THE GABELLI VALUE FUND INC.
One Corporate Center
Rye, New York 10580-1434
ANNUAL REPORT - 1995
TO OUR SHAREHOLDERS:
The bull market stumbled at year-end 1995 as the Administration and
Congress fought over a balanced budget agreement. However, an early Christmas
gift from the Federal Reserve in the form of a 25 basis point drop in the
federal funds rate helped stocks regain some momentum to end the year at
near-record levels. Investors continued to migrate from technology stocks to
consumer non-durables, seeking safety in the form of more predictable earnings
in 1996. Cyclical stocks staged a comeback with the recognition that the economy
still had some "legs".
INVESTMENT RESULTS (a)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Quarter
-----------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1995: Net Asset Value .................... $11.41 $11.75 $12.81 $11.61 $11.61
Total Return ....................... 8.8% 3.0% 9.0% 0.3% 22.5%
- --------------------------------------------------------------------------------------------------------------
1994: Net Asset Value .................... $11.37 $11.55 $12.43 $10.49 $10.49
Total Return ....................... (6.0%) 1.6% 7.6% (2.7%) 0.0%
- --------------------------------------------------------------------------------------------------------------
1993: Net Asset Value .................... $11.15 $11.93 $13.92 $12.09 $12.09
Total Return ....................... 10.1% 7.0% 16.7% 1.5% 39.4%
- --------------------------------------------------------------------------------------------------------------
1992: Net Asset Value .................... $10.40 $ 9.84 $10.04 $10.13 $10.13
Total Return ....................... 9.7% (5.4%) 2.0% 6.4% 12.7%
- --------------------------------------------------------------------------------------------------------------
1991: Net Asset Value .................... $ 9.51 $ 9.50 $ 9.57 $ 9.48 $ 9.48
Total Return ....................... 11.8% (0.1%) 0.7% 2.5% 15.3%
- --------------------------------------------------------------------------------------------------------------
1990: Net Asset Value .................... $ 9.23 $ 9.36 $ 8.19 $ 8.51 $ 8.51
Total Return ....................... (2.4%) 1.4% (12.5%) 9.0% (5.6%)
- --------------------------------------------------------------------------------------------------------------
1989: Net Asset Value .................... -- -- -- $ 9.58 $ 9.58
Total Return ....................... -- -- -- 2.1%(b) 2.1%(b)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------
Average Annual Returns - December 31, 1995 (a)
- ----------------------------------------------
<S> <C>
1 Year ........................... 22.5%
........................... 15.7%(c)
5 Year ........................... 17.3%
........................... 16.0%(c)
Life of Fund (b) ................. 12.9%
........................... 11.9%(c)
- ----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dividend History
- -----------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
<S> <C> <C>
December 27, 1995 $ 1.230 $11.56
December 30, 1994 $ 1.600 $10.49
December 31, 1993 $ 2.036 $12.09
December 31, 1992 $ 0.553 $10.13
December 31, 1991 $ 0.334 $ 9.48
December 31, 1990 $ 0.420 $ 8.51
March 19, 1990 $ 0.120 $ 9.21
December 29, 1989 $0.0678 $ 9.58
</TABLE>
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of operations on September 29, 1989. (c)
Includes the effect of the maximum 5.5% sales charge at beginning of period.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GABELLI VALUE FUND AND THE S&P 500 INDEX
[GRAPH - GABELLI VALUE FUND VS S&P 500 INDEX GROWTH OF $10,000 INVESTMENT]
<TABLE>
Gabelli Value Fund vs S&P 500 Index
Growth of $10,000 Investment
<CAPTION>
Gabelli Value
S&P 500 Index Fund
------------- -------------
<S> <C> <C>
09/29/89 $10,000 $ 9,450
12/31/89 $10,210 $ 9,648
12/31/90 $ 9,893 $ 9,108
12/31/91 $12,910 $10,502
12/31/92 $13,556 $11,836
12/31/93 $14,925 $16,510
12/31/94 $15,119 $16,510
12/31/95 $20,803 $20,220
</TABLE>
* Past performance is not predictive of future performance. Includes effect of
maximum sales charge of 5.5%
Broadcast and filmed entertainment stocks retreated as excitement over
mega-mergers waned. As a group, telecommunications stocks continued to suffer
from the failure of Congress to pass a comprehensive telecommunications bill.
INVESTMENT PERFORMANCE
For the three months ended December 31, 1995, The Gabelli Value Fund's
(the "Fund") net asset value increased 0.3%. This compares to gains of 6.0% for
the unmanaged Standard & Poor's 500 Index (S&P 500), and 0.0% and 2.2%,
respectively, for the Value Line Composite and Russell 2000 Index, each of which
are unmanaged indicators of stock market performance. For the year ended
December 31, 1995, the Value Fund gained 22.5% versus 37.6% for the S&P 500,
19.3% for the Value Line Composite and 28.4% for the Russell 2000 Index.
The Fund's total return since inception on September 29, 1989, through
December 31, 1995, was 113.9%, which reflects an average annual total return of
12.9% assuming reinvestment of all dividends and distributions. The Fund's
three- and five-year average annual returns through December 31, 1995, were
19.5% and 17.3%, respectively. This compares with average annual returns of
15.3% and 16.6% for the S&P 500 during the respective periods. On December 31,
1995, the Fund's shareholder base was 38,545 and total net assets were $486.1
million.
COMMENTARY
THE GREAT BULL MARKET OF 1995 -- A HARD ACT TO FOLLOW
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MODEST STRONG LOW DECLINING RISING
ECONOMIC GROWTH + CORPORATE PROFITS + INFLATION + INTEREST RATES = STOCK PRICES
</TABLE>
This simple equation drove equity prices to record levels in 1995. Will
the same factors add up to another good year for stocks in 1996? Let's take a
fresh look at all the components of this winning formula.
2
We are estimating growth in Gross Domestic Product (GDP) of 2.5% to 3%
this year. With lower interest rates in Great Britain, Germany and France as a
stimulant, we see European economies growing at about 2%. As a free market
system continues to evolve in China and the expansion of the middle classes in
more developed Asian countries translates into economic activity, Pacific Rim
economies should regain momentum. In short, we anticipate reasonably good
worldwide economic growth in the year ahead.
On the inflation front, we see little pressure coming from wage increases.
In fact, we are encouraged by the strong stands governments here and abroad are
taking against inflationary wage demands. Even the French, who have
traditionally been at the mercy of public workers unions, are holding the line.
Rising food and fuel prices could, however, result in more inflation than most
investors expect. Lower grain production in the U.S. last year, strong demand
from the Chinese, and crop failures in the former Soviet Union will push food
prices higher. Regarding energy, we are producing less and consuming more. This
will ultimately lead to higher pricing. The potential of political unrest in
Saudi Arabia may be a short-term catalyst for higher fuel prices. We are
estimating that inflation could run as high as 3.5% in the second half of 1996.
If this inflation forecast proves accurate, long-term interest will not
stay at the current 6% level. Herein lies the primary threat to the stock
market. The consensus is that, with a soft economy, low inflation, lower
interest rates in Europe, a balanced budget agreement, and a Federal Reserve
Chairman who is up for reappointment in an election year, interest rates are
bound to come down. At current levels, stock and bond valuations reflect this
consensus. With a soft economy coupled with a very flat yield curve, we could
see short-term rates come down without long-term rates following. Be reminded
that price/earnings multiples are a function of earnings growth and longer term
interest rates. If earnings growth slows as we anticipate and long rates remain
flat or possibly trend modestly higher, stock multiples are likely to contract.
Flow of funds into the U.S. stock market should continue to be favorable.
Equity mutual funds still enjoy strong cash inflows. If deal activity matches
that of 1995 ($458 billion in the U.S. and $866 billion worldwide), investors
will end up with a pile of cash. In addition, corporate stock buybacks and
rising dividends will buttress stock prices. Some of that money finds its way
into initial public offerings. More will go into non-U.S. investments,
particularly markets which languished in 1995. But much more will be recycled
into a shrinking supply of stock.
3
Our conclusion from all this conjecture is a somewhat different formula
for the 1996 stock market:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MODEST DECENT LOW SLIGHTLY HIGHER A DECENT, BUT MUCH LESS
ECONOMIC GROWTH + CORPORATE PROFITS + INFLATION + INTEREST RATES = INSPIRING STOCK MARKET
</TABLE>
BARRON'S 1996 ROUNDTABLE
We thought we would share with you excerpts from BARRON's 1996 Roundtable
interview with our Chief Investment Officer. Discussion of individual
companies is not necessarily reflective of the Fund's entire portfolio.
Q: WHAT DO YOU HAVE TO SAY FOR YOURSELF, MARIO?
GABELLI: To echo some of the comments I heard on the economy, I basically
take the point of view that we'll have 2% GNP growth. Inflation - I worry
about the same things that everybody else does - food and fuel. To comment
about food, in particular - soybean, wheat and corn production were down in
the U.S. last year, carryovers are at an all-time low. You had, in addition,
a major crop failure in Russia, one of the worst harvests in 30 years. The
Chinese are consuming more because of income elasticity. So we worry about
food, which in turn creates an opportunity for some of the stocks that we
like. On the fuel front, just to echo some comments that you heard earlier,
we're producing less and consuming more and who knows what's going on in
Saudi Arabia? From my point of view, interest rates trend up in the second
half of the year. I don't have any strong convictions on the market.
Statistically, it's not cheap.
Q: DO YOU HAVE A STRONG CONVICTION ON INTEREST RATES?
GABELLI: I just believe that if inflation tracks at 3.5% in the second half
of '96, long rates don't stay at 6.04%. They closed at 6.04% or 6.09% today
and I am not in the camp that believes that is a stable level. So you won't
have the interest-rate tailwind to up-earnings that you had last year. On the
other side of the coin, flow of funds is a very important positive. In 1995,
deals set an all-time record: $458 billion was taken out of the market, or at
least announced - and on a global basis, it was $866 billion. Now, some of
that is put back in through IPOs, and they are surging, but that's just de
minimis, relative to the amount of deals. In 1996, I think, you will see
deals coming at an even higher rate. You'll see more IPOs too, but nowhere
near what is coming back into the market in terms of flow of funds - and you
will probably see a lot more of that money flowing out into the global
marketplace. In 1989, the U.S. market was 31% of the world market, Japan was
39.6%. Last year, the U.S. was 40%. That number is not going up, it is going
to decline.
Overall, the economy, which looks like it's stuck in snow at the moment,
actually looks reasonably good for the full year. A great environment for
stock selection. In 1997, Europe should be quite on the way to recovery and
that's terrific for U.S. exporters - and terrific from the point of view of
1997.
4
ZULAUF: I WANT TO SAY - YOU ERR ON THE YEAR.
GABELLI: No. I'm not there in '96, but you should have interest rates coming
down there sufficiently to help. That's also important to S&P-type earnings.
Anyway, 1996 is going to be another great year for M&A. I just happen to like
that part of the world. I started off last year by saying, "banks, brokers and
broadcasters". This year, even Michael Price has an exit strategy - but I guess
he falls into the broker category. Anyway, this year, I'll add the Baby Bells.
Once the telecom bill comes out of Congress, these gorillas will be making an
enormous number of acquisitions. And every time I think the defense contractors
have consolidated, there's another deal - the Westinghouse deal that Northrop
Grumman just announced, Loral doing a deal with someone else. You are going to
see a whole series of areas become happy hunting grounds. If someone wants to
pin me down, some of the names on my list of speculative potential takeover
candidates are: Sequa, Quaker Oats and International Family Entertainment.
PERKINS: BUT WAIT, MARIO, ARE WE GOING TO GET A TELECOM BILL SOON?
GABELLI: Well, you will have it one way or the other. Either you have it
formally or - the global marketplace is coming along too fast. I said this three
years ago. Regulators are always behind. As soon as you have a new rule, it is
dated. But a new law is important, because it would take the RBOCs, the Regional
Bell Operating Companies, out of focusing on Washington, and allow them to focus
on global dynamics, including acquisitions. You saw some smoke with Bell
Atlantic trying to make love with Nynex. It is like elephants in heat, you just
have to get out of the way, once they have that passion. And, I think, that
passion is going to become very visible in 1996.
Q: THAT'S A VERY GRAPHIC IMAGE.
GABELLI: Okay, in 1996, the other way you make money is split-ups. You know, the
AT&Ts, the ITTs of the world announcing split-ups. And you'll make some money on
the companies that they spin off. There are a bunch-
Q: BEFORE YOU GET TO THOSE, HOW MUCH OF THAT HUGE AMOUNT OF M&A ACTIVITY YOU
CITED FOR LAST YEAR WAS PAID OUT IN STOCK AND HOW MUCH IN CASH?
GABELLI: I don't have the specific number, someone can do all of that - but I
think it was $220 billion in cash. I can't tell you that I remember if that was
what was announced or what closed, but that buys a lot of prosciutto, chopped
liver and other companies. That's an enormous amount of cash. I mean, we could
sit here and start ticking them off. There was a Monday a few weeks ago on which
seven mergers were announced - and it's global. It's very specific. It is the
French company, CarnaudMetalbox, where you have an American company, Crown Cork
& Seal, making a tender offer. We had International Paper overbidding a Swiss
company. You had an American utility trying to buy a utility in England. It is
very eclectic, but also very focused. There were around 1,000 bank deals in
1995-the number I recollect is $150 billion of them - Chase Manhattan, Chemical
Banking, First Interstate go into that category. I see that as a very powerful
plus - I don't see it abating in 1996. Corporations have the cash flow. They
have appreciated securities. I think the long-term capital-gains tax rate comes
down in 1996, so the seller says: "Not only do I get what I get, but I also keep
more of it." It is going to be global again.
5
An old favorite of mine, those who monitor what I do may remember that I
recommended LIN starting in 1969 - so Jimmy, I was around then!
Q: IT HAS NOT MOVED AT ALL THOUGH-
GABELLI: No, they did move, from New York to Seattle and now they are in
Providence. It has gone cross-country. Like Forrest Gump, it just keeps running
on and on.
Q: SO HAS THE STOCK WITHOUT GETTING ANYWHERE.
GABELLI: The stock is up 300 times probably. But this is the new LIN - LIN
Television, the symbol is LNTV, there are 29 million shares out, the stock is at
$29 or so. And 40% is owned by AT&T, a stake, which they acquired when they
bought McCaw. LIN, for 1995, is going to report earnings of $1.20 a share.
[subsequently reported $1.28] In 1996, $1.60. Those earnings, to the year 2000,
ramp up to $2.50 with the private market value going up to $48 a share at that
time. The driver to the broadcasters, aside from cash flow, is the fact that as
part of this telecom bill - even if it doesn't go through - there will be a
change in the rules regulating a TV broadcaster. Currently, a TV broadcaster is
allowed to own 12 stations, as long as it doesn't exceed a certain percentage of
the U.S. footprint, which is about 25% with some allowances for UHF. It is going
to go to an unlimited number of stations, or a 35% footprint. So the urge to
merge-
Q: WHETHER THE BILL PASSES OR NOT?
GABELLI: Yes. They can do it at the regulatory level, the Federal Communications
Commission level. So the urge to merge is going to be very powerful.
Particularly with interest rates where they are, with the banks lending, with
sub-debt lenders coming back into the market, with the currency pretty
reasonable. Within that context, LIN can go either way. I mean, this increases
its odds of either being bought or sold. AT&T has to - if it owns over 25% after
1997 - go through a private-market appraisal. So they'll probably do things to
skinny down their ownership. I like LIN. I would also like to add another small
company that just became a television broadcaster - Westinghouse. I understand
that Michael talked about it earlier [Roundtable, Part 2], but let me give you
my point of view. I think that Michael Jordan, who left PepsiCo to go to
Westinghouse, got bored. You know, $81 he paid for CBS. He did the leveraged
buyout, he sold his defense-electronics business to unleverage it. But you have
a very powerful array of radio stations in the Westinghouse deal. He'll probably
sell some more assets, skinny down the balance sheet. To put some meat on the
numbers, in Westinghouse you have 41.5 million shares, the stock is at $18, so
that's about an $8 billion market value. With the sale of the
defense-electronics business and the NOL they are down to about $4 billion of
debt. We think that 1996 is a transition year, where they get their act
together. And in 1997 through 2000, you'll have an acceleration in earnings to
where, by the year 2000 (you have to look there, though I'll mention some road
blocks between now and then) you have a value for the enterprise of about $43 a
share and you have earnings of-of-of-
Q: YOU HAVE NO EARNINGS?
GABELLI: You'll have the earnings. I just can't find them-
6
Q: IT'S HARD TO FIND THE EARNINGS IN THIS ONE!
GABELLI: Within that framework, Jordan continues to shift their emphasis away
from their traditional business into broadcasting, where they have some
knowledge of distribution. They're very good in television-station operations
and in the radio business. A hidden asset is that they own a piece of Gaylord
Entertainment's networks, Country Music Television and the Nashville Network.
But the other thing that Westinghouse needs is a studio - and a studio needs
Westinghouse. So whether it is Seagram, or whether it is Columbia, what we will
see is further discussion as time goes on. In addition, unfortunately, I think
that this Michael Jordan is going to prove like the other Michael Jordan. That
is, while he can play basketball, he can't play big league baseball - while he
may be good in the industrial world, I'm not so sure he can do as good a job in
the entertainment world without a strong studio capability. So the urge to merge
there is going to be interesting to watch, as well. A third company is Meredith
Corp.
MACALLASTER: WHAT WILL WESTINGHOUSE EARN NEXT YEAR?
GABELLI: I'll give you a number in a minute, Archie.
Q: ARE YOU AFRAID TO READ IT?
GABELLI: I have $1.75 on one of my sheets here.
Q: IS THAT FOR 2000?
GABELLI: No. 2000 was the private-market value. You have to watch the PMVs -
this is a mixed crowd. Meredith has 29 million shares, the stock is around $40.
Cash and debt just basically cancel each other out. The company has two
businesses - broadcasting, which is a handful of TV stations, and magazine
publishing. The company has done an interesting job of getting out of some
marginal businesses. I don't know which way they go in the future, but right now
the dynamics are pretty powerful. The stock has about $75 million in publishing
EBITDA and about $75 million of EBITDA in broadcasting and a few other
businesses. The enterprise value is about $65 a share and that marches up to
close to $100 by the year 2000. From a conventional - Archie MacAllaster -
earnings-per-share point of view, the story is the same. I've got the earnings
somewhere.
Q: WHAT WERE YOU DOING WHILE YOU WERE STUCK ON THAT TRAIN FOR SIX HOURS?
GABELLI: I left my sheets at the office. I was going to stop by this morning,
but I never got there. Meredith is a June 30 fiscal year, so for June '96, they
will do $2.75 and that should march up at a double-digit rate through 2000.
Q: WE KNEW YOU WOULD NEVER FIND THEM.
GABELLI: There are two other companies in the cable area that I like. One is
International Family Entertainment. The virtue and the problem with this company
is Pat Robertson - and we own a significant amount of stock. He is negotiating
to buy a communications company in Pakistan. There are 38 million shares of
stock, just split 5-for-4 - I haven't adjusted the shares. I suggested to him
that if he is going to do that and create FamCom (Family Communications) he
should also do a credit card. And
7
if he does a credit card, why not sell Bibles, too? I mean, he has gone to the
deep end here. We need to rein him in. If he becomes much more
shareholder-sensitive, Family could be a very big stock.
And finally, in this genre, I'll mention Cablevision Systems, which is
headquartered on Long Island. It is selling at $55 has 2.7 million cable
subscribers, and also owns Rainbow Programming Holdings. In addition, it created
what I consider to be the precursor of localism, Channel 12 on Long Island.
Everybody, today, is watching it. It is a local news channel. They dominate.
Anyone on Long Island who wants to know about traffic or weather watches it.
They created their own local opportunity there. And I think Chuck Dolan is going
to split the company up. So those are several names in the cable network area.
To switch gears I'll give you some eclectic ideas, totally at random. One is a
snow-removal play.
Q: GEE, WHERE DID THAT COME FROM?
GABELLI: Right, it's topical. The airlines are having good traffic again. The
airlines are also outsourcing more. In addition, the airlines are giving their
vendors better prices, particularly in certain functions that they don't want to
have anything to do with. So tomorrow, Jimmy, when you go to La Guardia. Hudson
General will be at the airport. Hudson General closed at $33. There are 1.2
million shares out. What they do is remove snow, put de-icer on airplanes. And
they own some land in Hawaii, which is kind of inconsistent. Basically, for the
year that ends in June, they should earn about $7 a share.
Q: AND THE STOCK IS WHERE, DID YOU SAY?
GABELLI: At $33. Now there's a sidebar here: In December, Lufthansa, which is in
the airport cleaning business, offered to buy one-quarter of Hudson General's
airport service business for $25 million, which put a market value on the
company fully diluted, of about $80 a share. The stock has totally ignored that.
So Hudson General, to me, is a great asset play. I get over 1,000 acres of land
in Hawaii for free. I'm buying the stock at 40 cents on the dollar to what
Lufthansa would pay. And I'll have a significant surge in earnings. The company
is right here in Great Neck, N.Y.
MACALLASTER: Is that $7 of straight operating earnings?
ROGERS: And what did they earn in fiscal '95?
GABELLI: For the year ended June 30, 1995 - I'm trying to read my notes here.
You're asking too many questions, guys.
ROGERS: Well, was that $7, down from $9, or $7, up from $1?
GABELLI: No. no. Earnings were $7 two years ago, dropped to $3-and-change last
fiscal year, and will be back up significantly this year.
Q: SO IT IS A STABLE BUSINESS?
GABELLI: That is because- superimposed on a growing EBITDA - you have an
unstable element tied to the number of inches of snow fall they get paid to
remove. There's about $2.50 a share incremental from snow. They're going to
clean up.
MACALLASTER: Better buy it tomorrow, then.
8
GABELLI: I have bought it for the last four years. As you know, my clients own
35% of the company.
MACALLASTER: No, I didn't know that.
Q: YOU SHOULD HAVE GUESSED?
ROGERS: Is that why it snowed today, you are trying to get rid of the stock?
GABELLI: Another idea, along that eclectic line, is cigars. Cigar smoking is in
again. If you took every male between the ages of 25 and 35 and allowed only 10%
to become frequent cigar smokers - which is defined as one cigar per week you
would quadruple the size of the market.
ROGERS: I might also point out that females are smoking cigars, too.
GABELLI: I was going to say, in addition, if you get 1% of the female market...
You know, I've long talked about niches in the marketplace. Years ago, it was
coffee. But cigar smoking - if you go into these cigar bars - maybe I am more
sensitive to it, but people are lighting up again. Culbro Corp. has four million
shares out, the stock trades at $49. They have Partagas and Macanudo brands.
They dominate the market. Right now, the premium-priced market, at retail in the
United States, is about $160 million. That's all it is. That market could triple
or quadruple in the next four years. They also own all the wrapper leaf. In the
Connecticut River Valley, they have 5,500 acres of land that you are getting for
free. The book is around $50 a share, valuing the land at historical cost. They
also have some legacies in Cuba that I haven't exactly figured out - where they
may have the right to market Cohiba - for the unwashed, that is a pretty decent
brand of tobacco. A Spanish tobacco company called Tabacalera tried to buy a
half interest in their tobacco business - just the tobacco business. The deal
was announced back in May for the equivalent of about $100 million, which put a
value on the company of $40 a share.
MACALLASTER: WHAT DOES IT SELL FOR?
GABELLI: The stock is at $47-$48.
Q: WHAT HAPPENED TO THE DEAL?
GABELLI: The deal fell through, fortunately.
MACALLASTER: THAT $40 DOESN'T SOUND SO GOOD IF THE MARKET IS AT $48.
GABELLI: There are four million shares, a $47-$48 stock, a $200 million market
cap - for a company that is going to grow exponentially in a niche that is right
before your nose, Archie, every day. When you are puffing on it, don't miss the
play.
One niche idea is Grupo Televisa. The concept here is that there are a large
number of people; from Spain to Miami to LA, to the Philippines to points south,
who are Spanish-speaking. These are two ways to play the growth in that market.
Grupo Televisa is the Mexico based company that brings the world novelas -
soap-opera-type programs that have become very popular.
Q: COULD YOU EXPLAIN YOUR "PRODUCTIVITY ENHANCER" THEME?
GABELLI: I'm thinking about productivity enhancers as a sub-set of agriculture.
There are two companies that I have found and am fond of. One has been a long
running story, Deere & Co., which
9
is trading today at the equivalent of 108, it split 3-for-1 late last year. It's
around $36. Deere has a new generation of farm equipment, Deere stock has spiked
up 60% in the last nine months. But, as you think about food commodities over
the next 10 years and see what happened in 1995 to grains around the world -
what happened to China, to Russia, what's going on in Argentina, Australia,
South America - Deere jumps out at you as intriguing. There will be some
short-run ripple effects, some quarter their margin will be a half-percent lower
and somebody will get uptight that the farmer is not buying. But fundamentally,
over the next three to five years, Deere - while it has doubled or tripled in
the last three years, has a long way to go. New products, great balance sheet,
great cash generator.
Q: WOULD YOU GIVE US SOME NAMES IN INDUSTRIAL PRODUCTS?
GABELLI: There are two that are a little bit gamey, but the rewards could be
very attractive. One is a spin-off from ITT called ITT Industries, which just
started trading with the symbol IIN. There are 119 million shares, a $23 stock,
$1.5 billion of debt. They are the leader in pumps, valves and motors, a leader
in automotive components. Earnings for calendar 1996 should be around $2. They
should have a shot at $2.50 in 1997 because of strong demand in Europe for their
safety-related products. We think that when a shareholder of the old ITT
received the pieces, he kept the old ITT, sold off Industries and got rid of ITT
Hartford. So there has been a lot of supply around - and that creates an
opportunity. The other one is Ingersoll-Rand, which has changed its culture.
They made a very aggressive move, making a hostile tender offer last year for
Clark Equipment. Ingersoll has 112 million shares, sells around $37 or so. They
have positioned themselves in some very attractive productivity enhancing global
products by buying Clark. You should start seeing the consolidated benefits of
it about 12 months out into 1997. Ingersoll will earn in 1996 about $3, up from
about $2.50. [It reported '95 net of $2.55 a share on Thursday.] We see an
acceleration in that rate as they pay down debt and get the synergistic benefits
of merging the companies.
Q: WHAT'S NEXT?
GABELLI: Split-ups. On the basis of a potential split-up, I like Johnson
Controls. The stock is around $67, there are 46 million shares. They have four
businesses. Automotive seating, where they're the global dominant leader. They
have controls. They have plastics, which is your PET, and they have batteries,
which get the benefit from cold weather. The company is absolutely ripe for an
ITT - or AT&T - type split-up. We think the values are close to $100 a share
today. Book equity is $1.4 billion. It is a very sizable, substantial company.
The parts are worth a lot more than the whole - and you should see some
opportunity. As an aside, other split-up candidates include BCE Inc. - Bell
Canada which owns 52% of Northern Telecom; McGraw-Hill and Media General.
Another area that travels well for the three billion new consumers is
portable power. When one thinks of batteries, one should think of Ralston
Purina. Business was not great - the bunny ran out of steam in the fourth
quarter. But I think, at these prices - $60-$61, what I have is a company in pet
products that is very attractive in portable power batteries - and also in
proteins. It got out of the fresh bakery business last year and its official
name is now Ralston Purina Group, symbol RAL.
10
Q: IS THAT IT?
GABELLI: No. I want to talk a little bit about Quaker Oats and Wrigley. The
Wrigley, I'll chew on quickly. The stock is at $53. It is a brand name and a
company that does exceptionally well on a global basis. Its product travels
well, except to Singapore. There are 116 million shares. about $300 million
in cash, no debt, 1.9 billion of revenues, $417 million in EBITDA, and we
think earnings go from $2.05 to $2.50 to $3. You could see double digit
growth beyond that. And then Quaker Oats.
ROGERS: Is this a buy or a sell?
GABELLI: Well, that's why I held OAT for last Jimmy. Here's an example of
management hubris. They thought they could sell anything. So they went out
and made Thomas Lee rich by buying Snapple for $1.7 billion. At 10% interest
or even at 8% interest that's about $100 million in annual interest expense.
They thought they could make $75 million - $100 million in EBITDA. But I
think they broke even. On top of that, you had amortization of good will. The
good news is that Gatorade, even with the onslaught of Pepsi and Coke,
continues to maintain share of market. So, the Quaker Oats story is not in
the oatmeal - though the oatmeal is a good business. It is not their
grocery-product business, either, but in the fact that Gatorade continues to
do exceptionally well in the United States and is getting significant
penetration outside the U.S., primarily in Latin America and Southeast Asia.
That product seems to have very good guzzle appeal, so to speak, on a global
basis. With the stock at 34-35, we think the private market value today is in
the mid-50s. And [Chairman and CEO W.D.] Smithburg - who was the proponent
behind buying Snapple - if he doesn't turn it around in 1996, we think the
company is gone. So you should see twice the current price, even with a
fizzle in Snapple. And if it works - which I don't think it will - you have a
big win.
Q: WHERE IS THE STOCK DOWN FROM?
GABELLI: It just hasn't done anything. As the market was buying consumer
non-durables and consumer products, like Kellogg and General Mills, Quaker
Oats just went nowhere.
ROGERS: It is making a bottom, according to Mario.
GABELLI: No. The stock, based on pure earnings per share, could trade down 8
points. But if that, in fact, happens, it just becomes the catalyst for a
takeover. So we think there is a win-win here, although in the short run,
there are no earnings dynamics.
Q: THANK YOU, MARIO.
We're sorry that you didn't come with many stocks, but at least you came.
WHAT WE DO
We do what is described as bottom up research: we read annual reports; we
visit the competition; we talk to customers; we go belly to belly with
management. We structure our portfolio by picking stocks.
11
[PYRAMID SHAPED GRAPHIC]
In past reports, we have tried to articulate our investment philosophy and
methodology. The following graphic further illustrates the interplay among the
four components of our valuation approach.
Our focus is on free cash flow; earnings before interest, taxes,
depreciation and amortization (EBITDA) minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value (PMV) estimates.
Finally, we look for a catalyst; something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing worldwide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as increased focus on productivity
enhancing goods and services.
OUR APPROACH
The Fund is a non-diversified mutual fund which invests in a concentrated
portfolio of equity securities believed to have favorable EBITDA prospects. This
strategy allows the Fund to make larger commitments, in industries or companies
which we believe offer dynamic growth opportunities, than are possible with a
more diversified portfolio. Consistent with this approach, the top ten holdings
of the Fund represented over 47% of the portfolio at December 31, 1995.
12
LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Fund's
investments. Favorable EBITDA prospects do not necessarily translate into higher
stock prices, but they do express a positive trend which we believe will develop
over time.
American Express Company (AXP - $41.375 - NYSE), founded in 1850, is a
diversified travel and financial services company operating in 160 countries
around the world. The company is best known for its American Express card and
travel-related services. Its other important operation is Minneapolis-based
American Express Financial Advisors, Inc. (formerly IDS Financial Services)
which sells financial products ranging from mutual funds to annuities. Harvey
Golub, Chairman and CEO, has refocused AXP on its core charge card and
investment management businesses. We believe the company has been repositioned
to enjoy double digit earnings growth over the balance of the decade generating
outstanding capital returns for shareholders in the process.
Chris-Craft Industries, Inc. (CCN - $43.25 - NYSE), through its 72% ownership of
BHC Communications, Inc. is primarily a television broadcaster. BHC owns and
operates independent TV stations in Los Angeles (KCOP) and Portland (KPTV). BHC
also controls over 50% of United Television, Inc., which operates an NBC
affiliate, an ABC affiliate and three independent stations. BHC has entered into
a partnership agreement with Paramount Communications, Inc. to launch a new
fifth television network called United Paramount Television Network (UPN). CCN,
with over $1.5 billion in cash and marketable securities, is strongly positioned
to expand its operations. CCN is the eighth-largest TV station group owner in
the U.S. and covers almost 20% of TV households.
- ----------------------
Chris-Craft Industries
- ----------------------
72%
- ----------------------
BHC Communications
- ----------------------
56%
- ----------------------
United Television
- ----------------------
General Electric Company (GE - $72.00 - NYSE), having an equity market valuation
of $120 billion, is the largest U.S. company, and the third largest industrial
company in the world. Operating segments include aircraft engines, appliances,
broadcasting (NBC), industrial products, plastic materials, power generating
turbines and a hugely successful financial services business. Under Jack Welch's
prodding, GE has recorded a series of impressive earnings gains.
Hilton Hotels Corporation (HLT - $61.50 - NYSE) is a major lodging and gaming
company. Hilton owns and manages approximately 240 hotels throughout the United
States and franchises the Hilton name to other hotel operators. Hilton's hotels
include the Waldorf-Astoria (New York), the Beverly Hilton (Los Angeles), the
Chicago Hilton and a 50% interest in Hilton Hawaiian Village. HLT's
international hotel business is operated under the Conrad Hotels name. (Hotels
bearing the "Hilton" name outside the U.S. are properties of the British company
Ladbroke Group, plc.) HLT operates gaming properties, primarily in Nevada,
including the Flamingo and the Las Vegas Hilton, two casino-hotels in Reno and
one in Laughlin. HLT's Nevada properties have 11,000 rooms and more than 375,000
square feet of gaming space. HLT's plan to spin off the company's gaming
operations has an indefinite future.
13
Media General, Inc. (MEG'A - $30.375 - ASE) is a Richmond, VA-based company,
publishing daily newspapers in Richmond, Tampa, and Winston-Salem. Media General
owns three network television stations in Tampa, Charleston, and Jacksonville
and a cable television franchise in Fairfax County, VA. With the recovery in the
operations and values of media properties, and a pickup in transactions in the
cable arena, this company is poised for a significant rebound.
Tele-Communications, Inc. (TCOMA - $19.875 - NASDAQ), the largest cable TV
operator in the U.S., serving about 14 million subscribers, is guided by Dr.
John C. Malone - one of the most shareholder sensitive managers we have found.
Given that regulation has historically played a major role in the valuation of
cable properties, we believe that proposed telecommunications legislation,
combined with the current deregulatory climate in Congress, could prove a
significant catalyst for cable stocks. Strategically, TCOMA is a well-positioned
industry leader, from its telephony joint-venture with Sprint to its innovative
Internet access business, dubbed @ Home.
Time Warner Inc. (TWX - $37.875 - NYSE), in a bold and brilliant tactic, is
acquiring Turner Broadcasting System, Inc. for $7.5 billion. The acquisition
will make TWX the largest diversified media and publishing company in the world
and will add a wealth of programming to a company already rich in entertainment
content. Time Warner is restructuring into two general areas: copyright and
creativity, which includes publishing, music and filmed entertainment, and
distribution, which is mostly cable. Under the aegis of Gerald M. Levin,
investors can expect significant returns over the rest of the decade.
Westinghouse Electric Corp. (WX - $16.50 - NYSE) is a multi-industry company
whose dominant focus for growth and investment is now broadcasting. The company
recently acquired CBS Inc. for $5.4 billion, creating the nation's largest
television and radio broadcaster. To reduce the debt incurred to buy CBS, the
company is divesting assets such as its office furnishing unit Knoll Group and
its defense and electronic systems business. The remaining industrial portfolio
includes Power Systems, Thermo King Refrigeration Unit, Government Systems, and
assorted electronics-related businesses.
MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment is $1,000. No initial minimum is
required for those establishing an Automatic Investment Plan.
GABELLI U.S. TREASURY MONEY MARKET FUND
Shareholders of any of the Gabelli Funds may invest in The Gabelli U.S.
Treasury Money Market Fund with an initial investment of $3,000 or more. The
Fund provides checkwriting and exchange privileges. The Fund's expenses are
capped at .30% of average net assets, making it one of the most attractive U.S.
Treasury-only money market funds. With dividends that are exempt from state and
local income taxes in all states, the Fund is an excellent vehicle in which to
store idle cash. An investment in The Gabelli U.S. Treasury Money Market Fund is
neither insured nor guaranteed by the U.S. Government. There can be no assurance
that the Fund will maintain a stable $1 per share net asset value. Call us at
1-800-GABELLI (1-800-422-3554) for a prospectus which gives a more complete
description of the Fund, including management fees and expenses. Read it
carefully before you invest or send money.
14
IN CONCLUSION
1995 was a terrific year for most equity investors. As is usually the case
during big bull markets, growth stocks delivered better returns than those in
the value sector. Looking forward to a less inspiring market in 1996, we believe
value investors will have the opportunity to excel.
We believe the Fund's portfolio is a diversified collection of solid
businesses trading at material discounts to their "real world" economic values.
In an environment in which individual stock fundamentals are likely to be more
important than market momentum in earnings returns, we are confident the Fund
will reward its shareholders.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's NASDAQ symbol is GABVX. Please call us during the
day for further information.
We thank you for your confidence in our investing abilities and wish you a
productive and financially rewarding 1996.
Sincerely,
/s/ MARIO J. GABELLI
MARIO J. GABELLI, CFA
President and
Chief Investment Officer
January 31, 1996
-----------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1995
Media General, Inc. Tele-Communications, Inc.
Hilton Hotels Corporation Grupo Televisa S.A.
Chris-Craft Industries, Inc. Westinghouse Electric Corp.
Time Warner Inc. American Express Company
General Electric Company Magma Copper Company
-----------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
15
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCKS--93.9%
PUBLISHING--15.6%
38,000 McGraw-Hill Companies,
Inc. .................. $ 2,657,167 $ 3,310,750
2,190,000 Media General, Inc.,
Class A................ 48,475,438 66,521,250
101,600 Meredith Corporation.... 3,913,318 4,254,500
240,000 Western Publishing
Group, Inc. +.......... 3,727,751 1,890,000
------------ ------------
58,773,674 75,976,500
------------ ------------
BROADCASTING--14.0%
497,900 Chris-Craft Industries,
Inc. .................. 13,848,930 21,534,175
730,000 Grupo Televisa S.A.,
GDR.................... 15,907,587 16,425,000
110,000 Liberty Corporation..... 2,631,819 3,712,500
9,000 LIN Television
Corporation +.......... 68,458 267,750
100,000 Turner Broadcasting
System, Inc., Class
A...................... 1,540,938 2,587,500
96,500 United Television,
Inc. .................. 8,374,380 8,709,125
910,000 Westinghouse Electric
Corp. ................. 13,697,609 15,015,000
------------ ------------
56,069,721 68,251,050
------------ ------------
CONSUMER PRODUCTS--11.1%
130,000 American Brands,
Inc. .................. 5,165,337 5,801,250
180,000 Carter-Wallace, Inc. ... 2,502,805 2,047,500
74,000 Culbro Corporation +.... 2,005,426 3,635,250
280,000 General Electric
Company................ 14,168,186 20,160,000
145,000 Ralston Purina Group.... 6,216,825 9,044,375
100,000 Syratech
Corporation +.......... 1,767,238 2,012,500
45,000 Tambrands Inc. ......... 1,758,500 2,148,750
385,000 Whitman Corporation..... 3,076,820 8,951,250
------------ ------------
36,661,137 53,800,875
------------ ------------
CABLE--8.3%
142,000 Cablevision Systems
Corporation, Class
A +.................... 7,686,939 7,703,500
280,000 Home Shopping Network,
Inc. +................. 2,432,164 2,520,000
180,000 International Family
Entertainment, Inc.,
Class B +.............. 3,436,575 2,947,500
960,000 Tele-Communications,
Inc., Class A +........ 10,468,544 19,080,000
300,000 Tele-Communications,
Inc./ Liberty Media
Group, Class A +....... 4,930,659 8,062,500
------------ ------------
28,954,881 40,313,500
------------ ------------
HOTELS/CASINOS--6.4%
200,000 Aztar Corporation +..... 692,948 1,600,000
100,000 Circus Circus
Enterprises, Inc. +.... 2,690,916 2,787,500
385,000 Hilton Hotels
Corporation............ 25,429,589 23,677,500
90,000 Mirage Resorts,
Incorporated +......... 1,793,912 3,105,000
------------ ------------
30,607,365 31,170,000
------------ ------------
ENTERTAINMENT--6.4%
500,000 Time Warner Inc. ....... 18,378,516 18,937,500
200,000 Viacom Inc., Class
A +.................... 4,578,116 9,175,000
60,000 Viacom Inc., Class
B +.................... 1,975,122 2,842,500
------------ ------------
24,931,754 30,955,000
------------ ------------
INDUSTRIAL EQUIPMENT AND
SUPPLIES--5.4%
50,000 AMP Incorporated........ 1,944,240 1,918,750
50,000 Ampco-Pittsburgh
Corporation............ 250,017 537,500
48,500 AptarGroup, Inc. ....... 412,518 1,812,688
16,200 Brad Ragan, Inc. +...... 360,735 571,050
46,000 Deere & Company......... 800,417 1,621,500
134,000 Gerber Scientific,
Inc. .................. 992,301 2,177,500
75,000 Ingersoll-Rand
Company................ 2,836,898 2,634,375
165,000 Navistar International
Corporation +.......... 3,233,963 1,732,500
173,000 Pittway Corporation,
Class A................ 1,947,235 11,720,750
40,000 Sequa Corporation, Class
A +.................... 1,217,272 1,220,000
5,000 Sequa Corporation, Class
B +.................... 189,250 197,500
------------ ------------
14,184,846 26,144,113
------------ ------------
FINANCIAL SERVICES--4.4%
360,000 American Express
Company................ 8,319,236 14,895,000
200,000 Lehman Brothers Holdings
Inc. .................. 3,496,918 4,250,000
60,000 Salomon Inc. ........... 2,565,062 2,130,000
------------ ------------
14,381,216 21,275,000
------------ ------------
WIRELESS COMMUNICATIONS
--4.1%
110,000 AirTouch Communications
Inc. +................. 2,561,962 3,107,500
435,000 Century Telephone
Enterprises, Inc. ..... 8,732,336 13,811,250
500,000 Telecom Italia Mobile
SpA +.................. 655,379 881,148
50,000 Telephone and Data
Systems, Inc. ......... 1,908,750 1,975,000
------------ ------------
13,858,427 19,774,898
------------ ------------
METALS AND MINING--4.1%
75,000 Barrick Gold
Corporation............ 2,129,630 1,978,125
60,000 Echo Bay Mines Ltd. .... 755,625 622,500
60,000 Homestake Mining
Company................ 1,181,500 937,500
500,000 Magma Copper Company +.. 13,898,002 13,937,500
65,000 Placer Dome Inc. +...... 1,594,613 1,568,125
200,000 Royal Oak Mines
Inc. +................. 802,333 712,500
------------ ------------
20,361,703 19,756,250
------------ ------------
</TABLE>
See Notes to Financial Statements.
16
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCKS
(CONTINUED)
TELECOMMUNICATIONS--3.3%
60,000 BCE Inc. ............... $ 1,972,375 $ 2,070,000
76,000 C-TEC Corporation +..... 1,270,000 2,356,000
28,000 Lincoln
Telecommunications
Company................ 375,125 591,500
8,000 Motorola, Inc. ......... 105,778 456,000
40,000 Northern Telecom
Limited................ 1,517,750 1,720,000
30,000 Southern New England
Telecommunications
Corporation............ 921,603 1,192,500
190,000 Sprint Corporation...... 4,374,874 7,576,250
------------ ------------
10,537,505 15,962,250
------------ ------------
FOOD AND BEVERAGE--2.3%
250,000 Quaker Oats Company..... 8,431,258 8,625,000
40,000 Seagram Company Ltd. ... 1,090,750 1,385,000
20,000 Wrigley (Wm.) Jr.
Company................ 967,012 1,050,000
------------ ------------
10,489,020 11,060,000
------------ ------------
AUTOMOTIVE--1.9%
180,000 General Motors
Corporation............ 7,736,903 9,517,500
------------ ------------
AUTOMOTIVE: PARTS AND
ACCESSORIES--1.4%
162,000 Handy & Harman.......... 2,463,263 2,673,000
50,000 Johnson Controls,
Inc. .................. 1,390,779 3,437,500
50,000 Quaker State
Corporation............ 570,157 631,250
------------ ------------
4,424,199 6,741,750
------------ ------------
SPECIALITY CHEMICAL
--1.2%
131,500 CBI Industries Inc. .... 4,280,912 4,323,062
75,000 Ferro Corporation....... 1,200,213 1,743,750
------------ ------------
5,481,125 6,066,812
------------ ------------
BUSINESS SERVICES--1.1%
119,250 Berlitz International,
Inc., New +............ 1,761,954 1,967,625
35,000 Honeywell, Inc. ........ 1,512,552 1,701,875
135,000 Nashua Corporation...... 5,455,523 1,839,375
------------ ------------
8,730,029 5,508,875
------------ ------------
RETAIL--1.0%
20,000 Burlington Coat Factory
Warehouse
Corporation+........... 248,187 205,000
55,000 Hartmarx Corporation+... 380,563 240,625
20,000 Lillian Vernon
Corporation............ 271,250 267,500
170,000 Neiman Marcus Group,
Inc.................... 2,536,312 3,995,000
------------ ------------
3,436,312 4,708,125
------------ ------------
ENERGY--0.9%
20,000 Atlantic Richfield
Company................ 2,050,080 2,215,000
30,000 Burlington Resources
Inc.................... 1,226,301 1,177,500
385,000 Kaneb Services, Inc.+... 1,416,980 866,250
------------ ------------
4,693,361 4,258,750
------------ ------------
DIVERSIFIED INDUSTRIAL
--0.8%
11,700 Brady (W.H.) Co.,
Class A................ 131,820 315,900
5,000 ITT Industries Inc.+.... 117,750 120,000
217,500 Katy Industries, Inc.... 1,818,150 2,011,875
65,400 Lamson & Sessions
Co.+................... 366,108 506,850
30,000 Trinity Industries,
Inc.................... 361,680 945,000
40,000 Tyler Corporation+...... 144,500 110,000
------------ ------------
2,940,008 4,009,625
------------ ------------
AVIATION: PARTS AND
SERVICE--0.2%
34,000 Hudson General
Corporation............ 625,007 1,105,000
------------ ------------
TOTAL COMMON STOCKS.................... 357,878,193 456,355,873
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT COST VALUE
- ------------ ------------ ------------
<S> <C> <C> <C>
CORPORATE BONDS--0.5%
ENTERTAINMENT--0.5%
$ 1,204,550 Time Warner Inc., Conv.
Sub. Deb., 8.75% due
01/10/2015............. 1,230,971 1,246,709
997,000 Viacom Inc., Ex. Sub.
Deb., 8.00% due
07/07/2006............. 646,804 1,031,895
------------ ------------
TOTAL CORPORATE BONDS.................. 1,877,775 2,278,604
------------ ------------
U.S. TREASURY BILL--5.5%
27,000,000 5.30% ++ due
01/25/1996............. 26,904,510 26,904,510
------------ ------------
REPURCHASE AGREEMENT
--0.6%
3,195,000 Agreement with Salomon
Inc., 5.92% due
01/02/1996(a).......... 3,195,000 3,195,000
------------ ------------
TOTAL INVESTMENTS............... 100.5%
$389,855,478(b) 488,733,987
============
OTHER ASSETS AND
LIABILITIES (NET)................ (0.5) (2,589,694)
------ ------------
NET ASSETS...................... 100.0% $486,144,293
====== ============
</TABLE>
- ---------------
(a) Agreement dated 12/29/1995, to be repurchased at $3,197,102, collateralized
by $3,182,000 U.S. Treasury Bonds, 7.25% due 11/15/1996 (value $3,213,400).
(b) Aggregate cost for Federal tax purposes was $390,179,072. Net unrealized
appreciation for Federal tax purposes was $98,554,915 (gross unrealized
appreciation was $110,615,607 and gross unrealized depreciation was
$12,060,692).
+ Non-income producing security
++ Represents annualized yield at date of purchase.
GDR -- Global Depositary Receipt
See Notes to Financial Statements.
17
THE GABELLI VALUE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost
$389,855,478)......................... $488,733,987
Cash.................................... 3,956
Receivable for investments sold......... 5,362,752
Dividends and interest receivable....... 463,685
Receivable for Fund shares sold......... 43,210
------------
Total Assets........................ 494,607,590
------------
LIABILITIES:
Payable for investments purchased....... 5,413,713
Dividends payable....................... 1,309,465
Payable for investment advisory fee..... 419,445
Payable for Fund shares redeemed........ 348,424
Payable for distribution fees........... 242,811
Accrued Directors' fees................. 22,500
Accrued expenses and other payables..... 706,939
------------
Total Liabilities................... 8,463,297
------------
Net assets applicable to 41,882,189
shares of common stock
outstanding....................... $486,144,293
============
NET ASSETS CONSIST OF:
Shares of common stock at par value..... $ 41,882
Additional paid-in capital.............. 387,678,339
Distributions in excess of net realized
gain on investments................... (454,501)
Net unrealized appreciation of
investments........................... 98,878,573
------------
Total Net Assets.................... $486,144,293
============
Net Asset Value and redemption price
per share ($486,144,293 /
41,882,189 shares outstanding;
300,000,000 shares authorized of
$0.001 par value)................. $11.61
======
Maximum offering price per share
($11.61 / .945, based on maximum
sales charge of 5.5% of the
offering price at December 31,
1995)............................. $12.29
======
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income (net of foreign
withholding taxes of $73,737)......... $ 6,412,443
Interest income......................... 2,721,431
------------
Total Investment Income............. 9,133,874
------------
EXPENSES:
Investment advisory fee................. 4,750,908
Distribution fees....................... 1,187,757
Transfer agent fees..................... 579,076
Directors' fees......................... 102,148
Legal and audit fees.................... 42,186
Other................................... 469,439
------------
Total Expenses...................... 7,131,514
------------
NET INVESTMENT INCOME.................... 2,002,360
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Net realized gain on investments sold... 47,144,809
Net realized loss on futures
transactions.......................... (511,104)
Net realized loss on foreign currency
transactions.......................... (56)
------------
Net realized gain on investments...... 46,633,649
------------
Net unrealized appreciation of
securities, foreign currency and other
assets and liabilities:
Beginning of year..................... 53,719,877
End of year........................... 98,878,573
------------
Change in net unrealized
appreciation of securities,
foreign currency and other assets
and liabilities................... 45,158,696
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS............................. 91,792,345
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.............................. $ 93,794,705
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/95 12/31/94
------------ ------------
<S> <C> <C>
Net investment income.............................................. $ 2,002,360 $ 3,351,716
Net realized gain on investments................................... 46,633,649 55,349,863
Net change in unrealized appreciation of investments............... 45,158,696 (59,398,869)
------------ ------------
Net increase/(decrease) in net assets resulting from operations.... 93,794,705 (697,290)
Distributions to shareholders from:
Net investment income............................................. (1,998,027) (3,351,716)
Distributions in excess of net investment income.................. -- (4,277)
Net realized gain on investments.................................. (45,317,754) (55,458,014)
Distributions in excess of net realized gain on investments....... -- (192,460)
Net increase in net assets from Fund share transactions............ 3,036,372 5,139,564
------------ ------------
Net increase/(decrease) in net assets.............................. 49,515,296 (54,564,193)
NET ASSETS:
Beginning of year.................................................. 436,628,997 491,193,190
------------ ------------
End of year........................................................ $486,144,293 $436,628,997
============ ============
</TABLE>
See Notes to Financial Statements.
18
THE GABELLI VALUE FUND INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES. The Gabelli Value Fund Inc. (the "Fund")
was organized on July 20, 1989 as a Maryland corporation. The Fund is a
non-diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act") whose primary
objective is long-term capital appreciation. The Fund commenced operations on
September 29, 1989. 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 which are traded only on a nationally
recognized securities exchange or in the over-the-counter market which are
National Market System Securities are valued at the last sale price as of the
close of business on the day the securities are being valued, or lacking any
sales, at the mean between closing bid and asked prices. Other over-the-counter
securities are valued at the most recent bid prices as obtained from one or more
dealers that make markets in the securities. Portfolio securities which are
traded both in the over-the-counter market and on a stock exchange 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 fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund.
Short-term investments that mature in more than 60 days are valued at the
highest bid price obtained from a dealer maintaining an active market in that
security. U.S. government securities and other debt instruments that mature in
60 days or fewer are valued at amortized cost, unless the Board of Directors
determines that such valuation does not constitute fair value. Debt instruments
having a greater maturity are valued at the highest bid price obtained from a
dealer maintaining an active market in those securities or on the basis of
prices obtained from a pricing service approved as reliable by the Board of
Directors.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund seeks
to assert its rights. The Adviser, acting under the supervision of the Board of
Directors, reviews the value of the collateral and the creditworthiness of those
banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks.
FUTURES CONTRACTS. The Fund may engage in futures contracts for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin." Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily
19
THE GABELLI VALUE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
fluctuation of the value of the contract. The daily changes in the contract are
recorded as unrealized gains or losses. The Fund recognizes a realized gain or
loss when the contract is closed.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
FOREIGN CURRENCY. 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 on the respective dates of such transactions.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/depreciation of foreign currency and other assets and liabilities.
Unrealized gains and losses of securities, which result from changes in foreign
exchange rates as well as changes in market prices of securities, have been
included in unrealized appreciation/depreciation of investment securities. 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 sold.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined using specific identification as the cost method. Interest income
(including amortization of premium and accretion of discount) is recorded as
earned.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividend income and 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, 1995,
resulting from different book and tax accounting policies for currency gains and
losses, are reclassified between net investment income and net realized gains at
year end. The reclassifications for the year ended December 31, 1995 were a
decrease in undistributed net investment income of $56 and a decrease in
distributions in excess of net realized gain on investments of $56.
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.
20
THE GABELLI VALUE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2. AGREEMENTS WITH AFFILIATED PARTIES. 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 percent of the value of the Fund's average daily net
assets. In accordance with the Advisory Agreement, the Adviser manages the
Fund's portfolio, makes investment decisions for the Fund, places orders to
purchase and sell securities of the Fund, and oversees the administration of all
aspects of the Fund's business and affairs. The Adviser is obligated to
reimburse the Fund in the event the Fund's expenses exceed the most restrictive
expense ratio limitation imposed by any state. No such reimbursement was
required during the year ended December 31, 1995.
3. DISTRIBUTION PLAN. The Fund has adopted a plan of distribution (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund pays Gabelli
& Company, Inc. ("Gabelli & Company"), an indirect majority-owned subsidiary of
the Adviser, a distribution fee, accrued daily and paid monthly, calculated at
the annual rate of 0.25 percent of the value of the Fund's average daily net
assets, for activities primarily intended to result in the sale of the Fund's
shares of common stock.
4. PORTFOLIO SECURITIES. Cost of purchases and proceeds from sales of
securities for the year ended December 31, 1995, other than U.S. government and
short-term securities, aggregated $291,380,170 and $362,049,318, respectively.
5. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1995, the
Fund paid brokerage commissions of $124,014 to Gabelli & Company and its
affiliates. For the year ended December 31, 1995, Gabelli & Company informed the
Fund that it received $336,808 from investors representing commissions (sales
charges and underwriting fees) on sales of Fund shares.
6. SHARES OF COMMON STOCK. Common stock transactions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/95 12/31/94
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 2,510,990 $ 31,004,832 1,403,794 $ 16,737,922
Shares issued upon reinvestment of dividends................... 3,413,613 39,463,662 4,854,034 51,002,186
Shares redeemed................................................ (5,667,280) (67,432,122) (5,257,189) (62,600,544)
---------- ------------ ---------- ------------
Net increase................................................. 257,323 $ 3,036,372 1,000,639 $ 5,139,564
========== ============= ========== =============
</TABLE>
21
THE GABELLI VALUE FUND INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per share amounts for a Fund share outstanding throughout each period/year ended
December 31,
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991(A) 1990 1989*
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year......... $ 10.49 $ 12.09 $ 10.13 $ 9.48 $ 8.51 $ 9.58 $ 9.45
-------- -------- -------- -------- -------- -------- ----------
Net investment income...................... 0.05 0.09 0.05 0.09 0.13 0.45 0.16
Net realized and unrealized gain/(loss) on
investments.............................. 2.30 (0.09) 3.95 1.11 1.17 (0.98) 0.04
-------- -------- -------- -------- -------- -------- ----------
Total from investment operations........... 2.35 0.00 4.00 1.20 1.30 (0.53) 0.20
-------- -------- -------- -------- -------- -------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................... (0.05) (0.09) (0.01) (0.09) (0.19) (0.54) (0.06)
Distributions in excess of net investment
income................................. -- (0.00)(b) (0.04) -- -- -- --
Net realized gains....................... (1.18) (1.50) (1.99) (0.46) (0.14) -- (0.01)
Distributions in excess of net realized
gains.................................. -- (0.01) -- -- -- -- --
-------- -------- -------- -------- -------- -------- ----------
Total distributions........................ (1.23) (1.60) (2.04) (0.55) (0.33) (0.54) (0.07)
========= ========= ========= ========= ========= ========= ==========
Net asset value, end of year............... $ 11.61 $ 10.49 $ 12.09 $ 10.13 $ 9.48 $ 8.51 $ 9.58
========= ========= ========= ========= ========= ========= ==========
Total return **............................ 22.5% 0.0% 39.4% 12.7% 15.3% (5.6)% 2.1%
========= ========= ========= ========= ========= ========= ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)......... $486,144 $436,629 $491,193 $423,381 $574,676 $850,685 $1,126,146
Ratio of net investment income to average
net assets............................. 0.42% 0.73% 0.38% 0.75% 1.43% 4.45% 6.06%+
Ratio of operating expenses to average
net assets............................. 1.50% 1.50% 1.53% 1.52% 1.45% 1.39% 1.48%+
Portfolio turnover rate.................... 64.6% 66.6% 21.4% 0.1% 16.2% 58.6% 73.3%
<FN>
- ---------------
* The Fund commenced operations on September 29, 1989.
** 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 and does not reflect any applicable sales charges.
Total return for the period of less than one year is not annualized.
+ Annualized.
(a) Per share amounts have been calculated using the monthly average share method for the year ended December 31, 1991.
(b) Amount represents less than $0.01 per share.
</FN>
</TABLE>
22
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE GABELLI VALUE FUND INC.
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 Value Fund Inc. (the
"Fund") at December 31, 1995, 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 six years in the period
then ended and for the period September 29, 1989 (commencement of operations)
through December 31, 1989, 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, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 13, 1996
1995 TAX NOTICE TO SHAREHOLDERS (UNAUDITED)
For the fiscal year ended December 31, 1995, the Fund paid to shareholders, on
December 27, 1995, ordinary income dividends (comprised of net investment income
and short-term capital gains) totaling $0.39 per share. Additionally, on that
date, the Fund paid $0.84 per share in long-term capital gains. For fiscal year
1995, 43.4% 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
1995 which was derived from U.S. Treasury securities was 0.74%. Such income is
exempt from state and local income 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 Value Fund Inc. did not meet this strict requirement in 1995. 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 own situation.
23
THE GABELLI VALUE FUND INC.
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
fax: 1-914-921-5118
http://www.gabelli.com
e-mail: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
BOARD OF DIRECTORS
Mario J. Gabelli, CFA Robert J. Morrissey
President and Chief Attorney-at-Law
Investment Officer Morrissey & Hawkins
Gabelli Funds, Inc.
Bill Callaghan Karl Otto Pohl
President Former President
Bill Callaghan Associates Deutsche Bundesbank
Felix J. Christina Anthony R. Pustorino
Former Senior Certified Public Accountant
Vice President Professor, Pace University
Dollar Dry Dock Savings Bank
Anthony J. Colavita
Attorney-at-Law
Anthony J. Colavita, P.C.
OFFICERS
Mario J. Gabelli, CFA Bruce N. Alpert
President and Chief Operating Officer
Chief Investment Officer Vice President and
Treasurer
James E. McKee
Secretary
CUSTODIAN
Boston Safe Deposit and Trust Company
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Willkie Farr & Gallager
UNDERWRITER
Gabelli & Company, Inc.
This report is submitted for the general information of the shareholders of The
Gabelli Value Fund Inc. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
[PHOTO]
THE
GABELLI
VALUE
FUND
INC.
ANNUAL REPORT
DECEMBER 31, 1995
