Q:  What is the history of the Gabelli Asset Fund? A : The Gabelli Asset Fund was launched on March 3, 1986 as a diversified, open-end investment company. Q:  What are the main principles behind your investment philosophy? A : Our methodology is based upon the concept of Private Market Value – the price that a strategic buyer, or an informed industrialist, would be willing to pay for the entire company. We seek stocks that are trading at a discount to their Private Market Values and invest within our circle of investment competence. Our philosophy is based on the premise that we invest in businesses rather than stocks. Q:  How does your philosophy translate into the fund’s investment strategy? A : While seeking capital growth through our investments, we regard current income as a secondary consideration. The fund will primarily invest in common stocks and preferred stocks, and it may also invest in securities that could be converted into common stocks. The fund normally invests at least 80% of assets in stocks that are listed on a recognized securities exchange or similar market. It may also invest up to 25% of total assets in securities of non-U.S. issuers. Q:  What kind of analytical steps does your research process involve? A : We employ fundamental analysis with a bottom-up stock picking approach to create the portfolio. Our first screen is to develop in-depth knowledge of certain industries and sub-industries. Our thirty-five analysts dominate the knowledge of their industries, which gives us a global universe of over 2,000 companies from which to find potential investments. We do proprietary equity analysis to estimate a company’s earnings per share, free cash flow and Private Market Value. Then, we proceed with evaluating management and determining a margin of safety before we identify an event to surface value. As voracious readers, we review public information and regulatory filings, as well as company disclosures and trade journals. In addition to that we conduct interviews with management, competitors, customers and suppliers. Visiting company headquarters and operational facilities is another important facet of our research process. For us, meeting management is very important and plays an integral role in our research process. Additionally, the team has daily and weekly meetings to discuss company news, management meetings or other events that may impact our thesis on a company or a sector. Q:  Would you highlight your research process with some examples? A : One example is Fortune Brands, Inc., a leading consumer brands company with brands in three segments - spirits, home & security and golf. The spirits business has brands such as Jim Beam and Makers Mark bourbon, Sauza tequila, Courvoisier cognac and Effen vodka. The home & security business has brands including Moen faucets, Aristokraft cabinets, Simonton windows, Therma-Tru doors, Waterloo tool storage and Master Lock. The golf business has the Titleist and Foot Joy brands. A couple years ago, we noticed that the company was selling at a substantial discount to what the various parts were actually worth. The home & security business, which enjoyed a sharp rise in revenues and profits during the residential construction boom, suffered dramatically when that segment of the market ground to a halt during the financial crisis. We thought that there was an opportunity for the home & security business to eventually rebound. On the other hand, the spirits business, while not unscathed by the recession, held up relatively well. The golf business also saw a decline in earnings, but is a much smaller portion of the overall profits and value than the other two businesses. We knew that the company had a history of selling or spinning off businesses in order to unlock shareholder value, and thought there was potential for it to do so again this time. In October 2010, Pershing Square Capital Management acquired an 11% stake in the company. This may have accelerated the process of the company splitting itself up, which it eventually announced in December 2010, saying that it would spin-off the home business and either sell of spin-off golf. The spirits business is a terrific business – great brands, high margins, strong free cash flow generation and pricing power. We expect this business to deliver steady, profitable growth in coming years. At the same time, its industry is consolidating, and we expect significant interest from strategic acquirors once it becomes a stand-alone company. The home business will be more volatile, but has the potential to increase earnings substantially from current levels when the residential housing markets recovers at some point. In the meantime, the company is using its leadership position within its categories to gain market share. Finally, we expect the golf business to recover with the economy and due to growth in emerging markets. We also expect significant interest from acquirors for this business. During the crisis the stock traded as low as $19 per share, and since then it has gone up to about $64 today. Looking at the three separate businesses, we think that at the end of 2012 the spirits business will be worth about $10 billion, the home and security business could be worth $4 billion to $5 billion and the golf business could fetch around $1 billion. After adjusting for the debt on the balance sheet at that time, that gives us a combined value for the three business approaching $90 per share in 2012. So, despite the fact that the stock has come so far off its lows, we continue to see significant upside. Another example is Cablevision Systems Corporation, which is one of the largest holdings in the fund. Today, the company consists of two businesses – broadband and cable distribution in the New York metropolitan area and AMC Networks, including AMC, IFC, WE and Sundance cable channels. We like both the cable distribution and the cable network business, which both possess strong recurring revenue characteristics. Cablevision is amongst the best cable operators in the business with high penetration, leading margins and the lowest capital intensity of any publicly traded cable company. We those businesses together are worth about $27 billion, or $50 per share after subtracting the company’s debt. Looking at it differently, we think the cable distribution business alone is worth about $22 billion, which when compared with Cablevision’s current $22 billion market cap, means that buyers of Cablevision today get AMC essentially for free. In our view, a near-term catalyst is the company’s plan to spin-off the AMC network later this year as a separate publicly traded company. We believe that AMC itself will be an acquisition target in the near term. Furthermore, Cablevision’s cable systems may eventually be combined with one of the large cable operators. Excluding those events, we are happy to own it as the company generates significant free cash flow and continues to grow its private market value meaningfully each year. We take a long-term view and see a lot of value there. Q:  How do you execute your portfolio construction? A : We own over 400 stocks in the fund with the top ten positions being in the region of 15-20% of the portfolio. Being benchmark agnostic, we look for the best ideas in any particular industry at any particular time. We seek out an absolute positive return in all the stocks that we select. Our average stock holding period is ten years. At any time when we have cash available in the fund, we will reallocate in the best ideas at the time. The turnover in the fund is very low and it hovers near 10%. Q:  What is your sell discipline? A : There are a few reasons why we may want to sell a stock: when a stock’s valuation approaches the Private Market Value; when a catalyst is realized or fails to materialize; and if the company’s core business starts deteriorating. Q:  What do you consider as risk at a portfolio level and how do you contain it? A : We look at risk somewhat differently than many investors. Risk is often viewed as a measure of volatility, but we view risk as the potential for permanent impairment of capital. As bottom-up investors, we try to look at our potential upside to Private Market Value and weigh it against our downside in terms of what can go wrong with the business. We also carefully examine the financial leverage on the balance sheet. Diversification is another way that we mitigate risk. The fund owns more than 400 stocks in many different sectors, which mitigates against unforeseen events specific to any particular company. Overall, we believe the best way to minimize risk is to demand a margin of safety – looking for a significant discount to Private Market Value – so that even if something goes wrong in the business or a catalyst fails to materialize, we should still have relatively limited downside in the stock.