THE GABELLI ASSET FUND
ANNUAL REPORT
DECEMBER 31, 1999
[Graphic of 4 stars omitted]
MORNINGSTAR RATED(TM) GABELLI ASSET FUND 4 STARS
OVERALL AND FOR THE THREE, FIVE AND TEN-YEAR PERIODS
ENDED 12/31/99 AMONG 3469, 2180 AND 770 DOMESTIC
EQUITY FUNDS, RESPECTIVELY.
TO OUR SHAREHOLDERS,
The leading stock market indices rallied strongly in the fourth quarter of
1999 and finished the year at or near record highs. However, relatively few
stocks participated in this year's stock market bonanza. New lows outnumbered
new highs on the NYSE by a wide margin throughout much of the year. Growth
continued to out-perform value across the market capitalization spectrum and
large cap stocks continued to outperform small caps. Technology stocks were the
biggest winners, with the tech-heavy Nasdaq Composite outdistancing all other
major market indices.
In this uneven market environment, we are extremely pleased to report that
the Fund materially outperformed the Dow Jones Industrials, the Standard &
Poor's 500, the Russell 2000, and the vast majority of our value fund peers.
INVESTMENT PERFORMANCE
For the fourth quarter ended December 31, 1999, The Gabelli Asset Fund's
(the "Fund") total return was a solid 15.33%. The Standard & Poor's ("S&P") 500,
Value Line Composite and Russell 2000 Indices had total returns of 14.87%, 6.67%
and 18.44%, respectively, over the same period. Each index is an unmanaged
indicator of stock market performance. The Fund was up 28.49% for 1999. The S&P
500, Value Line Composite and Russell 2000 Indices rose 21.03%, 10.56% and
21.26%, respectively, over the same twelve-month period.
For the ten-year period ended December 31, 1999, the Fund's total return
averaged 16.41% annually versus average annual total returns of 18.19%, 13.46%
and 13.40% for the S&P 500, Value Line Composite and Russell 2000 Indices,
respectively. Since inception on March 3, 1986 through December 31, 1999, the
Fund had a cumulative total return of 891.54%, which equates to an average
annual total return of 18.03%.
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect historical risk adjusted performance as of December 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.
<PAGE>
INVESTMENT RESULTS (a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
1ST 2ND 3RD 4TH YEAR
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
1999: Net Asset Value....................... $37.18 $41.38 $39.52 $40.84 $40.84
Total Return.......................... 4.8% 11.3% (4.5)% 15.3% 28.5%
- ----------------------------------------------------------------------------------------------------------
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%
- ----------------------------------------------------------------------------------------------------------
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 - DECEMBER 31, 1999 (A)
1 Year ................................. 28.49%
5 Year ................................. 23.84%
10 Year .................................. 16.41%
Life of Fund (b) ......................... 18.03%
- -------------------------------------------------------
Dividend History
- -----------------------------------------------------
Payment (EX) Date Rate PER Share Reinvestment Price
- ----------------- -------------- -----------------
December 27, 1999 $4.630 $39.92
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
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI ASSET FUND, THE CONSUMER PRICE INDEX +10% AND THE S&P 500 INDEX
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
GABELLI ASSET FUND CONSUMER PRICE INDEX + 10% S&P 500 INDEX
3/3/86 $10,000 $10,000 $10,000
11,280 11,110 10,930
12/87 13,107 12,713 11,487
17,184 14,546 13,383
12/89 21,686 16,677 17,612
20,602 19,364 17,066
12/91 24,331 21,893 22,271
27,956 24,717 23,384
12/93 34,051 27,869 25,746
34,017 31,400 26,081
12/95 42,530 35,337 35,884
48,229 40,044 44,137
12/97 66,590 44,729 58,857
77,178 49,923 75,749
12/99 99,166 56,263 91,679
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
WHAT WE DO
[Graphics of Pyramid omitted--text as follows]
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
[End of Pyramid text]
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 23 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.
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.
3
<PAGE>
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-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
1999'S HAVE AND HAVE NOT MARKET
At year-end 1999, many investors were left pondering how and why their
individual stock and/or mutual fund portfolios performed so poorly in a year in
which all the leading stock market indices posted strong gains. The answer is
simple. A relative handful of increasingly popular technology and
Internet-related stocks propelled the capitalization-weighted market indices
higher, while the majority of stocks languished. If you owned these types of
companies, you were a winner. If you owned index funds, you earned respectable
returns. If you owned most anything else, especially value stocks and most value
oriented funds, you had a "dull year".
How did our largely non-tech, value-oriented portfolio perform so well in
this extremely narrow market? First, we pick businesses with good growth
prospects that are reasonably valued compared to their "intrinsic value".
Secondly, we look for a "catalyst" that will surface that underlying value.
The seeds for this year's performance harvest were sown four and five
years ago when we were buying telecommunications, cable television and media
stocks at what we viewed as bargain basement prices. Our intensive research in
these groups, and the identification of "catalysts" that would surface value,
rewarded us in 1997 - 1998 and again this year. Importantly, despite recent
years' excellent performance, our holdings in these industries remain quite
reasonably valued in light of still favorable business prospects.
And, of course, we benefited from financial engineering - particularly
deals, as merger and acquisition activity was at an all time.
4
<PAGE>
- --------------------------------------------------------------------------------
FLOW OF FUNDS ($ Billions)
<TABLE>
<CAPTION>
SOURCES 1994 1995 1996 1997 1998 1999(E)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Deals $340 $511 $ 652 $ 919 $1,620 $1,745
Stock Buybacks 47 99 176 181 207 178
Equity Mutual Funds (Net) 119 128 222 232 157 188
Dividends 182 254 298 334 349 367
---- ---- ------ ------ ------ ------
TOTAL SOURCES: 688 992 1,348 1,666 2,333 2,478
---- ---- ------ ------ ------ ------
USES
IPOs 29 30 50 43 37 69
U.S./International Equity Capital Flow
U.S. Purchases of Non-U.S. Equities (net) 48 50 59 41 (6) 22
International Purchases of U.S. Equities (net) 1 11 12 70 50 73
---- ---- ------ ------ ------ ------
Net Flow: 47 39 47 (29) (56) (51)
---- ---- ------ ------ ------ ------
TOTAL USES: 76 69 97 14 (19) 18
---- ---- ------ ------ ------ ------
NET FLOW OF FUNDS: $612 $923 $1,251 $1,652 $2,352 $2,460
==== ==== ====== ====== ====== ======
</TABLE>
SOURCES: SECURITIES DATA CORP, INVESTMENT COMPANY INSTITUTE, BIRINYI
ASSOCIATES, FEDERAL RESERVE BOARD (SAAR-DIV.) (C) 2000 GABELLI ASSET MANAGEMENT
INC.
- --------------------------------------------------------------------------------
THE ECONOMY AND THE MARKET: INFLATION, INTEREST RATES, AND CORPORATE PROFITS
Inflation, interest rates and corporate profits represent an economic
trifecta for stocks. Through most of this historic eighteen-year bull market, we
have enjoyed low inflation, declining interest rates and strong corporate profit
growth. Over the last two years the market has managed to advance despite one or
another of these economic horses breaking stride. In 1998, the market shrugged
off lackluster corporate earnings growth. This year, the market delivered
double-digit returns despite higher inflation and materially higher interest
rates. Looking ahead, we suspect the market will not be able to maintain its
pace if one or more of these horses pull up lame.
We believe corporate earnings will continue to run strong. The global
economic recovery improves the profit picture for many American companies. The
Asian and European economies continue to advance and we see synchronized global
growth in the year 2000 providing corporate profits with a tailwind that will
result in earnings that may be even better than current Wall Street estimates.
The wild card is the American consumer. At present, consumer confidence remains
strong. Everyone who wants a job has one and wages are rising. However, it now
costs more to gas up the car and heat our homes. Variable rate mortgage payments
will soon be higher and the days of raising spending money by refinancing your
home at lower fixed rates are over for the time being. Also, with the yen
strengthening against the dollar, all of the Japanese cars, televisions,
stereos, and video games that the American consumer loves will be more
expensive. Will all this be enough to cause the American consumer to tighten the
purse strings? Or will the "wealth effect" of a rising stock market and a
significant tax cut--the Republicans are running on the "3 Fs" (Faith, Finances,
and Family)--provide a bonus for Americans to spend?
Inflation, as measured by the Consumer Price Index ("CPI"), is currently
running around 2.7%--about a percentage point higher than last year, but still
in the comfort zone. Can we expect inflation to stabilize at present levels or
will it trend materially higher, eventually disrupting the economy and stock
5
<PAGE>
market? This depends on two things: (1) whether the Federal Reserve will succeed
in cooling the economy and (2) whether improving productivity will continue to
offset rising wages in today's tight labor market. Nobody (and that includes us)
seems to have a good handle on these two issues and, consequently, the short
term outlook for inflation remains cloudy. Longer term, we see the Internet as a
disinflationary force. E-commerce is taking the middleman out of the picture and
in the process eliminating an entire level of cost in the economic system. It is
also heightening price competition. If E-commerce approaches its growth
potential, we believe inflation will remain in check.
Without a clear reading on the inflation front, making near term interest
rate forecasts is an even greater folly than usual. We note that although stocks
advanced while bonds declined from January through April, they eventually
stalled as bonds continued to drift lower. When bonds rallied briefly in late
October, stocks took off shortly thereafter. At year-end, bonds were once again
sinking, but stocks moved steadily higher. If bonds continue to decline and
market interest rates continue to rise, it will eventually take the wind out of
the stock market's sail.
GREENSPEAK
The following is excerpted from Federal Reserve Board Chairman Alan
Greenspan's speech, given before the Economic Club of New York on January 13,
2000. Greenspan ponders the impending arrival of the U.S. economy at its longest
peacetime expansion of this half-century, reflecting on the "New Economy" and
where we will go from here:
"WE ARE WITHIN WEEKS OF ESTABLISHING A RECORD FOR THE LONGEST ECONOMIC
EXPANSION IN THIS NATION'S HISTORY. THE 106-MONTH EXPANSION OF THE 1960S, WHICH
WAS ELONGATED BY THE VIETNAM WAR, WILL BE SURPASSED IN FEBRUARY. NONETHELESS,
THERE REMAIN FEW EVIDENT SIGNS OF GERIATRIC STRAIN THAT TYPICALLY PRESAGE AN
IMMINENT ECONOMIC DOWNTURN...
WHAT SHOULD BE INDISPUTABLE IS THAT A NUMBER OF NEW TECHNOLOGIES THAT
EVOLVED LARGELY FROM THE CUMULATIVE INNOVATIONS OF THE PAST HALF-CENTURY HAVE
NOW BEGUN TO BRING ABOUT AWESOME CHANGES IN THE WAY GOODS AND SERVICES ARE
PRODUCED AND, ESPECIALLY, IN THE WAY THEY ARE DISTRIBUTED TO FINAL USERS...
CAPITAL MARKETS, NOT COMFORTABLE WITH DISCONTINUOUS SHIFTS IN ECONOMIC
STRUCTURE, ARE GROPING FOR SENSIBLE EVALUATIONS OF [INNOVATIVE INTERNET STARTUP
FIRMS]... ONE RESULT OF THE MORE-RAPID PACE OF IT INNOVATION HAS BEEN A VISIBLE
ACCELERATION OF THE PROCESS OF "CREATIVE DESTRUCTION," A SHIFTING OF CAPITAL
FROM FAILING TECHNOLOGIES INTO THOSE TECHNOLOGIES AT THE CUTTING EDGE...
INDEED, THESE DEVELOPMENTS EMPHASIZE THE ESSENCE OF INFORMATION
TECHNOLOGY--THE EXPANSION OF KNOWLEDGE AND ITS OBVERSE, THE REDUCTION IN
UNCERTAINTY. AS A CONSEQUENCE, RISK PREMIUMS THAT WERE ASSOCIATED WITH ALL FORMS
OF BUSINESS ACTIVITIES HAVE DECLINED... THE RELATIONSHIP BETWEEN BUSINESSES AND
CONSUMERS ALREADY IS BEING CHANGED BY THE EXPANDING OPPORTUNITIES FOR
E-COMMERCE. THE FORCES UNLEASHED BY THE INTERNET ARE ALMOST SURELY TO BE EVEN
MORE POTENT WITHIN AND AMONG BUSINESSES, WHERE UNCERTAINTIES ARE BEING REDUCED
BY IMPROVING THE QUANTITY, THE RELIABILITY, AND THE TIMELINESS OF INFORMATION.
THIS IS THE CASE IN MANY RECENT INITIATIVES, ESPECIALLY AMONG OUR MORE SEASONED
COMPANIES, TO CONSOLIDATE AND RATIONALIZE THEIR SUPPLY CHAINS USING THE
INTERNET...
AN ABILITY TO REORGANIZE PRODUCTION AND DISTRIBUTION PROCESSES IS
ESSENTIAL TO TAKE ADVANTAGE OF NEWER TECHNOLOGIES. INDEED, THE COMBINATION OF A
MARKED SURGE IN MERGERS AND ACQUISITIONS, AND ESPECIALLY THE VAST INCREASE IN
STRATEGIC ALLIANCES, INCLUDING ACROSS BORDERS, IS DRAMATICALLY ALTERING BUSINESS
STRUCTURES TO CONFORM TO THE IMPERATIVES OF THE NEWER TECHNOLOGIES.
6
<PAGE>
TO BE SURE, INCREASES IN WAGES IN EXCESS OF PRODUCTIVITY GROWTH MAY NOT BE
INFLATIONARY, AND DESTRUCTIVE OF ECONOMIC GROWTH, IF OFFSET BY DECREASES IN
OTHER COSTS OR DECLINING PROFIT MARGINS. A PROTRACTED DECLINE IN MARGINS,
HOWEVER, IS A RECIPE FOR RECESSION. THUS, IF OUR OBJECTIVE OF MAXIMUM
SUSTAINABLE ECONOMIC GROWTH IS TO BE ACHIEVED, THE POOL OF AVAILABLE WORKERS
CANNOT SHRINK INDEFINITELY...IF A TREND CANNOT CONTINUE, IT WILL STOP. WHAT WILL
STOP THE WEALTH-INDUCED EXCESS OF DEMAND OVER PRODUCTIVITY-EXPANDED SUPPLY IS
LARGELY DEVELOPMENTS IN FINANCIAL MARKETS...
WE ARE IN A PERIOD OF DRAMATIC GAINS IN INNOVATION AND TECHNICAL CHANGE
THAT CHALLENGE ALL OF US, AS OWNERS OF CAPITAL, AS SUPPLIERS OF LABOR, AS VOTERS
AND POLICYMAKERS. HOW WELL POLICY CAN BE FASHIONED TO ALLOW THE PRIVATE SECTOR
TO MAXIMIZE THE BENEFITS OF INNOVATIONS THAT WE CURRENTLY ENJOY, AND TO CONTAIN
THE IMBALANCES THEY CREATE, WILL SHAPE THE ECONOMIC CONFIGURATION OF THE FIRST
PART OF THE NEW CENTURY."
SUPPLY/DEMAND AND VALUATIONS
Although 1999 was a big year for Initial Public Offerings ("IPOs"), it was
an even bigger year for deals. The end result was that the supply of stock in
the market continued to shrink. We believe that what we have termed "The Third
Great Wave of Takeovers" is far from cresting. In fact, we think it will
continue to swell as companies throughout the world attempt to lower costs and
improve their competitive positions via acquisitions. The elimination of
"pooling of interest" accounting in stock swap mergers--scheduled to take effect
at the beginning of January 2001--will likely accelerate deal activity this
year.
Fueled by IRA, 401K, and Keogh Plan investing, demand for equities remains
strong. The market's sharp September/October correction didn't seem to
discourage investors, who in recent years have become accustomed to buying
stocks on dips. Barring a severe recession and/or a full scale bear market, we
believe the demand for stocks will continue to grow.
Where, then, will demand be channeled? Will demand go to the same handful
of stocks every one wants to own today, or to what has become a vast wasteland
of high quality companies in other industries that have been largely ignored in
recent years? We believe valuations will ultimately come into play. Great
technology companies have terrific growth prospects. They also have current
valuations that defy economic gravity. Sooner or later, investors will realize
that you can pay too much for good technology companies, particularly when there
are so many equally good companies in other good businesses trading at bargain
basement prices. Ironically, this may eventually result in a mirror image
market, with the leading market indices being dragged down by flagging
technology stocks and the majority of stocks doing better on an absolute and
relative basis.
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.
7
<PAGE>
- --------------------------------------------------------------------------------
1999 COMPLETED DEALS
<TABLE>
<CAPTION>
NUMBER AVERAGE COST CLOSING
FUND HOLDING OF SHARES (a) PER SHARE (b) PRICE (c) CLOSING DATE %RETURN (d)
------------ ------------ ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Honeywell Inc. 40,000 $57.11 $114.19 12/02/99 99.94%
Chock Full O'Nuts Corp. 60,000 6.65 11.38 10/18/99 71.07%
COMSAT Corp. 210,000 20.15 45.50 09/18/99 125.81%
Hach Co. 23,046 8.11 17.75 07/15/99 118.79%
Coltec Industries Inc. 180,000 14.25 24.81 07/13/99 74.18%
AirTouch Communications Inc. 20,000 22.33 107.13 06/30/99 379.75%
Lawter International Inc. 330,000 9.85 12.25 06/01/99 24.43%
Whitman Corp. 600,000 11.46 17.94 05/20/99 56.54%
AMP Inc. 150,000 39.17 53.75 04/05/99 37.22%
Hudson General Corp. 40,000 28.03 76.00 03/19/99 171.19%
Fingerhut Companies Inc. 100,000 14.61 25.00 03/17/99 71.12%
TCI Ventures Group 640,000 7.63 28.00 03/10/99 266.88%
TCI/Liberty Media Group 850,000 10.33 54.44 03/10/99 426.99%
Tele-Communications Inc., Cl. A 470,000 14.29 67.88 03/10/99 375.15%
First Brands Corp. 10,000 13.09 40.13 10/28/99 206.53%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
- --------------------------------------------------------------------------------
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.
THIS YEAR'S SCORECARD
Wireless telecommunications stocks, including Omnipoint, Leap Wireless,
Nextel, Sprint PCS and Vodafone AirTouch, and a host of international wireless
operators, were at the top of 1999's performance list. Cable television stocks
such as Comcast, MediaOne and Cablevision Systems also performed extremely well,
as did cable network companies AT&T / Liberty Media Group and USA Networks.
Small group broadcasters Granite Broadcasting, Chris-Craft and Paxson
Communications contributed to returns. Multimedia giants Viacom, News Corp., and
Tribune were also stellar performers. American Express, our largest financial
services holding, was also a big winner. Our telecommunications investments were
mixed, with BCE and Telephone & Data Systems more than doubling, while SBC
Communications and BellSouth declined.
After a good start, our industrial cyclical investments disappointed.
Auto-parts suppliers Federal Mogul, GenCorp, Modine and Dana were all positioned
at the rear of our portfolio return rankings and Genuine
8
<PAGE>
Parts, the world's largest auto-parts retailer, fell sharply. Aerospace
component manufacturers SPS Technology, Precision Castparts and Crane stalled on
the performance runway. There was nothing sweet about declines in confectioners
Tootsie Roll and Hershey Foods, and nobody liked Sara Lee this year.
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.
DEXTER CORP. (DEX - $39.75 - NYSE), located in Windsor Locks, Connecticut, is a
specialty materials company principally serving the worldwide aerospace,
electronics, food packaging and medical markets, with products based on
proprietary technologies. Through 75% ownership of Life Technologies, Inc.
Dexter's life sciences segment focuses on the development and manufacture of
precise, reproducible biological and biochemical products for life sciences
research and commercial applications within the medical market. The non-wovens
segment focuses on the proprietary formulation and manufacture of long-fiber,
wet-formed products, primarily for use in the food packaging, medical and
hygiene markets. The specialty polymers segment includes product offerings based
on polymer technology for the formulation and processing of specialty adhesives,
coatings and encapsulants primarily for use in the aerospace and electronics
markets.
ROLLINS INC. (ROL - $15.00 - NYSE), which observed its 50th anniversary in 1998,
is one of the nation's largest consumer services companies. Through its
wholly-owned subsidiary, Orkin Exterminating Company, Inc., the Company provides
essential pest control services and protection against termite damage, rodents,
and insects to approximately 1.6 million residential and commercial customers.
Orkin serves customers in the U.S., Canada and Mexico from over 400
company-owned and franchised branch locations.
STANDARD MOTOR PRODUCTS INC. (SMP - $16.125 - NYSE), headquartered in Long
Island City, New York, supplies functional replacement parts for the engine
management, electrical and climate control systems of cars, trucks and buses.
The company services all makes and models, both new and old cars, imported and
domestic. SMP has two primary divisions - engine management and temperature
control - and believes it is the number one supplier to the North American
aftermarket in each of these lines.
UCAR INTERNATIONAL INC. (UCR - $17.8125 - NYSE) is the largest manufacturer of
graphite and carbon electrodes in the world, with sales in more than 80
countries and manufacturing facilities on four continents. Graphite electrodes,
the company's principal product, are consumed primarily in the production of
steel in electric arc furnaces, the steelmaking technology used by all
"mini-mills," and for refining steel in ladle furnaces. The company is also the
leading producer of cathode blocks that are used in the production of aluminum.
UCAR manufactures GRAFOIL(R) flexible graphite and other graphite and carbon
products, as well as coolinG systems and components for steelmaking furnaces and
other high temperature applications.
UNITED TELEVISION INC. (UTVI - $137.6875 - NASDAQ), headquartered in Beverly
Hills, California, is a television broadcasting group which owns and operates
seven of the stations (one ABC, one NBC and five UPN affiliates) that comprise
Chris-Craft's (CCN - $72.125 - NYSE) television division. The $60 million
purchase of WRBW, a UPN affiliate in Orlando (the country's 22nd largest and the
fastest growing television market over the past decade), closed on July 7, 1999.
UTVI stations cover approximately nine percent of the U.S. population. UTVI is
58%-owned by BHC Communications (BHC - $160.00 - AMEX). United
9
<PAGE>
Television is a beneficiary of the recent FCC ruling allowing television
duopoly, or ownership of two stations in a market.
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.
IN CONCLUSION
Without technology superstars or surging Internet stocks, the Fund
outperformed all the major stock market indices. We finished well ahead of most
of our value fund peers. As always, we have some reservations about the
market--at least the market as represented by capitalization weighted indices
dominated by small handfuls of those stocks that everyone wants to own. However,
we see exceptional value in the vast wasteland of quality companies that have
been virtually ignored in recent years.
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/ signature
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
January 31, 2000
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1999
-----------------
Liberty Media Group USA Networks Inc.
Telephone & Data Systems Inc. MediaOne Group Inc.
Time Warner Inc. Chris-Craft Industries Inc.
Viacom Inc. United Television Inc.
Cablevision Systems Corp. American Express Co.
- --------------------------------------------------------------------------------
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.
10
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS -- 94.1%
AEROSPACE -- 0.6%
110,000 Boeing Co. ................ $ 3,710,249 $ 4,571,875
140,000 Northrop Grumman Corp. .... 8,871,551 7,568,750
------------ --------------
12,581,800 12,140,625
------------ --------------
AGRICULTURE -- 0.4%
20,000 Agribrands International Inc. 282,787 920,000
540,000 Archer-Daniels-Midland Co. 8,932,585 6,581,250
------------ --------------
9,215,372 7,501,250
------------ --------------
AUTOMOTIVE -- 0.6%
160,000 General Motors Corp. ...... 4,715,459 11,630,000
------------ --------------
AUTOMOTIVE: PARTS AND ACCESSORIES-- 2.9%
120,000 Arvin Industries Inc. ..... 4,552,080 3,405,000
30,000 Borg-Warner Automotive Inc. 1,093,972 1,215,000
235,000 Dana Corp. ................ 6,331,279 7,035,312
115,000 Federal-Mogul Corp. ....... 2,927,463 2,314,375
630,000 GenCorp Inc. .............. 2,243,331 6,221,250
450,000 Genuine Parts Co. ......... 11,174,147 11,165,625
110,000 Johnson Controls Inc. ..... 2,057,822 6,256,250
70,000 Midas Inc. ................ 847,568 1,531,250
300,000 Modine Manufacturing Co. .. 7,040,244 7,500,000
202,500 Scheib (Earl) Inc.+ ....... 1,446,768 594,844
210,000 Standard Motor Products Inc. 3,040,436 3,386,250
110,000 Superior Industries
International Inc. ...... 2,629,715 2,949,375
300,000 Tenneco Automotive Inc. ... 2,884,344 2,793,750
100,000 TransPro Inc. ............. 788,321 643,750
90,000 Wynn's International Inc. . 1,140,063 1,271,250
------------ --------------
50,197,553 58,283,281
------------ --------------
AVIATION: PARTS AND SERVICES-- 0.5%
55,000 Aviall Inc.+ .............. 628,900 450,312
181,000 Curtiss-Wright Corp. ...... 2,275,020 6,674,375
55,000 Fairchild Corp., Cl. A+ ... 924,750 498,437
60,000 Hi-Shear Industries Inc. .. 510,932 138,750
20,000 Kaman Corp., Cl. A ........ 252,138 257,500
74,000 Precision Castparts Corp. . 2,758,598 1,942,500
------------ --------------
7,350,338 9,961,874
------------ --------------
BROADCASTING -- 5.2%
6,000 BHC Communications
Inc., Cl. A ............. 959,275 960,000
73,100 CBS Corp.+ ................ 1,911,320 4,673,831
462,612 Chris-Craft Industries Inc.+ 10,038,380 33,365,890
71,637 Chris-Craft Industries
Inc., Cl. B+ (a) ........ 1,132,431 5,166,819
23,333 Corus Entertainment
Inc., Cl. B+ ............ 77,526 476,843
MARKET
SHARES COST VALUE
------ ---- ------
250,000 Granite Broadcasting Corp.+ $ 2,679,843 $ 2,531,250
12,000 Gray Communications
Systems Inc. ............ 231,411 212,250
183,300 Gray Communications
Systems Inc., Cl. B ..... 2,380,815 2,474,550
128,000 Grupo Televisa SA, GDR+ ... 2,623,178 8,736,000
170,000 Liberty Corp. ............. 6,268,553 7,171,875
115,000 Paxson Communications
Corp., Cl. A+ ........... 1,231,184 1,372,812
1,000 Price Communications
Corp.+ .................. 26,300 27,812
400,000 Television Broadcasting Ltd. 1,815,551 2,727,214
246,700 United Television Inc. .... 15,769,923 33,967,506
11,000 Young Broadcasting
Inc., Cl. A+ ............ 574,415 561,000
------------ --------------
47,720,105 104,425,652
------------ --------------
BUILDING AND CONSTRUCTION-- 0.3%
61,111 Huttig Building Products Inc.+ 154,189 301,736
175,000 Nortek Inc. ............... 1,046,710 4,900,000
4,333 Nortek Inc., Special Common+ (a) 59,049 121,324
------------ --------------
1,259,948 5,323,060
------------ --------------
BUSINESS SERVICES -- 0.7%
60,000 Berlitz International Inc.+ 959,662 1,031,250
105,000 Burns International
Services Corp. .......... 1,769,988 1,135,312
179,962 Cendant Corp.+ ............ 3,851,504 4,780,241
120,000 Ecolab Inc. ............... 2,273,850 4,695,000
66,500 Landauer Inc. ............. 412,455 1,454,687
195,000 Nashua Corp.+ ............. 3,472,806 1,462,500
------------ --------------
12,740,265 14,558,990
------------ --------------
CABLE -- 4.9%
655,000 Cablevision Systems
Corp., Cl. A+ ........... 5,630,502 49,452,500
40,000 Comcast Corp., Cl. A ...... 286,651 1,915,000
40,000 Comcast Corp.,
Cl. A, Special .......... 306,462 2,022,500
520,000 MediaOne Group Inc.+ ...... 10,873,827 39,942,500
30,000 Shaw Communications
Inc., Cl. B ............. 164,952 990,301
40,000 Shaw Communications
Inc., Cl. B, ADR+ ....... 312,647 1,325,000
20,000 UnitedGlobalCom Inc., Cl. A+ 144,679 1,412,500
------------ --------------
17,719,720 97,060,301
------------ --------------
CLOSED-END FUNDS -- 0.1%
84,000 Royce Value Trust Inc. .... 949,972 1,097,250
------------ --------------
See accompanying notes to financial statements.
11
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS EQUIPMENT -- 0.8%
310,000 Allen Telecom Inc.+ ....... $ 1,861,435 $ 3,584,375
40,000 Motorola Inc. ............. 519,379 5,890,000
59,000 Nortel Networks Corp. ..... 546,737 5,959,000
------------ --------------
2,927,551 15,433,375
------------ --------------
COMPUTER HARDWARE -- 0.1%
50,000 Xerox Corp. ............... 1,181,250 1,134,375
------------ --------------
COMPUTER SOFTWARE AND SERVICES-- 0.0%
24,000 Internet.com Corp.+ ....... 319,750 1,254,000
------------ --------------
CONSUMER PRODUCTS -- 3.2%
20,000 Avon Products Inc. ........ 496,000 660,000
635,000 Carter-Wallace Inc. ....... 10,020,257 11,390,312
2,750 Christian Dior SA ......... 307,335 681,405
270,000 Church & Dwight Co. Inc. .. 2,759,904 7,205,625
15,000 Department 56 Inc.+ ....... 269,750 339,375
190,000 Fortune Brands Inc. ....... 4,587,618 6,281,875
330,000 Gallaher Group plc, ADR ... 5,226,111 5,073,750
165,000 General Cigar
Holdings Inc.+ .......... 1,573,880 1,371,562
93,356 General Cigar
Holdings Inc., Cl. B+ (a) 917,834 776,022
125,000 Gillette Co. .............. 2,943,474 5,148,437
40,000 Harley Davidson Inc. ...... 198,900 2,562,500
100,000 Imasco Ltd. ............... 2,644,013 2,767,579
2,000 Maytag Corp. .............. 75,100 96,000
33,000 National Presto Industries Inc 1,212,677 1,171,500
140,000 Philip Morris Companies Inc. 5,914,876 3,246,250
512,000 Ralston Purina Group ...... 6,336,483 14,272,000
41,700 Syratech Corp.+ ........... 954,711 333,600
------------ --------------
46,438,923 63,377,792
------------ --------------
CONSUMER SERVICES -- 0.3%
35,000 Ogden Corp. ............... 378,062 417,812
400,000 Rollins Inc. .............. 6,380,114 6,000,000
------------ --------------
6,758,176 6,417,812
------------ --------------
DIVERSIFIED INDUSTRIAL -- 2.5%
5,000 Anixter International Inc.+ 45,044 103,125
12,000 Cooper Industries Inc. .... 568,412 485,250
275,000 Crane Co. ................. 3,128,426 5,465,625
65,000 Gardner Denver
Machinery Corp.+ ........ 902,800 1,084,687
205,000 GATX Corp. ................ 4,329,860 6,918,750
2,000 General Electric Co. ...... 49,372 309,500
105,000 GenTek Inc. ............... 1,055,181 1,095,937
60,000 Honeywell Inc. ............ 1,939,398 3,461,250
235,000 ITT Industries Inc.+ ...... 7,541,267 7,857,812
MARKET
SHARES COST VALUE
------ ---- ------
150,000 Katy Industries Inc. ...... $ 1,369,925 $ 1,303,125
13,000 Kyocera Corp., ADR ........ 448,063 3,406,000
360,000 Lamson & Sessions Co.+ .... 1,950,533 1,755,000
71,168 Myers Industries Inc. ..... 507,788 1,120,896
100,000 National Service
Industries Inc. ......... 2,636,337 2,950,000
10,000 Pentair Inc. .............. 391,938 385,000
84,000 Reynolds Metals Co. ....... 5,502,798 6,436,500
127,000 Thomas Industries Inc. .... 1,437,000 2,595,562
15,000 TI Group plc .............. 96,816 111,456
80,000 Trinity Industries Inc. ... 977,970 2,275,000
50,000 Tyco International Ltd. ... 1,302,444 1,943,750
------------ --------------
36,181,372 51,064,225
------------ --------------
ELECTRONICS -- 0.8%
10,000 Advanced Micro
Devices Inc.+ ........... 189,875 289,375
3,000 Hitachi Ltd., ADR ......... 302,567 485,625
10,000 Imation Corp.+ ............ 203,344 335,625
904,700 Oak Technology Inc.+ ...... 3,358,183 8,538,106
20,000 Sony Corp., ADR ........... 1,816,421 5,695,000
20,000 Thomas & Betts Corp. ...... 563,708 637,500
------------ --------------
6,434,098 15,981,231
------------ --------------
ENERGY AND UTILITIES-- 4.6%
125,000 AGL Resources Inc. ........ 2,220,300 2,125,000
100,000 Atlantic Richfield Co. .... 5,368,509 8,650,000
500 Berkshire Energy
Resources ............... 12,937 17,500
70,000 BP Amoco plc, ADR ......... 778,306 4,151,875
38,000 Brown (Tom) Inc. .......... 613,895 508,250
30,000 Chevron Corp. ............. 1,016,500 2,598,750
100,000 Columbia Energy Group ..... 6,359,832 6,325,000
95,000 Devon Energy Corp. ........ 2,350,195 3,123,125
50,000 DPL Inc. .................. 950,832 865,625
175,000 Eastern Enterprises ....... 5,384,090 10,051,562
35,900 El Paso Electric Co.+ ..... 328,026 352,269
30,000 Energy East Corp. ......... 653,767 624,375
60,000 EOG Resources Inc. ........ 548,976 1,053,750
115,000 Exxon Mobil Corp. ......... 3,419,492 9,264,688
100,000 Florida Progress Corp. .... 4,698,010 4,231,250
16,000 Florida Public Utilities Co. 286,912 272,000
25,000 Global Marine Inc.+ ....... 397,750 415,625
40,000 Halliburton Co. ........... 840,758 1,610,000
125,000 MCN Energy Group Inc. ..... 3,032,187 2,968,750
180,000 MidAmerican Energy
Holdings Co.+ ........... 6,033,375 6,063,750
20,000 New England
Electric System ......... 1,039,188 1,035,000
See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES (CONTINUED)
150,000 Niagara Mohawk Holdings Inc. $ 2,109,625 $ 2,090,625
100,000 Northeast Utilities ....... 2,148,569 2,056,250
45,000 Pennzoil-Quaker State Co.+ 753,304 458,437
8,400 SJW Corp. ................. 1,004,195 1,010,100
325,000 Southwest Gas Corp. ....... 5,939,311 7,475,000
70,000 Texaco Inc. ............... 2,640,875 3,801,875
20,000 TNP Enterprises Inc. ...... 768,215 825,000
80,000 United Water
Resources Inc. .......... 2,668,801 2,735,000
200,000 WICOR Inc. ................ 5,786,038 5,837,500
------------ --------------
70,152,770 92,597,931
------------ --------------
ENTERTAINMENT -- 15.8%
230,000 Ascent Entertainment
Group Inc.+ ............. 2,214,090 2,918,125
60,000 Disney (Walt) Co. ......... 1,533,474 1,755,000
19,406 EMI Group plc ............. 75,408 190,430
100,000 EMI Group plc, ADR ........ 1,246,297 1,912,500
24,000 Fisher Companies Inc. ..... 1,542,728 1,482,000
40,000 Fox Entertainment
Group Inc. .............. 888,538 997,500
183,000 GC Companies Inc.+ ........ 5,944,577 4,735,125
2,230,000 Liberty Media Group, Cl. A+ 12,002,588 126,552,500
925,000 Time Warner Inc. .......... 13,082,035 67,004,687
11,000 Todd-AO Corp., Cl. A ...... 30,000 335,500
874,500 USA Networks Inc.+ ........ 12,729,248 48,316,125
830,000 Viacom Inc., Cl. A+ ....... 14,752,025 50,163,125
135,000 Viacom Inc., Cl. B+ ....... 2,100,938 8,159,062
------------ --------------
68,141,946 314,521,679
------------ --------------
ENVIRONMENTAL SERVICES-- 0.2%
77,500 EnviroSource Inc.+ ........ 212,287 59,675
260,000 Waste Management Inc. ..... 5,970,038 4,468,750
------------ --------------
6,182,325 4,528,425
------------ --------------
EQUIPMENT AND SUPPLIES-- 8.0%
300,000 AMETEK Inc. ............... 3,455,782 5,718,750
96,000 Amphenol Corp., Cl. A+ .... 2,530,900 6,390,000
72,000 Caterpillar Inc. .......... 955,514 3,388,500
100,000 CIRCOR International Inc.+ 834,293 1,031,250
110,000 CLARCOR Inc. .............. 1,490,481 1,980,000
177,500 CTS Corp. ................. 617,505 13,379,062
10,000 Danaher Corp. ............. 266,009 482,500
380,000 Deere & Co. ............... 5,919,815 16,482,500
230,000 Donaldson Co. Inc. ........ 1,542,521 5,534,375
60,000 Fedders Corp. ............. 333,471 330,000
140,000 Flowserve Corp. ........... 3,097,843 2,380,000
MARKET
SHARES COST VALUE
------ ---- ------
166,300 Gerber Scientific Inc. .... $ 1,754,645 $ 3,648,206
310,000 Hussmann International Inc. 3,035,13 4,669,375
462,000 IDEX Corp. ................ 4,138,647 14,033,250
10,000 Ingersoll-Rand Co. ........ 286,667 550,625
200,000 Kollmorgen Corp. .......... 1,861,980 2,462,500
90,000 Lufkin Industries Inc. .... 1,619,261 1,350,000
18,000 Manitowoc Co. Inc. ........ 131,305 612,000
325,000 Mark IV Industries Inc. ... 3,988,945 5,748,437
35,000 Met-Pro Corp. ............. 451,219 350,000
335,000 Navistar International Corp.+ 4,409,529 15,870,625
20,000 PACCAR Inc. ............... 522,021 886,250
291,000 Pittway Corp. ............. 2,160,298 13,113,188
298,500 Pittway Corp., Cl. A ...... 1,033,598 13,376,531
97,355 Sequa Corp., Cl. A+ ....... 4,394,277 5,251,085
101,000 Sequa Corp., Cl. B+ ....... 5,203,090 6,060,000
200,000 SPS Technologies Inc.+ .... 3,630,150 6,387,500
150,000 UCAR International Inc.+ .. 3,045,815 2,671,875
30,000 Valmont Industries Inc. ... 242,908 481,875
300,000 Watts Industries Inc., Cl. A 3,599,129 4,425,000
120,000 Weir Group plc ............ 504,947 426,439
------------ --------------
67,057,695 159,471,698
------------ --------------
FINANCIAL SERVICES-- 5.6%
17,150 Aegon NV, ADR ............. 583,623 1,637,825
25,000 Aetna Inc. ................ 1,444,807 1,395,313
1 Al-Zar Ltd.+(a) ........... 0 350
3,500 Alleghany Corp. ........... 676,290 649,250
100,000 Allstate Corp. ............ 2,610,347 2,400,000
180,000 American Express Co. ...... 4,221,906 29,925,000
55,000 Argonaut Group Inc. ....... 1,552,581 1,093,125
20,000 Bank One Corp. ............ 675,375 641,250
220 Berkshire Hathaway
Inc., Cl. A+ ............ 874,549 12,342,000
135,000 Block (H&R) Inc. .......... 4,684,627 5,906,250
90,000 Commerzbank AG, ADR ....... 2,026,119 3,285,000
150,000 Deutsche Bank AG, ADR ..... 6,596,875 12,675,000
5,000 Dresdner Bank AG, ADR ..... 271,250 276,994
165,000 First Union Corp. ......... 5,644,628 5,414,063
135,000 Lehman Brothers Holdings Inc. 2,436,125 11,432,813
30,000 Leucadia National Corp. ... 777,424 693,750
100,000 Mellon Financial Corp. .... 3,432,807 3,406,250
31,834 Metris Companies Inc. ..... 438,360 1,136,076
249,000 Midland Co. ............... 2,630,796 5,166,750
2,000 MONY Group Inc. ........... 57,225 58,375
50,000 Paine Webber Group Inc. ... 1,351,388 1,940,625
50,000 Pioneer Group Inc.+ ....... 785,250 787,500
130,000 St. Paul Companies ........ 4,382,216 4,379,375
43,000 State Street Corp. ........ 638,075 3,141,688
See accompanying notes to financial statements.
13
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
20,000 SunTrust Banks Inc. ....... $ 424,879 $ 1,376,250
8,000 Value Line Inc. ........... 115,500 288,000
40,000 Waddell & Reed Financial
Inc., Cl. A ............. 911,069 1,085,000
------------ --------------
50,244,091 112,533,872
------------ --------------
FOOD AND BEVERAGE -- 5.4%
70,000 Bestfoods Inc. ............ 2,486,129 3,679,375
102,000 Brown-Forman Corp., Cl. A . 4,000,225 5,501,625
60,000 Celestial Seasonings Inc.+ 1,035,180 1,116,563
45,000 Coca-Cola Co. ............. 387,203 2,621,250
75,000 Corn Products
International Inc. ...... 2,298,207 2,456,250
80,000 Diageo plc, ADR ........... 3,409,235 2,560,000
4,500 Farmer Brothers Co. ....... 476,380 715,500
270,000 General Mills Inc. ........ 6,591,526 9,652,500
75,000 Heinz (H.J.) Co. .......... 3,109,069 2,985,938
65,000 Hershey Foods Corp. ....... 1,925,138 3,087,500
20,000 Keebler Foods Co.+ ........ 586,150 562,500
240,000 Kellogg Co. ............... 6,053,037 7,395,000
33,000 LVMH Moet Hennessy
Louis Vuitton, ADR ...... 1,144,063 3,003,000
380,000 Pepsi Bottling Group Inc. . 8,063,360 6,293,750
435,000 PepsiCo Inc. .............. 13,842,875 15,333,750
155,000 Quaker Oats Co. ........... 5,488,606 10,171,875
70,000 Ralcorp Holdings Inc.+ .... 928,877 1,395,625
15,000 Sara Lee Corp. ............ 210,603 330,937
180,000 Seagram Co. ............... 5,055,510 8,088,750
133,490 Tootsie Roll Industries Inc. 2,074,904 4,396,827
720,000 Whitman Corp. ............. 9,031,870 9,675,000
75,000 Wrigley (Wm.) Jr. Co. ..... 3,616,647 6,220,313
------------ --------------
81,814,794 107,243,828
------------ --------------
HEALTH CARE -- 2.3%
70,000 American Home
Products Corp. .......... 3,006,653 2,760,625
48,000 Amgen Inc.+ ............... 220,320 2,883,000
36,000 Biogen Inc.+ .............. 270,450 3,042,000
40,000 Chiron Corp.+ ............. 550,315 1,695,000
10,000 Glaxo Wellcome plc, ADR ... 549,120 558,750
100,000 IVAX Corp.+ ............... 884,612 2,575,000
64,000 Johnson & Johnson ......... 1,323,270 5,960,000
5,000 Life Technologies Inc. .... 193,900 213,125
110,000 Merck & Co. Inc. .......... 1,853,500 7,376,875
270,000 Pfizer Inc. ............... 1,561,130 8,758,125
45,000 SmithKline Beecham plc,
ADR ..................... 2,752,064 2,899,688
20,000 VISX Inc.+ ................ 1,053,751 1,035,000
MARKET
SHARES COST VALUE
------ ---- ------
60,000 Warner-Lambert Co. ........ $ 5,204,976 $ 4,916,250
105,000 Women First
Healthcare Inc. ......... 1,155,000 551,250
------------ --------------
20,579,061 45,224,688
------------ --------------
HOTELS AND GAMING -- 1.7%
70,000 Aztar Corp.+ .............. 668,738 761,250
65,000 Boca Resorts Inc., Cl. A+ . 544,500 633,750
330,000 Gaylord Entertainment
Co., Cl. A .............. 8,831,510 9,879,375
20,000 GTECH Holdings Corp.+ ..... 376,688 440,000
12,000 Harrah's Entertainment Inc. 113,002 317,250
550,000 Hilton Hotels Corp. ....... 6,957,689 5,293,750
914,000 Ladbroke Group plc ........ 3,341,331 2,926,932
100,000 Mandalay Resort Group ..... 1,626,501 2,012,500
350,000 Mirage Resorts Inc.+ ...... 3,446,432 5,359,375
230,000 Park Place
Entertainment Corp.+ .... 1,284,375 2,875,000
120,000 Starwood Hotels & Resorts
Worldwide Inc. .......... 3,231,430 2,820,000
60,000 Trump Hotels & Casino
Resorts Inc.+ ........... 256,680 202,500
------------ --------------
30,678,876 33,521,682
------------ --------------
METALS AND MINING -- 0.2%
30,000 Barrick Gold Corp. ........ 606,857 530,625
250,000 Echo Bay Mines Ltd.+ ...... 348,750 296,875
45,000 Homestake Mining Co. ...... 650,187 351,563
110,000 Newmont Mining Corp. ...... 2,673,833 2,695,000
25,000 Placer Dome Inc. .......... 314,038 268,750
250,000 Royal Oak Mines Inc.+ ..... 654,847 10,364
200,000 TVX Gold Inc.+ ............ 246,538 162,500
------------ --------------
5,495,050 4,315,677
------------ --------------
PAPER AND FOREST PRODUCTS -- 0.7%
220,000 Greif Bros. Corp., Cl. A .. 4,752,946 6,545,000
312,000 St. Joe Co. ............... 3,601,269 7,585,500
------------ --------------
8,354,215 14,130,500
------------ --------------
PUBLISHING -- 3.8%
8,000 Central Newspapers
Inc., Cl. A ............. 289,413 315,000
30,000 Dow Jones & Co. Inc. ...... 1,428,393 2,040,000
115,000 Harcourt General Inc. ..... 4,459,577 4,628,750
55,000 McClatchy Newspapers
Inc., Cl. A ............. 1,075,968 2,378,750
140,000 McGraw-Hill Companies Inc. 2,390,331 8,627,500
420,000 Media General Inc., Cl. A . 12,592,635 21,840,000
85,000 Meredith Corp. ............ 1,737,591 3,543,438
135,000 New York Times Co., Cl. A . 1,114,580 6,631,875
15,000 News Corp. Ltd., ADR ...... 255,587 573,750
400,000 Penton Media Inc. ......... 2,942,303 9,600,000
See accompanying notes to financial statements.
14
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
PUBLISHING (CONTINUED)
15,000 PRIMEDIA Inc.+ ............ $ 193,175 $ 247,500
110,000 Pulitzer Inc. ............. 4,851,454 4,434,375
140,000 Reader's Digest
Association Inc., Cl. B . 3,609,282 3,710,000
6,000 Scripps (E.W.) Co., Cl. A . 108,669 268,875
1,650,000 Seat-Pagine Gialle SpA .... 343,343 5,417,999
115,000 Thomas Nelson Inc. ........ 1,502,571 1,063,750
2,000 Tribune Co. ............... 94,988 110,125
------------ --------------
38,989,860 75,431,687
------------ --------------
REAL ESTATE -- 0.4%
400,000 Catellus Development
Corp.+ .................. 3,986,376 5,125,000
48,000 Florida East Coast
Industries Inc. ......... 631,838 2,004,000
71,000 Griffin Land &
Nurseries Inc.+ ......... 901,343 816,500
3,961 HomeFed Corp.+ ............ 709 3,466
------------ --------------
5,520,266 7,948,966
------------ --------------
RETAIL -- 2.6%
41,000 Aaron Rents Inc. .......... 146,083 727,750
20,000 Aaron Rents Inc., Cl. A ... 83,263 365,000
450,000 Albertson's Inc. .......... 14,529,423 14,512,500
570,000 AutoNation Inc.+ .......... 7,930,801 5,272,500
200,000 Blockbuster Inc., Cl. A+ .. 2,691,129 2,675,000
175,000 Burlington Coat Factory
Warehouse Corp. ......... 2,009,204 2,428,125
38,000 Coldwater Creek Inc.+ ..... 700,298 779,000
140,000 Gerald Stevens Inc.+ ...... 1,680,000 1,172,500
40,000 Hannaford Bros. Co. ....... 2,868,758 2,772,500
140,000 Kroger Co.+ ............... 818,000 2,642,500
180,500 Lillian Vernon Corp. ...... 2,618,022 2,008,063
425,000 Neiman Marcus
Group Inc., Cl. A+ ...... 5,921,686 11,873,438
190,000 Neiman Marcus
Group Inc., Cl. B+ ...... 4,758,792 5,118,125
------------ --------------
46,755,459 52,347,001
------------ --------------
SATELLITE -- 0.3%
85,000 COMSAT Corp. .............. 1,876,608 1,689,375
95,000 Globalstar
Telecommunications Ltd.+ 399,606 4,180,000
20,000 Loral Space &
Communications Ltd.+ .... 367,476 486,250
------------ --------------
2,643,690 6,355,625
------------ --------------
MARKET
SHARES COST VALUE
------ ---- ------
SPECIALTY CHEMICALS -- 1.1%
58,000 Dexter Corp. .............. $ 1,834,817 $ 2,305,500
5,000 du Pont de Nemours
(E.I.) & Co. ............ 296,957 329,375
435,000 Ferro Corp. ............... 6,888,399 9,570,000
105,000 General Chemical Group Inc. 353,319 242,813
155,000 Material Sciences Corp.+ .. 1,360,552 1,579,062
70,000 Monsanto Co. .............. 2,857,089 2,493,750
620,000 Omnova Solutions Inc. ..... 1,936,006 4,805,000
95,000 Sybron Chemicals Inc.+ .... 2,038,204 1,116,250
------------ --------------
17,565,343 22,441,750
------------ --------------
TELECOMMUNICATIONS -- 9.9%
5,000 Allegiance Telecom Inc.+ .. 74,063 461,250
100,000 Alltel Corp. .............. 3,046,704 8,268,750
200,000 AT&T Corp. ................ 2,802,037 10,150,000
212,000 BCE Inc. .................. 4,404,745 19,119,750
37,500 BCT.Telus Communications
Inc. .................... 658,391 913,145
7,500 BCT.Telus Communications
Inc., ADR ............... 134,330 181,070
12,500 BCT.Telus Communications
Inc., Cl. A ............. 219,464 301,784
22,500 BCT.Telus Communications
Inc., Cl. A, ADR ........ 402,989 547,887
15,000 Bell Atlantic Corp. ....... 956,453 923,438
35,000 BellSouth Corp. ........... 442,081 1,638,438
220,000 Cable & Wireless plc, ADR . 6,486,269 11,646,250
1,000 Cable & Wireless
Communications plc, ADR . 52,300 70,000
32,000 Cable & Wireless
HKT Ltd., ADR ........... 502,292 932,000
545,000 CenturyTel Inc. ........... 6,259,566 25,819,375
408,100 Citizens Utilities Co., Cl. B+ 4,184,671 5,789,919
325,665 Commonwealth Telephone
Enterprises Inc.+ ....... 5,594,615 17,219,537
31,500 Commonwealth Telephone
Enterprises Inc., Cl. B+ 214,105 1,992,375
60,000 Embratel Participacoes SA+ 1,263,631 1,635,000
160,000 GTE Corp. ................. 3,974,821 11,290,000
367,500 RCN Corp.+ ................ 2,599,665 17,823,750
490,000 Rogers Communications
Inc., Cl. B+ ............ 5,167,065 12,127,500
10,000 Rogers Communications
Inc., Cl. B, ADR+ ....... 77,553 244,545
30,000 SBC Communications Inc. ... 758,037 1,462,500
180,000 Sprint Corp. .............. 1,537,007 12,116,250
67,500 Tele Norte Leste
Participacoes SA, ADR ... 1,032,465 1,721,250
See accompanying notes to financial statements.
15
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
500,000 Telecom Italia SpA ........ $ 1,046,696 $ 7,050,751
120,000 Telecom Italia SpA, ADR ... 2,671,351 16,800,000
67,500 Telecomunicacoes
Brasileiras SA, ADR ..... 5,188 1,055
46,818 Telefonica SA, ADR ........ 586,566 3,689,844
10,000 Telefonos de Mexico
SA, Cl. L, ADR .......... 281,828 1,125,000
67,500 Telesp Participacoes
SA, ADR ................. 2,531,873 1,649,531
30,000 US West Inc. .............. 1,676,188 2,160,000
------------ --------------
61,645,009 196,871,944
------------ --------------
TRANSPORTATION -- 0.4%
110,000 AMR Corp.+ ................ 3,348,448 7,370,000
8,000 Kansas City Southern
Industries Inc. ......... 253,715 597,000
2,000 Providence & Worcester
Railroad Co. ............ 29,069 16,000
------------ --------------
3,631,232 7,983,000
------------ --------------
WIRELESS COMMUNICATIONS-- 7.2%
85,000 Associated Group Inc., Cl. A+ 1,677,738 7,756,250
40,000 Associated Group Inc., Cl. B+ 233,406 3,680,000
10,000 Leap Wireless
International Inc.+ ..... 140,705 785,000
45,000 NEXTEL Communications
Inc., Cl. A+ ............ 521,889 4,640,625
30,000 Omnipoint Corp.+ .......... 416,321 3,618,750
12,000 PNV.net Inc. .............. 204,000 98,250
120,000 Rogers Cantel Mobile
Communications Inc., Cl. B+ 1,977,330 4,365,000
45,000 Sprint Corp. (PCS Group)+ . 197,463 4,612,500
6,750 Tele Celular Sul Participacoes
SA, ADR ................. 107,916 214,313
22,500 Tele Centro Oeste Celular
Participacoes SA, ADR ... 67,447 146,250
13,500 Tele Centro Sul Participacoes
SA, ADR ................. 784,466 1,225,125
1,350 Tele Leste Celular Participacoes
SA, ADR ................. 36,110 57,375
3,375 Tele Nordeste Celular
Participacoes SA, ADR ... 49,807 170,438
1,350 Tele Norte Celular
Participacoes SA, ADR ... 20,857 57,966
MARKET
SHARES COST VALUE
------ ---- ------
13,500 Tele Sudeste Celular
Participacoes SA, ADR ... $ 427,513 $ 523,969
1,800,000 Telecom Italia Mobile SpA 1,661,796 20,106,728
3,375 Telemig Celular
Participacoes SA, ADR ... 97,539 155,883
698,000 Telephone & Data
Systems Inc. ............ 26,000,199 87,948,000
27,000 Telesp Celular Participacoes
SA, ADR ................. 863,327 1,144,125
35,000 Vodafone AirTouch plc, ADR 309,907 1,732,500
------------ --------------
35,795,736 143,039,047
------------ --------------
TOTAL COMMON STOCKS 885,939,070 1,877,154,093
------------ --------------
PREFERRED STOCKS -- 0.2%
METALS AND MINING -- 0.0%
10,000 Freeport-McMoRan Copper & Gold Inc.,
7.00% Cv. Pfd. .......... 213,000 190,625
------------ --------------
TELECOMMUNICATIONS-- 0.2%
8,000 Citizens Utilities Co.,
5.00% Cv. Pfd. .......... 401,463 451,000
35,000 Sprint Corp.,
8.25% Cv. Pfd. .......... 1,295,406 2,598,750
8,604,119 Telecomunicacoes de Sao
Paulo SA (Telesp), Pfd. . 152,310 208,614
------------ --------------
1,849,179 3,258,364
------------ --------------
WIRELESS COMMUNICATIONS -- 0.0%
1,588,267 Telesp Celular SA,
Pfd., Cl. B ............. 60,929 125,725
------------ --------------
TOTAL PREFERRED STOCKS 2,123,108 3,574,714
------------ --------------
PRINCIPAL
AMOUNT
------
CORPORATE BONDS -- 0.0%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.0%
$ 1,000,000 Standard Motor Products Inc.,
Sub. Deb. Cv.
6.75%, 07/15/09 ......... 1,000,447 798,125
------------ --------------
U.S. GOVERNMENT OBLIGATIONS-- 5.5%
109,725,000 U.S. Treasury Bills,
5.04% to 5.50%++,
due 01/13/00 to 03/30/00 109,349,636 109,355,902
------------ --------------
See accompanying notes to financial statements.
16
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
COST VALUE
---- ------
TOTAL
INVESTMENTS-- 99.8% ...... $998,412,261 $1,990,882,834
============
OTHER ASSETS AND
LIABILITIES (NET)-- 0.2% ............... 2,991,989
--------------
NET ASSETS -- 100.0%
(48,816,448 shares outstanding) ....... $1,993,874,823
==============
NET ASSET VALUE,
OFFERING AND REDEMPTION
PRICE PER SHARE ........................ $40.84
======
For Federal tax purposes:
Aggregate cost .............. $1,000,118,177
==============
Gross unrealized appreciation $1,012,561,697
Gross unrealized depreciation (21,797,040)
--------------
Net unrealized appreciation $ 990,764,657
==============
PRINCIPAL SETTLEMENT NET UNREALIZED
AMOUNT DATE DEPRECIATION
------ ---- ------------
FORWARD FOREIGN EXCHANGE CONTRACTS
19,646,294(b) Deliver Hong Kong Dollars
in exchange for
USD 2,494,134 ............. 08/24/00 $(26,369)
========
------------------------
(a) Security fair valued under procedures established 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
See accompanying notes to financial statements.
17
<PAGE>
THE GABELLI ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $998,412,261) .......... $1,990,882,834
Cash and foreign currency, at value
(Cost $4,073,997) ................................ 4,247,650
Dividends and interest receivable .................. 1,420,415
Receivable for investments sold .................... 8,111,572
Receivable for Fund shares sold .................... 2,901,668
--------------
TOTAL ASSETS ....................................... 2,007,564,139
--------------
LIABILITIES:
Payable for investments purchased .................. 8,439,142
Payable for Fund shares redeemed ................... 2,843,036
Payable for investment advisory fees ............... 1,632,613
Payable for distribution fees ...................... 408,950
Unrealized depreciation of forward
foreign exchange contracts ....................... 26,369
Payable for shareholder services fees .............. 134,600
Payable to custodian ............................... 42,000
Other accrued expenses ............................. 162,606
--------------
TOTAL LIABILITIES .................................. 13,689,316
--------------
NET ASSETS applicable to 48,816,448
shares outstanding ............................... $1,993,874,823
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest, at par value ........ $ 488,164
Additional paid-in capital ......................... 1,000,558,385
Accumulated net realized gain on investments
and foreign currency transactions ................ 203,173
Net unrealized appreciation on investments
and foreign currency transactions ................ 992,625,101
--------------
TOTAL NET ASSETS $1,993,874,823
==============
NET ASSET VALUE, offering and redemption price
per share ($1,993,874,823 / 48,816,448 shares
outstanding; unlimited number of shares authorized
of $0.01 par value) .............................. $40.84
======
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign taxes
of $105,672) ..................................... $ 17,667,911
Interest ........................................... 4,376,558
------------
TOTAL INVESTMENT INCOME ............................ 22,044,469
------------
EXPENSES:
Investment advisory fees ........................... 17,438,429
Distribution fees .................................. 4,360,404
Shareholder services fees .......................... 1,072,096
Custodian fees ..................................... 302,319
Shareholder communications expenses ................ 284,446
Legal and audit fees ............................... 95,020
Trustees' fees ..................................... 61,494
Miscellaneous expenses ............................. 209,477
------------
TOTAL EXPENSES ..................................... 23,823,685
------------
NET INVESTMENT LOSS ................................ (1,779,216)
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments and
foreign currency transactions .................... 207,702,430
Net change in unrealized appreciation
on investments and foreign currency
transactions ..................................... 242,987,788
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS ..................................... 450,690,218
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .................................. $448,911,002
============
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .............................................. $ (1,779,216) $ 882,548
Net realized gain on investments and foreign currency transactions ........ 207,702,430 59,477,782
Net change in unrealized appreciation on investments and
foreign currency transactions ........................................... 242,987,788 164,961,752
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... 448,911,002 225,322,082
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ..................................................... -- (689,228)
Net realized gain on investments .......................................... (204,782,027) (59,477,782)
In excess of net realized gain on investments ............................. -- (92,619)
-------------- --------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ....................................... (204,782,027) (60,259,629)
-------------- --------------
SHARE TRANSACTIONS:
Net increase in net assets from shares of beneficial interest transactions 173,769,943 75,861,674
-------------- --------------
NET INCREASE IN NET ASSETS ................................................ 417,898,918 240,924,127
NET ASSETS:
Beginning of period ....................................................... 1,575,975,905 1,335,051,778
-------------- --------------
End of period ............................................................. $1,993,874,823 $1,575,975,905
============== ==============
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
THE GABELLI ASSET FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION. 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"). The Fund's primary objective is growth of
capital. The Fund commenced investment 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 Gabelli Funds, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available 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 maturity greater than 60 days 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 and foreign
currency transactions. 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/(loss) 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.
19
<PAGE>
THE GABELLI ASSET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 and foreign currency transactions. Net realized foreign currency
gains and losses resulting from changes in exchange rates include foreign
currency gains and losses between trade date and settlement date on investment
securities transactions, foreign currency transactions and the difference
between the amounts of interest and dividends recorded on the books of the Fund
and the amounts actually received. The portion of foreign currency gains and
losses related to fluctuation in exchange rates between the initial trade date
and subsequent sale trade date is included in realized gain/(loss) on
investments.
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.
For the year ended December 31, 1999, reclassifications were made to increase
undistributed net investment loss for $1,779,216 with an offsetting adjustment
to accumulated net realized gain on investments and foreign currency
transactions.
PROVISION FOR INCOME TAXES. The Fund 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.
20
<PAGE>
THE GABELLI ASSET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 year ended
December 31, 1999, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an affiliate of the Adviser, of $4,360,404 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 year ended
December 31, 1999, other than short term securities, aggregated $523,069,501 and
$615,201,605, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1999, the
Fund paid brokerage commissions of $703,715 to Gabelli & Company, Inc. and its
affiliates.
7. LINE OF CREDIT. The Fund has access to an unsecured line of credit up to
$25,000,000 from the custodian for temporary borrowing purposes. Borrowings
under this arrangement bear interest at 0.75% above the Federal Funds rate on
outstanding balances. There were no borrowings against the line of credit during
the year ended December 31, 1999.
8. SHARES OF BENEFICIAL INTEREST. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold ..................................... 67,482,198 $2,639,715,706 50,493,058 $1,716,293,181
Shares issued upon reinvestment of dividends .... 4,868,830 194,350,061 1,648,815 57,057,140
Shares redeemed ................................. (67,963,789) (2,660,295,824) (49,630,901) (1,697,488,647)
----------- -------------- ----------- --------------
Net increase ................................ 4,387,239 $ 173,769,943 2,510,972 $ 75,861,674
=========== ============== =========== ==============
</TABLE>
9. NEW SHARE CLASSES. On March 9, 1999, the Board of Trustees of the Fund
approved a Rule 18f-3 Multi-Class Plan relating to the creation of three
additional classes of shares of the Fund - Class A Shares, Class B Shares and
Class C Shares (the "New Share Classes"). The existing class of shares was
redesignated as Class AAA Shares. In addition, the Board had also approved an
Amended and Restated Distribution Agreement, Rule 12b-1 plans for each of the
New Share Classes and an Amended and Restated Plan of Distribution for the
existing class of shares (Class AAA Shares) to be effective upon the
commencement of the offering of the New Share Classes. On August 31, 1999,
shareholder approval permitting the Fund to offer additional classes of shares
was attained. The New Share Classes are currently not being offered to the
public.
21
<PAGE>
THE GABELLI ASSET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ........ $ 35.47 $ 31.85 $ 26.42 $ 25.75 $ 22.21
---------- ---------- ---------- ---------- ----------
Net investment income (loss) ................ (0.06) 0.02 0.07 0.15 0.26
Net realized and unrealized
gain on investments ....................... 10.06 5.02 9.97 3.29 5.28
---------- ---------- ---------- ---------- ----------
Total from investment operations ............ 10.00 5.04 10.04 3.44 5.54
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ....................... -- (0.02) (0.07) (0.15) (0.25)
In excess of net investment income .......... -- -- (0.00)(a) -- --
Net realized gain on investments ............ (4.63) (1.40) (4.54) (2.61) (1.75)
In excess of net realized gain on investments -- (0.00)(a) (0.00)(a) (0.01) (0.00)(a)
---------- ---------- ---------- ---------- ----------
Total distributions ......................... (4.63) (1.42) (4.61) (2.77) (2.00)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD .............. $ 40.84 $ 35.47 $ 31.85 $ 26.42 $ 25.75
========== ========== ========== ========== ==========
Total return+ ............................... 28.5% 15.9% 38.1% 13.4% 24.9%
========== ========== ========== ========== ==========
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ........ $1,993,875 $1,575,976 $1,335,052 $1,080,639 $1,091,539
Ratio of net investment income (loss)
to average net assets ..................... (0.10)% 0.06% 0.22% 0.52% 0.95%
Ratio of operating expenses
to average net assets ..................... 1.37% 1.36% 1.38% 1.34% 1.33%
Portfiolio turnover rate .................... 32% 21% 22% 15% 26%
</TABLE>
- --------------------------------
+ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends.
(a) Amount represents less than $0.005 per share.
See accompanying notes to financial statements.
22
<PAGE>
THE GABELLI ASSET FUND
REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To The Board of Trustees and Shareholders of
The Gabelli Asset Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Asset Fund (the "Fund")
at December 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
1999 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended December 31, 1999, the Fund paid to shareholders, on
December 27, 1999, an ordinary income dividend (comprised of short term capital
gains) totaling $0.42 per share and long term capital gains totaling $4.21 per
share. For the fiscal year ended December 31, 1999, 81.20% of the ordinary
income dividend qualifies for the dividend received deduction available to
corporations.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividend paid by the Fund during fiscal
year 1999 which was derived from U.S. Treasury securities was 22.80%. Such
income is exempt from state and local tax in all states. However, many states,
including New York and California, allow a tax exemption for a portion of the
income earned only if a mutual fund has invested at least 50% of its assets at
the end of each quarter of the Fund's fiscal year in U.S. Government securities.
The Gabelli Asset Fund did not meet this strict requirement in 1999. Due to the
diversity in state and local tax law, it is recommended that you consult your
personal tax advisor as to the applicability of the information provided to your
specific situation.
- --------------------------------------------------------------------------------
23
<PAGE>
THE GABELLI ASSET FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
BOARD OF TRUSTEES
Mario J. Gabelli, CFA Karl Otto Pohl
CHAIRMAN AND CHIEF FORMER PRESIDENT
INVESTMENT OFFICER DEUTSCHE BUNDESBANK
GABELLI 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 OFFICER CHAIRMAN
FINANCIAL SECURITY ASSURANCE THE BETHLEHEM CORP.
HOLDINGS, LTD.
John D. Gabelli
SENIOR VICE PRESIDENT
GABELLI & COMPANY, INC.
OFFICERS AND PORTFOLIO MANAGERS
Mario J. Gabelli, CFA Bruce N. Alpert
PORFOLIO 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 Blue Chip Value Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
GAB405Q499SR
[Photo of Mario J. Gabelli omitted]
THE
GABELLI
ASSET
FUND
ANNUAL REPORT
DECEMBER 31, 1999
