The Gabelli Asset Fund Shareholder Commentary September 30, 2015 (Y)our Portfolio Management Team Mario J. Gabelli, CFA Christopher J. Marangi Jeffrey J. Jonas, CFA Kevin V. Dreyer To Our Shareholders, For the quarter ended September 30, 2015, the net asset value ( NAV ) per Class AAA Share of The Gabelli Asset Fund decreased 9.8% compared with a decrease of 6.4% for the Standard & Poor s ( S&P ) 500 Index. See page 2 for additional performance information. The Summer of Our Discontent The market declined in the third quarter, starting with a slide over the summer and continuing through much of September. Almost no segment of the market was left unscathed large caps and small caps, previous high fliers and stocks already beaten down, as well as nearly every sector and industry group finished the quarter lower. While many seeds sowed the correction, there are a few proximate causes. At the forefront is continued GDP growth deceleration in China, coupled with failed attempts by the government to prop up the stock market and the devaluation of the yuan. This has the secondary effect of impacting nearly any security or geography relating to commodities output, as prices for oil and other resources continued to slide on fears of oversupply and low global growth. Internationally, the continued conflict in Syria with refugees spilling into Europe and throughout the world is another market wildcard. The Fed's decision to leave rates unchanged in September further stoked the market s unease. This left investors with many questions, including whether the Fed thinks GDP growth will be lower than market expectations, whether other unintended consequences of keeping rates so low for so long will be able to be controlled, and whether the Fed will ever be able to extricate itself from its ultra-accommodative stance without real harm being done to the economy.
Comparative Results Average Annual Returns through September 30, 2015 (a) Since Inception Quarter 1 Year 5 Year 10 Year 15 Year (3/3/86) Class AAA (GABAX)........................ (9.81)% (5.09)% 10.32% 7.20% 6.91 11.73% S&P 500 Index............................. (6.44) (0.61) 13.34 6.80 3.96 9.98(d) Dow Jones Industrial Average................. (6.97) (2.12) 11.31 7.13 5.39 10.78(d) Nasdaq Composite Index..................... (7.07) 4.16 15.75 9.15 2.53 8.88(d) Class A (GATAX)........................... (9.81) (5.08) 10.31 7.20 6.91 11.73 With sales charge (b)........................ (15.00) (10.54) 9.01 6.57 6.49 11.49 Class C (GATCX)........................... (9.97) (5.79) 9.50 6.41 6.29 11.40 With contingent deferred sales charge (c)........ (10.87) (6.73) 9.50 6.41 6.29 11.40 Class I (GABIX)............................ (9.75) (4.83) 10.59 7.41 7.05 11.80 In the current prospectuses dated April 30, 2015, the expense ratios for Class AAA, A, C, and I Shares are 1.35%, 1.35%, 2.10%, and 1.10%, respectively. Class AAA and Class I Shares do not have a sales charge. The maximum sales charge for Class A Shares and Class C Shares is 5.75% and 1.00%, respectively. (a) Returns represent past performance and do not guarantee future results. Total returns and average annual returns reflect changes in share price, reinvestment of distributions, and are net of expenses. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. Current performance may be lower or higher than the performance data presented. Visit www.gabelli.com for performance information as of the most recent month end. Returns would have been lower had Gabelli Funds, LLC (the "Adviser") not reimbursed certain expenses of the Fund for periods prior to December 31, 1988. The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days after the date of purchase. Performance returns for periods of less than one year are not annualized. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at www.gabelli.com. The S&P 500 Index is a market capitalization weighted index of 500 large capitalization stocks commonly used to represent the U.S. equity market. The Dow Jones Industrial Average and the Nasdaq Composite Index are unmanaged indicators of stock market performance. Dividends are considered reinvested, except for the Nasdaq Composite Index. You cannot invest directly in an index. The Class AAA Share NAVs are used to calculate performance for the periods prior to the issuance of Class A Shares and Class C Shares on December 31, 2003 and Class I Shares on January 11, 2008. The actual performance of the Class A Shares and Class C Shares would have been lower due to the additional fees and expenses associated with these classes of shares. The actual performance of the Class I Shares would have been higher due to lower expenses related to this class of shares. (b) Performance results include the effect of the maximum 5.75% sales charge at the beginning of the period. (c) Assuming payment of the 1% maximum contingent deferred sales charge imposed on redemptions made within one year of purchase. (d) S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite Index since inception performance results are as of February 28, 1986. We have separated the portfolio managers commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the content of the portfolio managers commentary is unrestricted. Both the commentary and the financial statements, including the portfolio of investments, are available on our website at www.gabelli.com. 2
Finally, heightened concerns over the market dynamics of lack of liquidity, exchange traded funds, flash trading, high frequency trading, and no short sale uptick rule all converged to put selling pressure on stocks. Focusing on fundamentals, the U.S. economic backdrop is relatively good. The U.S. consumer sector comprises about 70% of GDP. The U.S. consumer should benefit from lower gasoline and food prices, rising wages and home prices, and improving household balance sheets. The good news from all of this is, as value investors, our holdings now trade at even greater discounts to our estimates of Private Market Value. Financing is still available at extremely attractive rates and the Mergers and Acquisitions (M&A) boom continues. Financial engineering has left many of our holdings as pure-plays, ripe for consolidation. Finally, valuations are as attractive as we have seen in a long time. While the near term is uncertain and continued volatility would not surprise us, we are very positive about prospects for the Fund and its holdings in coming years. Deals, Deals and More Deals M&A activity has remained robust in 2015 with year to date activity at $3.2 trillion globally, up 32% from the first nine months of 2014. While the total value of announced M&A deals was down from second quarter 2015, the third quarter was again over $1 trillion in value, for the second consecutive quarter. U.S. M&A activity, at $1.5 trillion year to date, was particularly strong, up 46% over 2014 levels. Cross border M&A also continues to be strong at $1.1 trillion year to date, up 18% from last year. In August, Berkshire Hathaway (1.4% of net assets as of September 30, 2015) agreed to buy fund holding Precision Castparts Corp. (PCP) (1.4%), a diversified manufacturer of complex metal components and products, for $235 per share. The deal values PCP at $37 billion, or about 13x trailing EBITDA. We believe the deal underscores the long term growth opportunity for the aerospace industry and underlying value of specialized component suppliers in the industry. In September, New York area cable operator and longtime holding Cablevision Systems (1.8%) agreed to be acquired by European telecommunications operator Altice for $34.90 per share in cash. The deal values Cablevision at approximately 9.6x our 2015 EBITDA estimate, which we believe is a good outcome for Cablevision shareholders. 3
Let s Talk Stocks The following are stock specifics on selected holdings of our Fund. Favorable earnings prospects do not necessarily translate into higher stock prices, but they do express a positive trend that we believe will develop over time. Individual securities mentioned are not necessarily representative of the entire portfolio. For the following holdings, the share prices are listed first in United States dollars (USD) and second in the local currency, where applicable, and are presented as of September 30, 2015. Cablevision Systems Corp. (1.8% of net assets as of September 30, 2015) (CVC $32.47 NYSE) provides broadband, television, and phone service to approximately three million subscribers in the New York metropolitan area. An industry pioneer, CVC developed the most advanced cable plant in the country and converted over 70% of its subscribers into triple play (video, phone, and broadband) customers. After years as a potential acquisition candidate, in September 2015 Cablevision agreed to a sale to Altice for $34.90 per share in cash. The deal represents the culmination of efforts to surface value through transactions such as the spinoffs of Madison Square Garden (1.0%) and AMC Networks (0.5%) in February 2010 and June 2011, respectively. Cigna Corp. (0.2%) (CI $135.02 NYSE) is one of the largest health insurance companies in the U.S., specializing in self insured plans for larger corporations. The industry has been undergoing rapid consolidation, and on July 24, 2015 Anthem (0.1%) agreed to acquire Cigna for $188 per share in cash and stock, a $48 billion deal. Together, the companies will serve over 53 million people, and be better able to control the ever-rising cost of health care. However, the company will likely have to make significant divestitures and concessions to satisfy antitrust regulators. The deal is unlikely to close until late 2016. ConAgra Foods Inc. (0.5%) (CAG $40.51 NYSE) headquartered in Omaha, Nebraska, is a manufacturer and marketer of food products with a focus in three areas; branded packaged food products, private label food products, and commercial foods (specialty potato and foodservice). ConAgra s brands include Healthy Choice meals, Hebrew National hot dogs, Orville Redenbacher s popcorn, PAM cooking spray, Reddi-wip, and Slim Jim meat strips and jerky. Private label food was dramatically expanded with the 2013 acquisition of Ralcorp Holdings for $6.8 billion. The deal has not gone well, with the business experiencing integration issues and significant sales declines, all the while taking management attention away from the company s branded business. Following the announcement that activist investor JANA Partners had taken a stake in the company, new CEO Sean Connolly, formerly of Hillshire, announced ConAgra s intention to exit the private label business when the company reported earnings on June 30, 2015. We have long considered ConAgra an ideal candidate for financial engineering, and we believe that other strategic options may be available to the remaining branded food and potato businesses. 4
Edgewell Personal Care Co. (1.2%) (EPC $81.60 NYSE) based in St. Louis, Missouri, is the personal care division of Energizer Holdings (0.5%), which split its personal care and household products divisions on July 1, 2015. Edgewell generates approximately $2.5 billion of revenue through its principal businesses: wet shaving, including Schick branded razors and blades, Edge and Skintimate shaving preparation and private label shaving products; sun care, including the Banana Boat and Hawaiian Tropic brands; feminine care, Playtex and o.b. tampons and Carefree and Stayfree liners and pads; and infant care, utilizing the Playtex and Diaper Genie brands. As a pure-play personal care company, Edgewell competes in high margin, attractive categories with leading brands. We expect management to focus on improving margins through product mix, restructuring savings, and operating leverage, which should afford it flexibility to reinvest in growth opportunities. At the outset, the company has estimated $830 million of net debt providing management with sufficient flexibility to invest in internal growth, make acquisitions, and/or repurchase shares. EPC is a likely acquisition target as a multinational competitor with a strong international infrastructure would benefit from scale, cost synergies, and the ability to accelerate international expansion. Genuine Parts Co. (1.5%) (GPC $82.89 NYSE) is an Atlanta, Georgia based distributor of automotive and industrial replacement parts, office products, and electrical and electronic components. We expect GPC s well known NAPA Auto Parts group to benefit as an aged vehicle population, which includes the highest percentage of off warranty vehicles in history, helps drive sales of automotive aftermarket products over the next several years. Additionally, economic indicators remain supportive of the company s industrial and electrical parts distribution businesses amid steady economic expansion. Finally, GPC s management has shown consistent dedication to shareholder value via share repurchases and dividend increases. Liberty Global plc (0.7%) (LBTYK $41.02 NASDAQ), (0.2%) (LBTYA $42.94 NASDAQ) is the leading international cable operator, offering advanced video, telephone, and broadband Internet services. The company operates broadband communications networks in fourteen countries, principally located in Europe under the brands UPC, Unitymedia (Germany), Virgin (UK), Telenet (Belgium), and VTR (Chile). As part of its June 2013 acquisition of Virgin Media, Liberty Global re-domiciled in the UK, increasing its strategic flexibility for the future. The company is internationally focused and well positioned to capitalize on the growing demand for digital television, broadband Internet, and digital telephony (VoIP) services in markets across its diverse geographic footprint. In July 2015 Liberty issued the UK s first tracker stock, known as LiLAC, (less than 0.1%) to highlights its properties in Chile and Puerto Rico. Madison Square Garden Co. (1.0%) (MSG $72.14 NYSE) is an integrated sports and entertainment company that owns the New York Knicks, the New York Rangers, the Radio City Christmas Spectacular, The Forum, and that iconic New York venue, Madison Square Garden. These evergreen content and venue assets benefit from sustainable barriers to entry and long term secular growth. We believe the now complete transformation project, the rising value of sports franchises (as demonstrated by the sale of the Clippers), and share repurchases, should dramatically increase MSG s per share value. 5
Precision Castparts Corp. (1.4%) (PCP $229.71 NYSE) is a manufacturer of investment castings and forgings, primarily for the aerospace and industrial gas turbine markets. The company also makes fasteners and industrial products for the automotive, aerospace, and general industrial markets. On August 10, 2015, Berkshire Hathaway signed a definitive agreement to acquire PCP for $235 per share in cash. The transaction is subject to customary closing conditions and requires approval by a majority of PCP s outstanding shares. The closing is expected to occur during first quarter of calendar year 2016. We do not expect any complications relating to the closing of the deal. We believe one of the reasons that PCP was acquired was its strong cash flow generation, which can be used for acquisitions that augment growth. PCP s acquisition strategy centers on buying businesses within the company s core competencies, including manufacturing component products for complex end users. The strategy also includes finding companies with procurement or technologies similar to PCP s, as well as similar customer profiles. These characteristics enabled the company to grow over the years, and made PCP attractive to Berkshire Hathaway. Sony Corp. (0.8%) (SNE $24.50 NYSE; SNE 2935.35 Tokyo Stock Exchange) is a diversified electronics and entertainment company based in Tokyo, Japan. The company manufactures televisions, PlayStation game consoles, mobile phone handsets, and cameras. It also operates the Columbia film studio and Sony Music entertainment group. We expect the new PlayStation launch and operational improvements in consumer electronics and entertainment to generate EBITDA growth through 2017. We also think the spinoff of the entertainment assets could be a catalyst. Twenty-First Century Fox Inc. (2.0%) (FOXA $26.98 NASDAQ), (0.2%) (FOX $27.07 NASDAQ) is a diversified media company with operations in cable network television, television broadcasting, filmed entertainment, and direct broadcast satellite television. Cable networks account for 70% of the company s EBITDA, and benefit from contractually recurring affiliate fees and exposure to the fast growing global pay television market. We also expect the company to benefit from rising demand for premium content, driven by emerging distribution platforms such as Netflix, retransmission revenue, and aggressive share repurchases. Investment Scorecard The top contributors to performance during the third quarter included Cablevision Systems Corp. (+36%), which agreed to be acquired by Altice for $34.90 per share in cash; Precision Castparts Corp. (+15%), which agreed to be acquired by Berkshire Hathaway for $235 per share in cash; O Reilly Automotive (1.0% of net assets as of September 30, 2015) (+11%), which reported another strong quarter in Q2 and should benefit from lower gas prices for consumers; Energizer Holdings (+14%), which was spun-off from the old Energizer Holdings on July 1 and rose on optimism about the company s prospects for margin improvement and cash generation; and H&R Block (0.3%) (+23%), which closed its divestiture of H&R Block Bank and announced a $3.5 billion share repurchase program through 2019, including a $1.5 billion self-tender it launched in September. 6
Detractors from performance included Twenty-First Century Fox (-17%) and Viacom (0.7%) (-31%), both of which declined along with the broad media sector following subscriber losses by Disney s ESPN channel, which led to investor concern about growing cord-cutting by cable subscribers; Grupo Televisa (0.7%) (-33%), which was subject to the same media sector dynamics along with investor concern about a slowdown in emerging markets; Deere (1.2%) (-23%), which declined amid concern about a slowing global economy, especially in China; and Edgewell Personal Care (-19%), whose shares came under pressure due to foreign currency exposure along with the lack of any deal announcement shortly following the spin-off of its Energizer battery business. Conclusion While the third quarter was the market s most difficult in several years, there are many reasons to be optimistic about prospects for the Fund. Valuations are as attractive as have been seen in a long time, especially in sectors which are our core competency. Strong recent M&A activity reinforces our view that we are in a building "Fifth Wave" of takeover activity. We continue to stick to our long term investment philosophy and hope to use any opportunity Mr. Market provides to us. We seek high-quality companies trading at a discount to Private Market Value the price an informed industrialist would pay to own an entire business. We also look for catalysts to surface value, such as a takeover of the company, financial engineering, new management, regulatory changes, or a change in cash flow allocation. October 12, 2015 Top Ten Holdings (Percent of Net Assets) September 30, 2015 Brown-Forman Corp. 2.3% Twenty-First Century Fox Inc. 2.1% Ametek Inc. 2.0% Cablevision Systems Corp. 1.8% IDEX Corp. 1.6% American Express Co. 1.5% Genuine Parts Co. 1.5% Precision Castparts Corp. 1.4% Berkshire Hathaway Inc. 1.4% Honeywell International Inc. 1.3% Note: The views expressed in this Shareholder Commentary reflect those of the Portfolio Managers only through the end of the period stated in this Shareholder Commentary. The Portfolio Managers views are subject to change at any time based on market and other conditions. The information in this Portfolio Managers Shareholder Commentary represents the opinions of the individual Portfolio Managers and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Views expressed are those of the Portfolio Managers and may differ from those of other portfolio managers or of the Firm as a whole. This Shareholder Commentary does not constitute an offer of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this Shareholder Commentary has been obtained from sources we believe to be reliable, but cannot be guaranteed. 7
Minimum Initial Investment $1,000 The Fund s minimum initial investment for regular accounts is $1,000. There are no subsequent investment minimums. No initial minimum is required for those establishing an Automatic Investment Plan. Additionally, the Fund and other Gabelli/GAMCO Funds are available through the no-transaction fee programs at many major brokerage firms. The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days after the date of purchase. See the prospectuses for more details. www.gabelli.com Please visit us on the Internet. Our homepage at www.gabelli.com contains information about GAMCO Investors, Inc., the Gabelli/GAMCO Mutual Funds, IRAs, 401(k)s, current and historical quarterly reports, closing prices, and other current news. We welcome your comments and questions via e-mail at info@gabelli.com. The Fund s daily NAV is available in the financial press and each evening after 7:00 PM (Eastern Time) by calling 800-GABELLI (800-422-3554). Please call us during the business day, between 8:00 AM 7:00 PM (Eastern Time), for further information. You may sign up for our e-mail alerts at www.gabelli.com and receive early notice of quarterly report availability, news events, media sightings, and mutual fund prices and performance. e-delivery We are pleased to offer electronic delivery of Gabelli fund documents. Direct shareholders of our mutual funds can elect to receive their Annual and Semiannual Reports, Manager Commentaries, and Prospectus via e-delivery. For more information or to sign up for e-delivery, please visit our website at www.gabelli.com. Multi-Class Shares The Gabelli Asset Fund began offering additional classes of Fund shares on December 31, 2003. Class AAA Shares are no-load shares offered directly through selected broker/dealers. Class A and Class C Shares are targeted to the needs of investors who seek advice through financial consultants. Class I Shares are available directly through the Fund s distributor or brokers that have entered into selling agreements specifically with respect to Class I Shares. The Board of Trustees determined that expanding the types of Fund shares available through various distribution options will enhance the ability of the Fund to attract additional investors. 8
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Gabelli/GAMCO Funds and Your Personal Privacy Who are we? The Gabelli/GAMCO Funds are investment companies registered with the Securities and Exchange Commission under the Investment Company Act of 1940. We are managed by Gabelli Funds, LLC and GAMCO Asset Management Inc., which are affiliated with GAMCO Investors, Inc. GAMCO Investors, Inc. is a publicly held company that has subsidiaries that provide investment advisory or brokerage services for a variety of clients. What kind of non-public information do we collect about you if you become a fund shareholder? If you apply to open an account directly with us, you will be giving us some non-public information about yourself. The non-public information we collect about you is: Information you give us on your application form. This could include your name, address, telephone number, social security number, bank account number, and other information. Information about your transactions with us, any transactions with our affiliates, and transactions with the entities we hire to provide services to you. This would include information about the shares that you buy or redeem. If we hire someone else to provide services like a transfer agent we will also have information about the transactions that you conduct through them. What information do we disclose and to whom do we disclose it? We do not disclose any non-public personal information about our customers or former customers to anyone other than our affiliates, our service providers who need to know such information, and as otherwise permitted by law. If you want to find out what the law permits, you can read the privacy rules adopted by the Securities and Exchange Commission. They are in volume 17 of the Code of Federal Regulations, Part 248. The Commission often posts information about its regulations on its website, www.sec.gov. What do we do to protect your personal information? We restrict access to non-public personal information about you to the people who need to know that information in order to provide services to you or the fund and to ensure that we are complying with the laws governing the securities business. We maintain physical, electronic, and procedural safeguards to keep your personal information confidential. 10
THE GABELLI ASSET FUND One Corporate Center Rye, NY 10580-1422 Portfolio Management Team Biographies Mario J. Gabelli, CFA, is Chairman and Chief Executive Officer of GAMCO Investors, Inc. that he founded in 1977 and Chief Investment Officer Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School and Honorary Doctorates from Fordham University and Roger Williams University. Kevin V. Dreyer joined Gabelli in 2005 as a research analyst covering companies within the consumer sector. He currently serves as a portfolio manager of Gabelli Funds, LLC and manages several funds within the Gabelli/GAMCO Funds Complex. Mr. Dreyer received a BSE from the University of Pennsylvania and an MBA from Columbia Business School. Jeffrey J. Jonas, CFA, joined Gabelli in 2003 as a research analyst. He focuses on companies in the cardiovascular, healthcare services, and pharmacy benefits management sectors, among others. He also serves as a portfolio manager of Gabelli Funds, LLC and manages several funds within the Gabelli/GAMCO Funds Complex. Mr. Jonas was a Presidential Scholar at Boston College, where he received a BS in Finance and Management Information Systems. Christopher J. Marangi joined Gabelli in 2003 as a research analyst. He currently serves as a portfolio manager of Gabelli Funds, LLC and manages several funds within the Gabelli/GAMCO Funds Complex. Mr. Marangi graduated magna cum laude and Phi Beta Kappa with a BA in Political Economy from Williams College and holds an MBA with honors from Columbia Business School. 11
THE GABELLI ASSET FUND One Corporate Center Rye, NY 10580-1422 t 800-GABELLI (800-422-3554) f 914-921-5118 e info@gabelli.com GABELLI.COM Net Asset Value per share available daily by calling 800-GABELLI after 7:00 P.M. BOARD OF TRUSTEES Mario J. Gabelli, CFA Chairman and Chief Executive Officer, GAMCO Investors, Inc. Anthony J. Colavita President, Anthony J. Colavita, P.C. James P. Conn Former Chief Investment Officer, Financial Security Assurance Holdings Ltd. John D. Gabelli Senior Vice President, G.research, Inc. Kuni Nakamura President, Advanced Polymer, Inc. Anthony R. Pustorino Certified Public Accountant, Professor Emeritus, Pace University Werner J. Roeder, MD Former Medical Director, Lawrence Hospital Anthonie C. van Ekris Chairman, BALMAC International, Inc. Salvatore J. Zizza Chairman, Zizza & Associates Corp. OFFICERS Bruce N. Alpert President Andrea R. Mango Secretary Agnes Mullady Treasurer Richard J. Walz Chief Compliance Officer DISTRIBUTOR G.distributors, LLC CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT State Street Bank and Trust Company LEGAL COUNSEL Skadden, Arps, Slate, Meagher & Flom LLP T H E G A B E L L I A S S E T F U N D Shareholder Commentary September 30, 2015 This report is submitted for the general information of the shareholders of The Gabelli Asset Fund. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. GAB405Q315SC