inc.+.............. 32,231,250
360,000 Viacom Inc., Cl. A+............. 29,992,500
200,000 Viacom Inc., Cl. B+............. 16,787,500
--------------
227,088,957
--------------
Environmental Services--0.0%
30,000 EnviroSource Inc. .............. 75,000
--------------
Equipment and Supplies--11.4%
700,000 Aeroquip-Vickers Inc. .......... 40,118,750
300,000 AMETEK Inc. .................... 5,475,000
150,000 AMP Inc. ....................... 8,053,125
98,000 Amphenol Corp., Cl. A+.......... 3,748,500
85,000 Caterpillar Inc. ............... 3,904,688
110,000 CLARCOR Inc. ................... 1,876,875
260,000 CTS Corp. ...................... 12,853,750
410,000 Deere & Co. .................... 15,836,250
230,000 Donaldson Co. Inc. ............. 4,140,000
10,000 EG&G Inc. ...................... 263,750
10,000 Fedders Corp. .................. 50,625
120,000 Flowserve Corp. ................ 1,867,500
166,300 Gerber Scientific Inc. ......... 3,357,181
315,000 Hussmann International Inc. .... 4,626,563
445,000 IDEX Corp. ..................... 10,485,313
60,000 Ingersoll-Rand Co. ............. 2,977,500
200,000 Kollmorgen Corp. ............... 2,500,000
88,000 Lufkin Industries Inc. ......... 1,457,500
27,000 Manitowoc Co. Inc. ............. 1,130,625
180,000 Mark IV Industries Inc. ........ 2,351,250
100,000 Materials Sciences Corp.+....... 637,500
16
The Gabelli Asset Fund
Portfolio of Investments (Continued) -- March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Equipment and Supplies
(Continued)
30,000 Met-Pro Corp. .................. $ 330,000
365,000 Navistar International Corp.+... 14,668,438
20,000 PACCAR Inc. .................... 823,750
291,000 Pittway Corp. .................. 7,638,750
310,000 Pittway Corp., Cl. A............ 8,215,000
97,355 Sequa Corp., Cl. A+............. 4,892,089
96,000 Sequa Corp., Cl. B+............. 6,504,000
173,000 SPS Technologies Inc.+.......... 6,790,250
300,000 US Filter Corp. ................ 9,187,500
30,000 Valmont Industries Inc. ........ 416,250
100,000 Watts Industries Inc., Cl. A.... 1,356,250
120,000 Weir Group plc.................. 477,421
--------------
189,011,943
--------------
Financial Services--6.2%
1 Al-Zar Ltd.+ (a)................ 350
3,570 Alleghany Corp.+................ 656,434
90,000 American Bankers Insurance Group
Inc. ......................... 4,680,000
304,000 American Express Co. ........... 35,720,000
50,000 Argonaut Group Inc. ............ 1,284,375
220 Berkshire Hathaway Inc.+........ 15,708,000
130,000 Block (H&R) Inc. ............... 6,158,750
80,000 Commerzbank AG, ADR............. 2,340,000
150,000 Deutsche Bank AG, ADR........... 7,612,500
172,000 Lehman Brothers Holdings
Inc. ......................... 10,277,000
7,000 Leucadia National Corp. ........ 211,750
20,000 Mellon Bank Corp. .............. 1,407,500
10,000 Merrill Lynch & Co.............. 884,375
15,917 Metris Companies Inc. .......... 642,646
255,000 Midland Co. .................... 6,151,875
2,000 MONY Group Inc.................. 49,747
50,000 Paine Webber Group Inc. ........ 1,993,750
30,000 Pioneer Group Inc. ............. 444,375
43,000 State Street Corp. ............. 3,534,060
20,000 SunTrust Banks Inc. ............ 1,245,000
23,882 Transamerica Corp. ............. 1,695,622
8,000 Value Line Inc. ................ 276,500
10,000 Waddell & Reed Financial Inc.,
Cl. A......................... 205,000
--------------
103,179,609
--------------
Food and Beverage--6.8%
50,000 Bestfoods Inc. ................. 2,350,000
76,300 Brown-Forman Corp., Cl. A....... 4,120,200
90,000 Chock Full o'Nuts Corp.+........ 495,000
45,000 Coca-Cola Co. .................. 2,761,875
60,000 Corn Products International
Inc........................... 1,436,250
42,000 Diageo plc, ADR................. 1,921,500
4,500 Farmer Brothers Co. ............ 913,500
105,000 General Mills Inc. ............. 7,934,063
60,000 Heinz (H.J.) Co. ............... 2,842,500
48,000 Hershey Foods Corp. ............ 2,688,000
15,000 Keebler Foods Co.+.............. 547,500
240,000 Kellogg Co. .................... 8,115,000
30,000 LVHM Moet Hennessy Louis
Vuitton, ADR.................. 1,473,750
410,000 PepsiCo Inc. ................... 16,066,875
300,000 Quaker Oats Co. ................ 18,768,750
50,000 Ralcorp Holdings Inc.+.......... 950,000
300,000 Seagram Co...................... 15,000,000
133,490 Tootsie Roll Industries Inc. ... 6,148,886
600,000 Whitman Corp. .................. 10,312,500
80,000 Wrigley (Wm.) Jr. Co. .......... 7,235,000
--------------
112,081,149
--------------
Health Care--2.8%
24,000 Amgen Inc. ..................... 1,796,997
18,000 Biogen Inc.+.................... 2,057,625
40,000 Chiron Corp.+................... 877,500
100,000 Genentech Inc.+................. 8,862,500
10,000 Glaxo Wellcome plc.............. 669,375
100,000 IVAX Corp. ..................... 1,181,250
65,000 Johnson & Johnson............... 6,089,688
110,000 Merck & Co. Inc. ............... 8,820,625
98,000 Pfizer Inc. .................... 13,597,500
25,000 SmithKline Beecham plc.......... 1,787,500
--------------
45,740,560
--------------
Hotels and Gaming--1.7%
195,000 Circus Circus Enterprises
Inc.+......................... 3,424,688
325,000 Gaylord Entertainment Co., Cl.
A............................. 7,881,250
30,000 GTECH Holdings Corp.+........... 731,250
12,000 Harrah's Entertainment Inc.+.... 228,750
360,000 Hilton Hotels Corp. ............ 5,062,500
203,389 Ladbroke Group plc.............. 929,824
300,000 Mirage Resorts Inc.+............ 6,375,000
360,000 Park Place Entertainment
Corp.+........................ 2,722,500
40,000 Starwood Hotels & Resorts
Worldwide Inc. ............... 1,142,500
60,000 Trump Hotels & Casino Resorts
Inc.+......................... 240,000
--------------
28,738,262
--------------
Metals and Mining--0.2%
30,000 Barrick Gold Corp. ............. 511,875
100,000 Echo Bay Mines Ltd.+............ 168,750
45,000 Homestake Mining Co. ........... 388,125
65,000 Newmont Mining Corp. ........... 1,137,500
360,000 Pegasus Gold Inc.+.............. 7,200
22,500 Placer Dome Inc. ............... 251,719
250,000 Royal Oak Mines Inc.+........... 22,500
40,000 TVX Gold Inc.+.................. 50,000
--------------
2,537,669
--------------
17
The Gabelli Asset Fund
Portfolio of Investments (Continued) -- March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Paper and Forest Products--0.7%
180,000 Greif Bros. Corp., Cl. A........ $ 3,960,000
312,000 St. Joe Corp. .................. 7,566,000
--------------
11,526,000
--------------
Publishing--3.1%
70,000 American Media Inc., Cl. A+..... 385,000
8,000 Central Newspapers Inc., Cl.
A............................. 249,000
50,000 Dow Jones & Co. Inc. ........... 2,359,375
38,000 Harcourt General Inc. .......... 1,683,875
53,600 McClatchy Newspapers Inc., Cl.
A............................. 1,798,950
150,000 McGraw-Hill Companies Inc. ..... 8,175,000
325,000 Media General Inc., Cl. A....... 15,112,500
85,000 Meredith Corp. ................. 2,672,188
140,000 New York Times Co., Cl. A....... 3,990,000
15,000 News Corp. Ltd., ADR............ 442,500
325,000 Penton Media Inc. .............. 7,312,500
2,500 Pulitzer Inc. .................. 101,094
134,000 Reader's Digest Association
Inc., Cl. B................... 3,685,000
1,650,000 Seat-Pagine Gialle SpA.......... 1,934,366
6,000 Scripps (E.W.) Co., Cl. A....... 265,500
105,000 Thomas Nelson Inc. ............. 1,050,000
--------------
51,216,848
--------------
Real Estate--0.5%
400,000 Catellus Development Corp.+..... 5,350,000
48,000 Florida East Coast Industries
Inc. ......................... 1,437,000
70,000 Griffin Land & Nurseries
Inc.+......................... 647,500
--------------
7,434,500
--------------
Retail--1.9%
41,000 Aaron Rents Inc. ............... 640,625
20,000 Aaron Rents Inc., Cl. A......... 232,500
190,000 Burlington Coat Factory
Warehouse Corp. .............. 2,232,497
50,000 Coldwater Creek Inc.+........... 575,000
35,000 CVS Corp. ...................... 1,662,500
70,000 Kroger Co.+..................... 4,191,250
150,000 Lillian Vernon Corp. ........... 1,800,000
50,000 Midas Inc....................... 1,668,750
580,000 Neiman Marcus Group Inc.+....... 13,122,500
400,000 Republic Industries Inc.+....... 4,950,000
202,500 Scheib (Earl) Inc.+............. 1,012,500
--------------
32,088,122
--------------
Satellite--0.5%
220,000 COMSAT Corp. ................... 6,366,250
100,000 Globalstar Telecommunications
Ltd. ......................... 1,387,500
--------------
7,753,750
--------------
Specialty Chemicals--0.9%
20,000 Dexter Corp. ................... 630,000
410,000 Ferro Corp. .................... 10,147,500
5,000 General Chemical Group Inc. .... 65,625
75,000 Morton International Inc. ...... 2,756,250
95,000 Sybron Chemicals Inc. .......... 1,211,250
--------------
14,810,625
--------------
Telecommunications--9.5%
120,000 Aliant Communications Inc. ..... 4,912,500
5,000 Allegiance Telecom Inc. ........ 125,000
55,000 Alltel Corp. ................... 3,430,625
450,000 AT&T Corp. ..................... 35,915,625
210,000 BCE Inc. ....................... 9,305,623
37,500 BCT. Telus Communications
Inc. ......................... 919,176
22,500 BCT. Telus Communications Inc.,
ADR........................... 551,504
7,500 BCT. Telus Communications Inc.,
Cl. A ADR..................... 177,622
12,500 BCT. Telus Communications Inc.,
Cl. A......................... 296,039
35,000 BellSouth Corp. ................ 1,402,188
130,000 Cable & Wireless plc, ADR....... 4,801,875
325,665 Commonwealth Telephone
Enterprises Inc.+............. 11,988,543
31,500 Commonwealth Telephone
Enterprises Inc., Cl. B+...... 1,134,000
65,000 Embratel Participacoes SA+...... 1,084,688
110,000 Frontier Corp. ................. 5,706,250
155,000 GTE Corp. ...................... 9,377,500
32,000 Hong Kong Telecommunications
Ltd., ADR..................... 626,000
400,000 RCN Corp. ...................... 13,425,000
10,000 Rogers Communications Inc., Cl.
B+............................ 181,517
421,600 Rogers Communications Inc., Cl.
B, ADR+....................... 7,641,500
230,000 SBC Communications Inc. ........ 10,838,750
100,000 Sprint Corp. ................... 9,812,500
13,500 Tele Centro Sul Participacoes
SA+........................... 623,531
500,000 Telecom Italia SpA.............. 5,316,063
120,000 Telecom Italia SpA, ADR......... 12,525,000
67,500 Telecomunicacoes Brasileiras SA,
ADR........................... 9,492
15,000 Telefonica de Espana, ADR....... 1,916,250
10,000 Telefonos de Mexico SA, Cl. L,
ADR........................... 655,000
67,500 Tele Norte Leste Participacoes
SA+........................... 1,037,813
67,500 Telesp Participacoes SA......... 1,392,188
8,000 US West Inc.+................... 440,500
--------------
157,569,862
--------------
18
The Gabelli Asset Fund
Portfolio of Investments (Continued) -- March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Value
------ ------
Common Stocks (Continued)
Transportation--0.6%
130,000 AMR Corp.+...................... $ 7,613,125
3,000 Burlington Northern Santa Fe
Corp. ........................ 98,625
35,000 CSX Corp. ...................... 1,362,813
10,000 Kansas City Southern Industries
Inc. ......................... 570,000
2,000 Providence & Worcester Railroad
Co. .......................... 22,250
1,000 RailAmerica Inc.+............... 8,750
3,000 Wisconsin Central Transportation
Corp.+........................ 39,750
--------------
9,715,313
--------------
Wireless Communications--5.9%
22,000 AirTouch Communications Inc.+... 2,125,750
85,000 Associated Group Inc., Cl. A+... 4,212,813
40,000 Associated Group Inc., Cl. B+... 1,940,000
400,000 Century Telephone Enterprises
Inc. ......................... 28,100,000
4,000 Leap Wireless International
Inc.+......................... 51,500
55,000 NEXTEL Communications Inc., Cl.
A+............................ 2,014,375
75,000 Rogers Cantel Mobile
Communications Inc.+.......... 1,354,688
45,000 Sprint Corp. (PCS Group)........ 1,994,063
6,750 Tele Celular Sul Participacoes
SA............................ 129,094
22,500 Tele Centro Oeste Celular
Participacoes SA.............. 82,969
1,800,000 Telecom Italia Mobile SpA....... 12,116,733
1,350 Tele Leste Celular Participacoes
SA............................ 43,200
3,375 Telemig Celular Participacoes
SA+........................... 88,383
3,375 Tele Nordeste Celular
Participacoes SA.............. 75,094
1,350 Tele Norte Celular Participacoes
SA+........................... 40,163
750,000 Telephone & Data Systems
Inc. ......................... 42,281,250
27,000 Telesp Celular Participacoes
SA+........................... 565,313
13,500 Tele Sudeste Celular
Participacoes SA+............. 273,375
--------------
97,488,763
--------------
TOTAL COMMON STOCKS............. 1,582,801,459
--------------
PREFERRED STOCKS--0.2%
Metals and Mining--0.0%
10,000 Freeport-McMoRan Inc.,
7.00% Conv. Pfd............... 158,750
--------------
Satellite--0.0%
20,000 Loral Space & Communications
Ltd.+......................... 288,750
--------------
Telecommunications--0.2%
35,000 Sprint Corp., 8.25% Conv. Pfd... 2,555,000
1,588,267 Telecomunicacoes de Sao Paulo SA
(Telesp), Preference Shares... 194,945
1,588,267 Telecomunicacoes de Sao Paulo SA
(Telesp), Preference Shares,
Cl. B......................... 59,271
--------------
2,809,216
--------------
TOTAL PREFERRED STOCKS.......... 3,256,716
--------------
CORPORATE BONDS--0.1%
Entertainment--0.1%
2,300,000 Viacom Inc., Sub. Deb.
8.00%, 07/07/06............... 2,392,000
--------------
U.S. GOVERNMENT OBLIGATIONS--3.8%
62,859,000 U.S. Treasury Bills, 4.47% to
4.94%++,
due 04/22/99 to 06/24/99...... 62,481,532
--------------
TOTAL INVESTMENTS--100.0% (Cost
$868,343,724)................. 1,650,931,707
Other Assets and
Liabilities (Net)--0.0%....... 25,884
--------------
NET ASSETS--100.0% (44,401,191
shares outstanding)........... $1,650,957,591
==============
NET ASSET VALUE,
Offering and Redemption Price
Per Share..................... $37.18
======
Settlement Net Unrealized
Date Depreciation
---------- --------------
FORWARD FOREIGN
EXCHANGE CONTRACTS
12,982,079(b) Deliver Hong Kong Dollars 05/24/99 $ (3,197)
in exchange for
USD $1,673,197
- ------------------------------
(a) Security fair valued as determined by the Board of Trustees.
(b) Principal amount denoted in Hong Kong Dollars.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR--American Depositary Receipt.
GDR--Global Depositary Receipt.
USD--U.S. Dollars.
19
The Gabelli Asset Fund
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
Http://Www.Gabelli.Com
E-Mail: [email protected]
(Net Asset Value may be obtained daily
by calling
1-800-GABELLI after 6:00 P.M.)
Board of Trustees
Mario J. Gabelli, CFA Karl Otto Pohl
Chairman and Chief Former President
Investment Officer Deutsche Bundesbank
Gabelli Asset Management
Inc.
Felix J. Christiana Anthony R. Pustorino
Former Senior Vice President Certified Public Accountant
Dollar Dry Dock Savings Bank Professor, Pace University
Anthony J. Colavita Anthonie C. van Ekris
Attorney-at-Law Managing Director
Anthony J. Colavita, P.C. BALMAC International, Inc.
James P. Conn Salvatore J. Zizza
Former Chief Investment Chairman
Officer The Bethlehem Corp.
Financial Security Assurance
Holdings Ltd.
John D. Gabelli
Senior Vice President
Gabelli & Company, Inc.
Officers and Portfolio Managers
Mario J. Gabelli, CFA Bruce N. Alpert
Portfolio Manager President and Treasurer
James E. McKee
Secretary
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend
Agent
State Street Bank and Trust Company
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
LLP
- ---------------------------------------
This report is submitted for the
general information of the shareholders
of The Gabelli Asset Fund. It is not
authorized for distribution to
prospective investors unless preceded
or accompanied by an effective
prospectus.
- ---------------------------------------
[PHOTO]
The
Gabelli
Asset
Fund
FIRST QUARTER REPORT
MARCH 31, 1999
