GABELLI GROWTH FUND, 497, 1999-05-07

GABELLI GROWTH FUND
497, 1999-05-07

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THE GABELLI ASSET FUND
Class AAA Shares

PROSPECTUS
May 1, 1999

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The Gabelli Asset Fund
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
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.

Officers and Portfolio Managers

Mario J. Gabelli, CFA Bruce N. Alpert
Portfolio Manager President and Treasurer

James E. McKee
Secretary

TABLE OF CONTENTS
Page
INVESTMENT AND PERFORMANCE SUMMARY............................................3
INVESTMENT AND RISK INFORMATION...............................................5
MANAGEMENT OF THE FUND........................................................6
DIVIDENDS AND DISTRIBUTIONS...................................................7
PURCHASING, SELLING AND EXCHANGING SHARES.....................................7
PRICING OF FUND SHARES........................................................8
TAX INFORMATION...............................................................8
FINANCIAL HIGHLIGHTS..........................................................9

INVESTMENT AND PERFORMANCE SUMMARY

Investment Objective:

The Gabelli Asset Fund (the "Fund") seeks to provide growth of capital. Capital
is the amount of money you invest in the Fund. The Fund's secondary goal is to
provide current income.

Principal Investment Strategies:

The Fund will primarily invest in common stocks and preferred stocks and may
also invest in securities which may be converted into common stocks. In making
stock selections, the Fund strives to earn a 10% real rate of return. The Fund
focuses on companies which appear underpriced relative to their "private market
value." Private market value is the value the Fund's adviser believes informed
investors would be willing to pay for a company.

Principal Risks:

The Fund's share price will fluctuate with changes in the market value of the
Fund's portfolio securities. Stocks are subject to market, economic and business
risks that cause their prices to fluctuate. Investments in foreign securities
involve risks related to political, social and economic developments abroad, as
well as risks resulting from the differences between the regulations to which
U.S. and foreign issuers and markets are subject. When you sell Fund shares,
they may be worth less than what you paid for them. Consequently, you can lose
money by investing in the Fund. The Fund is also subject to the risk that the
issuers' private market values may never be realized by the market, or that the
portfolio securities' prices decline.

Who May Want to Invest:

The Shares offered herein (which for convenience are referred to as the "Class
AAA Shares") are offered only to investors who acquire them directly through the
Fund's distributor or through a select number of financial intermediaries with
whom the distributor has entered into selling agreements specifically
authorizing them to offer Class AAA Shares.

The Fund may appeal to you if:

you are a long-term investor or saver
you seek growth of capital
you believe that the market will favor value over growth
stocks over the long term you wish to include a value
strategy as a portion of your overall investments.

You may not want to invest in the Fund if:

you are seeking a high level of current income you are
conservative in your investment approach you seek stability
of principal more than growth of capital

An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

Performance:

The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year (since 1989), and by showing how the Fund's average annual returns for 1, 5
and 10 years compared to those of the S&P(R) 500 Stock Index. As with all mutual
funds, the Fund's past performance does not predict how the Fund will perform in
the future.

BAR CHART (GRAPHIC OMITTED)
EDGAR REPRESENTATION OF DATA POINTS
USED IN PRINTED GRAPHIC

Calendar Year Total Return
------------- ------------
1989 26.2%
1990 (5.0)
1991 18.1
1992 14.9
1993 21.8
1994 (0.1)
1995 24.9
1996 13.4
1997 38.1
1998 15.9

During the period shown in the bar chart, the highest return for a quarter was
18.2% (quarter ended 12/31/98) and the lowest return for a quarter was (14.2)%
(quarter ended 9/30/98).
<TABLE>
<CAPTION>
<S> <C> <C> <C>

---------------------------------------------- ----------------------- ---------------------- ---------------------
Average Annual Total Returns Past One Year Past Five Years Past Ten Years
(for the periods ended December 31, 1998)
---------------------------------------------- ----------------------- ---------------------- ---------------------
---------------------------------------------- ----------------------- ---------------------- ---------------------
The Gabelli Asset Fund Class AAA Shares 15.9% 17.8% 16.2%
---------------------------------------------- ----------------------- ---------------------- ---------------------
---------------------------------------------- ----------------------- ---------------------- ---------------------
S&P(R)500 Stock Index* 28.7% 24.1% 19.2%
---------------------------------------------- ----------------------- ---------------------- ---------------------

* The S&P(R) 500 Composite Stock Price Index is a widely recognized,
unmanaged index of common stock prices. The performance of the Index does
not include expenses or fees.
</TABLE>

Fees and Expenses of the Fund:

This table describes the fees and expenses that you may pay if you buy and hold
Class AAA Shares of the Fund.

Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees..................................................... 1.00%
Distribution (Rule 12b-1) Expenses1................................. 0.25%
Other Expenses...................................................... 0.11%
----
Total Annual Operating Expenses...............................................
1.36%

1 Long-term shareholders may indirectly pay more than the equivalent of the
maximum permitted front-end sales
charge.

Expense Example:

This example is intended to help you compare the cost of investing in Class AAA
Shares of the Fund with the cost of investing in other mutual funds. The example
assumes (1) you invest $10,000 in the Fund for the time periods shown, (2) you
redeem your shares at the end of those periods, (3) your investment has a 5%
return each year and (4) the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

$138 $431 $745 $1,635

INVESTMENT AND RISK INFORMATION

The Fund's primary investment objective is to seek growth of capital, and
investments will be made based on management's perception of their potential for
capital appreciation. Current income, to the extent it may affect potential
growth of capital, is a secondary objective. The investment objectives of the
Fund may not be changed without shareholder approval.

Under normal market conditions, the Fund invests at least 80% of its assets in
stocks that are listed on a nationally recognized securities exchange or traded
on the NASDAQ National Market System of the National Association of Securities
Dealers. The Fund's adviser, Gabelli Funds, LLC (the "Adviser"), will invest in
companies that, in the public market, are selling at a significant discount to
their "private market value." Private market value is the value the Adviser
believes informed investors would be willing to pay to acquire companies with
similar characteristics. The Adviser considers factors such as price, earnings
expectations, earnings and price histories, balance sheet characteristics and
perceived management skills. The Adviser also considers changes in economic and
political outlooks as well as individual corporate developments. The Adviser
will sell any Fund investments which lose their perceived value relative to
other investments.

The Fund's assets will be invested primarily in a broad range of readily
marketable equity securities consisting of common stock, preferred stock and
securities which may be converted at a later time into common stock. Many of the
common stocks the Fund will buy will not pay dividends; instead, stocks will be
bought for the potential that their prices will increase, providing capital
appreciation for the Fund. The value of equity securities will fluctuate due to
many factors, including the past and predicted earnings of the issuer, the
quality of the issuer's management, general market conditions, the forecasts for
the issuer's industry and the value of the issuer's assets. Holders of equity
securities only have rights to value in the company after all debts have been
paid, and they could lose their entire investment in a company that encounters
financial difficulty. Warrants are rights to purchase securities at a specified
time at a specified price.

The Fund may also use the following investment techniques:

Foreign Securities. The Fund may invest up to 25% of its
total assets in securities of non-U.S.
issuers.

Defensive Investments. When opportunities for capital growth do not
appear attractive or when adverse market or economic conditions occur,
the Fund may temporarily invest all or a portion of its assets in
defensive investments. Such investments include preferred stocks,
high-grade debt securities, obligations of the U.S. Government and its
agencies and instrumentalities, and short-term money market instruments
such as high-quality commercial paper (rated at least "A-1" by Standard
& Poor's Rating Service ("S&P") or "P-1" by Moody's Investors Service,
Inc.). When following a defensive strategy, the Fund will be less
likely to achieve its investment goal of capital growth.

Borrowing. The Fund may borrow money from banks (1) as may be
necessary for the clearance of portfolio transactions, and (2) for
temporary or emergency purposes, including the meeting of redemption
requests. Borrowing for any purpose (including redemptions) may not
exceed 15% of the value of the Fund's total assets. Borrowing for
purposes other than meeting redemptions may not exceed 5% of the value
of the Fund's total assets at the time a borrowing is made. The Fund
will not make any additional purchases of portfolio securities at any
time its borrowings exceed 5% of its assets. The Fund may use not more
than 20% of its assets as collateral in connection with the borrowings
described above. The Fund may also engage to a limited extent in other
investment practices in order to achieve its investment goal.

Investing in the Fund involves the following risks, listed in the order of
importance.

Equity Risk. The principal risk of investing in the Fund is equity
risk. Equity risk is the risk that the prices of the securities held by
the Fund will change due to general market and economic conditions,
perceptions regarding the industries in which the companies issuing the
securities participate and the issuer company's particular
circumstances.

Fund and Management Risk. The Fund invests in stocks issued by
companies believed by the Adviser to be trading at a discount to their
private market value (value stocks). The Fund's price may decline
because the market favors other stocks or large capitalization stocks
over stocks of small to mid-size companies. If the Adviser is incorrect
in its assessment of the private market values of the securities it
holds, then the value of the Fund's shares may decline.

Foreign Risk. Prices of the Fund's investments in foreign securities
may go down because of unfavorable foreign government actions,
political instability or the absence of accurate information about
foreign issuers. Also, a decline in the value of foreign currencies
relative to the U.S. dollar will reduce the value of securities
denominated in those currencies. Foreign securities are sometimes less
liquid and harder to value than securities of U.S. issuers.

Borrowing Risk. Borrowing may exaggerate the effect on net asset value
of any increase or decrease in the market value of securities purchased
with borrowed funds. Money borrowed will be subject to interest costs
which may or may not be recovered by an appreciation of securities
purchased.

MANAGEMENT OF THE FUND

The Adviser. Gabelli Funds, LLC, with principal offices located at One Corporate
Center, Rye, New York 10580-1434, serves as investment adviser to the Fund. The
Adviser makes investment decisions for the Fund and continuously reviews and
administers the Fund's investment program under the supervision of the Fund's
Board of Trustees. The Adviser also manages several other open-end and
closed-end investment companies in the Gabelli family of funds. The Adviser is a
New York limited liability company organized in 1999 as successor to Gabelli
Funds, Inc., a New York corporation organized in 1980. The Adviser is a wholly
owned subsidiary of Gabelli Asset Management Inc. ("GAMI"), a publicly held
company listed on the New York Stock Exchange.

As compensation for its services and the related expenses the Adviser bears, for
the fiscal year ended December 31, 1998, the Fund paid the Adviser an annual fee
equal to 1.00% of the value of the Fund's average daily net assets.

The Portfolio Manager. Mr. Mario J. Gabelli, CFA, is responsible for the
day-to-day management of the Fund. Mr. Gabelli has been Chairman, Chief
Executive Officer and Chief Investment Officer of the Adviser and its
predecessor since inception, as well as its parent company, GAMI. Mr. Gabelli
also acts as Chief Executive Officer and Chief Investment Officer of GAMCO
Investors, Inc. ("GAMCO"), a wholly-owned subsidiary of GAMI, and is an officer
or director of various other companies affiliated with GAMI. The Adviser relies
to a considerable extent on the expertise of Mr. Gabelli, who may be difficult
to replace in the event of his death, disability or resignation.

Year 2000. As the year 2000 approaches, an issue has emerged regarding how the
software used by the Fund's service providers can accommodate the date "2000."
Failure to adequately address this issue could result in major systems or
process failures which could disrupt the Fund's operations. The Adviser is
working with the Fund's service providers to prepare for the year 2000. Based on
information currently available, the Adviser does not expect that the Fund will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant. The Fund cannot guarantee, however, that all year 2000
issues will be identified and corrected by January 1, 2000 and any non-compliant
computer system could hurt key Fund operations such as shareholder servicing,
pricing and trading. In addition, the Year 2000 problem may adversely affect the
companies in which the Fund invests, particularly companies in foreign
countries. For example, these companies may incur substantial costs to correct
the Year 2000 problem, which could lower the value of such companies' securities
and negatively affect the Fund's performance.

Rule 12b-1 Plan. The Fund has adopted a plan under Rule 12b-1 (the "Plan") which
authorizes payments by the Fund on an annual basis of .25% of the Fund's average
daily net assets attributable to Class AAA Shares to finance distribution of the
Fund's Class AAA Shares. The Fund may make payments under the Plan for the
purpose of financing any activity primarily intended to result in the sales of
Class AAA Shares of the Fund. To the extent any activity is one which the Fund
may finance without a distribution plan, the Fund may also make payments to
compensate such activity outside of the Plan and not be subject to its
limitations. Because payments under the Plan are paid out of the Fund's assets
on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

PURCHASING, SELLING AND EXCHANGING SHARES

Information about purchasing, selling and exchanging your shares is contained in
a separate document called the Owner's Manual which has been delivered with this
Prospectus. The Owner's Manual is considered an integral part of this
Prospectus. The Owner's Manual also contains information about the Telephone
Investment Plan, Telephone Redemption Plan, Automatic Investment Plan,
Systematic Withdrawal Plan and Retirement Plans.

PRICING OF FUND SHARES

The net asset value per share of the Class AAA Shares is calculated on each day
the New York Stock Exchange ("NYSE") is open for trading. The NYSE is open
Monday through Friday, but currently is scheduled to be closed on New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday when a holiday falls on a Saturday or
Sunday, respectively.

The net asset value per share of the Class AAA Shares is determined as of the
close of regular trading on the NYSE, normally 4:00 p.m., New York time. Net
asset value is computed by dividing the value of the Fund's net assets (i.e. the
value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus) by the
total number of its shares outstanding at the time the determination is made.
The Fund uses market quotations in valuing its portfolio securities. Short-term
investments that mature in 60 days or less are valued at amortized cost, which
the Trustees of the Fund believes represents fair value.

The Fund may from time to time hold securities that are primarily listed on
foreign exchanges. Such securities may trade on days when the Fund does not
price its shares. Therefore, the net asset value of the Class AAA Shares may
change on days when you are not able to purchase or redeem Class AAA Shares.

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to pay dividends and capital gain distributions, if any, on an
annual basis. Shareholders may have dividends or capital gains distributions
that are declared by the Fund automatically reinvested at net asset value in
additional shares of the Fund. You will make an election to receive dividends
and distributions in cash or Fund shares at the time you purchase your shares.
You may change this election by notifying the Fund in writing at any time prior
to the record date for a particular dividend or distribution. There are no sales
or other charges in connection with the reinvestment of dividends and capital
gains distributions. There is no fixed dividend rate, and there can be no
assurance that the Fund will pay any dividends or realize any capital gains.

TAX INFORMATION

The Fund expects that its distributions will consist primarily of net investment
income and capital gains, which may be taxable at different rates depending on
the length of time the Fund holds its assets. Dividends out of net investment
income and distributions of realized short-term capital gains are taxable to you
as ordinary income. Distributions of net long-term capital gains are taxable to
you at long-term capital gain rates. The Fund's distributions, whether you
receive them in cash or reinvest them in additional shares of the Fund, may be
subject to federal state or local taxes. An exchange of the Fund's shares for
shares of another fund will be treated for tax purposes as a sale of the Fund's
shares; therefore, any gain you realize on such a transaction may be taxable.
Foreign shareholders may be subject to special withholding requirements.

This summary of tax consequences is intended for general information only. You
should consult a tax adviser concerning the tax consequences of your investment
in the Fund.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the past five fiscal years of the Fund. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the Fund's Class AAA Shares. This information has been
audited by PricewaterhouseCoopers LLP, independent accountants, whose report
along with the Fund's financial statements and related notes are included in the
annual report, which is available upon request.

Per share amounts for the Fund's Class AAA Shares outstanding throughout each
year ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>

1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Operating performance:
Net asset value, beginning of year..... $31.85 $ 26.42 $ 25.75 $ 22.21 $ 23.30
------ ------- ------- ------- -------
Net investment income.................. 0.02 0.07 0.15 0.26 0.26
Net realized and unrealized gain/(loss)
on investments................ 5.02 9.97 3.29 5.28 (0.30)
---- ---- ---- ---- ------
Total from investment operations 5.04 10.04 3.44 5.54 (0.04)
---- ----- ---- ---- ------

Distributions to shareholders:
Net investment income.................. (0.02) (0.07) (0.15) (0.25) (0.25)
In excess of net investment income..... (0.00)(a) ----- ----- (0.01)
Net realized gains and investments..... (1.40) (4.54) (2.61) (1.75) (0.76)
In excess of net realized gains........ 0.00(a) (0.00)(a) (0.01) (0.00)(a) (0.03)
------- --------- ------ --------- ------
Total distributions.................... (1.42) (4.61) (2.77) (2.00) (1.05)
------ ------ ------ ------ ------

Net asset value, end of year........... $35.47 $31.85 $ 26.42 $25.75 $22.21
------ ------ ------- ------ ------

Total return+.......................... 15.9% 38.1% 13.4% 24.9% (0.1)%
----- ----- ----- ----- ------

Ratios to average net assets and supplemental data:
Net assets, end of year (in 000's) $1,575,976 $1,335,052 $1,080,639 $1,091,539 $982,250
Ratio of net investment income to
average net assets................ 0.06% 0.22% 0.52% 0.95% 1.10%
Ratio of operating expenses to
average net assets................ 1.36% 1.38% 1.34% 1.33% 1.28%
Portfolio turnover rate................ 21% 22% 15% 26% 19%

+ 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.
</TABLE>

[BACK COVER PAGE]

The Gabelli Asset Fund
Class AAA Shares

For More Information:
For more information about the Fund, the following documents are available free
upon request:

Owner's Manual:
Information about purchasing, selling and exchanging shares of the Fund is
included in a separate document entitled "Owner's Manual." The Owner's Manual is
incorporated by reference into the Prospectus. If you have not received it,
please contact the Fund at the number listed below.

Annual/Semi-annual Reports:
The Fund's semi-annual and audited annual reports to shareholders contain
detailed information on the Fund's investments. In the annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.

Statement of Additional Information (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investments policies. It is incorporated by reference, and is
legally considered a part of this prospectus.

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You can get free copies of these documents and prospectuses of other funds in
the Gabelli family, or request other information and discuss your questions
about the Fund by contacting:
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The Gabelli Asset Fund
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One Corporate Center
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Rye, NY 10580
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Telephone: 1-800-GABELLI (1-800-422-3554)
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www.gabelli.com
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You can review the Fund's reports and SAIs at the Public Reference
Room of the Securities and Exchange
Commission. You can get text-only copies:
o For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling
1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov

(Investment Company Act file no. 811-4494)

THE GABELLI FAMILY
OF FUNDS

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Owner's Manual
- -------------------------------------------------------------------------------
AAA Class -

No-Load Class

Gabelli Global Series Funds, Inc.
Gabelli Gold Fund, Inc.
Gabelli International Growth Fund, Inc.
Gabelli ABC Fund
Gabelli Asset Fund
Gabelli Growth Fund

May 1, 1999

The information contained in the Owner's Manual is
incorporated by reference into, and is legally
considered part of, the Prospectuses for the
Gabelli family of Funds. The Owner's Manual
must be preceded or accompanied by a Gabelli
Funds Prospectus.

Owner's Manual
Table of Contents

Purchasing Shares
----------------------------------------------------------------------------
3 Instructions for Opening or Adding to
an Account 4 Telephone Investment Plan
4 Automatic Investment Plan 4
Retirement Plans 4 Minimum Investments
5 Dividends and Distributions

Selling Shares
----------------------------------------------------------------------------
5 Instructions for Selling Shares
5 By Bank Wire or Check via Telephone
5 By Bank Wire or Check via Mail
6 General Policies on Selling Shares
6 Signature Guarantees
6 Verifying Telephone Redemptions
6 Redemptions Within 15 Days of Investment
6 Refusal of Redemption Request
6 Closing of Small Accounts
6 Undeliverable Distribution Checks

Exchanging Shares
-----------------------------------------------------------------------
7 Instructions for Exchanging Shares

Pricing of Fund Shares
------------------------------------------------------------------------
7 How NAV is Calculated

PURCHASING SHARES

Instructions for Opening or Adding to an Account

Purchases through Brokers/Dealers:
If purchasing through your financial advisor or brokerage account, simply tell
your advisor or broker that you wish to purchase shares of the Funds and he or
she will take care of the necessary documentation. Your should state
specifically which class of shares you are buying. For all other purchases
directly with the Fund, follow the instructions below.

Purchases directly from the Fund:
All investments made by regular mail or personal delivery, whether initial or
subsequent, should be sent to:

By Regular Mail By Overnight Delivery
The Gabelli Funds The Gabelli Funds

PO Box 8308 c/o BFDS Building, 6th Floor
Boston, MA 02266-8308 Two Heritage Drive
Quincy, MA 02171

For Initial Investment:

1. Carefully read and complete the application.
2. Make check, bank draft or money order payable to "[name of Fund]." 3. Mail or
deliver application and payment to the address above.

For Subsequent Investments:
1. Make check, bank draft or money order payable to "[name of Fund]." 2. Provide
the exact name and number of your account.
3. Mail or deliver payment to the address above.

By Wire Transfer

For Initial Investment:
Call 1-800-GABELLI (1-800-422-3554) to obtain a new account number.
Promptly mail the completed application to
the address shown above for regular mail, and

For Initial and Subsequent Investments:
Instruct your bank to wire transfer your investment to:
State Street Bank and Trust Company
ABA #011-0000-28 REF DDA# 9904-6187
Attn: Shareholder Services
Re: [Fund Name]
A/C#___________________________
Your name ______________________
225 Franklin Street, Boston, MA 02110

Note: Your bank may charge a wire transfer fee.

Call 1-800-GABELLI
or your investment representative.
Questions?
Call 1-800-GABELLI
or your investment representative.

Purchasing Shares (continued)

You can add to your account by using the convenient options described below. The
Fund reserves the right to change or eliminate these privileges at any time upon
60 days notice to shareholders.

Telephone Investment Plan Automatic Investment Plan

You may purchase additional shares of the Funds by You can make automatic
monthly investments in the telephone as long as your bank is a member of the
Funds. Details about this plan can be obtained from Automated Clearing House
(ACH) system. You must also the Distributor on a separate application by calling
have a completed, approved Investment Plan application 1-800-GABELLI
(800-422-3554).
on file with the Fund's Transfer Agent.
------------------------------------------------------
There is a minimum of $100 for each telephone
investment. To initiate an ACH purchase, please call
1-800-GABELLI (1-800-422-3554) or 1-800-872-5365. Retirement Plans

You can invest in
various types of
retirement plans
through the Fund.
Details about these
plans can be
obtained from the
Distributor on a
separate application
by calling
1-800-GABELLI
(800-422-3554).

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Minimum Investments
You may purchase Funds through the Distributor or participating
organizations, which may charge additional fees and may require higher or
lower minimum investments or impose other limitations on buying and selling
shares.

Minimum
Initial Minimum
Account type Investment Subsequent
................................ ......................................
................................ ......................................

Regular (non-retirement) $ 1,000 $ 0

Retirement (IRA)
Traditional IRA $ 1,000 $ 0
Roth IRA $ 1,000 $ 0
Spousal IRA $ 250 $ 0
Education IRA $ 250 $ 0
................................ ......................................
................................ .......................................

Automatic Investment Plan $ 0 $ 100
................................ ......................................
................................ .......................................

Telephone Investment Plan $ 100 $ 100
................................ .......................................

All purchases must be in U.S. dollars. A fee will be charged for any
checks that do not clear. Third-party checks are not accepted. Your
purchase of shares will be effective on the same business day if the
Fund's transfer agent receives your order by 4:00 p.m. (12 noon for a
money market fund), and receives Federal funds by 4:00 p.m., eastern time.
Otherwise, your purchase will be effective on the next business day. (See
"Pricing of Fund Shares.") Shares are held on account for you unless you
specify in writing that you would like to receive a stock certificate
(certificates are not available for money market funds). We can only issue
a certificate for whole shares.

The Distributor may reject a purchase order if it considers it in the
best interest of the Fund and its shareholders. A Fund may waive its
minimum purchase requirement.

Dividends and Distributions

All dividends and distributions will be automatically reinvested unless you
request otherwise.

SELLING SHARES

As a mutual fund shareholder, you are technically selling shares when
you request a withdrawal in cash. This is also known as redeeming shares.
- ------------------------------------------------------------------------------
Withdrawing Money from Your Investment
- ------------------------------------------------------------------------------
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. See section on "General Policies on Selling
Shares" below.

Systematic Withdrawal Plan
You can receive automatic payments from your account on a monthly, quarterly
or annual basis. You can obtain details from the Distributor.
- ------------------------------------------------------------------------------

Instructions for Selling Shares

The Fund accepts telephone requests for redemptions of unissued shares.

By Bank Wire or Check via Telephone
1. Call 1-800-GABELLI (1-800-422-3554) with your account number, the amount of
the redemption and instructions as to how you wish to receive your funds.

2. If you are unable to reach the Fund by telephone, you may telecopy your
redemption request to the Fund at 914-921-____.

NOTE: If you call by 4:00 p.m., eastern time, your payment will normally be
wired to your bank on the following business day. (For Money Market Funds: If
you call before 12:00 noon, eastern time, your payment will be wired to your
bank on that day.) If you call after that time, your payment will be wired to
your bank on the next business day. If you request your wire redemption by
telephone, it must be at least $1,000. Your bank may charge a fee for incoming
wires.

By Bank Wire or Check via Mail
Submit a redemption request to the Fund. Redemption requests may be made by
letter to the Transfer Agent. You must specify the name of the Fund, the dollar
amount or number of shares you wish to redeem and the account number. You must
sign the letter in exactly the same way the account is registered, and if there
is more than one owner of shares, all must sign. A signature guarantee is
required for most requests.

Selling Shares (continued)

General Policies on Selling Shares

Signature Guarantees
Signature guarantees are required on redemption requests for the following: o
The check is not being mailed to the address on your account o The check
is not being made payable to the owner of the account o The redemption
proceeds are being transferred to another person's Fund account.

A signature guarantee can be obtained from most banks and securities dealers.
Notarized signatures are not considered a signature guarantee.

Verifying Telephone Redemptions
The Fund makes every effort to ensure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. If appropriate
precautions have not been taken, the Fund may be liable for losses due to
unauthorized transactions.

Redemptions Within 15 Days of Investment
When you have made an investment by check or through the automatic investment
plan, your redemption proceeds will not be mailed until the Transfer Agent is
satisfied that the check has cleared (which may require up to 15 days). You can
avoid this delay by purchasing shares with a certified check or federal funds
wire.

Redemption In Kind
The Fund reserves the right to make a redemption in kind - payment in portfolio
securities rather than cash - for certain large redemption amounts that could
hurt fund operations.

Refusal of Redemption Request
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.

Closing of Small Accounts
If your account (other than an IRA) falls below $500, the Fund may ask you to
increase your balance. If it is still below $500 after 30 days, the Fund may
close your account and send you the proceeds at the current NAV.

Undeliverable Distribution Checks
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the Fund at
the then current net asset value.

Call 1-800-GABELLI
or your investment representative.
Questions?
Call 1-800-GABELLI
or your investment representative.

EXCHANGING SHARES

You can exchange your shares in one Fund for shares of the same class of another
Fund managed by Gabelli Funds, LLC, or its affiliates, usually without paying
additional sales charges (see "Notes" below).

You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable transactions.
Instructions for Exchanging Shares
- -------------------------------------------------------------------------------

Exchanges may be made by sending a written request to The Gabelli Funds,
PO Box 8308, Boston, MA 02266-8308 or by calling 1-800-GABELLI
(1-800-422-3554).

Please provide the following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security number)
o Dollar value or number of shares to be exchanged o The names of the
Funds from/into which the exchange is to be made

See "Selling Shares" for important information about telephone
transactions.

Notes on exchanges
o When exchanging from a Fund that
has no sales charge or a lower
sales charge to a Fund with a
higher sales charge, you will pay
the difference.
o The registration and tax
identification numbers of the two
accounts must be identical.
o This exchange privilege may be
changed or eliminated at any time
upon a 60-day notice to
shareholders.
o Be sure to read the prospectus
carefully of any Fund into which
you wish to exchange shares.

PRICING OF FUND SHARES

How NAV is Calculated

The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:

NAV =

Total Assets - Liabilities
Number of Shares
Outstanding

You can find the Fund's NAV daily in the Wall Street Journal and other
newspapers, or by calling 1-800-GABELLI (800-422-3554).
A Fund's net asset value, or NAV, is determined and its shares are priced
at the close of regular trading on the New York Stock Exchange, normally
at 4:00 p.m., eastern time, on days the New York Stock Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next
NAV calculated after your order is received by the Fund. This is what is
known as the offering price.

Fund securities are valued as of the close of trading on the primary
exchange on which they trade. Fund securities are generally valued at
current market prices. If market quotations are not available, prices
will be based on the average of the latest bid and asked quotations for
such securities prior to the valuation time, or the latest bid price if
asked prices are not available. Debt securities with remaining maturities
of 60 days or less will be valued at amortized cost, which the Board of
Directors believes represents fair value.

Some Fund securities may be listed on foreign exchanges that are open on
days (such as U.S. holidays) when a Fund does not compute its NAV. This
could cause the value of a Fund's portfolio investments to be affected on
days when you cannot buy or sell shares.

THE GABELLI ASSET FUND
Class A Shares
Class B Shares
Class C Shares

PROSPECTUS
May 1, 1999

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.

OFFICERS AND PORTFOLIO MANAGERS

Mario J. Gabelli, CFA Bruce N. Alpert
Portfolio Manager President and Treasurer

James E. McKee
Secretary

TABLE OF CONTENTS
Page
INVESTMENT AND PERFORMANCE SUMMARY............................................3
INVESTMENT AND RISK INFORMATION...............................................6
MANAGEMENT OF THE FUND........................................................8
CLASSES OF SHARES............................................................9
PURCHASE OF SHARES............................................................13
REDEMPTION OF SHARES........................................................15
EXCHANGES OF SHARES..........................................................16
PRICING OF FUND SHARES......................................................17
DIVIDENDS AND DISTRIBUTIONS..................................................18
TAX INFORMATION.............................................................18
FINANCIAL HIGHLIGHTS.........................................................19

INVESTMENT AND PERFORMANCE SUMMARY

INVESTMENT OBJECTIVE:

The Gabelli Asset Fund (the "Fund") seeks to provide growth of capital. Capital
is the amount of money you invest in the Fund. The Fund's secondary goal is to
provide current income.

Principal Investment Strategies:

The Fund will primarily invest in common stocks and preferred
stocks and may also invest in securities which may be converted into
common stocks. The Fund may also invest in foreign securities. The Fund
focuses on companies which appear underpriced relative to their
"private market value." Private market value is the value the Fund's
adviser believes informed investors would be willing to pay for a
company.

Principal Risks:

Who May Want to Invest:

The Fund may appeal to you if:

You may not want to invest in the Fund if:

you are seeking a high level of current income you are
conservative in your investment approach you seek stability
of principal more than growth of capital

An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

Performance:

BAR CHART* (Graphic Omitted)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

---------------------- ------------------------
Calendar Year Total Returns
---------------------- ------------------------
---------------------- ------------------------
1989 26.2%
---------------------- ------------------------
---------------------- ------------------------
1990 (5.0)
---------------------- ------------------------
---------------------- ------------------------
1991 18.1
---------------------- ------------------------
---------------------- ------------------------
1992 14.9
---------------------- ------------------------
---------------------- ------------------------
1993 21.8
---------------------- ------------------------
---------------------- ------------------------
1994 (0.1)
---------------------- ------------------------
---------------------- ------------------------
1995 24.9
---------------------- ------------------------
---------------------- ------------------------
1996 13.4
---------------------- ------------------------
---------------------- ------------------------
1997 38.1
---------------------- ------------------------
---------------------- ------------------------
1998 15.9
---------------------- ------------------------

* The Class A, Class B and Class C shares are new classes of the Fund for
which performance is not yet available. The Class AAA shares of the Fund
are offered in a separate prospectus. The returns for the Class A, Class B
and Class C shares will be substantially similar to those of the Class AAA
shares shown in the chart above because all shares of the Fund are invested
in the same portfolio of securities. The annual returns of the different
Classes of shares will differ only to the extent that the expenses of the
Classes differ.

Class A, B and C share sales load are not reflected in the
above chart. If sales loads were reflected, the Fund's returns would be
less than those shown. During the period shown in the bar chart, the
highest return for a quarter was 18.2% (quarter ended 12/31/98) and the
lowest return for a quarter was (14.2)% (quarter ended 9/30/98).

------------------------------------------------- -------------------- --------------------- ----------------------
Average Annual Total Returns Past One Year Past Five Years Past Ten Years
(for the periods ended December 31, 1998)
------------------------------------------------- -------------------- --------------------- ----------------------
------------------------------------------------- -------------------- --------------------- ----------------------
The Gabelli Asset Fund Class AAA Shares 15.9% 17.8% 16.2%
------------------------------------------------- -------------------- --------------------- ----------------------
------------------------------------------------- -------------------- --------------------- ----------------------
S&P(R)500 Stock Index** 28.7% 24.1% 19.2%
------------------------------------------------- -------------------- --------------------- ----------------------

** The S&P(R) 500 Composite Stock Price Index is a widely recognized,
unmanaged index of common stock prices. The performance of the Index does
not include expenses or fees.
</TABLE>

Fees and Expenses of the Fund:

These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>

Class A Shares Class B Shares Class C Shares
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) on Purchases (as a percentage of
offering price)............................................. 5.75%1 None None
Maximum Deferred Sales Charge (Load) (as a percentage of
redemption price*).......................................... None2 5.00%2 1.00%2

Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees............................................. 1.00% 1.00% 1.00%
Distribution and Service (Rule 12b-1) Fees3................. 0.25% 1.00% 1.00%
Other Expenses.............................................. 0.11% 0.11% 0.11%
----- ----- -----
Total Annual Operating Expenses............................. 1.36% 2.11% 2.11%
===== ===== =====
- ----------------------
1 The sales charge declines as the amount invested increases.
2 The Fund imposes a CDSC upon redemption of B shares, which is a back-end
load, if you sell your shares within eighty-four months after purchase. A
maximum CDSC of 1% applies to redemptions of Class C shares within
twenty-four months after purchase and a maximum CDSC of 1% applies to
redemptions of certain Class A shares within twelve months after purchase.
3 Long-term shareholders may indirectly pay more than the equivalent of the
maximum permitted front-end sales
charge.
* "Redemption price" equals the net asset value at the time of investment of
redemption, whichever is lower.

</TABLE>

Expense Example:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes (1) you
invest $10,000 in the Fund for the time periods shown, (2) you redeem your
shares at the end of the period, except as noted, (3) your investment has a 5%
return each year and (4) the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class A shares $706 $981 $1,277 $2,116

Class B shares
- assuming redemption $714 $961 $1,334 $2,441
- assuming no redemption $214 $661 $1,134 $2,441

Class C shares
- assuming redemption $314 $661 $1,134 $2,441
- assuming no redemption $214 $661 $1,134 $2,441

</TABLE>

INVESTMENT AND RISK INFORMATION

The Fund's primary investment objective is to seek growth of capital,
and investments will be made based on management's perception of their
potential for capital appreciation. Current income, to the extent it
may affect potential growth of capital, is a secondary objective. The
investment objectives of the Fund may not be changed without
shareholder approval.

Under normal market conditions, the Fund invests at least 80% of its
assets in stocks that are listed on a nationally recognized securities
exchange or traded on the NASDAQ National Market System of the National
Association of Securities Dealers. The Fund's investment adviser,
Gabelli Funds, LLC (the "Adviser"), will invest in companies that, in
the public market, are selling at a significant discount to their
"private market value." Private market value is the value the Adviser
believes informed investors would be willing to pay to acquire
companies with similar characteristics. The Adviser considers factors
such as price, earnings expectations, earnings and price histories,
balance sheet characteristics and perceived management skills. The
Adviser also considers changes in economic and political outlooks as
well as individual corporate developments. The Adviser will sell any
Fund investments which lose their perceived value relative to other
investment alternatives.

The Fund's assets will be invested primarily in a broad range of readily
marketable equity securities consisting of: common stock, preferred stock and
securities which may be converted at a later time into common stock. Many of the
common stocks the Fund will buy will not pay dividends; instead, stocks will be
bought for the potential that their prices will increase, providing capital
appreciation for the Fund. The value of equity securities will fluctuate due to
many factors, including the past and predicted earnings of the issuer, the
quality of the issuer's management, general market conditions, the forecasts for
the issuer's industry and the value of the issuer's assets. Holders of equity
securities only have rights to value in the company after all debts have been
paid, and they could lose their entire investment in a company that encounters
financial difficulty. Warrants are rights to purchase securities at a specified
time at a specified price.

The Fund may also use the following investment techniques:

Foreign Securities. The Fund may invest up to 25% of its total
assets in securities of non-U.S.
issuers.

Defensive Investments. When opportunities for capital growth do not
appear attractive or when adverse market or economic conditions occur,
the Fund may temporarily invest all or a portion of its assets in
defensive investments. Such investments include preferred stocks,
high-grade debt securities, obligations of the U.S. Government and its
agencies and instrumentalities, and short-term money market instruments
such as high-quality commercial paper (rated at least "A-1" by Standard
& Poor's Rating Service ("S&P") or "P-1" by Moody's Investors Service,
Inc.) When following a defensive strategy, the Fund will be less likely
to achieve its investment goal of capital growth.

Borrowing. The Fund may borrow money from banks (1) as may be
necessary for the clearance of portfolio transactions, and (2) for
temporary or emergency purposes, including the meeting of redemption
requests. Borrowing for any purpose (including redemptions) may not
exceed 15% of the value of the Fund's total assets. Borrowing for
purposes other than meeting redemptions may not exceed 5% of the value
of the Fund's total assets at the time a borrowing is made. The Fund
will not make any additional purchases of portfolio securities at any
time its borrowings exceed 5% of its assets. The Fund may not use more
than 20% of its assets as collateral in connection with the borrowings
described above.

The Fund may also engage to a limited extent in other investment practices in
order to achieve its investment goal. Investing in the Fund involves the
following risks, listed in the order of importance:

Fund and Management Risk. The Fund invests in stocks issued by
companies believed by the Adviser to be trading at a discount to their
private market value (value stocks). The Fund's price may decline
because the market favors other stocks or small capitalization stocks
over stocks of larger companies. If the Adviser is incorrect in its
assessment of the private market values of the securities it holds,
then the value of the Fund's shares may decline.

Borrowing Risk. Borrowing may exaggerate the effect on net asset value of
any increase or decrease in the market value of securities purchased with
borrowed funds. Money borrowed will be subject to interest costs which may
or may not be recovered by an appreciation of the securities purchased.

MANAGEMENT OF THE FUND

The Adviser. Gabelli Funds, LLC, with principal offices located at One Corporate
Center, Rye, New York 10580-1434, serves as investment adviser to the Fund. The
Adviser makes investment decisions for the Fund and continuously reviews and
administers the Fund's investment program under the supervision of the Fund's
Board of Trustees. The Adviser also manages several other open-end and
closed-end investment companies in the Gabelli family of funds. The Adviser is a
New York limited liability company organized in 1999 as successor to Gabelli
Funds, Inc., a New York corporation organized in 1980. The Adviser is a
wholly-owned subsidiary of Gabelli Asset Management Inc. ("GAMI"), a publicly
held company listed on the New York Stock Exchange.

As compensation for its services and the related expenses borne by the
Adviser, for the fiscal year ended December 31, 1998, the Fund paid the
Adviser an annual fee equal to 1.00% of the value of the Fund's average
daily net assets.

The Portfolio Manager. Mr. Mario J. Gabelli, CFA, is responsible for the
day-to-day management of the Fund. Mr. Gabelli has been Chairman, Chief
Executive Officer and Chief Investment Officer of the Adviser and its
predecessor since its inception, as well as its parent company, GAMI. Mr.
Gabelli also acts as Chief Executive Officer and Chief Investment Officer of
GAMCO Investors, Inc. ("GAMCO"), a wholly-owned subsidiary of GAMI, and is an
officer or director of various other companies affiliated with GAMI. The Adviser
relies to a considerable extent on the expertise of Mr. Gabelli, who may be
difficult to replace in the event of his death, disability or resignation.

Year 2000. As the year 2000 approaches, an issue has emerged regarding how the
software used by the Fund's service providers can accommodate the date "2000."
Failure to adequately address this issue could result in major systems or
process failures which could disrupt the Fund's operations. The Adviser is
working with the Fund's service providers to prepare for the year 2000. Based on
information currently available, the Adviser does not expect that the Fund will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant. The Fund cannot guarantee, however, that all year 2000
issues will be identified and corrected by January 1, 2000 and any non-compliant
computer system could hurt key Fund operations, such as shareholder servicing,
pricing and trading. In addition, the Year 2000 problem may adversely affect the
companies in which the Fund invests, particularly companies in foreign
countries. For example, these companies may incur substantial costs to correct
the Year 2000 problem, which could lower the value of such companies' securities
and negatively affect the Fund's performance.

CLASSES OF SHARES

Three classes of the Fund's shares are offered in this prospectus - Class A
shares, Class B shares and Class C shares. The table below summarizes the
differences among the classes of shares. Note that the Fund's shareholders must
approve certain technical amendments to the Fund's Declaration of Trust before
the Fund is able to implement a multi-class structure. Therefore, the Fund will
not offer Class A, Class B or Class C shares until it receives such shareholder
approval.

A "front-end sales load," or sales charge, is a one-time fee charged
at the time of purchase of shares. A "contingent deferred sales
charge" ("CDSC") is a one-time fee charged at the time of redemption.
A "Rule 12b-1 fee" is a recurring annual fee for distributing shares
and servicing shareholder accounts
based on the Fund's average daily net assets attributable to the
particular class of shares.

- --------------------------------- ------------------------------ ----------------------- ---------------------------
Class A Shares Class B Shares Class C Shares
- --------------------------------- ------------------------------ ----------------------- ---------------------------
- --------------------------------- ------------------------------ ----------------------- ---------------------------

- --------------------------------- ------------------------------ ----------------------- ---------------------------
- --------------------------------- ------------------------------ ----------------------- ---------------------------
Front-End Sales Load? Yes. The percentage No. No.
declines as the amount
invested increases.

- --------------------------------- ------------------------------ ----------------------- ---------------------------
- --------------------------------- ------------------------------ ----------------------- ---------------------------
Contingent Deferred Sales Charge Yes, for certain shares Yes, for shares Yes, for shares redeemed
redeemed within twelve redeemed within within twenty-four months
months of purchase. eighty-four months after purchase.
after purchase.
Declines over time.

- --------------------------------- ------------------------------ ----------------------- ---------------------------
- --------------------------------- ------------------------------ ----------------------- ---------------------------
Convertible to Another Class? No. Yes. Automatically No.
converts to Class A
shares approximately
eighty-four months
after purchase.

- --------------------------------- ------------------------------ ----------------------- ---------------------------
- --------------------------------- ------------------------------ ----------------------- ---------------------------
Fund Expense Levels Lower annual expenses than Higher annual Higher annual expenses
Class B or Class C shares. expenses than Class A than Class A shares.
shares.
- --------------------------------- ------------------------------ ----------------------- ---------------------------

</TABLE>

In selecting a class of shares in which to invest, you should consider

the length of time you plan to hold the shares
the amount of sales charge and Rule 12b-1 fees
whether you qualify for a reduction or waiver of the Class A sales
charge that Class B shares convert to Class A shares approximately
eighty-four months after purchase
<TABLE>
<CAPTION>
<S> <C>

- ----------------------------------------------------------- ---------------------------------------------------------
If you... then you should consider...
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
intend to hold your shares for less than purchasing Class C shares
instead of either Class A eighty-four months shares or Class B shares
do not qualify for a reduced or waived
front-end sales load
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
intend to hold your shares for seven years or purchasing Class B shares instead of either Class A
more shares or Class C shares
do not qualify for a reduced or waived
front-end sales load
- ----------------------------------------------------------- ---------------------------------------------------------
qualify for a reduced or waived front-end sales purchasing Class A shares no matter how long you intend
load to hold your shares
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>

Sales Charge - Class A Shares. The sales charge is imposed on Class A
shares in accordance with the following schedule:

Sales Charge Sales Charge Reallowance
as % of the as % of to
Amount of Investment Offering Price* Amount Invested Broker-Dealers

Under $50,000........................................ 5.75% 6.10% 5.00%
$50,000 but under $100,000........................... 4.50% 4.71% 3.75%
$100,000 but under $250,000.......................... 3.50% 3.62% 2.75%
$250,000 but under $500,000.......................... 2.50% 2.56% 2.00%
$500,000 but under $1 million........................ 2.00% 2.04% 1.75%
$1 million but under $2 million...................... 1.00% 1.01% 1.00%
$2 million or more................................... 0.00% 0.00% 1.00%

* Includes front-end sales load
</TABLE>

Sales Charge Reductions and Waivers - Class A Shares

Reduced sales charges are available to (1) investors who are
eligible to combine their purchases of Class A shares to receive volume
discounts and (2) investors who sign a Letter of Intent and agree to
make purchases over time. Certain types of investors are eligible for
sales charge waivers.

1. Volume Discounts. Investors eligible to receive volume discounts are
individuals and their immediate families, tax-qualified employee benefit plans
and a trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account even though more than one beneficiary is involved. You
also may combine the value of Class A shares you already hold in the Fund and
other funds advised by Gabelli Funds, LLC or its affiliates along with the value
of the Class A shares being purchased to qualify for a reduced sales charge. For
example, if you own Class A shares of the Fund that have an aggregate value of
$100,000, and make an additional investment in Class A shares of the Fund of
$4,000, the sales charge applicable to the additional investment would be 3.50%,
rather than the 5.75% normally charged on a $4,000 purchase. If you want more
information on volume discounts, call the Distributor at 1-800-GABELLI
(1-800-422-3554) or your broker.

2. Letter of Intent. If you initially invest at least $1,000 in Class A shares
of the Fund and submit a Letter of Intent to the Distributor, you may make
purchases of Class A shares of the Fund during a 13-month period at the reduced
sales charge rates applicable to the aggregate amount of the intended purchases
stated in the Letter. The Letter may apply to purchases made up to 90 days
before the date of the Letter. For more information on the Letter of Intent,
call 1-800-GABELLI (1-800-422-3554).

3. Investors Eligible for Sales Charge Waivers. Class A shares of the Fund may
be offered without a sales charge to: (1) employees of Gabelli & Company, Inc.
BFDS, State Street, and First Data Investor Services Group, Inc., employee
benefit plans for those employees and the spouses and minor children of such
employees when orders on their behalf are placed by such employees (the minimum
initial investment for such purchases is $500); (2) the Adviser, GAMCO,
officers, directors, trustees, general partners, directors and employees of
other investment companies managed by the Adviser, employee benefit plans for
such persons and their spouses and minor children when orders on their behalf
are placed by such persons (with no required minimum initial investment), the
term "immediate family" for this purpose refers to a person's spouse, children
and grandchildren (adopted or natural), parents, grandparents, siblings, a
spouse's siblings, a sibling's spouse and a sibling's children; (3) any other
investment company in connection with the combination of such company with the
Fund by merger, acquisition of assets or otherwise; (4) shareholders who have
redeemed shares in the Fund and who wish to reinvest their redemption proceeds
in the Fund, provided the reinvestment is made within 30 days of the redemption;
(5) tax-exempt organizations enumerated in Section 501(c)(3) of the Internal
Revenue Code of 1986 (the "Code") and private, charitable foundations that in
each case make lump-sum purchases of $100,000 or more; (6) qualified employee
benefit plans established pursuant to Section 457 of the Code that have
established omnibus accounts with the Fund; (7) qualified employee benefit plans
having more than one hundred eligible employees and a minimum of $1 million in
plan assets invested in the Fund (plan sponsors are encouraged to notify the
Fund's distributor when they first satisfy these requirements); (8) any unit
investment trusts registered under the Investment Company Act of 1940 (the "1940
Act") which have shares of the Fund as a principal investment; (9) investment
advisory clients of GAMCO and their immediate families; (10) employee
participants of organizations adopting the 401(k) Plan sponsored by the Adviser;
(11) financial institutions purchasing Class A shares of the Fund for clients
participating in a fee based asset allocation program or wrap fee program which
has been approved by the Distributor; and (12) registered investment advisers or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services; and clients of such investment advisers or financial planners who
place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of a broker or agent.

Investors who qualify under the categories described above should contact their
brokerage firm or the Distributor.

Contingent Deferred Sales Charges.

You will pay a CDSC when you redeem:

Class A shares purchased as part of an investment of greater than $2
million if no front-end sales load was paid at the time of purchase,
within twelve months of buying them.
Class B shares within eighty-four months of buying them. Class C
shares within twenty-four months of buying them.

The CDSC payable upon redemption of Class A or Class C shares
in the circumstances described above is 1%. The CDSC schedule for Class
B shares is set forth below. The CDSC is based on the net asset value
at the time of your investment or the net asset value at the time of
redemption, whichever is lower.

Class B
Shares
Years Since Purchase CDSC
--------------------- - ----
............................................................... First 5.00%
.............................................................. Second 4.00%
............................................................... Third 3.00%
.............................................................. Fourth 3.00%
............................................................... Fifth 2.00%
............................................................... Sixth 1.00%
.............................................. Seventh and thereafter 0.00%
</TABLE>

The Distributor pays sales commissions of 4.00% of the
purchase price of Class B shares of the Fund to brokers at the time of
sale that initiate and are responsible for purchases of such Class B
shares of the Fund.

You will not pay a CDSC to the extent that the value of the
redeemed shares represents:

reinvestment of dividends or capital gains distributions
capital appreciation of shares redeemed

When you redeem shares, we will assume that you are redeeming
first shares representing reinvestment of dividends and capital gains
distributions, then any appreciation on shares redeemed, and then
remaining shares held by you for the longest period of time. We will
calculate the holding period of shares acquired through an exchange of
shares of another fund from the date you acquired the original shares
of the other fund. The time you hold shares in a money market fund,
however, will not count for purposes of calculating the applicable
CDSC.

We will waive the CDSC payable upon redemptions of shares
for:

redemptions and distributions from retirement plans made after the
death or disability of a shareholder minimum required distributions
made from an IRA or other retirement plan account after you reach age
59 1/2 involuntary redemptions made by the Fund a distribution from a
tax-deferred retirement plan after your retirement returns of excess
contributions to retirement plans following the shareholder's death or
disability

Conversion Feature - Class B Shares

Class B shares automatically convert to Class A shares of the Fund on
the first business day of the eighty-fifth month following the month in
which you acquired such shares.
After conversion, your shares will be subject to the lower Rule 12b-1
fees charged on Class A shares, which will increase your investment
return compared to the Class B shares.
You will not pay any sales charge or fees when your shares convert,
nor will the transaction be subject to any tax.
The dollar value of Class A shares you receive will equal the dollar
value of the B shares converted.

The Board of Trustees may suspend the automatic conversion of Class B to Class A
shares for legal reasons or due to the exercise of its fiduciary duty. If the
Board determines that such suspension is likely to continue for a substantial
period of time, it will create another class of shares into which Class B shares
are convertible.

Rule 12b-1 Plan. The Fund has adopted a plan under Rule 12b-1 (the "Plan") for
each of its classes of shares. Under the Plan, the Fund may use its assets to
finance activities relating to the sale of its shares and the provision of
certain shareholder services.

The Rule 12b-1 fees vary by class as follows:

Class A Class B Class C
Service Fees 0.25% 0.25% 0.25%
Distribution Fees None 0.75% 0.75%

These are annual rates based on the value of each Class' average daily net
assets. Because the Rule 12b-1 fees are higher for Class B and Class C shares
than Class A shares, Class B and Class C shares will have higher annual
expenses. Because Rule 12b-1 fees are paid out of the Fund's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.

PURCHASE OF SHARES

You can purchase the Fund's shares on any day the New York
Stock Exchange, Inc. ("NYSE") is open for trading (a "Business Day").
You may purchase shares through Gabelli & Company, Inc. (the
"Distributor"), directly from the Fund through the Fund's transfer
agent or through broker-dealers that have entered into selling
agreements with the Distributor.

By Mail or In Person. You may open an account by mailing a completed
subscription order form with a check or money order payable to "The
Gabelli Asset Fund" to:

By Mail By Personal Delivery
The Gabelli Funds The Gabelli Funds
P.O. Box 8308 The BFDS Building, 7th Floor
Boston, MA 02266-8308 Two Heritage Drive
Quincy, MA 02171

You can obtain a subscription order form by calling 1-800-422-3554.
Checks made payable to a third party and endorsed by the depositor are
not acceptable. For additional investments, send a check to the above
address with a note stating your exact name and account number, the
name of the Fund and class of shares you wish to purchase.

By Bank Wire. To open an account using the bank wire system, first
telephone the Fund at 1-800-422-3554 to obtain a new account number.
Then instruct a Federal Reserve System member bank to wire funds to:

State Street Bank and Trust Company
ABA #011-0000-28 REF DDA #99046187
Re: The Gabelli Asset Fund
Class A, B or C Shares
Account #__________
Account of [Registered Owners]
225 Franklin Street, Boston, MA 02110

If you are making an initial purchase, you should also complete and
mail a subscription order form to the address shown under "By Mail."
Note that banks may charge fees for wiring funds, although State Street
Bank and Trust Company ("State Street") will not charge you for
receiving wire transfers.

From a Broker-Dealer. You may purchase shares from broker-dealers. The
broker-dealer will transmit a purchase order and payment to State
Street on your behalf. Broker-dealers may send you confirmations of
your transactions and periodic account statements showing your
investments in the Fund.

Minimum Investments. Your minimum initial investment must be at least
$1,000. See "Retirement Plans" and "Automatic Investment Plan"
regarding minimum investment amounts applicable to such plans. There is
no minimum for subsequent investments. Broker-dealers may have
different minimum investment requirements.

Share Price. The Fund sells its shares at the "net asset value" next determined
after the Fund receives your completed subscription order form and your payment
in Federal funds, subject to a sales charge in the case of Class A shares. See
"Pricing of Fund Shares" for a description of the calculation of the net asset
value and "Classes of Shares - Sales Charge - Class A Shares" for a description
of the sales charges.

Retirement Plans. The Fund has available a form of IRA for investment in Fund
shares that may be obtained from the Distributor by calling 1-800-GABELLI
(1-800-422-3554). Self-employed investors may purchase shares of the Fund
through tax-deductible contributions to existing retirement plans for
self-employed persons, known as Keogh or H.R. 10 plans. The Fund does not
currently act as sponsor to such plans. Fund shares may also be a suitable
investment for other types of qualified pension or profit-sharing plans which
are employer sponsored, including deferred compensation or salary reduction
plans known as "401(k) Plans" which give participants the right to defer
portions of their compensation for investment on a tax-deferred basis until
distributions are made from the plans. The minimum initial investments for all
such retirement plans is $250. The minimum for all subsequent investments is
$100.

Automatic Investment Plan. The Fund offers an automatic monthly investment plan.
There is no minimum monthly investment for accounts establishing an automatic
investment plan. Call the Distributor at 1-800-GABELLI (1-800-422-3554) for more
details about the plan.

General. State Street will not issue share certificates
unless requested by you. The Fund reserves the right to (i) reject any
purchase order if, in the opinion of Fund management, it is in the
Fund's best interest to do so and (ii) suspend the offering of shares
for any period of time.

REDEMPTION OF SHARES

You can redeem shares on any Business Day without a
redemption fee. The Fund may temporarily stop redeeming its shares when
the NYSE is closed or trading on the NYSE is restricted, when an
emergency exists and the Fund cannot sell its shares or accurately
determine the value of its assets, or if the Securities and Exchange
Commission ("SEC") orders the Fund to suspend redemptions.

The Fund redeems its shares at the net asset value next
determined after the Fund receives your redemption request, subject in
some cases to a CDSC, as described under "Class of Shares Contingent
Deferred Sales Charges" above. See "Pricing of Fund Shares" for a
description of the calculation of net asset value.

You may redeem shares through the Distributor, directly from
the Fund through its transfer agent or through a broker-dealer.

Through a Broker-Dealer. You may redeem shares through a broker-dealer
which will transmit a redemption order to State Street on your behalf.
A redemption request received from a broker-dealer will be effected at
the net asset value next determined (less any applicable CDSC) after
State Street receives the request. If you hold share certificates, you
must present the certificates to the broker-dealer endorsed for
transfer. A broker-dealer may charge you fees for effecting redemptions
for you.

By Letter. You may mail a letter requesting redemption of shares to:
The Gabelli Funds, P.O. Box 8308, Boston, MA 02266-8308. Your letter
should state the name of the Fund and the share class, the dollar
amount or number of shares you are redeeming and your account number.
You must sign the letter in exactly the same way the account is
registered and if there is more than one owner of shares, all must
sign. A signature guarantee is required for each signature on your
redemption letter. You can obtain a signature guarantee from financial
institutions such as commercial banks, brokers, dealers and savings
associations. A notary public cannot provide a signature guarantee.

By Telephone. You may redeem your shares in a direct registered
account by calling either 1-800-422-3554 or 1-800-872-5365
(617-328-5000 from outside the United States), subject to a $25,000
limitation. You may not redeem shares held through an IRA by telephone.
If State Street properly acts on telephone instructions and follows
reasonable procedures to protect against unauthorized transactions,
neither State Street nor the Fund will be responsible for any losses
due to telephone transactions. You may be responsible for any
fraudulent telephone order as long as State Street or the Fund takes
reasonable measures to verify the order. You may request that
redemption proceeds be mailed to you by check (if your address has not
changed in the prior 30 days), forwarded to you by bank wire or
invested in another mutual fund advised by the Adviser (see "Exchange
of Shares" below).

1. Telephone Redemption By Check. The Fund will make checks
payable to the name in which the account is registered and
normally will mail the check to the address of record within
seven days.

2. Telephone Redemption By Wire. The Fund accepts telephone
requests for wire redemption in amounts of at least $1,000.
The Fund will send a wire to either a bank designated on your
subscription order form or on a subsequent letter with a
guaranteed signature. The proceeds are normally wired on the
next Business Day.

Through the Automatic Cash Withdrawal Plan. You may automatically
redeem shares on a monthly, quarterly or annual basis if you have at
least $10,000 in your account and if your account is directly
registered with State Street. If you redeem Class B or Class C shares
under this plan, you must pay the applicable CDSC. Please call the
Distributor at 1-800-422-3554 for more information.

Through Involuntary Redemption. The Fund may redeem all shares in your
account (other than an IRA account) if their value falls below $1,000
as a result of redemptions (but not as a result of a decline in net
asset value). You will be notified in writing and allowed 30 days to
increase the value of your shares to at least $1,000.

Redemption Proceeds. If you request redemption proceeds by check, the Fund will
normally mail the check to you within seven days after it receives your
redemption request. If you purchased your Fund shares by check, you may not
redeem shares until the check clears, which may take up to 15 days following
purchase.

The Fund may pay to you your redemption proceeds wholly or
partly in portfolio securities. Payments would be made in portfolio
securities, however, only in the rare instance that the Fund's Board of
Trustees believes that it would be in the Fund's best interest not to
pay redemption proceeds in cash.

EXCHANGES OF SHARES

You may exchange shares of the Fund you hold for shares of the same class of
another fund managed by the Adviser or its affiliates based on their relative
net asset values. To obtain a list of the funds whose shares you may acquire
through exchange call 1-800-GABELLI (1-800-422-3554). You may also exchange your
shares for shares of a money market fund managed by the Adviser or its
affiliates. Class B and Class C shares will continue to age from the date of the
original purchase of such shares and will assume the CDSC rate they had at the
time of exchange.

In effecting an exchange:

you must meet the minimum purchase requirements for the fund whose
shares you purchase through exchange.
if you are exchanging into Class A shares of a fund with a
higher sales charge, you must pay the
difference at the time of exchange.
you may realize a taxable gain or loss.
you should read the prospectus of the fund whose shares you are
purchasing (call 1-800-GABELLI (1-800-422-3554) to obtain the
prospectus).
you should be aware that brokers may charge a fee for handling an
exchange for you.

You may exchange share by telephone, by mail or through a broker-dealer.

Exchanges by Telephone. You may give exchange instructions by
telephone by calling 1-800-GABELLI
(1-800-422-3554). You may not exchange shares by telephone if you
hold share certificates.

Exchanges by Mail. You may send a written request for exchanges to:
The Gabelli Funds, P.O. Box 8308, Boston, MA 02266-8308. State your
name, your account number, the dollar value or number of shares you
wish to exchange, the name and class of the fund whose shares you wish
to exchange, and the name of the funds whose shares you wish to
acquire.

We may modify or terminate the exchange privilege at any time. You will be given
notice 60 days prior to any material change in the exchange privilege.

PRICING OF FUND SHARES

The Fund's net asset value per share is calculated on each Business Day. The
NYSE is currently scheduled to be closed on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when a holiday falls on a Saturday or Sunday, respectively.

The Fund's net asset value is calculated separately for each class. It is
determined as of the close of regular trading on the NYSE, normally 4:00 p.m.,
New York time. Net asset value is computed by dividing the value of the Fund's
net assets (i.e. the value of its securities and other assets less its
liabilities, including expenses payable or accrued but excluding capital stock
and surplus) by the total number of its shares outstanding at the time the
determination is made. The Fund uses market quotations in valuing its portfolio
securities. Short-term investments that mature in 60 days or less are valued at
amortized cost, which the Trustees of the Fund believe represents fair value.

The Fund may from time to time hold securities that are primarily listed on
foreign exchanges. Such securities may trade on days when the Fund does not
price its shares. Therefore, the Fund's net asset value may change on days when
you are not able to purchase or redeem Fund shares.

DIVIDENDS AND DISTRIBUTIONS

Dividends and distributions may differ for different classes of shares.
Dividends from net investment income and distributions of net realized capital
gains, if any, will be paid at least annually. Shareholders may have dividends
or capital gains distributions that are declared by the Fund automatically
reinvested at net asset value in additional shares of the Fund. You will make an
election to receive dividends and distributions in cash or Fund shares at the
time you purchase your shares. You may change this election by notifying the
Fund in writing at any time prior to the record date for a particular dividend
or distribution. There are no sales or other charges in connection with the
reinvestment of dividends and capital gains distributions. There is no fixed
dividend rate, and there can be no assurance that the Fund will pay any
dividends or realize any capital gains.

TAX INFORMATION

The Fund expects that its distributions will consist primarily of net investment
income and capital gains, which may be taxable at different rates depending on
the length of time the Fund holds its assets. Dividends out of net investment
income and distributions of realized short-term capital gains are taxable to you
as ordinary income. Distributions of net long-term capital gains are taxable to
you at long-term capital gain rates. The Fund's distributions, whether you
receive them in cash or reinvest them in additional shares of the Fund, may be
subject to federal, state or local taxes. An exchange of the Fund's shares for
shares of another fund will be treated for tax purposes as a sale of the Fund's
shares; therefore, any gain you realize on such a transaction may be taxable.
Foreign shareholders may be subject to special withholding requirements.

This summary of tax consequences is intended for general information only. You
should consult a tax adviser concerning the tax consequences of your investment
in the Fund.

FINANCIAL HIGHLIGHTS

The Class A, Class B and Class C shares of the Fund have not previously been
offered and therefore do not have previous financial history.

[BACK COVER PAGE]

The Gabelli Asset Fund
Class A,B,C Shares

For More Information:
For more information about the Fund, the following documents are available free
upon request:

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You can get free copies of these documents and prospectuses of other funds in
the Gabelli family, or request other information and discuss your questions
about the Fund by contacting:
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The Gabelli Asset Fund
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One Corporate Center
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Rye, NY 10580
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Telephone: 1-800-GABELLI (1-800-422-3554)
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www.gabelli.com
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(Investment Company Act file no. 811-4494)

THE GABELLI ASSET FUND

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1999

This Statement of Additional Information (the "SAI"), which is not a prospectus,
describes the Gabelli Asset Fund. The SAI should be read in conjunction with the
Fund's Prospectuses for Class A, Class B, Class C and Class AAA shares dated May
1, 1999. For a free copy of the Prospectuses, please contact the Fund at the
address, telephone number or Internet Web site printed below.

One Corporate Center
Rye, New York 10580-1434
Telephone 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com

TABLE OF CONTENTS
Page

GENERAL INFORMATION...........................................................1

INVESTMENT STRATEGIES AND RISKS...............................................1

INVESTMENT RESTRICTIONS.......................................................4

TRUSTEES AND OFFICERS.........................................................6

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS....................................9

INVESTMENT ADVISORY AND OTHER SERVICES........................................9

DISTRIBUTION PLAN.............................................................12

PORTFOLIO TRANSACTIONS AND BROKERAGE........................................13

RETIREMENT PLANS............................................................15

REDEMPTION OF SHARES........................................................16

COMPUTATION OF NET ASSET VALUE..............................................16

DIVIDENDS, DISTRIBUTIONS AND TAXES..........................................17

INVESTMENT PERFORMANCE INFORMATION...........................................20

DESCRIPTION OF THE FUND'S SHARES............................................21

FINANCIAL STATEMENTS........................................................1

APPENDIX A..................................................................A-1

GENERAL INFORMATION

The Fund is a diversified, open-end, management investment company. The
Fund was organized as a business trust under the laws of the Commonwealth of
Massachusetts on November 25, 1985 and commenced investment operations on March
3, 1986.

INVESTMENT STRATEGIES AND RISKS

The Prospectus discusses the investment objective of the Fund and the
principal strategies to be employed to achieve that objective. This
section contains supplemental information concerning certain types of
securities and other instruments in which the Fund may invest,
additional strategies that the Fund may utilize and certain risks
associated with such investments and strategies.

Convertible Securities

The Fund may invest in convertible securities when it appears to the
Adviser that it may not be prudent to be fully invested in common stocks. In
evaluating a convertible security, the Adviser places primary emphasis on the
attractiveness of the underlying common stock and the potential for capital
appreciation through conversion. The Fund will normally purchase only investment
grade, convertible debt securities having a rating of, or equivalent to, at
least "BBB" (which securities may have speculative characteristics) by Standard
& Poor's Rating Service ("S&P") or, if unrated, judged by the Adviser to be of
comparable quality. However, the Fund may also invest up to 25% of its assets in
more speculative convertible debt securities, provided such securities have a
rating of, or equivalent to, at least an S&P rating of B.

Convertible securities may include corporate notes or preferred stock
but are ordinarily a long-term debt obligation of the issuer
convertible at a stated exchange rate into common stock of the issuer.
As with all debt securities, the market value of convertible securities
tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. Convertible securities generally
offer lower interest or dividend yields than non-convertible securities
of similar quality. However, when the market price of the common stock
underlying a convertible security exceeds the conversion price, the
price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common
stock declines, the convertible security tends to trade increasingly on
a yield basis, and thus may not depreciate to the same extent as the
underlying common stock. Convertible securities rank senior to common
stocks on an issuer's capital structure and are consequently of higher
quality and entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a
fixed income security.

In selecting convertible securities for the Fund, the Adviser relies
primarily on its own evaluation of the issuer and the potential for
capital appreciation through conversion. It does not rely on the rating
of the security or sell because of a change in rating absent a change
in its own evaluation of the underlying common stock and the ability of
the issuer to pay principal and interest or dividends when due without
disrupting its business goals. Interest or dividend yield is a factor
only to the extent it is reasonably consistent with prevailing rates
for securities of similar quality and thereby provides a support level
for the market price of the security. The Fund will purchase the
convertible securities of highly leveraged issuers only when, in the
judgment of the Adviser, the risk of default is outweighed by the
potential for capital appreciation.

The issuers of debt obligations having speculative characteristics may
experience difficulty in paying principal and interest when due in the
event of a downturn in the economy or unanticipated corporate
developments. The market prices of such securities may become
increasingly volatile in periods of economic uncertainty. Moreover,
adverse publicity or the perceptions of investors over which the
Adviser has no control, whether or not based on fundamental analysis,
may decrease the market price and liquidity of such investments.
Although the Adviser will attempt to avoid exposing the Fund to such
risks, there is no assurance that it will be successful or that a
liquid secondary market will continue to be available for the
disposition of such securities.

Debt Securities

The Fund may invest up to 5% of its assets in low rated and unrated
corporate debt securities (often referred to as "junk bonds").
Corporate debt securities which are either unrated or have a
predominantly speculative rating may present opportunities for
significant long-term capital appreciation if the ability of the issuer
to repay principal and interest when due is underestimated by the
market or the rating organizations. Because of its perceived credit
weakness, the issuer is generally required to pay a higher interest
rate and/or its debt securities may be selling at a significantly lower
market price than the debt securities of issuers actually having
similar strengths. When the inherent value of such securities is
recognized, the market value of such securities may appreciate
significantly. The Adviser believes that its research on the credit and
balance sheet strength of certain issuers may enable it to select a
limited number of corporate debt securities which, in certain markets,
will better serve the objective of capital appreciation than
alternative investments in common stocks. Of course, there can be no
assurance that the Adviser will be successful. In its evaluation, the
Adviser will not rely exclusively on ratings and the receipt of income
is only an incidental consideration.

The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Rating Service generally represent the opinions of those organizations
as to the quality of the securities that they rate. Such ratings,
however, are relative and subjective, are not absolute standards of
quality and do not evaluate the market risk of the securities. Although
the Adviser uses these ratings as a criterion for the selection of
securities for the Fund, the Adviser also relies on its independent
analysis to evaluate potential investments for the Fund. See Appendix A
- "Description of Corporate Bond Ratings."

As in the case of the convertible debt securities discussed above, low
rated and unrated corporate debt securities are generally considered to
be more subject to default and therefore significantly more speculative
than those having an investment grade rating. They also are more
subject to market price volatility based on increased sensitivity to
changes in interest rates and economic conditions or the liquidity of
their secondary trading market. The Fund does not intend to purchase
debt securities for which a liquid trading market does not exist but
there can be no assurance that such a market will exist for the sale of
such securities.

Investments in Warrants and Rights

Warrants basically are options to purchase equity securities at a
specified price valid for a specific period of time. Their prices do
not necessarily move parallel to the prices of the underlying
securities. Rights are similar to warrants, but normally have a short
duration and are distributed directly by the issuer to its
shareholders. Rights and warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer.

The Fund may invest in warrants and rights (other than those acquired
in units or attached to other securities) but will do so only if the
underlying equity securities are deemed appropriate by the Adviser for
inclusion in the Fund's portfolio.

Investing in rights and warrants can provide a greater potential for
profit or loss than an equivalent investment in the underlying security, and
thus can be a speculative investment. The value of a right or warrant may
decline because of a decline in the value of the underlying security, the
passage of time, changes in interest rates or in the dividend or other policies
of the Fund whose equity underlies the warrant or a change in the perception as
to the future price of the underlying security, or any combination thereof.
Rights and warrants generally pay no dividends and confer no voting or other
rights other than to purchase the underlying security.

Investment in Small, Unseasoned Companies and Other Illiquid Securities

The Fund may invest in small, less well-known companies which have
operated for less than three years (including predecessors). The
securities of such companies may have a limited trading market, which
may adversely affect their disposition and can result in their being
priced lower than might otherwise be the case. If other investment
companies and investors who invest in such issuers trade the same
securities when the Fund attempts to dispose of its holdings, the Fund
may receive lower prices than might otherwise be obtained.

The Fund will not invest, in the aggregate, more than 10% of its net
assets in illiquid securities. These securities include securities
which are restricted for public sale, securities for which market
quotations are not readily available, and repurchase agreements
maturing or terminable in more than seven days. Securities freely
salable among qualified institutional investors under special rules
adopted by the SEC may be treated as liquid if they satisfy liquidity
standards established by the Board of Trustees. The continued liquidity
of such securities is not as well assured as that of publicly traded
securities, and accordingly, the Board of Trustees will monitor their
liquidity.

Corporate Reorganizations

In general, securities of companies engaged in reorganization
transactions sell at a premium to their historic market price
immediately prior to the announcement of the tender offer or
reorganization proposal. However, the increased market price of such
securities may also discount what the stated or appraised value of the
security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be received
by shareholders of the prospective portfolio company as a result of the
contemplated transaction; or fails adequately to recognize the
possibility that the offer or proposal may be replaced or superseded by
an offer or proposal of greater value. The evaluation of such
contingencies requires unusually broad knowledge and experience on the
part of the Adviser which must appraise not only the value of the
issuer and its component businesses as well as the assets or securities
to be received as a result of the contemplated transaction, but also
the financial resources and business motivation of the offeror as well
as the dynamic of the business climate when the offer or proposal is in
progress.

In making such investments, the Fund will not violate any of its
diversification requirements or investment restrictions (see below,
"Investment Restrictions") including the requirements that, except for
the investment of up to 25% of its assets in any one company or
industry, not more than 5% of its assets may be invested in the
securities of any issuer. Since such investments are ordinarily short
term in nature, they will tend to increase the Fund's portfolio
turnover ratio thereby increasing its brokerage and other transaction
expenses. The Adviser intends to select investments of the type
described which, in its view, have a reasonable prospect of capital
appreciation which is significant in relation to both the risk involved
and the potential of available alternate investments.

When Issued, Delayed Delivery Securities & Forward Commitments

The Fund is authorized to buy and sell when issued securities as an
additional investment strategy in furtherance of its investment
objectives.

In utilizing this strategy, the Fund may enter into forward
commitments for the purchase or sale of securities, including on a
"when issued" or "delayed delivery" basis in excess of customary
settlement periods for the type of securities involved. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring, i.e., a when, as and if
issued security. When such transactions are negotiated, the price is
fixed at the time of the commitment, with payment and delivery taking
place in the future, generally a month or more after the date of the
commitment. While the Fund will only enter into a forward commitment
with the intention of actually acquiring the security, the Fund may
sell the security before the settlement date if it is deemed advisable.

Securities purchased under a forward commitment are subject to market
fluctuation and no interest (or dividends) accrues to the Fund prior to
the settlement date. The Fund will segregate cash or liquid securities
with its custodian in an aggregate amount at least equal to the amount
of its outstanding forward commitments.

Other Investment Companies

The Fund does not intend to purchase the shares of other open-end
investment companies but reserves the right to invest up to 10% of its
total assets in the securities of closed-end investment companies
including small business investment companies (not more than 5% of its
total assets may be invested in more than 3% of the securities of any
investment company). To the extent that the Fund invests in the
securities of other investment companies, shareholders in the Fund may
be subject to duplicative advisory and administrative fees.

Repurchase Agreements

The Fund may enter into repurchase agreements with "primary dealers"
in U.S. Government securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price
to the amount of their repurchase obligation. In a repurchase
agreement, an investor (e.g., the Fund) purchases a debt security from
a seller which undertakes to repurchase the security at a specified
resale price on an agreed future date (ordinarily a week or less). The
resale price generally exceeds the purchase price by an amount which
reflects an agreed-upon market interest rate for the term of the
repurchase agreement.

The Fund's risk is primarily that, if the seller defaults, the
proceeds from the disposition of underlying securities and other
collateral for the seller's obligation are less than the repurchase
price. If the seller becomes bankrupt, the Fund might be delayed in
selling the collateral. Under the Investment Company Act of 1940, as
amended (the "1940 Act"), repurchase agreements are considered loans.
Repurchase agreements usually are for short periods, such as one week
or less, but could be longer. Except for repurchase agreements for a
period of a week or less in respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, not more
than 5% of the Fund's total assets may be invested in repurchase
agreements. In addition, the Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together
with restricted securities and other securities for which there are no
readily available quotations, more than 10% of its total assets would
be so invested. These percentage limitations are fundamental and may
not be changed without shareholder approval.

INVESTMENT RESTRICTIONS

The Fund's investment objectives and the following investment
restrictions are fundamental and may not be changed without the
approval of a majority of the Fund's shareholders, defined as the
lesser of (1) 67% of the Fund's shares present at a meeting if the
holders of more than 50% of the outstanding shares are present in
person or by proxy, or (2) more than 50% of the Fund's outstanding
shares. Under such restrictions, the Fund may not:

(1) Purchase the securities of any one issuer, other than the United
States Government, or any of its agencies or instrumentalities, if immediately
after such purchase more than 5% of the value of its total assets would be
invested in such issuer or the Fund would own more than 10% of the outstanding
voting securities of such issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such 5% and 10%
limitations;

(2) Invest more than 25% of the value of its total assets in any
particular industry;

(3) Purchase securities on margin, but it may obtain such short-term
credits from banks as may be necessary for the clearance of purchase and sales
of securities;

(4) Make loans of its assets except for the purchase of debt
securities;

(5) Borrow money except subject to the restrictions set forth in the
prospectus under "Special Investment Methods - Borrowing";

(6) Mortgage, pledge or hypothecate any of its assets except that, in
connection with permissible borrowings mentioned in paragraph 5 above, not more
than 20% of the assets of the Fund (not including amounts borrowed) may be used
as collateral;

(7) Invest more than 5% of its total assets in more than 3% of the
securities of another investment company or invest more than 10% of its total
assets in the securities of other investment companies, nor make any such
investments other than through purchase in the open market where to the best
information of the Fund no commission or profit to a sponsor or dealer (other
than the customary broker's commission) results from such purchase;

(8) Act as an underwriter of securities of other issuers;

(9) Invest, in the aggregate, more than 10% of the value of its total
assets in securities for which market quotations are not readily available,
securities which are restricted for public sale, or in repurchase agreements
maturing or terminable in more than seven days;

(10) Purchase or otherwise acquire interests in real estate, real
estate mortgage loans or interests in oil, gas or other mineral exploration or
development programs;

(11) Sell securities short or invest in puts, calls, straddles, spreads
or combination thereof;

(12) Purchase or acquire commodities or commodity contracts;

(13) Issue senior securities, except insofar as the Fund may be deemed
to have issued a senior security in connection with any permitted borrowing;

(14) Participate on a joint, or a joint and several, basis in any
securities trading account; or

(15) Invest in companies for the purpose of exercising control.

TRUSTEES AND OFFICERS

Under Massachusetts law, the Fund's Board of Trustees is responsible
for establishing the Fund's policies and for overseeing the management
of the Fund. The Board also elects the Fund's officers who conduct the
daily business of the Fund. The Trustees and principal officers of the
Fund, their ages and their principal occupations for the past five
years, are listed below. Unless otherwise specified, the address of
each such person is One Corporate Center, Rye, New York 10580-1434.
Trustees deemed to be "interested persons" of the Fund for purposes of
the 1940 Act are indicated by an asterisk.

Name, Address, Age and
Position(s) with Fund Principal Occupations During Past Five Years

Mario J. Gabelli,* 56 Chairman of the Board, Chief Executive Officer
Trustee and Cheif Investment Officer of
Gabelli Asset Management Inc., (since
1999) and Gabelli Funds
Inc., Director or Trustee
and Officer of various
other mutual funds
advised by Gabelli Funds,
LLC and its affiliates;
Chairman of the Board and
Chief Executive Officer
of Lynch Corporation
(diversified
manufacturing and
communications services
company) and Director of
East/West Communications
Inc.

Felix J. Christiana, 73 Formerly Senior Vice President of Dry Dock Savings Bank;
Trustee Director or Trustee of various other mutual funds advised
by Gabelli Funds, LLC and its affiliates.
Anthony J. Colavita, 64 President and Attorney at Law in the law firm of Anthony J.
Trustee Colavita, P.C. since 1961; Director or Trustee of various
other mutual funds advised by Gabelli Funds, LLC and its
affiliates.
James P. Conn, 61 Former Managing Director/Chief Investment Officer of
Trustee Financial Security Assurance Holdings Ltd. 1992-1998;
Director of Santa Anita
Operating Company since
1995; Director of
California Jockey Club
since 1983; Director of
Meditrust Corporation and
First Republic Bank;
Director or Trustee of
various other mutual
funds advised by Gabelli
Funds, LLC and its
affiliates.
Name, Address, Age and
Position(s) with Fund Principal Occupations During Past Five Years

Karl Otto Pohl,*+ 69 Member of the Shareholder Committee of Sal Oppenheim Jr. &
Trustee Cie (private investment bank); Director of Gabelli Asset
Management Inc.,
(investment management),
Zurich Allied
(insurance), and
TrizecHahn Corp.; Former
President of the Deutsche
Bundesbank and Chairman
of its Central Bank
Council from 1980 through
1991; Director or Trustee
of all other mutual funds
advised by Gabelli Funds,
LLC and its affiliates.

Anthony R. Pustorino, CPA, 73 Certified Public Accountant; Professor of Accounting, Pace
Trustee University, since 1965; Director or Trustee of various
other mutual funds advised by Gabelli Funds, LLC and its
affiliates.
Anthonie C. van Ekris, 65 Managing Director of Balmac International; Director of
Trustee Stahel Hardmeyer AG; Director or Trustee of various other
mutual funds advised by Gabelli Funds, LLC and its
affiliates.
Salvatore J. Zizza*+, 53 Executive Vice President of FMG Group (OTC), a healthcare
Trustee provider; Chairman of The Bethlehem Corp. (ASE); Board
Member of Hollis Eden
Pharmaceuticals (OTC);
Director of various other
mutual funds advised by
Gabelli Funds, LLC and
its affiliates.
Bruce N. Alpert, 47 Executive Vice President and Chief Operating Officer of the
President and Treasurer Adviser; President and Director of Gabelli Advisers, Inc.
and an Officer of all funds advised by Gabelli Funds, LLC
and its affiliates.

Name, Address, Age and
Position(s) with Fund Principal Occupations During Past Five Years

James E. McKee, 35 Vice President and General Counsel of the Adviser; Vice
Secretary President and General Counsel of GAMCO Investors, Inc.
since 1993; Secretary of all funds advised by Gabelli
Funds, LLC and Gabelli Advisers, Inc. since August 1995.

+ Mr. Pohl is a director of the parent company of the Adviser. Mr. Zizza
may be an "interested person" as a
result of his previous association with Binnings Building Products,
Inc., an entity controlled by GLI, Inc.,
an affiliate of the Adviser.
</TABLE>

No director, officer or employee of Gabelli & Company, Inc. ("Gabelli
& Company" or the "Distributor") or the Adviser or of any affiliate of
Gabelli & Company or the Adviser receives any compensation from the
Fund for serving as an officer or Trustee of the Fund. The Fund pays
each of its Trustees who is not a director, officer or employee of the
Adviser or any of their affiliates, $6,000 per annum plus $500 per
meeting attended in person and reimburses each Trustee for related
travel and out-of-pocket expenses. The Fund also pays each Trustee
serving as a member of the Audit, Proxy or Nominating Committees a fee
of $500 per committee meeting if held on a day other than a regularly
scheduled board meeting, and the Chairman of each committee receives
$1,000 per annum. For the fiscal year ended December 31, 1998, such
fees paid totaled $61,000.

Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C>

- ----------------------------------------- ---------------------------------- ---------------------------------------
(1) (2) (3)

Total Compensation
Aggregate Compensation from from Registrant and Fund Complex Paid
Registrant for to Trustees
Name of Person, Position Fiscal Year for Calendar Year*
- ----------------------------------------- ---------------------------------- ---------------------------------------
$ 0 $ 0(13)
Mario J. Gabelli
Trustee

Anthony J. Colavita $9,000 $ 81,500 (14)
Trustee

Felix J. Christiana $9,000 $ 88,100 (10)
Trustee

James P. Conn $8,000 $ 46,000 (5)
Trustee

Karl Otto Pohl $8,000 $ 102,466 (15)
Trustee

Anthony R. Pustorino $11,000 $ 100,500 (10)
Trustee

Anthonie C. van Ekris $8,000 $ 57,500 (11)
Trustee

Salvatore J. Zizza $8,000 $ 51,000 (5)
Trustee

* The total compensation paid to such persons during the calendar year
ending December 31, 1998 by investment companies (including the Fund)
from which such person receives compensation that are part of the same
Fund complex as the Fund, because they have common or affiliated
investment advisers. The number in parentheses represents the number of
such investment companies.
</TABLE>

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS

As of April 1, 1999, the following persons owned of record or
beneficially 5% or more of the Fund's outstanding shares:

Name and Address % of Class Nature of Ownership

Charles Schwab & Co. Inc. 12.35% Record(a)
101 Montgomery Street
San Francisco, CA 94104-4122

Suntrust Bank Atlanta 6.20% Record(a)
P.O. Box 105870
Atlanta, GA 30348-5870

(a) Charles Schwab and Suntrust Bank Atlanta disclaim beneficial ownership
and no one underlying shareholder owns beneficially more than 5% of the
shares of the Fund.

As of April 1, 1999, as a group the Trustees and officers of the Fund
owned less than 1% of the outstanding shares of common stock of the
Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

Investment Adviser

The Adviser is a New York limited liability company which also serves
as Adviser to 12 other open-end investment companies, and 3 closed-end
investment companies. The Adviser is a registered investment adviser
under the Investment Advisers Act of 1940, as amended. Mr. Mario J.
Gabelli may be deemed a "controlling person" of the Adviser on the
basis of his controlling interest of the parent company of the Adviser.
GAMCO Investors, Inc. ("GAMCO"), a wholly-owned subsidiary of the
Adviser, acts as investment adviser for individuals, pension trusts,
profit-sharing trusts and endowments, and had aggregate assets in
excess of $8.0 billion under its management as of December 31, 1998.

Affiliates of the Adviser may, in the ordinary course of their
business, acquire for their own account or for the accounts of their
advisory clients, significant (and possibly controlling) positions in
the securities of companies that may also be suitable for investment by
the Fund. The securities in which the Fund might invest may thereby be
limited to some extent. For instance, many companies in the past
several years have adopted so-called "poison pill" or other defensive
measures designed to discourage or prevent the completion of
non-negotiated offers for control of the company. Such defensive
measures may have the effect of limiting the shares of the company
which might otherwise be acquired by the Fund if the affiliates of the
Adviser or their advisory accounts have or acquire a significant
position in the same securities. However, the Adviser does not believe
that the investment activities of its affiliates will have a material
adverse effect upon the Fund in seeking to achieve its investment
objectives. Securities purchased or sold pursuant to contemporaneous
orders entered on behalf of the investment company accounts of the
Adviser or the advisory accounts managed by its affiliates for their
unaffiliated clients are allocated pursuant to principles believed to
be fair and not disadvantageous to any such accounts. In addition, all
such orders are accorded priority of execution over orders entered on
behalf of accounts in which the Adviser or its affiliates have a
substantial pecuniary interest. The Adviser may on occasion give advice
or take action with respect to other clients that differ from the
actions taken with respect to the Fund. The Fund may invest in the
securities of companies which are investment management clients of
GAMCO. In addition, portfolio companies or their officers or directors
may be minority shareholders of the Adviser or its affiliates.

Pursuant to an Amended and Restated Investment Advisory Contract,
which was approved by the shareholders of the Fund at a meeting held on
May 11, 1992 (the "Contract"), the Adviser furnishes a continuous
investment program for the Fund's portfolio, makes the day-to-day
investment decisions for the Fund, arranges the portfolio transactions
of the Fund and generally manages the Fund's investments in accordance
with the stated policies of the Fund, subject to the general
supervision of the Board of Trustees of the Fund.

Under the Contract, the Adviser also (i) provides the Fund with the
services of persons competent to perform such supervisory,
administrative, and clerical functions as are necessary to provide
effective administration of the Fund, including maintaining certain
books and records and overseeing the activities of the Fund's Custodian
and Transfer Agent; (ii) oversees the performance of administrative and
professional services to the Fund by others, including the Fund's
Sub-Administrator, Custodian, Transfer Agent and Dividend Disbursing
Agent, as well as accounting, auditing and other services performed for
the Fund; (iii) provides the Fund with adequate office space and
facilities; (iv) prepares, but does not pay for, the periodic updating
of the Fund's registration statement, Prospectus and Additional
Statement, including the printing of such documents for the purpose of
filings with the SEC and state securities administrators, the Fund's
tax returns, and reports to the Fund's shareholders and the SEC; (v)
calculates the net asset value of shares in the Fund; (vi) prepares,
but does not pay for, all filings under the securities or "Blue Sky"
laws of such states or countries as are designated by the Distributor,
which may be required to register or qualify, or continue the
registration or qualification, of the Fund and/or its shares under such
laws; and (vii) prepares notices and agendas for meetings of the Fund's
Board of Trustees and minutes of such meetings in all matters required
by the Act to be acted upon by the Board.

The Contract provides that absent willful misfeasance, bad faith,
gross negligence or reckless disregard of its duty, the Adviser and its
employees, officers, directors and controlling persons are not liable
to the Fund or any of its investors for any act or omission by the
Adviser or for any error of judgment or for losses sustained by the
Fund. However, the Contract provides that the Fund is not waiving any
rights it may have with respect to any violation of law which cannot be
waived. The Contract also provides indemnification for the Adviser and
each of these persons for any conduct for which they are not liable to
the Fund. The Contract in no way restricts the Adviser from acting as
Adviser to others. The Fund has agreed by the terms of the Contract
that the word "Gabelli" in its name is derived from the name of the
Adviser which in turn is derived from the name of Mario J. Gabelli;
that such name is the property of the Adviser for copyright and/or
other purposes; and that, therefore, such name may freely be used by
the Adviser for other investment companies, entities or products. The
Fund has further agreed that in the event that for any reason, the
Adviser ceases to be its investment adviser, the Fund will, unless the
Adviser otherwise consents in writing, promptly take all steps
necessary to change its name to one which does not include "Gabelli."

By its terms, the Contract will remain in effect from year to year,
provided each such annual continuance is specifically approved by the
Fund's Board of Trustees or by a "majority" (as defined in the 1940
Act) vote of its shareholders and, in either case, by a majority vote
of the Trustees who are not parties to the Contract or interested
persons of any such party, cast in person at a meeting called
specifically for the purpose of voting on the Contract. The Contract is
terminable without penalty by the Fund on sixty days' written notice
when authorized either by majority vote of its outstanding voting
shares or by a vote of a majority of its Board of Trustees, or by the
Adviser on sixty days' written notice, and will automatically terminate
in the event of its "assignment" as defined by the 1940 Act.

For the Fund's fiscal years ended December 31, 1996, December 31, 1997
and December 31, 1998, the Fund paid investment advisory fees to the
Adviser amounting to $11,146,282, $11,701,148 and $14,882,733,
respectively.

Sub-Administrator

First Data Investor Services Group, Inc. (the "Sub-Administrator"), a
subsidiary of First Data Corporation which is located at Exchange
Place, Boston, Massachusetts 02109, serves as Sub-Administrator to the
Fund pursuant to a Sub-Administration Agreement with the Adviser (the
"Sub-Administration Agreement"). Under the Sub-Administration
Agreement, the Sub-Administrator (a) assists in supervising all aspects
of the Fund's operations except those performed by the Adviser under
its advisory agreement with the Fund; (b) supplies the Fund with office
facilities (which may be in the Sub-Administrator's own offices),
statistical and research data, data processing services, clerical,
accounting and bookkeeping services, including, but not limited to, the
calculation of the net asset value of shares in the Fund, internal
auditing and legal services, internal executive and administrative
services, and stationery and office supplies; (c) prepares and
distributes materials for all Fund Board of Trustees' Meetings
including the mailing of all Board materials and collates the same
materials into the Board books and assists in the drafting of minutes
of the Board Meetings; (d) prepares reports to Fund shareholders, tax
returns and reports to and filings with the SEC and state "Blue Sky"
authorities; (e) calculates the Fund's net asset value per share,
provides any equipment or services necessary for the purpose of pricing
shares or valuing the Fund's investment portfolio and, when requested,
calculates the amounts permitted for the payment of distribution
expenses under any distribution plan adopted by the Fund; (f) provides
compliance testing of all Fund activities against applicable
requirements of the 1940 Act and the rules thereunder, the Code, and
the Fund's investment restrictions; (g) furnishes to the Adviser such
statistical and other factual information and information regarding
economic factors and trends as the Adviser from time to time may
require; and (h) generally provides all administrative services that
may be required for the ongoing operation of the Fund in a manner
consistent with the requirements of the 1940 Act.

For the services it provides, the Advisor pays the Sub-Administrator an annual
fee based on the value of the aggregate average daily net assets of all funds
under its administration managed by the Adviser as follows: up to $1 billion -
0.10%; $1 billion to $1.5 billion - 0.08%; $1.5 billion to $3 billion - 0.03%;
over $3 billion - 0.02%. The Sub-Administrator's fee is paid by the Adviser and
will result in no additional expenses to the Fund. Counsel

Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
New York 10022, serves as the Fund's legal counsel.

Independent Accountants

PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036, independent accountants, have been selected to audit and
express their opinions on the Fund's annual financial statements.

Custodian, Transfer Agent and Dividend Disbursing Agent

State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, MA 02110 is the Custodian for the Fund's cash and
securities. Boston Financial Data Services, Inc. ("BFDS"), an affiliate
of State Street located at the BFDS Building, Two Heritage Drive,
Quincy, Massachusetts 02171, performs the services of transfer agent
and dividend disbursing agent for the Fund. Neither BFDS nor State
Street assists in or is responsible for investment decisions involving
assets of the Fund.

Distributor

To implement the Fund's 12b-1 Plan, the Fund has entered into a
Distribution Agreement with the Distributor, a New York corporation
which is an indirect majority owned subsidiary of Gabelli Asset
Management Inc., having principal offices located at One Corporate
Center, Rye, New York 10580. The Distributor continuously solicits
offers for the purchase of shares of the Fund on a best efforts basis.

DISTRIBUTION PLAN

On February 26, 1997, the Fund adopted a Plan of Distribution (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Payments may be made
by the Fund under the Plan for the purpose of financing any activity
primarily intended to result in the sales of shares of the Fund as
determined by the Board of Trustees. Such activities typically include
advertising, compensation for sales and marketing activities of the
Distributor and other banks, broker-dealers and service providers;
shareholder account servicing; production and dissemination of
prospectus and sales and marketing materials; and capital or other
expenses of associated equipment, rent, salaries, bonuses, interest and
other overhead. To the extent any activity is one which the Fund may
finance without a distribution plan, the Fund may also make payments to
finance such activity outside of the Plan and not be subject to its
limitations. Payments under the Plan are not solely dependent on
distribution expenses actually incurred by the Distributor.

Under its terms, the Plan remains in effect so long as its continuance
is specifically approved at least annually by vote of the Fund's Board
of Trustees, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Fund ("Independent
Trustees"). The Plan may not be amended to increase materially the
amount to be spent for services provided by the Distributor thereunder
without shareholder approval, and all material amendments of the Plan
must also be approved by the Trustees in the manner described above.
The Plan may be terminated at any time, without penalty, by vote of a
majority of the Independent Trustees, or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act).
Under the Plan, the Distributor will provide the Trustees periodic
reports of amounts expanded under the Plan and the purpose for which
expenditures were made.

No interested person of the Fund or any Independent Trustee of the
Fund had a direct or indirect financial interest in the operation of
the Plan or related agreements.

During the fiscal year ended December 31, 1998, the Fund made payments
to the Distributor pursuant to the Plan totaling $3,708,303 or 0.25% of
the Fund's average daily net assets. Such payments funded expenditures
of approximately: $434,700 for advertising, $206,300 for printing,
postage and stationary, $2,675,403 for overhead support expenses and
$391,900 for salaries of personnel of the Distributor. The Plan
compensates the Distributor regardless of its expenses.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Under the Contract, the Adviser is authorized on behalf of the Fund to
employ brokers to effect the purchase or sale of portfolio securities
with the objective of obtaining prompt, efficient and reliable
execution and clearance of such transactions at the most favorable
price obtainable ("best execution") at reasonable expense. The Adviser
is permitted to (1) direct Fund portfolio brokerage to Gabelli &
Company, a broker-dealer affiliate of the Adviser; (2) pay commissions
to brokers other than Gabelli & Company which are higher than might be
charged by another qualified broker to obtain brokerage and/or research
services considered by the Adviser to be useful or desirable for its
investment management of the Fund and/or other advisory accounts under
the management of the Adviser and any investment adviser affiliated
with it; and (3) consider the sales of shares of the Fund by brokers
other than Gabelli & Company as a factor in its selection of brokers
for Fund portfolio transactions. Transactions in securities other than
those for which a securities exchange is the principal market are
generally executed through a brokerage firm and a commission is paid
whenever it appears that the broker can obtain a more favorable overall
price. In general, there may be no stated commission on principal
transactions in over-the-counter securities, but the prices of such
securities may usually include undisclosed commissions or markups.

When consistent with the objective of obtaining best execution, Fund
brokerage may be directed to brokers or dealers which furnish brokerage
or research services to the Fund or the Adviser of the type described
in Section 28(e) of the Securities Exchange Act of 1934, as amended.
The commissions charged by a broker furnishing such brokerage or
research services may be greater than that which another qualified
broker might charge if the Adviser determines, in good faith, that the
amount of such greater commission is reasonable in relation to the
value of the additional brokerage or research services provided by the
executing broker, viewed in terms of either the particular transaction
or the overall responsibilities of the Adviser or its advisory
affiliates to the accounts over which they exercise investment
discretion. Since it is not feasible to do so, the Adviser need not
attempt to place a specific dollar value on such services or the
portion of the commission which reflects the amount paid for such
services but must be prepared to demonstrate a good faith basis for its
determinations.

Investment research obtained by allocations of Fund brokerage is used
to augment the scope and supplement the internal research and
investment strategy capabilities of the Adviser but does not reduce the
overall expenses of the Adviser to any material extent. Such investment
research may be in written form or through direct contact with
individuals and includes information on particular companies and
industries as well as market, economic or institutional activity areas.
Research services furnished by brokers through which the Fund effects
securities transactions are used by the Adviser and its advisory
affiliates in carrying out their responsibilities with respect to all
of their accounts over which they exercise investment discretion. Such
investment information may be useful only to one or more of the other
accounts of the Adviser and its advisory affiliates, and research
information received for the commissions of those particular accounts
may be useful both to the Fund and one or more of such other accounts.

Neither the Fund nor the Adviser has any agreement or legally binding
understanding with any broker regarding any specific amount of
brokerage commissions which will be paid in recognition of such
services. However, in determining the amount of portfolio commissions
directed to such brokers, the Adviser does consider the level of
services provided and, based on such determinations, has allocated
brokerage commissions of $592,888 on portfolio transactions in the
principal amounts of $414,928,963, during 1998. The average commission
on these transactions was $0.0479 per share.

The Adviser may also place orders for the purchase or sale of
portfolio securities with Gabelli & Company when it appears that, as an
introducing broker or otherwise, Gabelli & Company can obtain a price
and execution which is at least as favorable as that obtainable by
other qualified brokers. As required by Rule 17e-1 under the 1940 Act,
the Board of Trustees has adopted "Procedures" which provide that
commissions paid to Gabelli & Company on stock exchange transactions
may not exceed that which would have been charged by another qualified
broker or member firm able to effect the same or a comparable
transaction at an equally favorable price and contains a schedule
setting forth maximum commission charges for such transactions designed
to reflect that standard. Rule 17e-1 and the Procedures contain
requirements that the Board, including its "independent" Trustees,
conduct periodic compliance reviews of such brokerage allocations and
review such schedule at least annually for its continuing compliance
with the foregoing standard. The Adviser and Gabelli & Company are also
required to furnish reports and maintain records in connection with
such reviews.

To obtain the best execution of portfolio transactions on the New York
Stock Exchange ("NYSE"), Gabelli & Company controls and monitors the
execution of such transactions on the floor of the NYSE through
independent "floor brokers" or through the Designated Order Turnaround
System of the NYSE. Such transactions are then cleared, confirmed to
the Fund for the account of Gabelli & Company, and settled directly
with the Custodian of the Fund by a clearing house member firm which
remits the commission less its clearance charges to Gabelli & Company.
Pursuant to an agreement with the Fund, Gabelli & Company pays all
charges incurred for such services and reports at least quarterly to
the Board the amount of such expenses and commissions. The net
compensation realized by Gabelli & Company for its brokerage services
is subject to the approval of the Board and the Independent Trustees of
the Fund who must approve the continuance of the arrangement at least
annually. Commissions paid by the Fund pursuant to the arrangement may
not exceed the commission level specified by the Procedures described
above. Gabelli may also effect Fund portfolio transactions in the same
manner and pursuant to the same arrangements on other national
securities exchanges which adopt direct order access rules similar to
those of the NYSE.

The following table sets forth certain information regarding the
Fund's payment of brokerage commissions including commissions paid to
Gabelli & Company and Keeley Investment Corp. ("Keeley"). A significant
shareholder of Keeley is a director of a company that is an affiliate
of the Adviser.

Fiscal Year Ended
Commissions
December 31 Paid

Total Brokerage Commissions........................................ 1996 $494,944
1997 $700,560
1998 $592,888

Commissions paid to Gabelli & Company.............................. 1996 $130,061
1997 $216,768
1998 $333,718

Commissions paid to Keeley Investment Corp......................... 1996 $5,550
1997 $4,025
1998 $1,350

% of Total Brokerage Commissions paid to Gabelli & Company.........
1998 56.29%

% of Total Brokerage Commissions paid to Keeley Investment Corp....
1998 0.23%

% of Total Transactions involving Commissions paid to Gabelli &
Company............................................................ 1998 47.62%

% of Total Transactions involving Commissions paid to Keeley
Investment Corp.................................................... 1998 0.12%
</TABLE>

RETIREMENT PLANS

Under the Internal Revenue Code of 1986, as amended (the "Code"), individuals
may make wholly or partly tax deductible IRA contributions of up to
$2,000 annually, depending on whether they are active participants in
an employer-sponsored retirement plan and on their income level.
However, dividends and distributions held in the account are not taxed
until withdrawn in accordance with the provisions of the Code. An
individual with a non-working spouse may establish a separate IRA for
the spouse under the same conditions and contribute a combined maximum
of $4,000 annually to both IRAs provided that no more than $2,000 may
be contributed to the IRA of either spouse. Other provisions permit
additional IRA contributions which are not tax deductible but the tax
on reinvested dividends and distributions is deferred while held in the
account. There are also rules on the amount of tax deductible
contributions which may be made to other retirement plans.

Investors may be eligible to make contributions to a new type
of individual retirement account (a "Roth IRA"). An investor can open a
Roth IRA if he or she meets certain income limits specified in the
Code. Any contributions made by an investor to a Roth IRA are
nondeductible for U.S. Federal income tax purposes. Distributions from
a Roth IRA are not included in the investor's gross income and are not
subject to a 10% penalty for early withdrawal if the distributions are
made after the end of the five-year period beginning with the first tax
year in which the investor made a contribution to the Roth IRA and the
distributions meet other criteria set forth in the Code. The maximum
annual aggregate contribution that can be made to IRAs and Roth IRAs is
$2,000. In addition, certain low and middle-income investors may open
an education individual retirement account (an "Education IRA").
Eligible individuals are permitted to contribute up to $500 per year
per beneficiary under 18 years old to an Education IRA. The minimum
initial investment for an Education IRA through the Fund is $250. A
distribution from an Education IRA is generally excludable from gross
income to the extent that such distribution does not exceed qualified
higher education expenses incurred by the beneficiary during the year
in which the distribution is made.

Investorsshould be aware that they may be subject to penalties or additional
tax on contributions to or withdrawals from IRAs or other retirement
plans which are not permitted by the applicable provisions of the Code
and prior to a withdrawal, shareholders may be required to certify
their age and awareness of such restrictions in writing. Persons
desiring information concerning investments through IRAs or other
retirement plans should write or telephone the Distributor.

REDEMPTION OF SHARES

Payment of the redemption price for shares redeemed may be made either
in cash or in portfolio securities (selected in the discretion of the
Board of Trustees of the Fund and taken at their value used in
determining the Fund's net asset value per share as described under
"Computation of Net Asset Value"), or partly in cash and partly in
portfolio securities. However, payments will be made wholly in cash
unless the Board of Trustees believes that economic conditions exist
which would make such a practice detrimental to the best interests of
the Fund. If payment for shares redeemed is made wholly or partly in
portfolio securities, brokerage costs may be incurred by the investor
in converting the securities to cash. The Fund will not distribute
in-kind portfolio securities that are not readily marketable. The Fund
has filed a formal election with the SEC pursuant to which the Fund
will only effect a redemption in portfolio securities where the
particular shareholder of record is redeeming more than $250,000 or 1%
of the Fund's total net assets, whichever is less, during any 90 day
period. In the opinion of the Fund's management, however, the amount of
a redemption request would have to be significantly greater than
$250,000 before a redemption wholly or partly in portfolio securities
would be made.

Cancellation of purchase orders for Fund shares (as, for example, when
checks submitted to purchase shares are returned unpaid) causes a loss
to be incurred when the net asset value of the Fund shares on the date
of cancellation is less than on the original date of purchase. The
investor is responsible for such loss, and the Fund may reimburse
itself or the Distributor for such loss by automatically redeeming
shares from any account registered at any time in that shareholder's
name, or by seeking other redress. In the event shares held in the
account of such shareholder are not sufficient to cover such loss, the
Distributor will promptly reimburse the Fund for the amount of such
unrecovered loss.

COMPUTATION OF NET ASSET VALUE

Net asset value is calculated separately for each class of the Fund.
The net asset value of Class B and Class C shares of the Fund will generally be
lower than the net asset value of Class A or Class AAA shares as a result of the
large distribution-related fee to which Class B and Class C shares are subject.
It is expected, however, that the net asset value per share of each class will
tend to converge immediately after the recording of dividends, if any, which
will differ by approximately the amount of the distribution and/or service fee
expense accrual differential among the classes.

For purposes of determining the Fund's net asset value per share,
readily marketable portfolio securities listed on the NYSE are valued,
except as indicated below, at the last sale price reflected at the
close of the regular trading session of the NYSE on the business day as
of which such value is being determined. If there has been no sale on
such day, the securities are valued at the average of the closing bid
and asked prices on such day. If no asked prices are quoted on such
day, then the security is valued at the closing bid price on such day.
If no bid or asked prices are quoted on such day, then the security is
valued by such method as the Board of Trustees shall determine in good
faith to reflect its fair market value. Readily marketable securities
not listed on the NYSE but listed on other national securities
exchanges or admitted to trading on the National Association of
Securities Dealers Automated Quotations, Inc. ("NASDAQ") National List
are valued in like manner.

Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the
Adviser to be over-the-counter but excluding securities admitted to
trading on the NASDAQ National List, are valued at the mean of the
current bid and asked prices as reported by NASDAQ or, in the case of
securities not quoted by NASDAQ, the National Quotation Bureau or such
other comparable sources as the Board of Trustees deems appropriate to
reflect their fair value. If no asked prices are quoted on such day,
then the security is valued at the closing bid price on such day. If no
bid or asked prices are quoted on such day, then the security is valued
by such method as the Board of Trustees shall determine in good faith
to reflect its fair market value.

Portfolio securities traded on more than one national securities
exchange or market are valued according to the broadest and most
representative market as determined by the Adviser. Securities traded
primarily on foreign exchanges are valued at the closing price on such
foreign exchange immediately prior to the close of the NYSE.

United States Government obligations and other short-term debt
instruments having 60 days or less remaining until maturity are stated
at amortized cost. Short-term debt instruments having a greater
remaining maturity will be valued at the highest bid price obtained
from a dealer maintaining an active market in that security or on the
basis of prices obtained from a pricing service approved as reliable by
the Board of Trustees. All other investment assets, including
restricted and not readily marketable securities, are valued under
procedures established by and under the general supervision and
responsibility of the Fund's Board of Trustees designed to reflect in
good faith the fair value of such securities.

DIVIDENDS, DISTRIBUTIONS AND TAXES

General

Dividends and distributions will be automatically reinvested for each
shareholder's account at net asset value in additional shares of the Fund,
unless the shareholder instructs the Fund to pay all dividends and distributions
in cash and to credit the amounts to his or her brokerage account or to pay the
amounts by check. Fractional shares may be paid in cash. Dividends from net
investment income, if any, and distributions of any net realized capital gains
earned by the Fund will be paid annually.

Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, the Fund must distribute during each calendar
year, at least the sum of (1) 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) 98% of its
capital gains in excess of its capital losses for the twelve-month period ending
on October 31 of the calendar year or, upon election, during the calendar year
and (3) all ordinary income and net capital gains for previous years that were
not previously distributed. A distribution will be treated as paid during the
calendar year if it is paid during the calendar year or declared by the Fund in
October, November or December of the year, payable to shareholders of record as
of a specified date in such a month and actually paid by the Fund during January
of the following year. Any such distributions paid during January of the
following year will be deemed to be paid and received on December 31 of the year
the distributions are declared.

Gains or losses on the sales of securities by the Fund will be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses.

The Fund has qualified and intends to continue to qualify as a
"Regulated Investment Company" under Subchapter M of the Code. If so qualified,
the Fund will not be subject to federal income tax on its net investment income
and net short-term and long-term capital gains, if any, realized during any
taxable year in which it distributes such income and capital gains to its
shareholders. Although the Fund is non-diversified for purposes of the 1940 Act,
the Fund nevertheless is subject to diversification requirements under
Subchapter M. In general, the Code requires the Fund to diversify its holdings
so that, at the close of each quarter of its taxable year, (1) at least 50% of
the value of its total assets consist of cash, cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities limited generally with respect to any one issuer to not more than 5%
of the total assets of the Fund and not more than 10% of the outstanding voting
securities of each issuer, and (2) not more than 25% of the value of its assets
is invested in the securities of any issuer (other than U.S. Government
securities or the securities of other regulated investment companies).

If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends shall be
included in the Fund's gross income as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date on which a
buyer of the stock would not be entitled to receive the declared, but unpaid,
dividends) or (b) the date the Fund acquired such stock. Accordingly, in order
to satisfy its income distribution requirements, the Fund may be required to pay
dividends based on anticipated earnings, and shareholders may receive dividends
in an earlier year than would otherwise be the case.

The Fund's short sales against the box and transactions in futures
contracts and options will be subject to special provisions of the Code that,
among other things, may affect the character of gains and losses realized by the
Fund (i.e., may affect whether gains or losses are ordinary or capital), may
accelerate recognition of income to the Fund and may defer Fund losses. These
rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions also (a) will require the Fund to
mark-to-market certain types of the positions in its portfolio (i.e., treat them
as if they were closed out), and (b) may cause the Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the 90% and 98% distribution requirements for avoiding income and excise
taxes described above. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it engages in short sales against the box or acquires any futures
contract, option or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.

Foreign Withholding Taxes

Income received by the Fund from investments in foreign securities may
be subject to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known. Because the Fund will not have more than 50% of its
total assets invested in securities of foreign governments or corporations, the
Fund will not be entitled to "pass-through" to shareholders the amount of
foreign taxes paid by the Fund.

Passive Foreign Investment Companies

If the Fund purchases shares in certain foreign investment entities,
called "passive foreign investment companies" (a "PFIC"), it may be subject to
United States federal income tax on a portion of any "excess distribution" or
gain from the disposition of such shares even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. If the Fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund" under the Code, in
lieu of the foregoing requirements, the Fund might be required to include in
income each year a portion of the ordinary earnings and net capital gains of the
qualified electing fund, even if not distributed to the Fund, and such amounts
would be subject to the 90% and excise tax distribution requirements described
above. In order to make this election, the Fund would be required to obtain
certain annual information from the passive foreign investment companies in
which it invests, which may be difficult or not possible to obtain.

Alternatively, the Fund may make a mark-to-market election that will
result in the Fund being treated as if it had sold and repurchased all of the
PFIC stock at the end of each year. In this case, the Fund would report gains as
ordinary income and would deduct losses as ordinary losses to the extent of
previously recognized gains. The election, once made, would be effective for all
subsequent taxable years of the Fund, unless revoked with the consent of the
IRS. By making the election, the Fund could potentially ameliorate the adverse
tax consequences with respect to its ownership of shares in a PFIC, but in any
particular year may be required to recognize income in excess of the
distributions it receives from PFICs and its proceeds from dispositions of PFIC
company stock. The Fund may have to distribute this "phantom" income and gain to
satisfy its distribution requirement and to avoid imposition of the 4% excise
tax. The Fund will make the appropriate tax elections, if possible, and take any
additional steps that are necessary to mitigate the effect of these rules.

Distributions

Distributions of investment company taxable income (which includes
interest and dividends and the excess of net short-term capital gains over
long-term capital losses, but not the excess of net long-term capital gains over
net short-term capital losses) are taxable to a U.S. shareholder as ordinary
income, whether paid in cash or shares. Dividends paid by the Fund will qualify
for the 70% deduction generally available for dividends received by corporations
to the extent the Fund's income consists of qualified dividends received from
U.S. corporations. Distributions of net capital gains (which consists of the
excess of net long-term capital gains over net short-term capital losses), if
any, are taxable as long-term capital gains, whether paid in cash or in shares,
regardless of how long the shareholder has held the Fund's shares, and are not
eligible for the dividends received deduction. Shareholders receiving
distributions in the form of newly issued shares will have a basis in such
shares of the Fund equal to the fair market value of such shares on the
distribution date.

The price of shares purchased just prior to a distribution by the Fund
may reflect the amount of the forthcoming distribution. Those purchasing at that
time will receive a distribution that represents a return of investment, but
that will nevertheless be taxable to them.

Sales of Shares

Upon a sale or exchange of his or her shares, a shareholder will
realize a taxable gain or loss depending upon his or her basis in the shares.
The gain or loss will be treated as a long-term capital gain or loss if the
shares have been held for more than one year. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of. In such case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of Fund shares held by the shareholder for six months or less will be
treated for tax purposes as a long-term capital loss to the extent of any
distributions of long-term capital gains received by the shareholder with
respect to such shares. However, capital losses are deductible only against
capital gains plus, for individuals, up to $3,000 of ordinary income.

Backup Withholding

The Fund may be required to withhold federal income tax at the rate of
31% with respect to (1) taxable dividends and distributions and (2) proceeds of
any redemptions of Fund shares if a shareholder fails to provide the Fund with
his or her correct taxpayer identification number or to make required
certifications, or who has been notified by the Internal Revenue Service that he
or she is subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's federal income
tax liability.

Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state, local or foreign taxes.

INVESTMENT PERFORMANCE INFORMATION

The investment performance of the Fund quoted in advertising or sales
literature for the sale of its shares will be calculated on a total
return basis which assumes the reinvestment of all dividends and
distributions. Total return is computed by comparing the value of an
assumed investment in Fund shares at the offering price in effect at
the beginning of the period shown with the redemption price of the same
investment at the end of the period (including share(s) accrued thereon
by the reinvestment of dividends and distributions). Performance
quotations given as a percentage will be derived by dividing the amount
of such total return by the amount of the assumed investment. When the
period shown is greater than one year, the result is referred to as
cumulative performance or cumulative total return.

Performance quotations will ordinarily be accompanied by the average
annual total return of the Fund for the past ten years as well as its
total return for the past five years and for the twelve months as of
the end of the most recent calendar quarter. Quotations of average
annual total return for periods greater than one year will be the
compounded annual rate of return which equates to the result of the
previously described calculation of cumulative total return. Computed
in the manner described, the total return of the Fund's Class AAA
shares has been:

Year ended Total Return

12/31/88 31.1%
12/31/89 26.2%
12/31/90 (5.0)%
12/31/91 18.1%
12/31/92 14.9%
12/31/93 21.8%
12/31/94 (0.1)%
12/31/95 24.9%
12/31/96 13.4%
12/31/97 38.1%
12/31/98 15.9%

The Fund's average annual total return figures for Class AAA shares are
as follows:

15.9% for the one year period from January 1, 1998 through December
31, 1998

17.8% for the five year period from January 1, 1993 through December
31, 1998

16.2% for the ten year period from January 1, 1988 through December
31, 1998

17.2% for the period from the Fund's inception on March 3, 1986
through December 31, 1998

The formula for computing the foregoing annual rate of total return is:

P (1 + T) n = ERV

P = Investment at the beginning of the period. T = Compounded annual rate of
total return.
n = Number of years.
ERV = Redemption value of the same investment at the end of the period
assuming the reinvestment of all dividends and distributions.

Investors are cautioned that past results are not necessarily representative of
future results; that investment returns and principal value will fluctuate; that
investment performance is primarily a function of portfolio management (which is
affected by the economic and market environment as well as the volatility of
portfolio investments) and operating expenses; and that performance information,
such as that described above, may not provide a valid basis of comparison with
other investments and investment companies using a different method of computing
performance data.

DESCRIPTION OF THE FUND'S SHARES

The Fund may issue an unlimited number of full and fractional shares of
beneficial interest (par value $.01 per share). The Fund's shares have no
preemptive or conversion rights.

Voting Rights

Shareholders are entitled to one vote for each share held (and
fractional votes for fractional shares) and may vote on the election of
Trustees and on other matters submitted to meetings of shareholders. As
a Massachusetts Business Trust, the Fund is not required, and does not
intend, to hold regular annual shareholder meetings but may hold
special meetings for the consideration of proposals requiring
shareholder approval such as changing fundamental policies. In
addition, the Fund's Trustees will call a meeting of shareholders upon
the written request of the shareholders of 331/3 % of the Fund's
outstanding shares (10% in the case of removal of a Trustee).
Furthermore, ten shareholders holding the lesser of $25,000 worth or
one percent of Fund shares may advise the Trustees in writing that they
wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then, if
requested by the applicants, mail at the applicants' expense, the
applicants' communication to all other shareholders. The Declaration of
Trust provides that the Fund's shareholders have the right, upon the
declaration in writing or vote of more than two thirds of its
outstanding shares, to remove a Trustee. Except for a change in the
name of the Trust, no amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of more than 50% of its
outstanding shares. Shareholders have no preemptive or conversion
rights. The Fund may be terminated upon the sale of its assets to
another issuer, if such sale is approved by the vote of the holders of
more than 50% of its outstanding shares. If not so terminated, the Fund
intends to continue indefinitely.

Liabilities; Separate Series of Shares

The Fund's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing
in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for a trust's obligations. However, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund
itself is unable to meet its obligations since the Declaration of Trust
provides for indemnification and reimbursement of expenses out of the
property of the Fund to any shareholder held personally liable for any
obligation of the Fund and also provides that the Fund shall, if
requested, assume the defense of any claim made against any shareholder
for any act or obligation of the Trust and satisfy any judgment
recovered thereon.

The Fund reserves the right to create and issue a number of series of
shares, in which case the shares of each series would participate
equally in the earnings, dividends and assets of the particular series
and would vote separately to approve management agreements or changes
in investment policies, but shares of all series would vote together in
the election or selection of Trustees, principal underwriters and
accountants and on any proposed material amendment to the Fund's
Declaration of Trust. Upon liquidation of the Fund, shareholders of
each series would be entitled to share pro rata in the net assets of
their respective series available for distribution to shareholders.

FINANCIAL STATEMENTS

THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1998
- - ----------------------------------------------------------------

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS -- 96.3%
AEROSPACE--0.6%
150,000 Boeing Co. ............... $ 5,329,532 $ 4,893,750
55,000 Northrop Grumman Corp. ... 4,456,982 4,021,875
------------ --------------
9,786,514 8,915,625
------------ --------------
AGRICULTURE--0.6%
20,000 Agribrands International
Inc. .................... 282,787 600,000
500,000 Archer-Daniels-Midland
Co. ..................... 8,729,803 8,593,750
10,000 Monsanto Co. ............. 405,188 475,000
------------ --------------
9,417,778 9,668,750
------------ --------------
AUTOMOTIVE--0.6%
140,000 General Motors Corp. ..... 4,054,621 10,027,500
------------ --------------
AUTOMOTIVE: PARTS AND
ACCESSORIES--3.8%
20,000 Borg-Warner Automotive
Inc. .................... 652,845 1,115,000
120,809 Dana Corp. ............... 1,759,438 4,938,068
123,000 Federal-Mogul Corp. ...... 3,262,690 7,318,500
600,000 GenCorp Inc. ............. 3,684,662 14,962,500
255,000 Genuine Parts Co. ........ 6,225,641 8,526,563
115,000 Johnson Controls Inc. .... 2,268,501 6,785,000
238,500 Modine Manufacturing
Co. ..................... 5,125,982 8,645,625
180,000 Standard Motor Products
Inc. .................... 2,323,936 4,365,000
35,000 Superior Industries
International Inc. ...... 693,283 973,438
100,000 TransPro Inc. ............ 788,321 487,500
90,000 Wynn's International
Inc. .................... 1,140,063 1,991,250
------------ --------------
27,925,362 60,108,444
------------ --------------
AVIATION: PARTS AND SERVICES--1.3%
10,000 BE Aerospace Inc.+........ 193,625 210,000
370,000 Coltec Industries Inc.+... 5,060,746 7,215,000
181,000 Curtiss-Wright Corp. ..... 2,275,020 6,900,625
55,000 Fairchild Corp., Cl. A.... 1,047,890 866,250
60,000 Hi-Shear Industries
Inc. .................... 510,932 155,625
40,000 Hudson General Corp. ..... 1,121,008 2,520,000
72,000 Precision Castparts
Corp. ................... 2,725,279 3,186,000
------------ --------------
12,934,500 21,053,500
------------ --------------
BROADCASTING--4.5%
75,000 CBS Corp. ................ 1,874,672 2,456,250
445,255 Chris-Craft Industries
Inc. .................... 9,829,327 21,455,725
69,551 Chris-Craft Industries
Inc., Cl. B (a).......... 1,132,440 3,351,489
8,700 Gray Communications
Systems Inc. ............ 172,878 159,319
181,300 Gray Communications
Systems Inc., Cl. B...... 2,352,215 2,481,544
175,000 Grupo Televisa SA, GDR+... 3,689,840 4,320,313
3,000 Infinity Broadcasting
Corp. ................... 61,500 82,125
129,700 Liberty Corp. ............ 4,361,332 6,371,513
</TABLE>

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
115,000 Paxson Communications
Corp., Cl. A+............ $ 1,231,309 $ 1,056,563
400,000 Television Broadcasting
Ltd. .................... 1,815,551 1,032,578
247,500 United Television Inc. ... 15,847,291 28,462,500
------------ --------------
42,368,355 71,229,919
------------ --------------
BUILDING AND CONSTRUCTION--0.3%
167,000 Nortek Inc.+.............. 797,319 4,613,375
4,333 Nortek Inc., Special
Common (a)............... 59,049 119,699
------------ --------------
856,368 4,733,074
------------ --------------
BUSINESS SERVICES--1.0%
48,000 Avis Rent A Car Inc.+..... 1,198,503 1,161,000
54,100 Berlitz International
Inc., New+............... 847,842 1,568,900
140,000 Cendant Corp. ............ 2,249,607 2,668,750
14,100 Dollar Thrifty Automotive
Group Inc.+.............. 227,336 181,538
100,000 Ecolab Inc. .............. 1,571,512 3,618,750
23,046 Hach Co. ................. 186,972 276,552
16,546 Hach Co., Cl. A........... 113,613 169,597
20,000 Hertz Corp. .............. 784,937 912,500
68,000 Landauer Inc. ............ 422,093 2,201,500
200,000 Nashua Corp.+............. 3,675,056 2,662,500
------------ --------------
11,277,471 15,421,587
------------ --------------
CABLE--7.4%
810,000 Cablevision Systems Corp.,
Cl. A+................... 7,971,521 40,651,875
40,000 Comcast Corp., Cl. A...... 593,113 2,297,500
555,000 MediaOne Group Inc. ...... 11,600,961 26,085,000
70,000 Shaw Communications Inc.,
Cl. B.................... 555,126 1,695,391
640,000 TCI Ventures Group........ 3,891,947 15,080,000
522,556 Tele-Communications Inc.,
Cl. A New+............... 9,228,178 28,903,879
65,000 United International
Holdings Inc., Cl. A+.... 884,424 1,251,250
------------ --------------
34,725,270 115,964,895
------------ --------------
CLOSED-END FUNDS--0.1%
84,000 Royce Value Trust Inc. ... 949,972 1,155,000
------------ --------------
COMMUNICATIONS EQUIPMENT--0.4%
110,000 Allen Telecom Inc.+....... 687,440 735,625
47,000 Motorola Inc. ............ 622,493 2,869,939
43,000 Northern Telecom Ltd...... 822,685 2,155,375
------------ --------------
2,132,618 5,760,939
------------ --------------
CONSUMER PRODUCTS--4.2%
10,000 Avon Products Inc. ....... 307,750 442,500
607,000 Carter-Wallace Inc. ...... 9,514,363 11,912,375
2,750 Christian Dior SA......... 307,335 303,971
206,500 Church & Dwight Co.
Inc. .................... 4,664,837 7,421,094
</TABLE>

See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1998
- - ----------------------------------------------------------------

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS (CONTINUED)
20,000 Department 56 Inc.+....... $ 386,250 $ 751,250
22,000 Eastman Kodak Co. ........ 1,271,475 1,584,000
65,000 First Brands Corp. ....... 910,850 2,563,439
250,000 Fortune Brands Inc. ...... 5,681,567 7,906,250
230,000 Gallaher Group plc, ADR... 2,857,199 6,253,125
100,000 General Cigar Holdings
Inc. .................... 954,213 868,750
93,356 General Cigar Holdings
Inc., Cl. B+ (a)......... 917,834 811,030
85,000 Gillette Co. ............. 1,215,450 4,106,563
40,000 Harley Davidson Inc. ..... 198,900 1,895,000
13,000 National Presto Industries
Inc. .................... 501,400 554,125
25,000 Nine West Group Inc. ..... 489,573 389,063
40,000 Philip Morris Companies
Inc. .................... 1,585,937 2,140,000
505,000 Ralston Purina Group...... 6,131,945 16,349,375
41,700 Syratech Corp.+........... 954,711 667,200
------------ --------------
38,851,589 66,919,110
------------ --------------
CONSUMER SERVICES--0.7%
500,000 Loewen Group Inc. ........ 7,225,157 4,218,750
370,000 Rollins Inc. ............. 5,905,989 6,475,000
------------ --------------
13,131,146 10,693,750
------------ --------------
DIVERSIFIED INDUSTRIAL--3.6%
10,000 Anixter International
Inc.+.................... 90,087 203,125
10,000 Cooper Industries Inc. ... 484,437 476,875
315,000 Crane Co. ................ 3,712,294 9,509,063
205,000 GATX Corp. ............... 4,329,860 7,764,375
16,000 General Electric Co. ..... 394,980 1,633,000
118,000 Honeywell Inc. ........... 6,297,010 8,886,875
270,000 ITT Industries Inc. ...... 7,130,128 10,732,500
145,000 Katy Industries Inc. ..... 1,312,250 2,546,564
13,000 Kyocera Corp., ADR........ 448,063 675,188
350,000 Lamson & Sessions Co.+.... 1,899,408 1,793,750
260,000 Lawter International
Inc. .................... 2,596,834 3,022,500
46,062 Myers Industries Inc. .... 172,636 1,318,525
68,000 National Service
Industries Inc. ......... 1,591,349 2,584,000
8,000 Pentair Inc. ............. 321,588 318,500
125,000 Thomas Industries Inc. ... 1,397,900 2,453,125
80,000 Trinity Industries
Inc. .................... 977,970 3,080,000
------------ --------------
33,156,794 56,997,965
------------ --------------
ELECTRONICS--0.4%
3,000 Hitachi Ltd., ADR......... 302,567 181,314
10,000 Imation Corp.+............ 203,344 175,000
800,000 Oak Technology Inc.+...... 2,960,082 2,800,000
10,000 Sony Corp., ADR........... 544,302 717,500
120,000 UCAR International
Inc. .................... 2,704,342 2,137,500
------------ --------------
6,714,637 6,011,314
------------ --------------
</TABLE>

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
ENERGY AND UTILITIES--3.8%
100,000 Atlantic Richfield Co. ... $ 5,368,509 $ 6,525,000
145,500 BJ Services Co.+.......... 2,263,687 2,273,438
50,000 British Petroleum Co. plc,
ADR...................... 1,110,595 4,750,000
40,000 Brown (Tom) Inc. ......... 653,595 401,250
30,000 Chevron Corp. ............ 1,016,500 2,488,125
202,413 Citizens Utilities Co.,
Cl. B.................... 1,984,213 1,644,604
153,000 Eastern Enterprises....... 4,306,015 6,693,750
15,000 Energy East Corp. ........ 653,767 847,500
60,000 Enron Oil & Gas Co. ...... 548,976 1,035,000
180,000 Exxon Corp. .............. 5,413,043 13,162,500
30,000 Global Marine Inc. ....... 483,312 275,625
40,000 Halliburton Co. .......... 840,758 1,185,000
10,000 New England Electric
System................... 484,301 481,250
20,000 Niagara Mohawk Power
Corp. ................... 307,875 322,500
200,000 PennzEnergy Co.+.......... 6,043,516 3,262,500
195,000 Pennzoil-Quaker State
Co.+..................... 6,098,468 2,888,438
325,000 Southwest Gas Corp. ...... 5,939,311 8,734,375
55,000 Texaco Inc. .............. 1,741,375 2,908,125
------------ --------------
45,257,816 59,878,980
------------ --------------
ENTERTAINMENT--12.4%
230,000 Ascent Entertainment Group
Inc. .................... 2,214,090 1,696,250
19,406 EMI Group plc............. 75,408 129,707
100,000 EMI Group plc, ADR........ 1,246,297 1,362,500
13,600 Fisher Companies Inc. .... 905,975 931,600
40,000 Fox Entertainment Group
Inc. .................... 887,437 1,007,500
150,000 GC Companies Inc.+........ 5,073,921 6,243,750
862,500 Tele-Communications
Inc./Liberty Media Group,
Cl. A+................... 9,062,411 39,728,906
1,170,000 Time Warner Inc. ......... 16,600,406 72,613,125
11,000 Todd-AO Corp., Cl. A...... 30,000 88,000
900,000 USA Networks Inc.+........ 13,134,802 29,812,500
360,000 Viacom Inc., Cl. A+....... 9,191,153 26,482,500
215,000 Viacom Inc., Cl. B+....... 6,644,147 15,910,000
------------ --------------
65,066,047 196,006,338
------------ --------------
ENVIRONMENTAL SERVICES--0.0%
30,000 EnviroSource Inc. ........ 185,450 153,750
------------ --------------
EQUIPMENT AND SUPPLIES--10.6%
700,000 Aeroquip-Vickers Inc. .... 21,533,611 20,956,250
300,000 AMETEK Inc. .............. 3,455,782 6,693,750
155,000 AMP Inc. ................. 6,078,170 8,069,688
98,000 Amphenol Corp., Cl. A+.... 2,582,750 2,958,375
22,000 AptarGroup Inc. .......... 197,343 617,375
88,100 Caterpillar Inc. ......... 1,178,142 4,052,600
110,000 CLARCOR Inc. ............. 1,490,481 2,200,000
285,000 CTS Corp. ................ 1,959,101 12,397,500
410,000 Deere & Co. .............. 6,454,360 13,581,250
230,000 Donaldson Co. Inc. ....... 1,457,271 4,772,500
</TABLE>

See accompanying notes to financial statements.
13
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1998
- - ----------------------------------------------------------------

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
EQUIPMENT AND SUPPLIES (CONTINUED)
32,000 EG&G Inc. ................ $ 567,663 $ 890,000
10,000 Fedders Corp. ............ 59,939 58,125
110,000 Flowserve Corp. .......... 2,660,256 1,821,875
166,300 Gerber Scientific Inc. ... 1,754,645 3,960,019
315,000 Hussmann International
Inc. .................... 3,070,548 6,103,125
445,000 IDEX Corp. ............... 3,661,463 10,902,500
60,000 Ingersoll-Rand Co. ....... 1,496,510 2,816,250
200,000 Kollmorgen Corp. ......... 1,861,980 3,050,000
88,000 Lufkin Industries Inc. ... 1,591,261 1,628,000
35,000 Manitowoc Co. Inc. ....... 367,746 1,553,125
160,000 Mark IV Industries
Inc. .................... 1,227,050 2,080,000
50,000 Materials Sciences
Corp.+................... 452,506 425,000
28,000 Met-Pro Corp. ............ 374,588 350,000
365,000 Navistar International
Corp.+................... 4,974,591 10,402,500
20,000 PACCAR Inc. .............. 522,020 822,500
291,000 Pittway Corp. ............ 2,160,298 9,839,438
313,000 Pittway Corp., Cl. A...... 1,076,919 10,348,563
97,355 Sequa Corp., Cl. A+....... 4,394,277 5,829,131
96,000 Sequa Corp., Cl. B+....... 4,869,340 7,056,000
173,000 SPS Technologies Inc.+.... 2,740,938 9,623,125
50,000 U.S. Filter Corp. ........ 610,576 1,143,750
30,000 Valmont Industries
Inc. .................... 242,908 416,250
------------ --------------
87,125,033 167,418,564
------------ --------------
FINANCIAL SERVICES--6.0%
1 Al-Zar Ltd.+ (a).......... 0 350
3,000 Alleghany Corp.+.......... 596,673 563,625
65,000 American Bankers Insurance
Group Inc. .............. 3,384,286 3,144,375
320,000 American Express Co. ..... 7,431,567 32,720,000
29,700 Argonaut Group Inc. ...... 894,382 727,650
220 Berkshire Hathaway
Inc.+.................... 874,549 15,400,000
130,000 Block (H&R) Inc. ......... 4,448,127 5,850,000
70,000 Commerzbank AG, ADR....... 1,365,494 2,187,500
150,000 Deutsche Bank AG, ADR..... 6,596,875 8,737,500
175,000 Lehman Brothers Holdings
Inc. .................... 3,156,725 7,710,938
5,000 Leucadia National
Corp. ................... 185,050 157,500
20,000 Mellon Bank Corp. ........ 1,220,895 1,375,000
5,000 Merrill Lynch & Co. ...... 351,519 333,750
15,917 Metris Companies Inc. .... 438,360 800,821
255,000 Midland Co. .............. 2,686,195 6,151,875
2,000 MONY Group Inc.+.......... 57,225 62,622
50,000 Paine Webber Group
Inc. .................... 1,351,387 1,931,250
30,000 Pioneer Group Inc. ....... 487,000 592,500
43,000 State Street Corp. ....... 638,075 2,991,185
20,000 SunTrust Banks Inc. ...... 424,879 1,530,000
11,941 Transamerica Corp. ....... 583,636 1,379,186
8,000 Value Line Inc. .......... 115,500 315,000
------------ --------------
37,288,399 94,662,627
------------ --------------
</TABLE>

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
FOOD AND BEVERAGE--7.2%
50,000 Bestfoods Inc. ........... $ 1,329,872 $ 2,662,500
76,300 Brown-Forman Corp., Cl.
A........................ 2,574,752 5,321,925
90,000 Chock Full o'Nuts
Corp.+................... 554,148 562,500
45,000 Coca-Cola Co. ............ 387,203 3,009,375
60,000 Corn Products
International Inc. ...... 1,821,807 1,822,500
29,000 Diageo plc, ADR........... 1,306,076 1,341,250
4,500 Farmer Brothers Co. ...... 476,380 963,000
85,000 General Mills Inc. ....... 2,867,929 6,608,750
60,000 Heinz (H.J.) Co. ......... 2,398,556 3,397,500
48,000 Hershey Foods Corp. ...... 1,016,513 2,985,000
15,000 Keebler Foods Co.+........ 427,150 564,375
240,000 Kellogg Co. .............. 6,053,037 8,190,000
30,000 LVHM Moet Hennessy Louis
Vuitton, ADR............. 1,144,062 1,222,500
410,000 PepsiCo Inc. ............. 13,030,375 16,784,375
330,000 Quaker Oats Co. .......... 11,989,122 19,635,000
50,000 Ralcorp Holdings Inc.+.... 595,439 912,500
310,000 Seagram Co. .............. 9,346,822 11,780,000
129,602 Tootsie Roll Industries
Inc. .................... 2,074,905 5,070,678
560,000 Whitman Corp. ............ 6,164,368 14,210,000
80,000 Wrigley (Wm.) Jr. Co. .... 3,673,016 7,165,000
------------ --------------
69,231,532 114,208,728
------------ --------------
HEALTH CARE--2.7%
12,000 Amgen Inc. ............... 220,320 1,254,747
18,000 Biogen Inc.+.............. 270,450 1,494,000
40,000 Chiron Corp.+............. 550,315 1,047,500
100,000 Genentech Inc.+........... 4,804,136 7,968,750
10,000 Glaxo Wellcome plc........ 549,120 695,000
100,000 IVAX Corp. ............... 884,612 1,243,750
65,000 Johnson & Johnson......... 1,343,465 5,451,875
55,000 Merck & Co. Inc. ......... 1,853,500 8,122,813
105,000 Pfizer Inc. .............. 1,677,963 13,170,938
25,000 SmithKline Beecham plc.... 1,520,214 1,737,500
------------ --------------
13,674,095 42,186,873
------------ --------------
HOTELS AND GAMING--1.7%
200,000 Circus Circus Enterprises
Inc.+.................... 4,440,166 2,287,500
320,700 Gaylord Entertainment Co.,
Cl. A.................... 8,604,007 9,661,088
30,000 GTECH Holdings Corp.+..... 545,939 768,750
12,000 Harrah's Entertainment
Inc.+.................... 113,002 188,250
360,000 Hilton Hotels Corp. ...... 5,950,853 6,885,000
203,389 Ladbroke Group plc........ 535,440 816,668
300,000 Mirage Resorts Inc.+...... 2,782,182 4,481,250
40,000 Starwood Hotels & Resorts
Worldwide Inc. .......... 1,790,993 907,500
60,000 Trump Hotels & Casino
Resorts Inc.+............ 256,680 225,000
------------ --------------
25,019,262 26,221,006
------------ --------------
</TABLE>

See accompanying notes to financial statements.
14
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1998
- - --------------------------------------------------------------

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
METALS AND MINING--0.2%
30,000 Barrick Gold Corp. ....... $ 622,076 $ 585,000
100,000 Echo Bay Mines Ltd.+...... 754,551 175,000
45,000 Homestake Mining Co. ..... 650,187 413,438
65,000 Newmont Mining Corp. ..... 1,546,169 1,174,064
360,000 Pegasus Gold Inc.+........ 263,140 6,300
22,500 Placer Dome Inc. ......... 285,944 258,750
250,000 Royal Oak Mines Inc.+..... 652,034 62,500
40,000 TVX Gold Inc.+............ 91,563 72,500
------------ --------------
4,865,664 2,747,552
------------ --------------
PAPER AND FOREST PRODUCTS--0.9%
180,000 Greif Bros. Corp., Cl.
A........................ 3,637,710 5,253,750
35,000 Sealed Air Corp. ......... 1,318,842 1,787,185
312,000 St. Joe Corp. ............ 3,601,269 7,312,500
------------ --------------
8,557,821 14,353,435
------------ --------------
PUBLISHING--3.4%
70,000 American Media Inc., Cl.
A+....................... 674,812 389,375
4,000 Central Newspapers Inc.,
Cl. A.................... 289,413 285,750
55,000 Dow Jones & Co. Inc. ..... 2,569,066 2,646,875
38,000 Harcourt General Inc. .... 1,749,900 2,023,500
53,600 McClatchy Newspapers Inc.,
Cl. A.................... 1,026,635 1,896,100
80,000 McGraw-Hill Companies
Inc. .................... 2,603,081 8,150,000
325,000 Media General Inc., Cl.
A........................ 7,448,870 17,225,000
88,000 Meredith Corp. ........... 1,787,933 3,333,000
140,000 New York Times Co., Cl.
A........................ 1,148,435 4,856,250
15,000 News Corp. Ltd., ADR...... 255,587 396,563
305,000 Penton Media Inc. ........ 1,064,715 6,176,250
50,000 Reader's Digest
Association Inc., Cl.
A........................ 1,384,340 1,259,375
84,000 Reader's Digest
Association Inc., Cl.
B........................ 1,999,190 2,026,500
1,650,000 Seat-Pagine Gialle SpA+... 343,343 1,556,745
6,000 Scripps (E.W.) Co., Cl.
A........................ 108,669 298,500
68,700 Thomas Nelson Inc. ....... 938,906 927,450
------------ --------------
25,392,895 53,447,233
------------ --------------
REAL ESTATE--0.5%
380,000 Catellus Development
Corp.+................... 3,687,688 5,438,750
48,000 Florida East Coast
Industries Inc. ......... 631,838 1,689,000
70,000 Griffin Land & Nurseries
Inc.+.................... 889,441 892,500
1,000 Lennar Corp. ............. 13,369 25,250
1,000 LNR Property Corp. ....... 21,243 19,938
------------ --------------
5,243,579 8,065,438
------------ --------------
RETAIL--2.3%
41,000 Aaron Rents Inc. ......... 146,083 620,125
20,000 Aaron Rents Inc., Cl. A... 83,263 298,750
105,000 Amercian Stores Co. ...... 2,535,243 3,878,435
</TABLE>

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
190,000 Burlington Coat Factory
Warehouse Corp. ......... $ 2,180,142 $ 3,099,372
50,000 Coldwater Creek Inc.+..... 960,937 687,500
50,000 Fingerhut Companies
Inc. .................... 272,975 771,872
70,000 Kroger Co.+............... 818,000 4,235,000
150,000 Lillian Vernon Corp. ..... 2,201,747 2,475,000
50,000 Midas Inc. ............... 376,453 1,556,250
576,700 Neiman Marcus Group
Inc.+.................... 8,105,603 14,381,456
200,000 Republic Industries
Inc.+.................... 3,600,569 2,950,000
200,000 Scheib (Earl) Inc.+....... 1,432,580 1,100,000
------------ --------------
22,713,595 36,053,760
------------ --------------
SATELLITE--0.6%
200,000 COMSAT Corp. ............. 3,731,935 7,200,000
100,000 Globalstar
Telecommunications Ltd... 423,210 2,012,500
------------ --------------
4,155,145 9,212,500
------------ --------------
SPECIALTY CHEMICALS--0.7%
375,000 Ferro Corp. .............. 5,437,040 9,750,000
95,000 Sybron Chemicals Inc. .... 2,038,204 1,282,500
------------ --------------
7,475,244 11,032,500
------------ --------------
TELECOMMUNICATIONS-- 7.5%
122,000 Aliant Communications
Inc. .................... 1,900,906 4,986,750
5,000 Allegiance Telecom
Inc. .................... 74,063 60,625
85,000 Alltel Corp. ............. 2,106,961 5,084,064
140,000 AT&T Corp. ............... 4,923,962 10,535,000
50,000 BC Telecom Inc. .......... 877,855 1,364,405
30,000 BC Telecom Inc., ADR...... 537,319 818,645
210,000 BCE Inc. ................. 3,525,210 7,966,873
36,000 BellSouth Corp. .......... 455,094 1,795,500
130,000 Cable & Wireless plc,
ADR...................... 2,878,267 4,777,500
170,200 Commonwealth Telephone
Enterprises Inc.+........ 2,290,984 5,701,700
186,965 Commonwealth Telephone
Enterprises Inc., Cl.
B+....................... 3,517,737 5,889,398
65,000 Embratel Participacoes
SA+...................... 1,368,933 905,938
110,000 Frontier Corp. ........... 2,648,244 3,740,000
155,000 GTE Corp. ................ 3,595,431 10,452,813
32,000 Hong Kong
Telecommunications Ltd.,
ADR...................... 502,292 562,000
400,000 RCN Corp. ................ 2,835,846 7,075,000
10,000 Rogers Communications
Inc., Cl. B+............. 77,553 89,111
310,000 Rogers Communications
Inc., Cl. B, ADR+........ 2,230,006 2,751,250
270,000 SBC Communications
Inc. .................... 6,265,205 14,478,750
100,000 Sprint Corp. ............. 1,714,705 8,412,500
13,500 Tele Centro Sul
Participacoes SA+........ 784,466 564,469
500,000 Telecom Italia SpA........ 1,046,696 4,263,812
125,000 Telecom Italia SpA, ADR... 2,773,903 10,875,000
</TABLE>

See accompanying notes to financial statements.
15
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1998
- - -------------------------------------------------------------

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
67,500 Telecomunicacoes
Brasileiras SA, ADR...... $ 5,188 $ 7,383
15,300 Telefonica de Espana,
ADR...................... 596,375 2,071,238
10,000 Telefonos de Mexico SA,
Cl. L, ADR............... 281,828 486,875
67,500 Tele Norte Leste
Participacoes SA+........ 1,032,465 839,531
67,500 Telesp Participacoes SA... 2,531,873 1,493,438
8,000 US West Inc.+............. 245,907 517,000
------------ --------------
53,625,274 118,566,568
------------ --------------
TRANSPORTATION--0.7%
132,000 AMR Corp.+................ 4,051,686 7,837,500
3,000 Burlington Northern Santa
Fe Corp. ................ 94,519 101,250
40,000 CSX Corp. ................ 1,859,563 1,660,000
10,000 Kansas City Southern
Industries Inc. ......... 317,503 491,875
1,000 Norfolk Southern Corp. ... 31,738 31,689
1,000 Providence & Worcester
Railroad Co. ............ 18,050 12,500
1,000 RailAmerica Inc.+......... 6,719 8,500
3,000 Wisconsin Central
Transportation Corp.+.... 60,946 51,563
------------ --------------
6,440,724 10,194,877
------------ --------------
WIRELESS COMMUNICATIONS--5.6%
35,000 AirTouch Communications
Inc.+.................... 791,589 2,524,375
85,000 Associated Group Inc., Cl.
A+....................... 1,677,738 3,655,000
37,000 Associated Group Inc., Cl.
B+....................... 98,787 1,572,500
460,000 Century Telephone
Enterprises Inc. ........ 7,528,687 31,050,000
55,000 NEXTEL Communications
Inc., Cl. A+............. 660,330 1,299,375
50,000 Rogers Cantel Mobile
Communications Inc.+..... 554,438 609,375
50,000 Sprint Corp.(PCS Group)... 220,292 1,156,250
</TABLE>

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
6,750 Tele Celular Sul
Participacoes SA......... $ 107,916 $ 117,703
22,500 Tele Centro Oeste Celular
Participacoes SA+........ 67,447 66,094
1,800,000 Telecom Italia Mobile
SpA...................... 1,661,796 13,281,321
1,350 Tele Leste Celular
Participacoes SA......... 36,110 38,306
3,375 Telemig Celular
Participacoes SA+........ 97,539 71,719
3,375 Tele Nordeste Celular
Participacoes SA......... 49,807 62,438
1,350 Tele Norte Celular
Participacoes SA+........ 20,857 30,459
700,800 Telephone & Data Systems
Inc. .................... 25,126,188 31,492,200
27,000 Telesp Celular
Participacoes SA+........ 863,327 472,500
13,500 Tele Sudeste Celular
Participacoes SA+........ 427,513 279,281
10,000 United States Cellular
Corp. ................... 312,933 380,000
------------ --------------
40,303,294 88,158,896
------------ --------------
TOTAL COMMON STOCKS....... 769,903,864 1,517,230,997
------------ --------------
PREFERRED STOCKS -- 0.2%
METALS AND MINING--0.0%
10,000 Freeport-McMoRan Inc.,
7.00% Conv. Pfd. ........ 213,000 148,750
------------ --------------
TELECOMMUNICATIONS--0.2%
35,000 Sprint Corp.,
8.25% Conv. Pfd. ........ 1,295,406 2,887,500
1,588,267 Telecomunicacoes de Sao
Paulo SA (Telesp),
Preference Shares........ 152,310 216,501
1,588,267 Telecomunicacoes de Sao
Paulo SA (Telesp),
Preference Shares, Cl. B
......................... 60,929 69,801
------------ --------------
1,508,645 3,173,802
------------ --------------
TOTAL PREFERRED STOCKS.... 1,721,645 3,322,552
------------ --------------
</TABLE>

See accompanying notes to financial statements.
16
<PAGE>
THE GABELLI ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1998
- - --------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- ------
<S> <C> <C> <C>
CORPORATE BONDS--0.2%
ENTERTAINMENT--0.2%
$2,300,000 Viacom Inc., Sub. Deb.
8.00%, 07/07/06....... $ 1,677,650 $ 2,397,750
------------ --------------
U.S. GOVERNMENT OBLIGATIONS--4.6%
74,665,000 U.S. Treasury Bills,
4.21% to 5.14%++, due
01/14/99 to 03/18/99.. 74,095,837 74,117,524
------------ --------------
TOTAL INVESTMENTS --
101.3%................ $847,398,996* 1,597,068,823
============
OTHER ASSETS AND
LIABILITIES (NET)--(1.3)%.......... (21,092,918)
--------------
NET ASSETS --100.0%
(44,429,209 shares outstanding)..... $1,575,975,905
==============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE.......... $35.47
======

PRINCIPAL SETTLEMENT NET UNREALIZED
AMOUNT DATE DEPRECIATION
- - ----------- ------------ --------------
<C> <S> <C> <C>
FORWARD FOREIGN
EXCHANGE CONTRACTS
12,100,000(b) Deliver Hong Kong
Dollars in exchange for
USD $1,561,119............ 02/26/99 $ (52,861)
</TABLE>

- - ---------------

<TABLE>
<C> <S> <C>
* For Federal tax purposes:
Aggregate cost........................ $848,880,921
============
Gross unrealized appreciation......... $776,378,475
Gross unrealized depreciation......... (28,190,573)
------------
Net unrealized appreciation........... $748,187,902
============
</TABLE>

- - ---------------

(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.

See accompanying notes to financial statements.
17
<PAGE>

THE GABELLI ASSET FUND

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- - ----------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $847,398,996).............. $1,597,068,823
Cash and foreign currency, at value (Cost $3,471,091).. 3,491,372
Dividends and interest receivable...................... 1,307,771
Receivable for investments sold........................ 771,071
Receivable for Fund shares sold........................ 1,385,883
Other assets........................................... 3,327
--------------
TOTAL ASSETS......................................... 1,604,028,247
--------------
LIABILITIES:
Payable for investments purchased...................... 7,455,631
Payable for Fund shares redeemed....................... 18,571,777
Payable for investment advisory fees................... 1,290,786
Payable for distribution fees.......................... 322,696
Unrealized depreciation of foreign forward exchange
contracts............................................ 52,861
Payable for shareholder services fees.................. 152,000
Payable to custodian................................... 45,000
Payable to Trustees.................................... 2,989
Other accrued expenses................................. 158,602
--------------
TOTAL LIABILITIES.................................... 28,052,342
--------------
NET ASSETS applicable to 44,429,209 shares
outstanding......................................... $1,575,975,905
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest, at par value............ $ 444,292
Additional paid-in capital............................. 826,832,314
Accumulated distributions in excess of net realized
gain on investments and foreign currency
transactions......................................... (938,014)
Net unrealized appreciation on investments
and foreign currency transactions.................... 749,637,313
--------------
TOTAL NET ASSETS..................................... $1,575,975,905
==============
NET ASSET VALUE, offering and redemption price per share
($1,575,975,905 / 44,429,209 shares outstanding; unlimited
number of shares authorized of $0.01 par value) . . . . $35.47
======
</TABLE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- - ----------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$62,408).............................................. $ 15,387,284
Interest................................................ 5,747,659
------------
TOTAL INVESTMENT INCOME............................... 21,134,943
------------
EXPENSES:
Investment advisory fees................................ 14,882,733
Distribution fees....................................... 3,708,303
Shareholder services fees............................... 890,284
Custodian fees.......................................... 267,005
Legal and audit fees.................................... 100,600
Shareholder communications expenses..................... 83,521
Trustees' fees.......................................... 73,000
Miscellaneous expenses.................................. 246,949
------------
TOTAL EXPENSES........................................ 20,252,395
------------
NET INVESTMENT INCOME................................. 882,548
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments and foreign currency
transactions.......................................... 59,477,782
Net change in unrealized appreciation on investments and
foreign currency transactions......................... 164,961,752
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS......................... 224,439,534
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $225,322,082
============
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
- - ------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................... $ 882,548 $ 2,547,863
Net realized gain on investments and foreign currency
transactions............................................ 59,477,782 166,963,760
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 164,961,752 207,587,959
-------------- --------------
Net increase in net assets resulting from
operations........................................... 225,322,082 377,099,582
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.................................... (689,228) (2,481,578)
In excess of net investment income....................... -- (93,147)
Net realized gain on investments......................... (59,477,782) (166,963,945)
In excess of net realized gain on investments............ (92,619) (40,227)
-------------- --------------
Total distributions to shareholders................... (60,259,629) (169,578,897)
-------------- --------------
SHARE TRANSACTIONS:
Net increase in net assets from shares of beneficial
interest transactions................................... 75,861,674 46,891,821
-------------- --------------
Net increase in net assets............................ 240,924,127 254,412,506
NET ASSETS:
Beginning of period...................................... 1,335,051,778 1,080,639,272
-------------- --------------
End of period............................................ $1,575,975,905 $1,335,051,778
============== ==============
</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, Inc.
(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. Short term debt
instruments having a greater maturity are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities.

FORWARD FOREIGN EXCHANGE CONTRACTS. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. Forward foreign exchange contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
included in unrealized appreciation/depreciation on investments. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.

The use of forward foreign exchange contracts does not eliminate fluctuations in
the underlying prices of the Fund's portfolio securities, but it does establish
a rate of exchange that can be achieved in the future. Although forward foreign
exchange contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result should the
value of the currency increase. In addition, the Fund could be exposed to risks
if the counterparties to the contracts are unable to meet the terms of their
contracts.

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.

Permanent differences incurred during the year ended December 31, 1998 resulting
from different book and tax accounting policies for currency gains and losses
and certain distributions received by the Fund are reclassified between net
investment income (loss) and net realized gain (loss) on investments at year
end. For the year ended December 31, 1998, reclassifications were made to
decrease undistributed net investment income for $193,320 and increase
accumulated net realized gain on investments and foreign currency transactions
for $193,320.

PROVISION FOR INCOME TAXES. The Fund has qualified and intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.

Dividends and interest from non-U.S. sources received by the Fund are generally
subject to non-U.S. withholding taxes at rates ranging up to 30%. Such
withholding taxes may be reduced or eliminated under the terms of applicable
U.S. income tax treaties, and the Fund intends to undertake any procedural steps
required to claim the benefits of such treaties.

3. INVESTMENT ADVISORY AGREEMENT. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the

20
<PAGE>
THE GABELLI ASSET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------

Fund's portfolio, oversees the administration of all aspects of the Fund's
business and affairs and pays the compensation of all Officers and Trustees of
the Fund who are its affiliates.

4. DISTRIBUTION PLAN. The Fund's Board of Trustees has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the year ended
December 31, 1998, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an indirect wholly-owned subsidiary of the Adviser, of $3,708,303
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, 1998, other than short term securities, aggregated $357,444,974 and
$290,283,477, respectively.

6. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1998, the
Fund paid brokerage commissions of $335,068 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, 1998.

8. SHARES OF BENEFICIAL INTEREST. Transactions in shares of beneficial interest
were as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold............................................. 50,493,058 $ 1,716,293,181 13,039,709 $ 421,881,081
Shares issued upon reinvestment of dividends............ 1,648,815 57,057,140 4,869,910 154,702,133
Shares redeemed......................................... (49,630,901) (1,697,488,647) (16,898,747) (529,691,393)
----------- --------------- ----------- -------------
Net increase........................................ 2,510,972 $ 75,861,674 1,010,872 $ 46,891,821
=========== =============== =========== =============
</TABLE>

9. SUBSEQUENT EVENT. On February 9, 1999, the Adviser reorganized its
operations and corporate structure by transferring a portion of its assets and
liabilities to a successor adviser, Gabelli Funds, LLC, which is wholly owned by
Gabelli Asset Management Inc., a newly formed publicly traded company that is
80% owned by the former Adviser. Counsel to the former Adviser has concluded
that the ownership change does not constitute an assignment as defined by the
Investment Company Act of 1940, as amended.

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,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 31.85 $ 26.42 $ 25.75 $ 22.21 $ 23.30
----------- ----------- ---------- ---------- ---------
Net investment income............................... 0.02 0.07 0.15 0.26 0.26
Net realized and unrealized gain/(loss) on
investments....................................... 5.02 9.97 3.29 5.28 (0.30)
----------- ----------- ---------- ---------- ---------
Total from investment operations.................... 5.04 10.04 3.44 5.54 (0.04)
----------- ----------- ---------- ---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income............................... (0.02) (0.07) (0.15) (0.25) (0.25)
In excess of net investment income.................. -- (0.00)(a) -- -- (0.01)
Net realized gain on investments.................... (1.40) (4.54) (2.61) (1.75) (0.76)
In excess of net realized gain on investments....... (0.00)(a) (0.00)(a) (0.01) (0.00)(a) (0.03)
----------- ----------- ---------- ---------- ---------
Total distributions................................. (1.42) (4.61) (2.77) (2.00) (1.05)
----------- ----------- ---------- ---------- ---------
NET ASSET VALUE, END OF PERIOD...................... $ 35.47 $ 31.85 $ 26.42 $ 25.75 $ 22.21
=========== =========== ========== ========== =========
Total return+....................................... 15.9% 38.1% 13.4% 24.9% (0.1)%
=========== =========== ========== ========== =========
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................ $ 1,575,976 $ 1,335,052 $1,080,639 $1,091,539 $ 982,250
Ratio of net investment income to average net
assets............................................ 0.06% 0.22% 0.52% 0.95% 1.10%
Ratio of operating expenses to average net assets... 1.36% 1.38% 1.34% 1.33% 1.28%
Portfolio turnover rate............................. 21% 22% 15% 26% 19%
</TABLE>

- - ---------------

See accompanying notes to financial statements.
22
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
- - ------------------------------------------------------------------

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
THE GABELLI ASSET FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Asset Fund (the "Fund")
at December 31, 1998, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICEWATERHOUSECOOPERS LLP

1177 Avenue of the Americas
New York, New York
February 25, 1999

- - ------------------------------------------------------------------
1998 TAX NOTICE TO SHAREHOLDERS (UNAUDITED)

For the year ended December 31, 1998, the Fund paid to shareholders, on December
28, 1998, an ordinary income dividend (comprised of net investment income and
short term capital gains) totaling $0.185 per share and long term capital gains
totaling $1.234 per share. For the year ended December 31, 1998, 84.98% 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 1998 which was derived from U.S. Treasury securities was 1.50%. Such income
may be 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 1998. Due to the
diversity in state and local tax law, it is recommended that you consult your
personal tax advisor for the applicability of the information provided as to
your specific situation.
- -

<PAGE>

The Gabelli Asset Fund
April 30, 1999
Page 1

APPENDIX A

DESCRIPTION OF CORPORATE DEBT RATINGS

MOODY'S INVESTORS SERVICE, INC.

Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat large than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be
present elements of danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in high degree. Such issues
are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.

<PAGE>

Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for
reasons unrelated to the quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy. 3. There is a lack of essential data pertaining to the issue
or issuer. 4. The issue was privately placed, in which case the rating is not
published in Moody's Investors Services,
Inc.'s publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

Note: Those bonds in the Aa A, Baa Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa-1, A-1, Baa-1 and B-1.

STANDARD & POOR'S RATINGS SERVICE

AAA: Bonds rated AAA have the highest rating assigned by
Standard & Poor's Ratings Service, a division
of McGraw Hill Companies, Inc. Capacity to pay interest and
repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from
the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in the highest rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
BB, B Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with CCC, respect to capacity to pay interest and
repay principal in accordance with the terms of this CC, C: obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, they are outweighed by large
uncertainties of major risk exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no
interest is being paid.
D: Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show
Or relative standing within the major rating categories.
Minus (-)
NR: Indicates that no rating has been requested, that there is
insufficient information on which to
base a rating, or that S&P does not rate a particular type of
obligation as a matter of policy.