Registration Nos. 33-30139
811-5848
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 10 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 12 X
THE GABELLI VALUE FUND
INC.
(Exact name of Registrant as Specified in Charter)
One Corporate Center, Rye, New York 10580-1434
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (914) 921-5107
James E. McKee
Gabelli Funds, Inc.
One Corporate Center
Rye, New York 10580-1434
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on May 1, 1996 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)(1)
on ________ pursuant to Rule 485(a)(1)
___ 75 days after filing pursuant to Rule 485(a)(2)
___ on ________ pursuant to Rule 485(a)(2)
___ This post-effective amendment designates a new effective date
for a previously filed post- effective amendment
The Registrant previously has filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). Registrant's Rule
24f-2 Notice for the fiscal year ended December 31, 1995 was filed on
February 28, 1996.
THE GABELLI VALUE FUND INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No. Prospectus Captions
1. Cover Page Cover Page
2. Synopsis Prospectus Summary; The Fund's Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Prospectus
Summary; The Fund and its Investment Policies; Other Investments;
Special Investment Methods; General Information
5. Management of the Fund Cover Page; Prospectus Summary; The Fund
and its Investment Policies; Management of the Fund; Purchase of
Shares; General Information
5A. Management's Discussion of Fund Performance Not applicable
6. Capital Stock and Other Securities Prospectus Summary;
Dividends, Distributions and Taxes; General Information
7. Purchase of Securities Being Offered Prospectus Summary;
Purchase of Shares; Valuation of Shares; General Information
8. Redemption or Repurchase Prospectus Summary; Redemption of
Shares
9. Pending Legal Proceedings Not applicable
Part B Statement of Additional
Item No. Information Caption
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Policies; Other
Investments; Special Investment Methods; Investment Restrictions
14. Management of the Fund Directors and Officers; The Adviser
15. Control Persons and Principal Holders of Securities Directors
and Officers
16. Investment Advisory and Other Services The Adviser; Sub-
Administrator; Directors and Officers; Distributor; Distibution Plan;
Custodian, Transfer Agent and Dividend Disbursing Agent; Experts; see
Prospectus - "Management of the Fund"
17. Brokerage Allocation Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Dividends, Distributions and
Taxes; General Information
19. Purchase, Redemption and Pricing
of Securities Being Offered Redemption of Shares, Net Asset
Value
20. Tax Status Dividends, Distributions and Taxes
21. Underwriters Distributor; Distribution Plan
22. Calculation of Performance Data Calculation of Investment
Performance
23. Financial Statements Financial Statements
THE GABELLI VALUE FUND INC.
PART A
PROSPECTUS
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The Gabelli Value Fund Inc.
One Corporate Center, Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
http:11www.gabelli.com
Gabelli Funds, Inc.
Investment Adviser
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PROSPECTUS MAY 1, 1996
The Gabelli Value Fund Inc. (the "Fund") is a non-diversified, open-end
management investment company, the investment objective of which is long-term
capital appreciation. The Fund seeks to achieve its objective by investing
primarily in equity securities of companies that the Fund's investment adviser,
Gabelli Funds, Inc. (the "Adviser"), believes are undervalued and that by virtue
of anticipated developments or catalysts particularly applicable to such
companies may, in the Adviser's judgment, achieve significant capital
appreciation. There is no assurance that the Fund's investment objective will be
attained. See "The Fund and its Investment Policies."
A maximum sales load of 5.50% will be imposed on purchases (5.82% of the
amount invested). The minimum initial investment is $1,000. There is no minimum
requirement for subsequent purchases, although some brokers or dealers may
impose their own minimum requirements. Investments for Individual Retirement
Accounts ("IRA") have different requirements. Shareholders may redeem shares on
any day the Fund calculates its net asset value. See "Purchase of Shares" and
"Redemption of Shares."
This Prospectus sets forth concisely the information about the Fund that
prospective investors ought to know before making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference. Additional information about the Fund is contained in a
Statement of Additional Information, as amended or supplemented from time to
time, dated May 1, 1996 that is available upon request and without charge by
calling the Fund at 1-800-GABELLI [422-3554]; by writing the Fund at the address
set forth above or in the manner described under "Purchase of Shares" herein or
by contacting the broker through whom you purchased shares or Gabelli & Company,
Inc. ("Gabelli & Company"). The Statement of Additional Information has been
filed with the Securities and Exchange Commission and is incorporated by
reference into this Prospectus in its entirety.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
THE FUND: The Gabelli Value Fund Inc. is a non-diversified, open-end management
investment company which commenced operations on September 29, 1989.
INVESTMENT OBJECTIVE: The Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve its objective by investing primarily in
equity securities of companies that the Fund's Adviser believes are undervalued
and that by virtue of anticipated developments or catalysts particularly
applicable to such companies may, in the Adviser's judgment, achieve significant
capital appreciation.
INVESTMENT CHARACTERISTICS AND RISKS: The Fund may invest in, among other
things, unregistered convertible securities, securities of issuers involved in
corporate reorganizations, warrants, rights, securities of foreign issuers and
forward commitments for securities purchased on a "when issued" or "delayed
delivery" basis. Convertible securities are not typically rated within the four
highest categories by the rating agencies and are, therefore, not generally
considered investment grade. There is no minimum rating that is acceptable for
investment by the Fund; however, it is the Fund's current operating policy that
not more than 35% of the Fund's portfolio will consist of debt securities
considered by the rating agencies, or, if unrated, judged by the Adviser to be
predominantly speculative and involving major risk exposure to adverse
conditions, including securities of issuers in default. The Fund will, however,
limit its investments in securities of issuers in default, which are included
within the 35% limitation, to not more than 5% of its total assets. These
investments may involve special risks. See "Other Investments" in the Statement
of Additional Information. The Fund may also purchase or sell exchange traded
options, engage in certain short sales of securities, enter into repurchase
agreements, lend its portfolio securities to securities broker-dealers or
financial institutions and borrow money for short-term credits from banks as may
be necessary for the clearance of portfolio transactions and for temporary or
emergency purposes. These techniques may also involve special risks. See
"Special Investment Methods."
MANAGEMENT AND FEES: The Adviser serves as the Fund's investment adviser and is
paid a monthly fee at an annual rate of 1.00% of the value of the Fund's average
daily net assets for its services. The advisory fee is higher than that paid by
most mutual funds. See "Management of the Fund."
HOW TO PURCHASE SHARES: Shares of the Fund may be purchased through certain
registered broker-dealers and through State Street Bank and Trust Company
("State Street"), the transfer agent for the Fund, or Boston Financial Data
Services, Inc., ("BFDS") an affiliate of State Street performing shareholder
services for the Fund, at the net asset value per share next determined after
receipt of an order plus the applicable sales charge. A maximum sales charge of
5.50% will be imposed on purchases (5.82% of the amount invested), subject to
reduction based on the amount of investment. The minimum initial investment is
$1,000. The Fund imposes no minimum for subsequent investments although some
registered broker-dealers may impose their own minimum. Investments through an
IRA or other retirement plans, however, have different requirements. There is no
initial minimum investment required for accounts establishing an automatic
investment plan. See "Purchase of Shares."
DISTRIBUTION PLAN: The Fund has adopted a Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act").
Under the Plan, the Fund will make monthly payments to certain registered
broker-dealers who enter into agreements with the Fund calculated at the annual
rate of 0.25% of the value of the average daily net assets of the Fund
attributable to outstanding shares of the Fund sold by those broker-dealers.
HOW TO SELL SHARES: Shares of the Fund may be redeemed through certain
registered broker-dealers and the Fund's transfer agent by the shareholder at
any time at the net asset value next computed after the redemption request is
received. See "Redemption of Shares."
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DIVIDENDS AND REINVESTMENT: Dividends and distributions will be automatically
reinvested for each shareholder's account at net asset value in additional
shares of the Fund, unless the shareholder instructs the Fund to pay all
dividends and distributions in cash and to credit the amounts to his or her
brokerage account or to pay the amounts by check. There are no sales or other
charges in connection with the reinvestment of dividends and capital gains
distributions. There is no fixed dividend rate, and there can be no assurance
that the Fund will pay any dividends or realize any capital gains. However, the
Fund currently intends to pay dividends at least annually and capital gains
distributions, if any, on an annual basis. See "Dividends, Distributions and
Taxes."
THE FUND'S EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load (as a percentage of offering price) imposed on purchases.............................. 5.50%
Sales load imposed on reinvested dividends............................................................... None
Deferred sales load...................................................................................... None
Redemption fees.......................................................................................... None
ANNUAL FUND OPERATING EXPENSES: (Percent of average daily net assets)
Management fee........................................................................................... 1.00%
Distribution (Rule 12b-1) expenses*...................................................................... 0.25%
Other expenses........................................................................................... 0.25%
----
Total Operating Expenses................................................................................. 1.50%
====
</TABLE>
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* As a result of the payment of sales charges and Rule 12b-1 expenses, long
term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. ("NASD").
The foregoing table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
category "Other expenses" is based on amounts for the preceding fiscal year. The
Fund's operating expenses may be subject to state expense limitations that may
require that a certain amount of the expenses paid be reimbursed to the Fund.
For further information regarding these expense reimbursement obligations, see
"The Adviser" and "Sub-Administrator" in the Statement of Additional
Information.
EXAMPLE**
The following example demonstrates the projected dollar amount of total
cumulative expenses that may be incurred over various periods with respect to a
hypothetical investment in the Fund. These amounts are based upon payment by an
investor of an initial sales load at the maximum 5.50% rate (sales load as a
percent of the offering price) and payment by the Fund of operating expenses at
the levels set forth in the table above, and are also based upon the following
assumptions:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
A shareholder would pay the following expenses on a $1,000 investment, assuming (1)
a 5% annual return and (2) redemption at the end of each time period............. $ 69 $ 100 $ 132 $ 225
</TABLE>
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** The amounts listed in this example should not be considered as representative
of future expenses, and actual expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or
less than 5%.
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FINANCIAL HIGHLIGHTS
The following information has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report on this information appears in
the Statement of Additional Information. This table should be read in
conjunction with the financial statements and related notes that are included in
the Statement of Additional Information.
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%
</TABLE>
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<TABLE>
<C> <S>
* 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.
</TABLE>
THE FUND AND ITS INVESTMENT POLICIES
The Fund is an open-end, non-diversified management investment company
organized as a corporation under the laws of the State of Maryland on July 20,
1989. The Fund's investment objective is long-term capital appreciation. The
Fund regards its receipt of income as an incidental consideration. The
investment objective is fundamental and may not be changed without the approval
of the holders of a majority of the Fund's outstanding shares. There is, of
course, no guarantee that the Fund will achieve its investment objective. As a
"non-diversified" investment company, the Fund is not subject to the provisions
of the 1940 Act that otherwise would limit the proportion of its assets that may
be invested in obligations of a single issuer. Consequently, because the Fund
may hold a relatively high proportion of its assets in a limited number of
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portfolio companies, an investment in the Fund may, under certain circumstances,
present greater risk to an investor than an investment in a diversified
investment company. The Fund will, however, comply with the diversification
requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"). For further information on the Code's diversification requirements, see
"Dividends, Distributions and Taxes" in this Prospectus and in the Statement of
Additional Information.
In pursuing the Fund's investment objective, the Adviser seeks companies
that it believes are undervalued and that by virtue of anticipated developments
or catalysts particularly applicable to such companies may, in the Adviser's
judgment, achieve significant capital appreciation. In identifying such
companies, the Adviser seeks to invest in companies that, in the public market,
are selling at a significant discount to their private market value, the value
the Adviser believes informed industrialists would be willing to pay to acquire
companies with similar characteristics. If investor attention is focused on the
underlying asset values of these companies through an emerging or anticipated
development or other catalyst, an investment opportunity to realize this private
market value may exist. Undervaluation of a company can result from a variety of
factors, such as a lack of investor recognition of (1) the underlying value of a
company's fixed assets, (2) the value of a consumer or commercial franchise, (3)
changes in the economic or financial environment particularly affecting a
company, (4) new, improved or unique products or services, (5) new or rapidly
expanding markets, (6) technological developments or advancements affecting a
company or its products, or (7) changes in governmental regulations, political
climate or competitive conditions. The actual developments or catalysts
particularly applicable to a given company that may, in the Adviser's judgment,
lead to significant appreciation of that company's securities include: a change
in management or management policies; the acquisition of a significant equity
position by an investor or group of investors acting in concert; a merger,
reorganization, sale of a division, or a third-party or issuer tender offer; the
spin-off to shareholders of a subsidiary, division or other substantial assets;
or a recapitalization, an internal reorganization or the retirement or death of
a senior officer or substantial shareholder. In addition to the foregoing
factors, developments and catalysts, the Adviser, in selecting investments, also
considers the market price of the issuer's securities, its balance sheet
characteristics and the perceived strength of its management.
The Fund seeks to achieve its objective by investing primarily in a
portfolio of common stocks, preferred stocks and other securities convertible
into, or exchangeable for, common stocks. When the Adviser believes that a
defensive investment posture is warranted or when opportunities for capital
appreciation do not appear attractive, the Fund may temporarily invest all or a
portion of its assets in short-term money market instruments, such as
obligations of the U.S. Government and its agencies and instrumentalities,
high-quality commercial paper and bank certificates of deposit and time
deposits, repurchase agreements with respect to such instruments, and money
market mutual funds not affiliated with the Fund, Lehman Brothers Inc. ("Lehman
Brothers") or Gabelli & Company.
Further information about the Fund's investment policies, including a list
of those restrictions on the Fund's investment activities that cannot be changed
without shareholder approval, appears in the Statement of Additional
Information.
OTHER INVESTMENTS
CORPORATE REORGANIZATIONS
The Fund, consistent with its investment objective and policies of seeking
long-term capital appreciation from securities of companies that, in the public
market, are selling at a significant discount to their private market value, may
invest up to 50% of its total assets in securities for which a tender or
exchange offer has been made or announced and in securities of companies for
which a merger, consolidation, liquidation or similar reorganization proposal
has been announced ("reorganization securities"). Frequently, the holders of
securities of companies involved in such transactions will receive new
securities ("substituted securities") in
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exchange therefore. No more than 30% of the Fund's total assets, however, may be
invested in reorganization securities where the Adviser anticipates selling the
reorganization securities or the substituted securities within six months or
less of the initial purchase of the reorganization securities, except that this
limitation will not apply to reorganization securities that have been purchased
to supplement a position in such securities held by the Fund for more than six
months. The principal risk of this type of investing is that the anticipated
offers or proposals may not be consummated within the time and under the terms
contemplated at the time of the investment, in which case, unless replaced by an
equivalent or increased offer or proposal that is consummated, the Fund may
sustain a loss on its investments.
CONVERTIBLE AND NONCONVERTIBLE CORPORATE OBLIGATIONS
Corporate obligations include securities such as bonds, debentures, notes
or other similar securities issued by corporations. These obligations can be
further subdivided into convertible and nonconvertible securities. Unlike a
nonconvertible corporate obligation, a convertible corporate may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or different issuer within a particular period of time at a
specified price or formula.
The Fund believes that investing in convertible and nonconvertible
corporate obligations is consistent with the Fund's investment objective of
seeking securities of companies that, in the public market, can provide
significant long-term capital appreciation. Due to a variety of factors, it is
possible that the potential for capital gain on a convertible security may be
less than that of the underlying common stock. Convertible securities, however,
are senior to common stock in an issuer's capital structure and are consequently
of higher quality and entail less risk than the issuer's common stock, although
the extent to which the risk is reduced depends in large measure upon a variety
of factors, including the creditworthiness of the issuer and its overall capital
structure.
The Fund may purchase convertible securities or nonconvertible debt
securities without limitation, except that no more than 35% of the Fund's total
assets may be invested in convertible securities or nonconvertible debt
securities having a rating lower than a Standard & Poor's Ratings Service, a
division of McGraw-Hill Companies, Inc. ("S&P") rating of "CCC", a Moody's
Investors Service, Inc. ("Moody's") rating of "Caa" or, if unrated, judged by
the Adviser to be of comparable quality. However, as a matter of current
operating policy, the Adviser and Fund have agreed that the Fund will not invest
more than 35% of the Fund's total assets in debt securities rated less than
S&P's BBB or the equivalent by other major rating agencies or, if unrated,
judged by the Adviser to be of comparable quality. These debt securities are
predominantly speculative and involve major risk exposure to adverse conditions,
and are often referred to in the financial press as "junk bonds."
The ratings of Moody's and S&P generally represent the opinions of those
organizations as to the quality of the securities that they rate. Such ratings,
however, are relative and subjective, are not absolute standards of quality and
do not evaluate the market risk of the securities. Although the Adviser uses
these ratings as a criterion for the selection of securities for the Fund, the
Adviser also relies on its independent analysis to evaluate potential
investments for the Fund. See Appendix A -- "Description of Corporate Bond
Ratings" in the Statement of Additional Information.
Within the Fund's limitation on the purchase of lower-rated and unrated
securities, the Fund may invest up to 5% of its total assets in securities of
issuers in default.
WARRANTS AND RIGHTS
The Fund may invest up to 5% of its net assets in warrants or rights (other
than those acquired in units or attached to other securities) that entitle the
holder to buy equity securities at a specific price for a specific period of
time but will do so only if the equity securities are deemed appropriate by the
Adviser for inclusion in
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the Fund's portfolio. It is the current intention of the Fund not to invest more
than 2% of its net assets in warrants or rights that are not listed on the New
York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX"), although
the Board of Directors in the future may permit up to 5% of the Fund's net
assets to be invested in such unlisted warrants and rights.
FOREIGN SECURITIES
The Fund may invest up to 25% of its total assets in foreign securities.
Investing in securities of foreign companies and foreign governments, which
generally are denominated in foreign currencies, may involve certain risk and
opportunity considerations not typically associated with investing in domestic
companies and could cause the Fund to be affected favorably or unfavorably by
changes in currency exchange rates and revaluations of currencies. In addition,
less information may be available about foreign companies than about domestic
companies, and foreign companies and foreign governments generally are not
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic companies. Foreign securities and their markets may not be as liquid as
United States securities and their markets. Securities of some foreign companies
may involve greater market risk than securities of United States companies.
Investment in foreign securities may result in higher expenses than investment
in domestic securities because of the payment of fixed brokerage commissions on
foreign exchanges, which generally are higher than commissions on United States
exchanges, and the imposition of transfer taxes or transaction charges
associated with foreign exchanges. Investment in foreign securities also may be
subject to local economic or political risks, including instability of some
foreign governments, the possibility of currency blockage or the position of
withholding taxes on dividend or interest payments, and the potential for
expropriation, nationalization or confiscatory taxation and limitations on the
use or removal of funds or other assets.
Among the foreign securities in which the Fund may invest are those issued
by companies located in developing countries, which are countries in the initial
stages of their industrialization cycles. Investing in the equity and debt
markets of developing countries involves exposure to economic structures that
are generally less diverse and less mature, and to political systems that can be
expected to have less stability, than those of developed countries. The markets
of developing countries historically have been more volatile than the markets of
the more mature economies of developed countries, but often have provided higher
rates of return to investors. The Fund may also invest in debt securities of
foreign governments.
The Fund may purchase American Depository Receipts ("ADRs") or U.S.
dollar-denominated securities of foreign issuers that are not included in the
25% foreign securities limitation. ADRs are receipts issued by U.S. banks or
trust companies with respect to securities of foreign issuers held on deposit
for use in the U.S. securities markets. While ADRs may not necessarily be
denominated in the same currency as the securities into which they may be
converted, many of the risks associated with foreign securities may also apply
to ADRs. See "Other Investments -- Investments in Foreign Securities" in the
Statement of Additional Information.
SHORT-TERM INVESTMENTS
As noted above, in certain circumstances the Fund may invest in short-term
money market instruments such as obligations of the U.S. Government and its
agencies and instrumentalities, high quality commercial paper (rated "A-1" or
better by S&P or "P-1" or better by Moody's) and bank certificates of deposit
and time deposits, and may engage in repurchase agreement transactions with
respect to those instruments.
OTHER INVESTMENT COMPANIES
The Fund reserves the right to invest up to 10% of its total assets in the
securities of money market mutual funds, which are open-end investment
companies, and closed-end investment companies, including
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<PAGE>
small business investment companies, none of which are affiliated with the Fund,
Lehman Brothers or Gabelli & Company. Not more than 5% of the Fund's total
assets may be invested in the securities of any one investment company and the
Fund may not own more than 3% of the securities of any investment company.
INVESTMENTS IN SMALL, UNSEASONED COMPANIES AND OTHER ILLIQUID SECURITIES
The Fund may invest up to 5% of its net assets in small, less well-known
companies which (including predecessors) have operated less than three years.
The securities of these kinds of companies may have limited liquidity.
The Fund will not, in the aggregate, invest more than 10% of its net assets
in small, unseasoned companies, securities that are restricted for public sale,
securities for which market quotations are not readily available, repurchase
agreements maturing or terminable in more than seven days and all other illiquid
securities. Securities freely salable among qualified institutional investors
pursuant to Rule 144A under the Securities Act of 1933, as amended (the "1933
Act"), and as adopted by the Securities and Exchange Commission ("SEC"), may be
treated as liquid if they satisfy liquidity standards established by the Board
of Directors. The continued liquidity of such securities is not as well assured
as that of publicly traded securities, and accordingly, the Board of Directors
will monitor their liquidity.
RISK FACTORS
There are a number of issues that an investor should consider in evaluating
the Fund. The Fund may invest substantially in securities of companies that are
involved or may become involved in extraordinary transactions, including
corporate reorganizations. See "Corporate Reorganizations" above. Certain
affiliates of the Adviser in the ordinary course of their business may acquire
for their own account from time to time securities (including controlling
positions) in companies that may also be suitable investments for the Fund.
However, under certain circumstances the Fund may be precluded by Section 17(d)
of the 1940 Act and Rule 17d-1 thereunder (which regulate joint transactions
between an investment company and its affiliates) from investing in those
securities absent exemptive relief from the SEC. However, while the securities
in which the Fund may invest might therefore be limited to some extent, the
Adviser does not believe that the investment activities of its affiliates will
have a material adverse effect upon the Fund in seeking to achieve its
investment objective. Many companies in the past several years have adopted
so-called "poison pill" and other defensive measures that may have the effect of
limiting the amount of securities in any one issuer that may be acquired by the
Adviser and its affiliates for the account of the Fund and other investment
management clients, discouraging or hindering non-negotiated offers for a
company or possibly preventing the competition of any such offer. Moreover, the
Fund may invest in lower rated securities, including securities of issuers that
are in default. These securities carry a higher risk of to pay principal and
interest when due and the market to sell such securities may be limited. See
"Special Investment Methods -- Convertible and Nonconvertible Corporate
Obligations" in the Statement of Additional Information. The Fund is a
non-diversified investment company, and, as such, may invest a substantial
portion of its assets in a limited number of portfolio companies. See "The Fund
and its Investment Policies." The Adviser relies to a considerable extent on the
expertise of Mr. Mario J. Gabelli and there is no assurance that a suitable
replacement could be found for him in the event of his death, disability or
resignation. See "Management of the Fund." See "Redemption of Shares."
For further information on the investment policies of the Fund, see
"Investment Policies" and "Other Investments" in the Statement of Additional
Information.
8
<PAGE>
SPECIAL INVESTMENT METHODS
BORROWING
The Fund may not borrow money except for (1) short-term credits from banks
as may be necessary for the clearance of portfolio transactions, and (2)
borrowings from banks for temporary or emergency purposes, including the meeting
of redemption requests, that would otherwise require the untimely disposition of
the Fund's portfolio securities. Borrowing for any purpose, including
redemptions, may not, in the aggregate, exceed 15% of the value of the Fund's
total assets, and borrowing for purpose other than meeting redemptions may not
exceed 5% of the value of the Fund's total assets at the time borrowing is made.
The Fund will not borrow (leverage) to make additional investments when any
borrowing remains unpaid. The Fund will not mortgage, pledge or hypothecate any
of its assets except that, in connection with the borrowings described above,
not more than 20% of the total assets of the Fund may be used as collateral.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with primary government
securities dealers recognized by the Federal Reserve Bank of New York and member
banks of the Federal Reserve System that furnish collateral at least equal in
value or market price to the amount of their repurchase obligation. In a
repurchase agreement, the Fund purchases a debt security from a seller who
undertakes to repurchase the security at a specified resale price on an agreed
future date. Repurchase agreements are generally for one business day and
generally will not have a duration of longer than one week. The SEC has taken
the position that, in economic reality, a repurchase agreement is a loan by the
Fund to the other party to the transaction secured by securities transferred to
the Fund. The resale price generally exceeds the purchase price by an amount
which reflects an agreed upon market interest rate for the term of the
repurchase agreement. The primary risk is that, if the seller defaults, the Fund
might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by the Fund are less than the
repurchase price. The Adviser will monitor the creditworthiness of the other
parties to the repurchase agreements.
The Fund may not enter into repurchase agreements which would cause more
than 5% of the value of its total assets to be so invested. This percentage
limitation does not apply to repurchase agreements involving U.S. Government
obligations, or obligations of its agencies or instrumentalities, for a period
of a week or less. The term of each of the Fund's repurchase agreements will
always be less than one year and the Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together with all
other illiquid securities in the Fund's portfolio, more than 10% of its net
assets would be so invested.
SHORT SALES AGAINST THE BOX
The Fund may from time to time make short sales of securities it owns or
has the right to acquire through conversion or exchange of other securities it
owns. A short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain, at no added cost, securities
identical to those sold short. In a short sale, the Fund does not immediately
deliver the securities sold or receive the proceeds from the sale. The Fund may
not make short sales or maintain a short position if it would cause more than
25% of the Fund's total assets, taken at market value, to be held as collateral
for the sales.
The Fund may make a short sale in order to hedge against market risks when
it believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund or security convertible into, or
exchangeable for, the security, or when the Fund does not want to sell the
security it owns, because, among other reasons, it wishes to defer recognition
of gain or loss for U.S. federal income tax purposes.
9
<PAGE>
WHEN ISSUED, DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
The Fund may enter into forward commitments for the purchase of securities.
Such transactions may include purchases on a "when issued" or "delayed delivery"
basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization of debt restructuring, i.e., a when, as and if issued
security. When such transactions are negotiated, the price is fixed at the time
of the commitment, with payment and delivery taking place in the future,
generally a month or more after the date of the commitment. While the Fund will
only enter into a forward commitment with the intention of actually acquiring
the security, the Fund may sell the security before the settlement date if it is
deemed advisable. Securities purchased under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the Fund prior to the
settlement date.
LENDING OF PORTFOLIO SECURITIES
The Fund may lend securities from its portfolio to brokers, dealers and
other financial organizations. This practice is expected to help the Fund
generate revenue to defray certain operating expenses. Loans by the Fund, if and
when made, (1) will be collateralized in accordance with applicable regulatory
requirements and (2) will be limited so that the value of all loaned securities
does not exceed 33% of the value of the Fund's total assets. The current
intention of the Fund, however, is to limit the value of all loaned securities
to no more than 5% of the Fund's total assets. Under extreme circumstances,
there may be a restriction on the Fund's ability to sell the collateral and the
Fund could suffer a loss. See "Special Investment Methods -- Lending of
Portfolio Securities" in the Statement of Additional Information.
DERIVATIVE INSTRUMENTS
OPTIONS. The Fund may purchase or sell (that is, write) listed options on
securities as a means of achieving additional return or of hedging the value of
the Fund's portfolio. The Fund may write covered call options on common stocks
that it owns or has an immediate right to acquire through conversion or exchange
of other securities in an amount not to exceed 25% of total assets; or invest up
to 10% of its total assets in the purchase of put options on common stocks that
the Fund owns or may acquire through the conversion or exchange of other
securities that it owns. The Fund may only buy options that are listed on a
national securities exchange.
A call option is a contract that gives the holder of the option the right
to buy from the writer (seller) of the call option, in return for a premium
paid, the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option has the
obligation upon exercise of the option to deliver the underlying security upon
payment of the exercise price during the option period.
A put option is a contract that, in return for the premium, gives the
holder of the option the right to sell to the writer (seller) the underlying
security at a special price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying security
upon exercise, at the exercise price during the option period.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. There can be no
assurance that a closing purchase transaction can be effected when the Fund so
desires.
An option may be closed out only on an exchange that provides a secondary
market for an option of the same series. Although the Fund will generally
purchase or write only those options for which there appears to be an active
secondary market, there is not assurance that a liquid secondary market on an
exchange will exist for any particular option. The Fund will not purchase
options if, as a result, the aggregate cost of all outstanding options exceeds
10% of the Fund's total assets. See "Options" in the Statement of Additional
Information.
10
<PAGE>
The Fund may write put and call options on stock indexes for the purposes
of increasing its gross income and protecting its portfolio against declines in
the value of the securities it owns or increases in the value of securities to
be acquired. In addition, the Fund may purchase put and call options on stock
indexes in order to hedge its investments against a decline in value or to
attempt to reduce the risk of missing a market or industry segment advance.
Options or stock indexes are similar to options on specific securities. However,
because options on stock indexes do not involve the delivery of an underlying
security, the option represents the holder's right to obtain from the writer
cash in an amount equal to a fixed multiple of the amount by which the exercise
price exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying stock index on the exercise date. Therefore,
while one purpose of writing such options is to generate additional income for
the Fund, the Fund recognizes that it may be required to deliver an amount of
cash in excess of the market value of a stock index at such time as an option
written by the Fund is exercised by the holder. The writing and purchasing of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The successful use of protective puts for hedging purposes depends
in part on the Adviser's ability to predict future price fluctuations and the
degree of correlation between the options and securities markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. Depending upon market conditions
prevailing at such time and its perceived investment needs, the Fund may enter
into futures contracts and options on futures contracts that are traded on a
U.S. exchange or board of trade. These investments, if any, may be made by the
Fund solely for the purpose of hedging against changes in the value of its
portfolio securities and the aggregate initial margins and premiums thereon
would not constitute more than 5% of the Fund's total assets.
Futures and options on futures entail certain risks, including but not
limited to the following: no assurance that futures contracts or options on
futures can be offset at favorable prices, possible reduction of the Fund's
yield due to the use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due to
daily limits on price fluctuations, imperfect correlation between the contracts
and the securities being hedged, and potential losses in excess of the amount
invested in the futures contracts themselves.
For further information on the investment policies of the Fund, see
"Investment Policies" and "Special Investment Methods" in the Statement of
Additional Information.
MANAGEMENT OF THE FUND
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors.
INVESTMENT ADVISER -- GABELLI FUNDS, INC.
Gabelli Funds, Inc. was organized in 1980 and serves as investment adviser
to the Fund. Gabelli Funds, Inc. also serves as the investment adviser to The
Gabelli ABC Fund, The Gabelli Small Cap Growth Fund, The Gabelli Equity Income
Fund, The Gabelli Growth Fund, The Gabelli Asset Fund, The Gabelli Global
Telecommunications Fund, The Gabelli Global Interactive Couch Potato(R) Fund,
The Gabelli Global Convertible Securities Fund, The Gabelli U.S. Treasury Money
Market Fund, Gabelli Gold Fund, Inc., Gabelli Capital Asset Fund and Gabelli
International Growth Fund, Inc. which are open-end investment companies and The
Gabelli Equity Trust Inc., The Gabelli Convertible Securities Fund, Inc. and The
Gabelli Global Multimedia Trust Inc., which are closed-end investment companies.
Such funds had aggregate assets as of April 1, 1996, in excess of $4.3 billion.
GAMCO Investors, Inc. ("GAMCO"), an investment adviser for individuals, pension
trusts, profit-sharing trusts and endowments, is a subsidiary of the Adviser
with aggregate assets in excess of $5.4 billion under its management as of April
1, 1996. Teton Advisers LLC, a subsidiary of the Adviser, manages the Westwood
Funds, which had aggregate assets of approximately $50 million as
11
<PAGE>
of April 1, 1996. The current business address of the Adviser is One Corporate
Center, Rye, New York, 10580-1434.
The Adviser and its affiliates act as investment advisers to other clients
that may invest in the same securities. As a result, clients of the Adviser and
its affiliates hold substantial positions in the same issuers of securities. If
a substantial position in an issuer is held, liquidity and concentration
considerations may limit the ability of the Adviser to add to the position on
behalf of the Fund or other clients or to readily dispose of the position.
Although the availability at acceptable prices of such securities may from time
to time be limited, it is the policy of the Adviser and its affiliates to
allocate purchases and sales of such securities in a manner believed by the
Adviser to be equitable to all clients, including the Fund. The Adviser may on
occasion give advice or take action with respect to other clients that differs
from the actions taken with respect to the Fund. The Fund may invest in the
securities of companies which are investment management clients of GAMCO, a
subsidiary of the Adviser. In addition, portfolio companies or their officers or
directors may be minority shareholders of the Adviser or its affiliates.
The Adviser manages the portfolio of the Fund in accordance with the Fund's
stated investment objectives and policies, makes investment decisions for the
Fund, places orders to purchase and sell securities on behalf of the Fund, and
oversees the administration of all aspects of the Fund's business and affairs,
all subject to the supervision and direction of the Directors.
As compensation for its services and the related expenses borne by the
Adviser, the Adviser is paid a fee, computed and payable monthly, equal, on an
annual basis, to 1.00% of the value of the Fund's average daily net assets,
which is higher than that paid by most mutual funds. By its agreement with the
Fund (the "Advisory Contract"), the Adviser has undertaken certain expense
reimbursement obligations that are described in the Statement of Additional
Information under "The Adviser." The Statement of Additional Information
contains further information about the Advisory Contract, including a more
complete description of the advisory, administration and expenses arrangements
contained therein.
Mr. Mario J. Gabelli, Chairman of the Board, Chief Executive Officer and
Chief Investment Officer of the Adviser and Chairman of the Board, President and
Chief Investment Officer of the Fund, is responsible for managing the day-to-day
investment operations of the Fund, including the making of investment decisions.
Mr. Gabelli also acts as Chairman of the Board and Chief Executive Officer of
GAMCO and is an officer or director of various other companies owned or
controlled by the Adviser. Accounts under the management of the Adviser and
GAMCO will tend, subject to differences in investment objectives and authorized
investment practices, to hold many of the same securities because many of the
accounts are under the overall direction of Mr. Gabelli. In addition to his
positions with the Adviser and its subsidiaries, Mr. Gabelli serves as an
officer and/or director of various other companies. Owing to the diverse nature
of Mr. Gabelli's responsibilities with respect to the Adviser, its subsidiaries
and other companies with which he is affiliated, he will devote less than
substantially all of his time to the Fund, although this is not expected to
affect adversely the operations or management of the Fund. There is no contract
of employment between Mr. Gabelli and the Adviser or any of its subsidiaries and
there can be no assurance that a suitable replacement could be found for him in
the event of his death, disability or resignation.
The management discussion and analysis of the Fund's performance during the
fiscal year ended December 31, 1995 is included in the Fund's Annual Report to
Shareholders dated December 31, 1995. The Fund's Annual Report may be obtained
upon request and without charge by writing or calling the Fund at the address or
telephone number listed on page one of this Prospectus.
SUB-ADMINISTRATOR -- FIRST DATA INVESTOR SERVICES GROUP, INC.
First Data Investor Services Group, Inc. (the "Sub-Administrator"), a
subsidiary of First Data Corporation, located at Exchange Place, Boston,
Massachusetts 02109, serves as the Fund's Sub-Administrator.
12
<PAGE>
Pursuant to a sub-administration agreement with the Adviser, the
Sub-Administrator calculates the net asset value of the Fund's shares and
generally assists in all aspects of the Fund's administration and operation. The
Adviser pays the Sub-Administrator an annual fee, based on the value of the
aggregate average daily net assets of all funds under its administration managed
by the Adviser as follows: up to $1 billion - 0.10%; $1 billion to $1.5
billion - 0.08%; $1.5 billion to $3 billion - 0.03%; over $3 billion - 0.02%.
PORTFOLIO TRANSACTIONS
The Advisory Contract contains provisions relating to the selection of
securities brokers to effect the portfolio transactions of the Fund. Under those
provisions, the Adviser may (1) direct Fund portfolio brokerage to Gabelli &
Company, a broker-dealer affiliate of the Adviser; (2) pay commissions to
brokers other than Gabelli & Company which are higher than might be charged by
another qualified broker to obtain brokerage and/or research services considered
by the Adviser to be useful or desirable for its investment management of the
Fund and/or other advisory accounts under the management of the Adviser and any
investment adviser affiliated with it; and (3) consider the sales of shares of
the Fund by brokers other than Gabelli & Company as a factor in its selection of
brokers for Fund portfolio transactions. For further information on the Fund's
portfolio and brokerage practices, see "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
PORTFOLIO TURNOVER
It is anticipated that most Fund investments will be long term in nature
and that annual turnover of the Fund's portfolio should not exceed 100%. A
portfolio turnover rate of 100% would occur if all the stocks in the portfolio
were replaced once in a one-year period. As the Fund's portfolio turnover
increases, so will its other transaction related expenses.
PURCHASE OF SHARES
Purchase of Fund shares may be made through brokerage accounts maintained
through Gabelli & Company or through any other firm with whom the Fund enters
into an arrangement for the distribution of its shares on substantially
identical terms as those agreed upon with Gabelli & Company. Purchases may also
be made through any registered broker-dealer with whom Gabelli & Company enters
into a selling agreement ("Soliciting Broker-Dealers"). Payment for the shares
must be made directly to the firm through which the order was placed or to the
Fund's transfer agent. Gabelli & Company may enter into selling or selected
broker-dealer agreements with Soliciting Broker-Dealers pursuant to which
Gabelli & Company may reallow a portion of the sales charge to Soliciting
Broker-Dealers in accordance with the schedule set forth below. The reallowance
to Soliciting Broker-Dealers may be changed at any time by Gabelli & Company.
PURCHASES BY MAIL
Direct purchases for new accounts may be made by completing an application
obtained from Gabelli & Company or a Soliciting Broker-Dealer and mailing the
application to BFDS, with a check for the amount of the investment. The mailing
address of the Fund is The Gabelli Funds, P.O. Box 8308, Boston, Massachusetts,
02266-8308. Subsequent purchases do not require a completed application and can
be made by mailing a check, as indicated above, or by bank wire or personal
delivery.
PURCHASE PRICE
The minimum investment is $1,000 for initial purchases. There is no minimum
requirement for subsequent purchases, although some brokerage firms may impose
their own minimum requirements. Investments through an IRA or other retirement
plans, however, have lower minimum requirements. See
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<PAGE>
"Retirement Plans." No maintenance fee will be charged in connection with any
Gabelli & Company brokerage account through which an investor purchases or holds
shares. The Fund will not issue certificates evidencing Fund shares unless
specifically requested by an investor who is a shareholder of record. For those
shareholders who hold certificates, additional steps must be taken by them,
which need not be taken by shareholders who do not hold certificates, before
they can redeem their shares. See "Redemption of Shares." Shares will be sold at
their net asset value net determined after a purchase order is received as
discussed below, plus the applicable sales charge also described below. The
public offering price is subject to a sales charge, which is imposed in
accordance with the following schedule:
<TABLE>
<CAPTION>
SALES
CHARGE REALLOWANCE
AS % OF SALES CHARGE TO
THE AS % OF SOLICITING
OFFERING AMOUNT BROKER-
AMOUNT OF INVESTMENT PRICE INVESTED DEALERS
- ------------------------------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Less than $100,000....................................................... 5.50% 5.82% 4.50%
$100,000 but under $250,000.............................................. 4.50% 4.71% 3.75%
$250,000 but under $500,000.............................................. 3.50% 3.63% 3.00%
$500,000 but under $1 million............................................ 2.75% 2.83% 2.50%
$1 million or more....................................................... 2.00% 2.04% 1.75%
</TABLE>
Purchase orders for shares received prior to the close of regular trading
on the NYSE, which is currently 4:00 p.m., New York time, on any day that the
Fund calculates its net asset value, are priced according to the net asset value
determined on that day. Purchase orders received after the close of trading on
the NYSE are priced as of the time the net asset value is next determined. If
shares are purchased through a Soliciting Broker-Dealer, the Soliciting
Broker-Dealer must receive the order before the close of the NYSE and transmit
it to Gabelli & Company by 5:00 p.m., New York time, to receive that day's
public offering price. See "Valuation of Shares." Payment for shares purchased
through a brokerage firm is generally due on the third business day after
purchases are effected (each such day being a "Settlement Date") at the
appropriate net asset value plus the applicable sales charge. The Fund and
Gabelli & Company reserve the right in their sole discretion (1) to suspend the
offering of the Fund's shares and (2) to reject purchase orders when, in the
judgment of the Fund's management, such rejection is in the best interest of the
Fund.
REDUCED SALES CHARGES
Reduced sales charges are available to investors who are eligible to
combine their purchases of Fund shares to receive volume discounts. Investors
eligible to receive volume discounts are individuals and their immediate
families, tax-qualified employee benefit plans and a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary account even
though more than one beneficiary is involved. Investors interested in an
explanation of volume discounts should contact their brokerage firm or Gabelli &
Company. Reduced sales charges are also available under a combined right of
accumulation, under which an investor may combine the value of shares already
held in the Fund along with the value of the Fund shares being purchased, to
qualify for a reduced sales charge. For example, if an investor owns shares of
the Fund that have an aggregate value of $100,000, and makes an additional
investment in the Fund of $4,000, the sales charge applicable to the additional
investment would be 4.50%, rather than the 5.50% normally charged on a $4,000
purchase.
By initially investing at least $1,000 in the Fund and submitting a Letter
of Intent to Gabelli & Company, a "single purchaser" may make purchases of
shares of the Fund during a 13-month period at the reduced sales charge rates
applicable to the aggregate amount of the intended purchases stated in the
Letter. The Letter may apply to purchases made up to 90 days before the date of
the Letter.
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<PAGE>
Shares of the Fund may be offered without a sales charge to (1) employees
of Gabelli & Company, Boston Safe Deposit and Trust Company ("Boston Safe"),
State Street, BFDS and the Sub-Administrator and Soliciting Broker-Dealers,
employee benefit plans for those employees and the spouses and minor children of
such employees when orders on their behalf are placed by such employees (the
minimum initial investment for such purchases is $500); (2) the Adviser, GAMCO,
officers, directors, trustees, general partners, directors and employees of
other investment companies managed by the Adviser, employees of the Adviser and
its affiliates including members of the employees' immediate family, employee
benefit plans for such persons and their spouses and minor children when orders
on their behalf are placed by such persons (with no required minimum initial
investment), the term "immediate family" for this purpose refers to a person's
spouse, children and grandchildren adopted or natural, parents, grandparents,
siblings, a spouse's siblings, a sibling's spouse and a sibling's children; (3)
any other investment company in connection with the combination of such company
with the Fund by merger, acquisition of assets or otherwise; (4) shareholders
who have redeemed shares in the Fund and who wish to reinvest their redemption
proceeds in the Fund, provided the reinvestment is made within 30 days of the
redemption; (5) tax-exempt organizations enumerated in Section 501(c)(3) of the
Code and private, charitable foundations that in each case make lump-sum
purchases of $100,000 or more; (6) qualified employee benefit plans established
pursuant to Section 457 of the Code that have established omnibus accounts with
the Fund (7) qualified employee benefit plans having more than one hundred
eligible employees and a minimum of $1 million in plan assets invested in the
Fund (plan sponsors are encouraged to notify the Fund's distributor when they
first satisfy these requirements); (8) any unit investment trusts registered
under the 1940 Act which have shares of the Fund as a principal investment; (9)
investment advisory clients of GAMCO participating in its asset allocation
program; or (10) employee participants of organizations adopting the 401(k) Plan
sponsored by the Adviser; (11) financial institutions purchasing shares of the
Fund for clients participating in a fee based asset allocation program or wrap
fee program which has been approved by Gabelli & Company; and (12) registered
investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management consulting
or other fee for their services; and clients of such investment advisers or
financial planners who place trades for their own accounts if the accounts are
linked to the master account of such investment adviser or financial planner on
the books and records of a broker or agent. Investors who qualify under the
categories described above should contact their brokerage firm or Gabelli &
Company.
When payment is made to a brokerage firm by an investor before a Settlement
Date, unless otherwise directed by an investor, the monies may be held as a free
credit balance in the investor's brokerage account and the brokerage firm may
benefit from the temporary use of these monies. The investor may designate
another use for the monies prior to the Settlement Date, such as investment in a
money market fund. If the investor instructs a brokerage firm to invest the
monies in a money market fund, the amount of the investment will be included as
part of the average daily net assets of both the Fund and the money market fund,
and any affiliates of Gabelli & Company which serve the funds in an investment
advisory, administrative or other capacity will benefit from the fact that they
are receiving fees from both investment companies computed on the basis of their
average daily net assets. The Board of Directors of the Fund is advised of the
benefits to Gabelli & Company resulting from three-day settlement procedures and
will take such benefits into consideration when reviewing the distribution
agreement for continuance.
Gabelli & Company imposes no restrictions on the transfer of shares held by
it for clients in "street name" in either certificate or uncertificated form.
Gabelli & Company is an indirect majority-owned subsidiary of the Adviser. The
Fund has agreed to indemnify Gabelli & Company against certain liabilities,
including liabilities arising under the 1933 Act.
DISTRIBUTION PLAN
Pursuant to a Distribution Plan (the "Plan") adopted by the Fund pursuant
to Rule 12b-1 under the 1940 Act, the Fund will make monthly payments to
registered broker-dealers, including Gabelli & Company, who
15
<PAGE>
entered into an agreement with the Fund (each, a "Designated Dealer") calculated
at the annual rate of 0.25% of the value of the average daily net assets of the
Fund attributable to outstanding shares of the Fund sold by the Designated
Dealer (including additional shares acquired by reinvestment of dividends).
Gabelli & Company may in turn enter into selling agreements with Soliciting
Broker-Dealers whereby all or a portion of the monthly payments paid to Gabelli
& Company pursuant to the Plan will be paid by Gabelli & Company to a Soliciting
Broker-Dealer for activities intended to result in the distribution of Fund
shares as described below.
Payments under the Plan are not tied exclusively to the distribution
expenses actually incurred by Designated Dealers and such payments may exceed
their distribution expenses. Expenses incurred in connection with the offering
and sale of shares may include, but are not limited to, payments to the
Designated Dealer's (or its affiliates') sales personnel for selling shares of
the Fund; costs of printing, distributing the Fund's Prospectus, Statement of
Additional Information and sales literature; an allocation of overhead and other
Designated Dealer branch office distribution-related expenses; payments to and
expenses of persons who provide support services in connection with the
distribution of shares of the Fund; and financing costs on the amount of the
foregoing expenses.
The Board of Directors will evaluate the appropriateness of the Plan and
its payment terms on a continuing basis and in doing so will consider all
relevant factors, including expenses borne by Designated Dealers in the current
year and in prior years and amounts received under the Plan.
AUTOMATIC INVESTMENT PLAN
The Fund offers an automatic monthly investment plan, details of which can
be obtained from Gabelli & Company. There is no minimum initial investment for
accounts establishing an automatic investment plan.
REDEMPTION OF SHARES
Shareholders may redeem their shares on any date the Fund calculates its
net asset value. See "Valuation of Shares." Redemption requests received by a
brokerage firm or the Fund's transfer agent, in proper form, prior to the close
of regular trading on the NYSE will be effected at the net asset value per share
determined on that day. Redemption requests received after the close of trading
on the NYSE will be effected at the net asset value per share as next
determined. The Fund normally transmits redemption proceeds with respect to
redemption requests made through a brokerage firm for credit to the
shareholder's account at no charge within seven days after receipt of a
redemption request or by check directly to the shareholder. Generally, these
funds will not be invested for the shareholder's benefit without specific
instruction, and the brokerage firm will benefit from the use of temporarily
uninvested funds. Redemption proceeds with respect to redemption requests made
through Gabelli & Company normally will be transmitted by the Fund's transfer
agent to the shareholder by check within seven days after receipt of a
redemption request or to a shareholder's brokerage account maintained by Gabelli
& Company. A Shareholder who pays for Fund shares by personal check will be
credited with the proceeds of the redemption of those shares only after the
purchases check has been cleared, which may take up to 15 days. A shareholder
who anticipates the need for more immediate access to his or her investment
should purchase shares with federal funds, bank wire or by a certified or
cashier's check. Shareholders of the Fund may exchange their shares of the Fund
for shares of certain other funds managed by the Adviser. Upon the exchange,
credit will be given for the sales load previously paid in connection with the
purchase of Fund shares. Please contact Gabelli & Company for additional
information.
A Fund account (other than an IRA) that is reduced by a shareholder to a
value of $1,000 or less is subject to redemption by the Fund, but only after the
shareholder has been given at least 30 days in which to increase the account
balance to $1,000 or more.
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<PAGE>
REDEMPTION THROUGH BROKER-DEALERS
Redemption requests may be made through a brokerage firm with which the
shareholder maintains a brokerage account. A shareholder desiring to redeem Fund
shares represented by certificates must also present the certificates to a
brokerage firm endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
the certificates are received by the Fund's transfer agent in proper form.
Redemption requests made through Gabelli & Company with respect to
uncertificated shares must be in writing addressed to the Fund's transfer agent
at the address and in accordance with the signature guarantee procedures
specified below under "Redemption by Mail" in order to be deemed in proper form
or, if a brokerage account is maintained by a shareholder with Gabelli &
Company, in writing, by telephone or in person. Redemption requests made through
brokerage firms other than Gabelli & Company need to be made in accordance with
that brokerage firm's redemption procedures.
REDEMPTION BY MAIL
Shares held directly at the transfer agent in the name of the shareholder
may be redeemed by submitting a signature guaranteed written request for
redemption to: THE GABELLI FUNDS, POST OFFICE BOX 8308, BOSTON, MASSACHUSETTS
02266-8308.
A written redemption request to the Fund's transfer agent must (1) state
the number of shares or dollar amount to be redeemed, (2) identify the
shareholder's account number and (3) be signed by each registered owner exactly
as the shares are registered. If the shares to be redeemed were issued in
certificate form the certificate must be endorsed for transfer or accompanied by
an endorsed stock power and must be submitted to the Fund's transfer agent
together with the redemption request. Any signature appearing on a redemption
request, share certificate or stock power must be guaranteed by a domestic bank,
a savings and loan institution, a domestic credit union, a member bank of the
Federal Reserve System or a member firm of a national securities exchange,
pursuant to the Fund's transfer agent's standards and procedures. The Fund's
transfer agent may require additional supporting documents for redemptions made
by corporations, executors, administrators, trustees or guardians. A redemption
request will not be deemed to be properly received until the Fund's transfer
agent receives all required documents in proper form.
REDEMPTION BY TELEPHONE
The Fund accepts telephone requests from any investor in a direct
registered account for wire redemption in excess of $1,000 (but subject to a
$25,000 limitation) to a bank predesignated either on the subscription order
form or in a subsequent written authorization with the signature guaranteed. The
Fund accepts signature guaranteed written requests for redemption by bank wire
without limitation. The proceeds are normally wired on the following business
day. Your bank must be either a member of the Federal Reserve System or have a
correspondent bank which is a member. Any change to the banking information made
at a later date must be submitted in writing with a signature guarantee. The
Fund will not impose a wire service fee. A shareholder's agent or the
predesignated bank, however, may impose its own service fee on wire transfers.
Requests for telephone redemption must be received between 9:00 a.m. and
4:00 p.m. New York time. If your telephone call is received after this time or
on a day when the NYSE is not open, a new request will be required the following
business day. Shares are redeemed at the net asset value next determined
following your request. Fund shares purchased by check or through the automatic
purchase plan will not be available or redeemed for up to fifteen (15) days
following the purchase. Shares held in certificate form must be returned to the
Transfer Agent for redemption of shares. Telephone redemption is not available
for IRAs.
The proceeds of a telephone redemption may be directed to an account in
another mutual fund advised by the Adviser, provided the account is registered
in the redeeming shareholder's name. Such purchase will be
17
<PAGE>
made at the respective net asset value plus applicable sales charge, if any,
with credit for any sales charge previously paid to Gabelli & Company.
The Fund and its transfer agent will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard the Fund and its
transfer agent require personal identification information before accepting a
telephone redemption. If the Fund or its transfer agent fails to use reasonable
procedures, the Fund might be liable for losses due to fraudulent instructions.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders whose accounts are registered directly with
the transfer agent, an automatic cash withdrawal plan, under which shareholders
who own shares of the Fund with a value of at least $10,000 may elect to receive
periodic cash payments monthly, quarterly or annually. Automatic cash
withdrawals deplete the investor's principal and are treated as redemptions
which may be taxable transactions. Investors contemplating participation in this
automatic cash withdrawal plan should consult their tax advisers. For further
information regarding the automatic cash withdrawal plan, shareholders should
contact Gabelli & Company.
VALUATION OF SHARES
The Fund's net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE, which is currently 4:00 p.m., New York time, and is
computed by dividing the value of the Fund's net assets (i.e. the value of its
securities and other assets less its liabilities, including expenses payable or
accrued but excluding capital stock and surplus) by the total number of its
shares outstanding at the time the determination is made. The Fund uses market
quotations in valuing its portfolio securities. Short-term investments that
mature in 60 days or less are valued at amortized cost whenever the Fund's Board
of Directors determines that amortized cost reflects fair value of these
investments. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information under "Net Asset Value."
RETIREMENT PLANS
The Fund has available a form of IRA for investment in Fund shares that may
be obtained from Gabelli & Company. Self-employed investors may purchase shares
of the Fund through tax-deductible contributions to existing retirement plans
for self-employed persons, known as Keogh or H.R. 10 plans. The Fund does not
currently act as sponsor to such plans. Fund shares may also be a suitable
investment for other types of qualified pension or profit-sharing plans which
are employer sponsored, including deferred compensation or salary reduction
plans known as "401(k) Plans" which give participants the right to defer
portions of their compensation for investment on a tax-deferred basis until
distributions are made from the plans. The minimum initial investments for all
such retirement plans is $250. The minimum for all subsequent investments is
$100.
Under the Code, individuals may make wholly or partly tax deductible IRA
contributions of up to $2,000 annually, depending on whether they are active
participants in an employer-sponsored retirement plan and on their income level.
However, dividends and distributions held in the account are not taxed until
withdrawn in accordance with the provisions of the Code. An individual with a
non-working spouse may establish a separate
18
<PAGE>
IRA for the spouse under the same conditions and contribute a combined maximum
$2,250 annually to either or both IRAs provided that no more than $2,000 may be
contributed to the IRA of either spouse.
Investors should be aware that they may be subject to penalties or
additional tax on contributions to or withdrawals from IRAs or other retirement
plans which are not permitted by the applicable provisions of the Code. Persons
desiring information concerning investments through IRAs or other retirement
plans should write or telephone their brokerage firm or Gabelli & Company.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and distributions will be automatically reinvested for each
shareholder's account at net asset value in additional shares of the Fund,
unless the shareholder instructs the Fund to pay all dividends and distributions
in cash and to credit the amounts to his or her brokerage account or to pay the
amounts by check. Fractional shares may be paid in cash. Cash distributions to
brokerage firm clients are created to a shareholder's brokerage account or
mailed to the investor, at the investor's election, at the same time dividend
reinvestments are made; cash distributions to clients of Gabelli & Company will
be mailed at that time. Dividends from net investment income and distributions
of net realized capital gains earned by the Fund, if any, will be paid annually.
The Fund is subject to a 4% nondeductible excise tax measured with respect to
certain undistributed amounts of ordinary income and capital gains. If necessary
to avoid the application of this tax, and if in the best interest of
shareholders, the Fund's Board of Directors will, to the extent permitted by the
SEC, declare and pay an additional distribution for the Fund's net investment
income and net realized capital gains. There are no sales or other charges in
connection with the reinvestment of dividends and capital gains distributions.
There is no fixed dividend rate, and there can be no assurance that the Fund
will pay any dividends or realize any capital gains.
The Fund has qualified and intends to continue to qualify for tax treatment
as a "Regulated Investment Company" under Subchapter M or the Code to be
relieved of federal income tax on that part of its net investment income and
realized capital gains which it pays out to its shareholders. To qualify, the
Fund must meet certain tests, including distributing at least 90% of its
investment company taxable income, as that term is defined in the Code, and
deriving less than 30% of its gross income from the sale or other disposition of
certain investments held for less than three months (the "90% requirement" and
the "30% requirement"). The loss of such status would result in the Fund being
subject to the regular federal corporate income tax on its taxable income and
gains. Legislation has been introduced in the U.S. Congress that would repeal
the 30% requirement. It is, however, impossible to predict whether this
legislation will become law and, if it is so enacted, what form it will
eventually take.
Dividends from net investment income and distributions of realized
short-term capital gains are taxable to the recipient shareholders as ordinary
income. The Fund's dividends, to the extent derived from dividends attributable
to certain types of stock, will qualify for the dividends received deduction for
corporations. Dividends and distributions declared by the Fund may also be
subject to state and local taxes. Distributions out of long-term capital gains,
of which shareholders will be notified, are taxable to the recipient as
long-term capital gains. Prior to investing in shares of the Fund, prospective
shareholders may wish to consult their tax advisers concerning the federal,
state, local and foreign tax consequences of such an investment. For further
information, see "Dividends, Distributions and Taxes" in the Statement of
Additional Information.
CALCULATION OF INVESTMENT PERFORMANCE
TOTAL RETURN
From time to time, the Fund may advertise its "average annual total return"
over various periods of time. Total return figures show the average percentage
change in value of an investment in the Fund from the
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<PAGE>
beginning date of the measuring period to the end of the measuring period. These
figures reflect changes in the price of the Fund's shares and assume that any
income dividends and/or capital gains distributions made by the Fund during the
period were reinvested in shares of the Fund. Figures will be given for the
recent one-, five- and ten-year periods, or for the life of the Fund to the
extent it has not been in existence for any such periods, and may be given for
other periods as well, such as on a year-by-year basis. When considering
"average" total return figures for periods longer than one year, its is
important to note that the Fund's annual total return for any one year in the
period might have been greater or less than the average for the entire period.
The Fund may also use "aggregate" total return figures for various periods,
representing the cumulative change in value of an investment in the Fund for the
specific period (again reflecting changes in Fund share prices and assuming
reinvestment of dividends and distributions). Aggregate total return may be
calculated either with or without the effect of the maximum 5.5% sales load and
may be shown by means of schedules, charts, or graphs, and may indicate
subtotals of the various components of total return (that is, change in value of
initial investment, income dividends, and capital gains distributions).
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings prepared by Lipper Analytical Services, Incorporated
or similar independent services that monitor the performance of mutual funds or
other industry or financial publications. It is important to note that the total
return figures are based on historical earnings and are not intended to indicate
future performance. The Statement of Additional Information, under "Calculation
of Investment Performance," further describes the method used to determine the
Fund's performance. Shareholders may make inquiries regarding the Fund's total
return figures to Gabelli & Company.
GENERAL INFORMATION
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
As a Maryland corporation, the Fund is not required, and does not intend,
to hold regular annual shareholder meetings. It will hold an annual meeting if
Directors are required to be elected under the 1940 Act and may hold special
meetings for the consideration of proposals requiring shareholder approval such
as changing fundamental policies. A meeting will be called to consider replacing
the Fund's Directors upon the written request of the holders of 10% of the
Fund's shares. When matters are submitted for shareholder vote, each shareholder
will have one vote for each full share owned and proportionate, fractional votes
for fractional shares held. Shares of the Fund have equal rights with respect to
voting, dividends and distributions upon liquidation. The Board of Directors has
authority, without a vote of shareholders, to increase the number of shares the
Fund is authorized to issue and to authorize and issue additional classes of
stock by reclassifying unissued shares. There are no conversion of preemptive
rights in connection with any shares of the Fund. All shares, when issued in
accordance with the term of the offering, will be fully paid and non-assessable.
The Fund sends quarterly, semi-annual and annual reports to all its
shareholders which include a list of portfolio securities and the Fund's
financial statements which shall be audited annually.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Boston Safe, a wholly-owned subsidiary of Mellon Bank corporation, is
located at One Boston Place, Boston, Massachusetts 02108, and acts as custodian
of the Fund's cash and securities generally. State Street acts as the Fund's
transfer agent and dividend disbursing agent for its shares. Boston Financial
Data Services, Inc., an affiliate of State Street, will perform shareholder
servicing for the Fund on behalf of State Street and is located at the BFDS
Building, Two Heritage Drive, Quincy, MA 02171.
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<PAGE>
INFORMATION FOR SHAREHOLDERS
All shareholder inquiries regarding administrative procedures including the
purchase and redemption of shares should be directed to your brokerage firm or
to Gabelli & Company, One Corporate Center, Rye, New York 10580-1434. For
assistance, call 1-800-422-3554 or 1-800-872-5365.
Upon request, Gabelli & Company will provide, without charge, a paper copy
of this Prospectus to investors or their representatives who received this
Prospectus in an electronic format.
This Prospectus omits certain information contained in the Registration
Statement filed with the SEC. Copies of the Registration Statement including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. The Statement of Additional
Information included in such Registration Statement may be obtained without
charge from the Fund or Gabelli & Company.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 2
The Fund's Expenses..................... 3
Financial Highlights.................... 4
The Fund and its Investment Policies.... 4
Other Investments....................... 5
Special Investment Methods.............. 9
Management of the Fund.................. 11
Purchase of Shares...................... 13
Redemption of Shares.................... 16
Valuation of Shares..................... 18
Retirement Plans........................ 18
Dividends, Distributions and Taxes...... 19
Calculation of Investment Performance... 19
General Information..................... 20
</TABLE>
- ------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Statement of
Additional Information and in the Fund's official sales literature in connection
with the offering of the Fund's shares, and if given or made, such other
information and representations may not be relied upon as authorized by the
Fund. This Prospectus does not constitute an offer in any state in which, or to
any person to whom, such offer may not lawfully be made.
- ------------------------------------------------------
The
Gabelli
Value
Fund
Inc.
PROSPECTUS
MAY 1, 1996
GABELLI FUNDS, INC.
INVESTMENT ADVISER
GABELLI & COMPANY, INC.
DISTRIBUTOR
THE GABELLI VALUE FUND INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
THE GABELLI VALUE FUND INC.
ONE CORPORATE CENTER, RYE, NEW YORK 10580-1434
TELEPHONE 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
This Statement of Additional Information is not a prospectus and is
only authorized for distribution when preceded or accompanied by The Gabelli
Value Fund Inc.'s (the "Fund") prospectus, as amended or supplemented from time
to time, dated May 1, 1996 (the "Prospectus"). This Statement of Additional
Information contains additional and more detailed information than that set
forth in the Prospectus and should be read in conjunction with the Prospectus,
additional copies of which may be obtained without charge by calling the Fund at
1-800-GABELLI (800) 422-3554, by writing the Fund at the address set forth above
or by contacting the broker through whom you purchased shares or Gabelli &
Company, Inc.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Policies.................................................. 2
Other Investments.................................................... 2
Special Investment Methods........................................... 4
Investment Restrictions.............................................. 10
Directors and Officers............................................... 12
The Adviser.......................................................... 15
Sub-Administrator.................................................... 17
Distributor.......................................................... 18
Distribution Plan.................................................... 18
Portfolio Transactions and Brokerage................................. 18
Redemption of Shares................................................. 21
Net Asset Value...................................................... 21
Dividends, Distributions and Taxes................................... 22
Calculation of Investment Performance................................ 24
Counsel.............................................................. 25
Experts.............................................................. 26
Custodian, Transfer Agent and Dividend Disbursing Agent.............. 26
General Information.................................................. 26
Financial Statements................................................. 27
Appendix A: Description of Corporate Bond Ratings.................... A-1
</TABLE>
<PAGE>
INVESTMENT POLICIES
The Fund seeks to achieve its objective by investing primarily in a
portfolio of common stocks, preferred stocks and other securities convertible
into, or exchangeable for, common stocks. In pursuing the Fund's investment
objective, the Fund's investment adviser, Gabelli Funds, Inc. (the "Adviser"),
invests primarily in companies that the Adviser believes are undervalued and
that by virtue of anticipated developments or catalysts particularly applicable
to such companies may, in the Adviser's judgment, achieve significant
appreciation. In identifying such companies, the Adviser seeks to invest in
companies that, in the public market, are selling at a significant discount to
their private market value, the value the Adviser believes informed
industrialists would be willing to pay to acquire companies with similar
characteristics. If investor attention is focused on the underlying asset values
of these companies through an emerging or anticipated development or other
catalyst, an opportunity to realize this private market value may exist. The
Fund may also invest in obligations of the U.S. Government and its agencies and
instrumentalities, corporate bonds, preferred stocks, convertible securities,
foreign securities, corporate reorganizations and/or short-term money market
instruments when deemed appropriate by the Adviser. There is no assurance that
the Fund will achieve its investment objective.
The list of restrictions on the Fund's investment activities that cannot be
changed without shareholder approval is set forth below under "Investment
Restrictions."
OTHER INVESTMENTS
CORPORATE REORGANIZATIONS
The Fund may invest up to 50% of its total assets in securities for which a
tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced. The primary risk of this type of investing is that
if the contemplated transaction is abandoned, revised, delayed or becomes
subject to unanticipated uncertainties, the market price of the securities may
decline below the purchase price paid by the Fund.
In general, securities that are the subject of such an offer or proposal
sell at a premium to their historic market price immediately prior to the
announcement of the offer or proposal. The increased market price of these
securities may also discount what the stated or appraised value of the security
would be if the contemplated transaction were approved or consummated. These
investments may be advantageous when the discount significantly overstates the
risk of the contingencies involved; significantly undervalues the securities,
assets or cash to be received by shareholders of the prospective portfolio
company as a result of the contemplated transactions; or fails adequately to
recognize the possibility that the offer or proposal may be replaced or
superseded by an offer or proposal of greater value. The evaluation of these
contingencies requires unusually broad knowledge and experience on the part of
the Adviser that must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offer or as well as the dynamics of the business
climate when the offer or proposal is in progress.
Although the Fund limits to 30% of its total assets its investments in
corporate reorganization securities that it expects to hold for less than six
months, such transactions may tend to increase the turnover ratio of the Fund
thereby increasing its brokerage and other transaction expenses as well as
making it more difficult for the Fund to meet the tests for favorable tax
treatment as a "Regulated Investment Company" specified by the Internal Revenue
Code of 1986, as amended (the "Code"). See "Dividends, Distributions and Taxes."
The Adviser intends to select investments of the type described that, in its
view, have a reasonable prospect of capital appreciation that is significant in
relation to both the risk
2
<PAGE>
involved and the potential of available alternate investments. The Adviser will
closely monitor the effect of such investments on the tax qualification tests of
the Code.
CONVERTIBLE SECURITIES
A convertible security entitles the holder to exchange the security for a
fixed number of shares of common stock or other equity security, usually of the
same company, at fixed prices within a specified period of time. A convertible
security entitles the holder to receive the fixed-income of a bond or the
dividend preference of a preferred stock until the holder elects to exercise the
conversion privilege.
A convertible security's position in a company's capital structure depends
upon its particular provisions. In the case of subordinated convertible
debentures, the holders' claims on assets and earnings are subordinated to the
claims of others and are senior to the claims of common shareholders.
To the degree that the price of a convertible security rises above its
investment value because of a rise in price of the underlying common stock, it
is influenced more by price fluctuations of the underlying common stock and less
by its investment value. The price of a convertible security that is supported
principally by its conversion value will rise along with any increase in the
price of the common stock, and the price generally will decline along with any
decline in the price of the common stock except that the security will receive
additional support as its price approaches investment value. A convertible
security purchased or held at a time when its price is influenced by its
conversion value will produce a lower yield than nonconvertible senior
securities with comparable investment values. Convertible securities may be
purchased by the Fund at varying price levels above their investment values
and/or their conversion values in keeping with the Fund's investment objective.
Many convertible securities in which the Fund will invest have call
provisions entitling the issuer to redeem the security at a specified time and
at a specified price. This is one of the features of a convertible security that
affects valuation. Calls may vary from absolute calls to provisional calls.
Convertible securities with superior call protection usually trade at a higher
premium. If long-term interest rates decline, the interest rates of new
convertible securities will also decline. Therefore, in a falling interest rate
environment companies may be expected to call convertible securities with high
coupons and the Fund would have to invest the proceeds from such called issues
in securities with lower coupons. Thus, convertible securities with superior
call protection will permit the Fund to maintain a higher yield than issues
without call protection.
INVESTMENTS IN WARRANTS AND RIGHTS
Warrants basically are options to purchase equity securities at a specified
price valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
INVESTMENTS IN FOREIGN SECURITIES
The Fund may invest up to 25% of the value of its total assets in foreign
securities (not including American Depositary Receipts ("ADRs")). Foreign
securities investments may be affected by changes in currency rates or exchange
control regulations, changes in governmental administration or economic or
monetary policy (in the United States and abroad) or changed circumstances in
dealings between nations. Dividends paid by foreign issuers may be subject to
withholding and other foreign taxes that may decrease the net return on these
investments as compared to dividends paid to the Fund by domestic corporations.
It
3
<PAGE>
should be noted that there may be less publicly available information about
foreign issuers than about domestic issuers, and foreign issuers are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those of domestic issuers. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable domestic
issuers and foreign brokerage commissions are generally higher than in the
United States. Foreign securities markets may also be less liquid, more volatile
and less subject to government supervision than those in the United States.
Investments in foreign countries could be affected by other factors not present
in the United States, including expropriation, confiscatory taxation and
potential difficulties in enforcing contractual obligations. Securities
purchased on foreign exchanges may be held in custody by a foreign branch of a
domestic bank.
OTHER INVESTMENT COMPANIES
The Fund reserves the right to invest up to 10% of its total assets in the
securities of money market mutual funds, which are open-end investment
companies, and closed-end investment companies, including small business
investment companies, none of which are affiliated with the Fund, Lehman
Brothers Inc. ("Lehman Brothers") or Gabelli & Company, Inc. ("Gabelli &
Company"). No more than 5% of the Fund's total assets may be invested in the
securities of any one investment company and the Fund may not own more than 3%
of the securities of any investment company. Money market mutual funds are
investment companies that are regulated under the Investment Company Act of
1940, as amended (the "1940 Act"). As open-end management companies like the
Fund, money market mutual funds make continuous offerings of redeemable shares
to the public and stand ready to sell and redeem these shares daily. Generally
speaking, these mutual funds offer investors the opportunity to invest in a
professionally managed diversified portfolio of short-term debt obligations,
including U.S. Treasury bills and notes and other U.S. Government securities,
certificates of deposits, bankers' acceptances, repurchase agreements and
commercial paper. Many of the costs, including the investment advisory fee,
attendant with the operation of money market mutual funds and other management
investment companies are borne by shareholders; assuming the Fund was a
shareholder in a money market mutual fund (or other management investment
company) it, like other shareholders, would bear its proportionate share of
these costs. These costs will be borne indirectly by shareholders of the Fund
resulting in the payment by shareholders of duplicative fees, including
investment advisory fees.
INVESTMENTS IN SMALL, UNSEASONED COMPANIES
The securities of small, unseasoned companies may have a limited trading
market, which may adversely affect their disposition and can result in their
being priced lower than what might otherwise be the case. If other investment
companies and investors who invest in these issuers trade the same securities
when the Fund attempts to dispose of its holdings, the Fund may receive lower
prices than what might otherwise be obtained.
SPECIAL INVESTMENT METHODS
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements as set forth in the
Prospectus. A repurchase agreement is an instrument under which the purchaser
(that is, the Fund) acquires a debt security and the seller agrees, at the time
of the sale, to repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during this
period. The underlying securities are ordinarily U.S. Treasury or other
government obligations or high quality money market instruments. The Fund will
require that the value of the underlying securities, together with any other
collateral held by the Fund, always equals or exceeds the amount of the
repurchase obligation of the other party. The Fund's risk is primarily
4
<PAGE>
that, if the seller defaults, the proceeds from the disposition of the
underlying securities and other collateral for the seller's obligation are less
than the repurchase price. If the seller becomes insolvent, the Fund might be
delayed in or prevented from selling the collateral. In the event of a default
or bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of the collateral upon
a default in the obligation to repurchase is less than the repurchase price, the
Fund will experience a loss. If the financial institution that is a party to the
repurchase agreement petitions for bankruptcy or becomes subject to the U.S.
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a
result, under extreme circumstances, there may be a restriction on the Fund's
ability to sell the collateral and the Fund could suffer a loss.
CONVERTIBLE AND NONCONVERTIBLE CORPORATE OBLIGATIONS
Corporate obligations include securities such as bonds, debentures, notes
or other similar securities issued by corporations. These obligations can be
further subdivided into convertible and nonconvertible securities. Unlike a
nonconvertible corporate obligation, a convertible corporate obligation may be
converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or different issuer within a particular period of
time at a specified price or formula.
The Fund believes that investing in convertible and nonconvertible
corporate obligations is consistent with the Fund's investment objective of
seeking securities of companies that in the public market, can provide
significant long-term capital appreciation. For example, an issuer's ability to
repay principal and interest when due may be underestimated by the market; as a
result, that issuer may be required to pay a higher interest rate or its debt
securities may be selling at a lower market price than issuers of similar
strength. When the market recognizes their inherent value, the Fund anticipates
that the price of such securities will appreciate. In the case of convertible
securities, the market's recognition of a company's real value and, in turn, the
market value of its convertible securities, may not occur until some anticipated
development or other catalyst emerges to cause an increase in the market value
of the company's common stock. In the case of any corporate obligation under
evaluation by the Adviser for purchase by the Fund, the receipt of income is an
incidental consideration.
The Fund may invest up to 5% of its total assets in securities of issuers
in default. The Fund will invest in securities of issuers in default only when
the Adviser believes that such issuers will honor their obligations or emerge
from bankruptcy protection and the value of these securities will appreciate. By
investing in securities of issuers in default the Fund bears the risk that such
issuers will not continue to honor their obligations nor emerge from bankruptcy
protection or that the value of such securities will not appreciate.
Subsequent to its purchase by the Fund, an issue of securities may cease to
be rated or its ratings may be reduced below the minimum required for purchase
by the Fund. In addition, it is possible that Moody's Investor Services, Inc.
("Moody's") and Standard & Poor's Ratings Service, a division of McGraw-Hill
Companies, Inc. ("S&P") might not timely change their ratings of a particular
issue to reflect subsequent events. None of these events will require the sale
of the securities by the Fund, although the Adviser will consider these events
in determining whether the Fund should continue to hold the securities. To the
extent that the ratings given by Moody's or S&P for securities may change as a
result of changes in the ratings systems or due to a corporate reorganization of
Moody's and/or S&P, the Fund will attempt to use comparable ratings as standards
for its investments in accordance with the investment objectives and policies of
the Fund.
5
<PAGE>
Low-rated and comparable unrated securities (a) will likely have some
quality and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation.
While the market values of low-rated and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher-rated securities, the market values of certain low-rated and
comparable unrated securities also tend to be more volatile and sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, low-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
low-rated and comparable unrated securities are often highly leveraged and may
not have more traditional methods of financing available to them so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. The risk of loss due
to default by such issuers is significantly greater because low-rated and
comparable unrated securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. The Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for low-rated and comparable unrated securities may
diminish the Fund's ability to obtain accurate market quotations for purposes of
valuing such securities and calculating its net asset value. Moreover, because
not all dealers maintain markets in all low-rated and comparable unrated
securities, there is no established retail secondary market for many of these
securities and the Fund does not anticipate that those securities could be sold
other than to institutional investors.
Fixed-income securities, including low-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the
Fund. If an issuer exercises these rights during periods of declining interest
rates, the Fund may have to replace the security with a lower-yielding security,
thus resulting in a decreased return to the Fund.
The market for certain low-rated and comparable unrated securities has
experienced a major economic recession. The recession has adversely affected the
value of such securities. Such economic downturn also may affect the ability of
the issuers of such securities to repay principal and pay interest thereon.
SHORT SALES AGAINST THE BOX
The Fund may sell securities "short against the box." While a short
sale is the sale of a security that the Fund does not own, it is "against the
box" if at all times when the short position is open the Fund owns an equal
amount of securities or securities convertible into, or exchangeable without
further consideration for, securities of the same issue as the securities sold
short.
To secure its obligations to deliver the securities sold short, the
Fund will deposit in escrow in a separate account with the Fund's custodian,
Boston Safe Deposit and Trust Company ("Boston Safe"), an amount at least equal
to the securities sold short or securities convertible into, or exchangeable
for, the securities. The Fund may close out a short position by purchasing and
delivering an equal amount of securities sold short, rather than by delivering
securities already held by the Fund, because the Fund may want to continue to
receive interest and dividend payments on securities in its portfolio that are
convertible into the securities sold short.
6
<PAGE>
OPTIONS
The Fund may, from time to time, purchase or sell (that is, write)
listed call or put options on securities as a means of achieving additional
return or of hedging the value of the Fund's portfolio. A call option is a
contract that, in return for a premium, gives the holder of the option the right
to buy from the writer of the call option the security underlying the option at
a specified exercise price at any time during the term of the option. The writer
of the call option has the obligation, upon exercise of the option, to deliver
the underlying security upon payment of the exercise price during the option
period. A put option is the reverse of a call option, giving the holder the
right to sell the security to the writer and obligating the writer to purchase
the underlying security from the holder.
A call option is "covered" if the Fund owns the underlying security
covered by the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds a call on the same security as the call written where
the exercise price of the call held is (1) equal to or less than the exercise
price of the call written or (2) greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, U.S. Government
securities or other high grade short-term obligations in a segregated account
held with its custodian. A put option is "covered" if the Fund maintains cash or
other high grade short-term obligations with a value equal to the exercise price
in a segregated account held with its custodian, or else holds a put on the same
security as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an option
it may liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of
the underlying security. Other principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price and price volatility of the underlying security and the time
remaining until the expiration date.
An option position may be closed out only on an exchange which provides
a secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option. In such event it might not be
possible to effect closing transactions in particular options, so that the Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities for the exercise of put options.
If the Fund, as a covered call option writer, is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or otherwise covers the position.
7
<PAGE>
In addition to options on securities, the Fund may also purchase and sell
call and put options on securities indexes. A stock index reflects in a single
number the market value of many different stocks. Relative values are assigned
to the stocks included in an index and the index fluctuates with changes in the
market values of the stocks. The options give the holder the right to receive a
cash settlement during the term of the option based on the difference between
the exercise price and the value of the index. By writing a put or call option
on a securities index, the Fund is obligated, in return for the premium
received, to make delivery of this amount. The Fund may offset its position in
stock index options prior to expiration by entering into a closing transaction
on an exchange or it may let the option expire unexercised.
Use of options on securities indexes entails the risk that trading in the
options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase these options unless the
Adviser is satisfied with the development, depth and liquidity of the market and
the Adviser believes the options can be closed out.
Price movements in the Fund's portfolio may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indexes
cannot serve as a complete hedge and will depend, in part, on the ability of the
Adviser to predict correctly movements in the direction of the stock market
generally or of a particular industry. Because options on securities indexes
require settlement in cash, the Adviser may be forced to liquidate portfolio
securities to meet settlement obligations.
The Fund has qualified and intends to continue to qualify as a "Regulated
Investment Company" under the Code. One requirement for such qualification is
that the Fund must derive less than 30% of its gross income from gains from the
sale or other disposition of securities held for less than three months.
Therefore, the Fund may be limited in its ability to engage in options
transactions.
Although the Adviser will attempt to take appropriate measures to minimize
the risks relating to the Fund's writing of put and call options, there can be
no assurance that the Fund will succeed in any option-writing program it
undertakes.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend
its portfolio securities to securities broker-dealers or financial institutions,
provided that the loans are callable at any time by the Fund (subject to the
notice provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least the market value, determined daily,
of the loaned securities. The advantage of the loans is that the Fund continues
to receive the income on the loaned securities while at the same time earns
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. The Fund will not lend its portfolio securities if the
loans are not permitted by the laws or regulations of any state in which its
shares are qualified for sale and will not lend more than 33% of the value of
its total assets.
A loan may generally be terminated by the borrower on one business day's
notice, or by the Fund on five business days' notice. If the borrower fails to
deliver the loaned securities within five days after receipt of notice, the Fund
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities will only be made to firms
deemed by the Fund's management to be creditworthy and when the income that can
be earned from the loans justifies the attendant risks. The Board of Directors
will oversee the creditworthiness of the contracting parties on an ongoing
basis. Upon termination of the loan, the borrower is required to return the
securities to the Fund.
8
<PAGE>
Any gain or loss in the market price during the loan period would inure to the
Fund. The risks associated with loans of portfolio securities are substantially
similar to those associated with repurchase agreements. Thus, if the party to
whom the loan was made petitions for bankruptcy or becomes subject to the U.S.
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a
result, under extreme circumstances, there may be a restriction on the Fund's
ability to sell the collateral and the Fund could suffer a loss.
When voting or consent rights that accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of such
rights if the matters involved would have a material effect on the Fund's
investment in such loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
WHEN ISSUED, DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
The commitment for the purchase of a "when, as and if issued security" will
not be recognized in the portfolio of the Fund until the Adviser determines that
issuance of the security is probable. At such time, the Fund will record the
transaction and, in determining its net asset value, will reflect the value of
the security daily. The Fund will also establish at that time a segregated
account with Boston Safe in which it will maintain cash or liquid high-grade
debt securities at least equal in value to the amount of its commitments. The
Adviser does not believe that the net asset value of the Fund will be adversely
affected by its purchase of securities on this basis.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Fund has authorized the Adviser to enter into futures contracts that
are traded on a U.S. exchange or board of trade, provided, however, that the
Fund will not enter into futures contacts for which the aggregate initial
margins and premiums would exceed 5% of the fair market value of the Fund's
assets. Although the Fund has no current intention of using options on futures
contracts, the Fund may at some future date authorize the Adviser to enter into
options on futures contracts, subject to the limitations stated in the preceding
sentence. These investments will be made by the Fund solely for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Such investments will only be made
if they are economically appropriate to the reduction of risks involved in the
management of the Fund. In this regard, the Fund may enter into futures
contracts or options on futures for the purchase or sale of securities indices
or other financial instruments including but not limited to U.S. Government
securities. Futures exchanges and trading in the United States are regulated
under the Commodity Exchange Act by the Commodity Futures Trading Commission.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities underlying the
contract at a specified price at a specified future time. A "purchase" of a
futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire the securities underlying the contract at a
specified price at a specified future time. Certain futures contracts, including
stock and bond index futures, are settled on a net cash payment basis rather
than by the sale and delivery of the securities underlying the futures
contracts.
No consideration will be paid or received by the Fund upon the purchase or
sale of a futures contract. Initially, the Fund will be required to deposit with
the broker an amount of cash or cash equivalents equal to approximately 1% to
10% of the contract amount (this amount is subject to change by the exchange or
board of trade on which the contract is traded and brokers or members of such
board of trade may charge a higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract. Subsequent payments, known as "variation
9
<PAGE>
margin," to and from the broker will be made daily as the price of the index or
security underlying the futures contract fluctuates. At any time prior to the
expiration of a futures contract, the portfolio may elect to close the position
by taking an opposite position, which will operate to terminate the Fund's
existing position in the contract.
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time prior to the expiration of the option. Upon
exercise of an option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account attributable to that
contract, which represents the amount by which the market price of the futures
contract exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. The potential loss
related to the purchase of an option on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because the value of the
option purchased is fixed at the point of sale, there are no daily cash payments
by the purchaser to reflect changes in the value of the underlying contract;
however, the value of the option does change daily and that change would be
reflected in the net asset value of the portfolio.
As noted above, the Fund may authorize the Adviser to use such
instruments depending upon market conditions prevailing at such time and the
perceived investment needs of the Fund. However, in no event may the Fund enter
into futures contracts or options on futures contracts if, immediately
thereafter, the sum of the amount of margin deposits on the Fund's existing
futures contracts and premiums paid for options would exceed 5% of the value of
the Fund's total assets after taking into account unrealized profits and losses
on any existing contracts. In the event the Fund enters into long futures
contracts or purchases call options, an amount of cash, obligations of the U.S.
Government and its agencies and instrumentalities or other high grade debt
securities equal to the market value of the contract will be deposited and
maintained in a segregated account with the Fund's custodian to collateralize
the positions, thereby insuring that the use of the contract is unleveraged.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the
protection of shareholders that may not be changed without the approval of a
majority of the Fund's shareholders, defined as the lesser of (1) 67% of the
Fund's shares present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the Fund's outstanding shares. Under these restrictions, the Fund may not:
1. Invest more than 25% of the value of its total assets in
any particular industry (this restriction does not apply to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities);
2. Purchase securities on margin, but it may obtain short-term
credits from banks as may be necessary for the clearance of purchase
and sales of portfolio securities;
3. Make loans of its assets except for: (a) purchasing debt
securities, (b) engaging in repurchase agreements as set forth in the
Prospectus, and (c) lending its portfolio securities consistent with
applicable regulatory requirements and as set forth in the Prospectus;
4. Borrow money except subject to the restrictions set forth
in the Prospectus;
10
<PAGE>
5. Mortgage, pledge or hypothecate any of its assets except
that, in connection with permissible borrowings mentioned in
restriction (4) above, not more than 20% of the assets of the Fund (not
including amounts borrowed) may be used as collateral and that
collateral arrangements with respect to the writing of options or any
other hedging activity are not deemed to be pledges of assets and these
arrangements are not deemed to be the issuance of a senior security as
set forth below in restriction (11);
6. Except to the extent permitted by restriction (14) below,
invest in any investment company affiliated with the Fund, Lehman
Brothers or Gabelli & Company, invest more than 5% of its total assets
in the securities of any one investment company, own more than 3% of
the securities of any investment company or invest more than 10% of its
total assets in the securities of all other investment companies;
7. Engage in the underwriting of securities, except insofar as
the Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, in disposing of a portfolio security;
8. Invest, in the aggregate, more than 10% of the value of its
net assets in securities for which market quotations are not readily
available, securities which are restricted for public sale, in
repurchase agreements maturing or terminable in more than seven days
and all other illiquid securities;
9. Purchase or otherwise acquire interests in real estate,
real estate mortgage loans or interests in oil, gas or other mineral
exploration or development programs;
10. Purchase or acquire commodities or commodity contracts
except that the Fund may purchase or sell futures contracts and related
options thereon if thereafter no more than 5% of its total assets are
invested in margin and premiums;
11. Issue senior securities, except insofar as the Fund may be
deemed to have issued a senior security in connection with: (a)
borrowing money in accordance with restriction (4) above, (b) lending
portfolio securities, (c) entering into repurchase agreements, (d)
purchasing or selling options contracts, (e) purchasing or selling
futures contracts and related options thereon, or (f) acquiring when
issued or delayed delivery securities and forward commitments;
12. Sell securities short, except transactions involving
selling securities short "against the box;"
13. Purchase warrants if, thereafter, more than 5% of the
value of the Fund's net assets would consist of such warrants, but
warrants attached to other securities or acquired in units by the Fund
are not subject to this restriction; or
14. Invest in companies for the purpose of exercising control,
except transactions involving investments in investment companies for
the purpose of effecting mergers and other corporate reorganizations
involving the Fund and such other investment companies.
If any percentage limitation is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction. In order to
permit the sale of the Fund's shares in certain states, the Fund may make
commitments more restrictive than the investment restrictions described above.
11
<PAGE>
DIRECTORS AND OFFICERS
The Directors and principal officers of the Fund, their ages, and their
principal occupations for the past five years, are listed below. Unless
otherwise specified, the address of each such person is One Corporate Center,
Rye, New York 10580-1434. Directors deemed to be "interested persons" of the
Fund for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION(S) WITH PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
FUND AFFILIATIONS WITH THE ADVISER
- ------------------------------- ---------------------------------------------
<S> <C>
Mario J. Gabelli, CFA*, 53 ...................... Chairman of the Board, Chief Executive Officer and
Chairman, President and Chief Investment Officer of the Adviser; Chief
Chief Investment Officer Investment Officer of GAMCO; Chairman of the Board
and President of The Gabelli Equity Trust Inc. and
The Gabelli Global Multimedia Trust Inc.; Trustee
of The Gabelli Asset Fund and The Gabelli Growth
Fund; President, Chief Investment Officer and
Director of The Gabelli Convertible Securities
Fund,, Inc., Gabelli Global Series Funds, Inc.,
Gabelli Equity Series Funds, Inc. and Gabelli
Investor Funds, Inc.; President and Trustee of The
Gabelli Money Market Funds; Chairman of the Board
of Gabelli Gold Fund and Gabelli International
Growth Fund, Inc.; Chairman of the Board and Chief
Executive Officer of Lynch Corporation; Director of
Morgan Group, Inc. and Spinnaker Industries, Inc.
Bill Callaghan, 52 ............................. President of Bill Callaghan Associates Ltd., an
Director executive search company. Director of The Gabelli
Equity Trust Inc. and The Gabelli Global
Multimedia Trust Inc.
Felix J. Christiana, 70 ......................... Former Senior Vice President of Dry Dock Savings
Director Bank. Director of The Gabelli Series Funds, Inc.,
The Gabelli Convertible Securities Fund, Inc., The
Gabelli Equity Trust Inc., The Gabelli Global
Multimedia Trust Inc., Gabelli Equity Series Funds,
Inc., Gabelli Global Series Funds, Inc., and The
Treasurer's Fund, Inc., and a Trustee of The Gabelli
Asset Fund and The Gabelli Growth Fund.
Anthony J. Colavita, 60 ......................... President and Attorney at Law in the law firm of
Director Anthony J. Colavita, P.C.; Trustee of The Gabelli
Asset Fund, The Gabelli Growth Fund, The Gabelli
Money Market Funds and the Westwood Funds.
Director of Gabelli Equity Series Funds, Inc.,
Gabelli Global Series Funds, Inc., Gabelli Investor
Funds, Inc., The Gabelli Convertible Securities
Fund, Inc., Gabelli Gold Fund, Inc. and Gabelli
Capital Series Funds, Inc.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Robert J. Morrissey, 55 ......................... Partner in the law firm of Morrissey Hawkins;
Director Former partner in the law firm of Withington Cross
Park & Groden. Director of Gabelli Equity Series
Funds, Inc.
Karl Otto Pohl*+, 66 ............................ Managing Partner, Sal Oppenheim Jr. & Cie. (private
Director investment bank); Former President of the Deutsche
Bundesbank (Germany's Central Bank) and Chairman of
its Central Bank Council (1980-1991); Currently Board
Member of IBM World Trade Europe/Middle East/Africa
Corp.; Bertelsmann AG; Zurich
Versicherungs-Gesellschaft (Insurance); the
International Advisory Board of General Electric
Company; the International Council for J.P. Morgan &
Co.; Supervisory Board Member of Royal Dutch
(petroleum company); Supervisory Board Member of
ROBECo/o Group; Advisory Director of Unilever N.V.
and Unilever Deutschland; German Governor,
International Monetary Fund from 1980-1991; and Board
Member, Bank for International Settlements from
1980-1991; Director or Trustee of all mutual funds
advised by Gabelli Funds, Inc. since February 1992.
Anthony R. Pustorino, CPA, 70 ................... Professor of Accounting at Pace University;
Director Formerly President and shareholder, Pustorino
Puglisi & Co., P.C., certified public accountants
from 1961 to 1990. Director of The Gabelli Series
Funds, Inc.; Gabelli Equity Series Funds, Inc., The
Gabelli Equity Trust Inc., The Gabelli Global
Multimedia Trust Inc., Gabelli Capital Series Funds,
Inc., The Gabelli Convertible Securities Fund, Inc.,
and The Treasurer's Fund, Inc., and a Trustee of The
Gabelli Asset Fund, and The Gabelli Growth Fund.
Bruce N. Alpert, 44 ............................. Vice President, Treasurer and Chief Financial
Chief Operating Officer, Officer of the Investment Advisory Division of the
Vice President and Treasurer Adviser, Vice President and Treasurer of The
Gabelli Equity Trust Inc., The Gabelli Convertible
Securities Fund, Gabelli Equity Series Funds, Inc.,
Gabelli Investor Funds, Inc., Gabelli Global Series
Funds, Inc. , Gabelli Capital Series Funds, Inc., The
Gabelli Global Multimedia Trust Inc., President and
Treasurer of The Gabelli Asset Fund and The Gabelli
Growth Fund; Manager of Teton Advisers LLC and Vice
President of the Westwood Funds.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
James E. McKee, 32 ............................. Vice President and General Counsel of GAMCO
Secretary Investors, Inc. since 1993 and of Gabelli Funds,
Inc. since August 1995; Secretary of all Funds
advised by Gabelli Funds, Inc. and Teton Advisers
LLC since August 1995. Branch Chief with the U.S.
Securities and Exchange Commission in New York 1992
through 1993. Staff attorney with the U.S.
Securities and Exchange Commission in New York from
1989 through 1992.
</TABLE>
- ---------------------
+ Mr. Pohl receives fees from the Adviser but has no obligation to provide
any services to the Adviser. Although this relationship does not appear to
require designation of Mr. Pohl as an interested person, the Fund is
currently making such designation in order to avoid the possibility that
Mr. Pohl's independence would be questioned.
Remuneration. No director, officer or employee of Gabelli & Company or
the Adviser or of any affiliate of Gabelli & Company or the Adviser will receive
any compensation from the Fund for serving as an officer or director of the
Fund. The Fund pays each of its Directors who is not a director, officer or
employee of the Adviser or any of their affiliates, $10,000 per annum plus
$1,000 per meeting attended and reimburses each Director for related travel and
out-of-pocket expenses. The Fund also pays each Director serving as Chairman of
the Audit, Investment, Proxy or Nominating Committees $2,500 per annum. For the
year ended December 31, 1995, such fees totaled $102,148.
Mr. Morrissey (Chairman) and Mr. Callaghan are members of the Fund's
Investment Committee. The Investment Committee reviews investment related
matters as needed.
Each Director serves as a director or trustee of certain other mutual
funds for which Gabelli Funds, Inc. serves as Adviser and Gabelli & Company
serves as Distributor. As of April 1, 1996, outstanding voting securities of the
Fund consisted of 39,728,709 shares of common stock. As a group the Directors
and officers of the Fund owned less than 1% of the outstanding shares of common
stock of the Fund.
The following table sets forth certain information regarding the
compensation of the Fund's Directors and officers. Except as disclosed below, no
executive officer or person affiliated with the Fund received compensation in
excess of $60,000 from the Fund for the fiscal year ended December 31, 1995.
14
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION TOTAL
RETIREMENT ESTIMATED COMPENSATION FROM
AGGREGATE BENEFITS ACCRUED ANNUAL THE FUND AND FUND
NAME OF PERSON COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
AND POSITION FROM THE FUND EXPENSES RETIREMENT DIRECTORS*
------------ ------------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Mario J. Gabelli $0 0 N/A $0
Chairman of the Board
Bill Callaghan $14,000 0 N/A $33,000 (3)
Director
Felix J. Christiana $14,000 0 N/A $71,500 (9)
Director
Anthony J. Colavita $19,000 0 N/A $68,253 (12)
Director
Robert J. Morrissey $19,000 0 N/A $26,500 (4)
Director
Karl Otto Pohl $14,000 0 N/A $80,253 (15)
Director
Anthony Pustorino $19,000 0 N/A $79,381 (10)
Director
</TABLE>
- -----------------------------------
* Represents the total compensation paid to such persons during the fiscal
year ending December 31, 1995 by investment companies (including the Fund)
from which such person receives compensation that are part of the same fund
complex as the Fund because they have common or affiliated investment
advisers. The number in parentheses represents the number of such
investment companies.
THE ADVISER
The Adviser is a New York corporation organized in 1980 with principal
offices located at One Corporate Center, Rye, New York 10580-1434. The
Investment Advisory Division of the Adviser also serves as investment adviser
to: The Gabelli Equity Trust Inc., The Gabelli Convertible Securities Fund Inc.
and The Gabelli Global Multimedia Trust Inc., which are closed-end investment
companies; and The Gabelli Growth Fund, The Gabelli Asset Fund, The Gabelli
Small Cap Growth Fund, The Gabelli Equity Income Fund, The Gabelli U.S. Treasury
Money Market Fund, The Gabelli ABC Fund, The Gabelli Global Telecommunications
Fund, The Gabelli Global Interactive Couch Potato(R) Fund, The Gabelli Global
Convertible Securities Fund , Gabelli Gold Fund, Inc., Gabelli Capital Asset
Fund and Gabelli International Growth Fund, which are open-end investment
companies. The Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended.
The Adviser currently serves as investment adviser to the Fund pursuant to
an investment advisory agreement dated March 1, 1994 (the "Advisory Agreement"),
which was approved by the Fund's Board of Directors, including a majority of the
Directors who are not "interested persons" of the Fund, at a Board Meeting held
on November 17, 1993, and was approved by the Fund's shareholders at a Special
Meeting of Shareholders held on February 25, 1994. Pursuant to the Advisory
Agreement, the Fund employs the
15
<PAGE>
Adviser to act as its investment adviser and to oversee the administration of
all aspects of the Fund's business affairs and to provide, or arrange for others
whom it believes to be competent to provide certain services. The Adviser is
generally responsible for the investment and management of the Fund's assets,
subject to and in accordance with the Fund's investment objective, policies, and
restrictions as stated in the Prospectus and herein. In discharging its
responsibility, the Adviser determines and monitors the investments of the Fund.
In addition, the Adviser has full authority to implement its determinations by
selecting and placing individual transactions on behalf of the Fund.
Under the Advisory Agreement, the Adviser also provides or arranges for
the following services: (i) maintains the Fund's books and records, such as
journals, ledger accounts and other records in accordance with applicable laws
and regulations to the extent not maintained by the Fund's custodian, transfer
agent or dividend disbursing agent; (ii) transmitting purchase and redemption
orders for Fund shares to the extent not transmitted by the Fund's distributor
or others who purchase and redeem shares; (iii) initiating all money transfers
to the Fund's custodian and from the Fund's custodian for the payment of the
Fund's expenses, investments, dividends and share redemption; (iv) reconciling
account information and balances among the Fund's custodian, transfer agent,
distributor, dividend disbursing agent and the Adviser; (v) providing the Fund,
upon request, with such office space and facilities, utilities and office
equipment as are adequate for the Fund's needs; (vi) preparing, but not paying
for, all reports by the Fund to its shareholders and all reports and filings
required to maintain the registration and qualification of the Fund's shares
under federal and state law including periodic updating of the Fund's
registration statement and Prospectus (including its Statement of Additional
Information); (vii) supervising the calculation of the net asset value of the
Fund's Shares; and (viii) preparing notices and agendas for meetings of the
Fund's shareholders and the Fund's Board of Directors as well as minutes of such
meetings in all matters required by applicable law to be acted upon by the Board
of Directors.
The Advisory Agreement provides that, absent willful misfeasance, bad
faith, gross negligence or reckless disregard of duty, the Adviser shall not be
liable to the Fund for any error of judgment or mistake of law or for any loss
sustained by the Fund. The Fund has agreed by the terms of the Advisory
Agreement that the word "Gabelli" in its name is derived from the name of the
Adviser that in turn is derived from the name of Mario J. Gabelli; that the name
is the property of the Adviser for copyright and other purposes; and that,
therefore, the name may freely be used by the Adviser for other investment
companies, entities or products. The Fund has further agreed that in the event
that for any reason, the Adviser ceases to be its investment adviser, the Fund
will, unless the Adviser otherwise consents in writing, promptly take all steps
necessary to change its name to one which does not include "Gabelli."
The Advisory Agreement is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by vote of a majority of its Board of Directors, or
by the Adviser on sixty days' written notice, and will automatically terminate
in the event of its "assignment" as defined by the 1940 Act. The Advisory
Agreement provides that, unless terminated, it will remain in effect from year
to year as long as such continuance is annually approved by the Board of
Directors or by majority vote of its outstanding voting shares and, in either
case, by a majority vote of the Directors who are not parties to the Advisory
Agreement or "interested persons," as defined by the 1940 Act, of any such party
cast in person at a meeting called specially for the purpose of voting on the
continuance of the Advisory Agreement.
As compensation for its services and the related expenses borne by the
Adviser, the Adviser is paid a fee computed and payable monthly, equal, on an
annual basis, to 1.00% of the value of the Fund's average daily net assets,
which is higher than that paid by most mutual funds. For the fiscal years ended
December 31, 1993, December 31, 1994 and December 31, 1995, the Fund paid
investment advisory fees to the Adviser amounting to $3,452,075 , $4,613,924 and
$4,750,908, respectively. The Advisory Agreement also provides that if in any
fiscal year the aggregate expenses of the Fund (including fees
16
<PAGE>
pursuant to the Advisory Agreement, but excluding interest, taxes, brokerage,
distribution fees paid pursuant to the Fund's plan of distribution and, if
permitted by state securities commissions, extraordinary expenses) exceed the
most restrictive expense limitations imposed by the securities laws of any state
having jurisdiction over the Fund, the Adviser has agreed to reimburse the Fund
for the amount of such excess up to the amount of fees accrued for such fiscal
year. The most restrictive state limitation is currently believed to be 2.5% of
the first $30 million of average net assets, 2.0% of the next $70 million of
average net assets and 1.5% of the remaining average net assets. Fund expenses
are accrued monthly and the monthly fee otherwise payable to the Adviser is
reduced to the extent that Fund expenses exceed the amount of such limitation
and, to the extent such excess is greater than the monthly fee of the Adviser,
the amount of such excess is reimbursed by the Adviser. As the result of an
exemption by the California Department of Corporations, the expenses incurred by
the Fund under its distribution plan are no longer required by the law of any
state in which its shares are registered or qualified for sale to be included in
the computation of the expenses which the Adviser has undertaken to reimburse to
the Fund. The expenses which may be incurred by the Fund in any fiscal year
pursuant to the Fund's plan of distribution (see "Distribution Plan," below) is
0.25% of the value of its average daily net assets.
SUB-ADMINISTRATOR
First Data Investor Services Group, Inc. (the "Sub-Administrator"), a
subsidiary of First Data Corporation, serves as Sub-Administrator to the Fund
pursuant to a Sub-Administration Agreement with the Adviser (the
"Sub-Administration Agreement"). Under the Sub-Administration Agreement, the
Sub-Administrator (a) assists in supervising all aspects of the Fund's
operations except those performed by the Adviser under its advisory agreement
with the Fund; (b) supplies the Fund with office facilities (which may be in the
Sub-Administrator's own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of the net asset value of shares in the Fund,
internal auditing and legal services, internal executive and administrative
services, and stationery and office supplies; (c) prepares and distributes
materials for all Fund Board of Directors' Meetings including the mailing of all
Board materials and collates the same materials into the Board books and assists
in the drafting of minutes of the Board Meetings; (d) prepares reports to Fund
shareholders, tax returns and reports to and filings with the Securities and
Exchange Commission (the "SEC") and state Blue Sky authorities; (e) calculates
the Fund's net asset value per share, provides any equipment or services
necessary for the purpose of pricing shares or valuing the Fund's investment
portfolio and, when requested, calculates the amount of all applicable "Blue
Sky" expense limitations and the amounts permitted for the payment of
distribution expenses under any distribution plan adopted by the Fund; (f)
provides compliance testing of all Fund activities against applicable
requirements of the 1940 Act and the rules thereunder, the Code, and the Fund's
investment restrictions; (g) furnishes to the Adviser such statistical and other
factual information and information regarding economic factors and trends as the
Adviser from time to time may require; and (h) generally provides all
administrative services that may be required for the ongoing operation of the
Fund in a manner consistent with the requirements of the 1940 Act.
For the services it provides, the Advisor pays the Sub-Administrator
an annual fee based on the value of the aggregate average daily net assets of
all funds under its administration managed by the Adviser as follows: up to $1
billion - 0.10%; $1 billion to $1.5 billion - 0.08%; $1.5 billion to $3 billion
- - 0.03%; over $3 billion - 0.02%.
For the fiscal year ended December 31, 1993 and the fiscal period from
January 1, 1994 through February 28, 1994, the Fund paid administration fees to
The Boston Company Advisors, Inc. ("Boston Advisors") amounting to
$1,150,692 and $196,808, respectively. For the period from March 1, 1994
through May 5, 1994, the Adviser paid to Boston Advisors $217,666 in
sub-administration fees .
17
<PAGE>
For the period from May 6, 1994 through December 31, 1994, and for the fiscal
year ended December 31, 1995, the Adviser paid the Sub-Administrator $447,304
and $331,296 in sub-administration fees.
DISTRIBUTOR
The Fund has entered into a distribution agreement with Gabelli &
Company and may enter into substantially identical arrangements with other
firms. Gabelli & Company is a New York corporation which is a subsidiary of the
Adviser and has its principal offices at One Corporate Center, Rye, New York
10580). Gabelli & Company solicits offers for the purchase of shares of the Fund
on a best efforts basis. Expenses normally attributable to the sale of Fund
shares which are not paid by the Fund (see "Distribution Plan" and "Management
of the Fund" in the Prospectus) are paid by Gabelli & Company. Gabelli & Company
may enter into selling agreements with registered broker-dealers ("Soliciting
Broker-Dealers") pursuant to which Gabelli & Company may reallow the sales
charge to Soliciting Broker-Dealers in accordance with the schedule set forth in
the Prospectus under "Purchase of Shares."
The table below sets forth the commissions (sales charges) on sales of
the Fund's shares received by Lehman Brothers and Gabelli & Company for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Lehman Brothers .................... N/A N/A $10,268*
Gabelli & Company, Inc ............. $336,808 $200,857 $378,861
</TABLE>
* Reflects commissions (sales charges) paid to Lehman Brothers prior to the
acquisition of certain assets of Lehman Brothers by Smith Barney on July
30, 1993. As of such date Lehman Brothers ceased to be an underwriter for
the Fund.
DISTRIBUTION PLAN
The Fund has adopted a plan of distribution (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under its terms, the Plan remains in effect so
long as its continuance is specifically approved at least annually by vote of
the Fund's Board of Directors, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Fund ("Independent Directors"). The Plan may
not be amended to increase materially the amount to be spent for the services
provided by the Designated Dealers thereunder without shareholder approval, and
all material amendments of the Plan must also be approved by the Directors in
the manner described above. The Plan may be terminated at any time, without
penalty, by vote of a majority of the Independent Directors, or by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act). Under the Plan, Designated Dealers will provide the Directors
periodic reports of amounts expended under the Plan and the purpose for which
such expenditures were made. For the fiscal year ended December 31, 1995, the
Fund made aggregate distribution payments of approximately $1,187,757 to
Designated Dealers pursuant to the Plan. Such payments included payments of
approximately $68,179 for support services, $124,994 to sales personnel of
Designated Dealers, $67,908 for advertising expenses and $55,876 for printing
and mailing expensesand also payments of $870,800 to selected dealers.
For a more complete description of the Plan, see "Distribution Plan" in the
Prospectus.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Adviser is authorized on behalf of
the Fund to employ brokers to effect the purchase or sale of portfolio
securities with the objective of obtaining prompt, efficient and reliable
execution and clearance of such transactions at the most favorable price
obtainable at reasonable
18
<PAGE>
expense ("best execution"). Transactions on U.S. stock exchanges involve the
payment of negotiated brokerage commissions, which may vary among different
brokers. Transactions in securities other than those for which a securities
exchange is the principal market are generally done through the principal market
maker. However, such transactions may be effected through a brokerage firm and a
commission paid whenever it appears that the broker can obtain a more favorable
overall price. In general, there may be no stated commission in the case of
securities traded on the over-the-counter markets, but the prices of those
securities may include undisclosed commissions or markups. Option transactions
will usually be effected through a broker and a commission will be charged. The
Fund also expects that securities will be purchased at times in underwritten
offerings where the price includes a fixed amount of compensation generally
referred to as a concession or discount.
The Adviser and its affiliates currently serve as investment adviser to
a number of investment companies and private account clients and may in the
future act as advisers to others. It is the policy of the Adviser and its
affiliates to allocate investments suitable and appropriate for each such client
in a manner believed by the Adviser to be equitable to each client. In making
such allocations among the Fund and other client accounts, the main factors
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Fund and
other client accounts.
The following table sets forth certain information regarding the Fund's
payment of brokerage commissions to Gabelli & Company, Lehman Brothers (while it
was an underwriter to the Fund) and Keeley Investment Corp. ("Keeley"). A
significant shareholder of Keeley is a director of company that is an affiliate
of the Adviser:
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31, Commissions Paid
<S> <C> <C>
Total Brokerage Commissions .............................................. 1993 $334,632
1994 $622,746
1995 $554,829
Commissions paid to Gabelli & Company .................................... 1993 $23,400
1994 $25,912
1995 $118,214
Commissions paid to Lehman Brothers ..................................... 1993* $22,958
1994 $ 0
1995 $ 0
Commissions paid to Keeley Investment Corp .............................. 1993 $25,150
1994 $9,415
1995 $5,800
% of Total Brokerage Commissions paid to Gabelli & Company ............... 1995 21.3%
% of Total Brokerage Commissions paid to Keeley Investment Corp. ......... 1995 1.0%
% of Total Transactions involving Commissions paid to .................... 1995 21.5%
Gabelli & Company
% of Total Transactions involving Commissions paid to .................... 1995 1.1%
Keeley Investment Corp.
</TABLE>
19
<PAGE>
- -------------
* Reflects brokerage commissions paid to Lehman Brothers for the period
January 1, 1993 through July 30, 1993 during which time it served as an
underwriter of the Fund.
The policy of the Fund regarding purchases and sales of securities and
options for its portfolio is that primary consideration will be given to
obtaining best execution. The Adviser may also give consideration to placing
portfolio transactions with those brokers and dealers who also furnish research
and other services to the Fund or the Adviser of the type described in Section
28(e) of the Securities Exchange Act of 1934. In doing so, the Fund may also pay
higher commission rates than the lowest available to obtain brokerage and
research services provided by the broker effecting the transaction for the Fund
and for other advisory accounts over which the Adviser or its affiliates
exercise investment discretion. These services may include, but are not limited
to, any one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or opinions
pertaining to investments; wire services; and appraisals or evaluations of
portfolio securities. Since it is not feasible to do so, the Adviser does not
attempt to place a specific dollar value on such services or the portion of the
commission which reflects the amount paid for such services but must be prepared
to demonstrate a good faith basis for its determination.
Investment research obtained by allocations of Fund brokerage is used
to augment the scope and supplement the internal research and investment
strategy capabilities of the Adviser but does not reduce the overall expenses of
the Adviser to any material extent. Such investment research may be in written
form or through direct contact with individuals and includes information on
particular companies and industries as well as market, economic or institutional
activity areas. Research services furnished by brokers through which the Fund
effects securities transactions are used by the Adviser and its advisory
affiliates in carrying out their responsibilities with respect to all of their
accounts over which they exercise investment discretion. Such investment
information may be useful only to one or more of the other accounts of the
Adviser and its advisory affiliates, and research information received for the
commissions of those particular accounts may be useful both to the Fund and one
or more of such other accounts.
Neither the Fund nor the Adviser has any agreement or legally binding
understanding with any broker regarding any specific amount of brokerage
commissions which will be paid in recognition of such services. However, in
determining the amount of portfolio commissions directed to such brokers, the
Adviser does consider the level of services provided and, based on such
determinations, has allocated brokerage commissions of $554,829 on portfolio
transactions in the principal amounts of $391,770,647 during 1995. The average
commission on these transactions was $0.0461 per share.
The Adviser may also place orders for the purchase or sale of portfolio
securities with Gabelli & Company or an affiliate of the Adviser, when it
appears that Gabelli & Company can obtain a price and execution which is at
least as favorable as that obtainable by other qualified brokers. As required by
Rule 17e-1 under the 1940 Act, the Board of Directors has adopted "Procedures"
that provide that the commissions paid to Gabelli & Company or affiliated
brokers on stock exchange transactions must be consistent with those charged by
such firms in similar transactions to unaffiliated clients that are comparable
to the Fund. Rule 17e-1 under the 1940 Act and the Procedures contain
requirements that the Board, including those directors who are not "interested
persons" of the Fund, conduct periodic compliance reviews of such brokerage
allocations and the Procedures to determine their continuing appropriateness.
The Adviser is also required to furnish reports and maintain records in
connection with the reviews.
To obtain the best execution of portfolio trades on the New York Stock
Exchange ("NYSE"), Gabelli & Company controls and monitors the execution of such
transactions on the floor of the NYSE through independent "floor brokers" or the
Designated Order Turnaround ("DOT") System of the NYSE. These transactions are
then cleared, confirmed to the Fund for the account of Gabelli & Company, and
20
<PAGE>
settled directly with the custodian of the Fund by a clearing house member firm
which remits the commission less its clearing charges to Gabelli & Company.
Pursuant to an agreement with the Fund, Gabelli & Company pays all charges
incurred for these services and reports at least quarterly to the Board of
Directors the amount of the expenses and commissions for its brokerage services,
which is subject to review and approval of the Board of Directors including
those directors who are not "interested persons" of the Fund. Gabelli & Company
may also effect Fund portfolio transactions in the same manner and pursuant to
the same arrangements on other national securities exchanges that adopt direct
access rules similar to those of the NYSE. In addition, Gabelli & Company may
directly execute transactions for the Fund on the floor of any exchange,
provided: (i) the Board of Directors has expressly authorized Gabelli & Company
to effect such transactions; and (ii) Gabelli & Company annually advises the
Fund of the aggregate compensation it earned on such transactions.
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either
in cash or in portfolio securities (selected in the discretion of the Board of
Directors of the Fund and taken at their value used in determining the Fund's
net asset value per share as described below under "Net Asset Value"), partly in
cash and partly in portfolio securities. However, payments will be made wholly
in cash unless the Board of Directors believes that economic conditions exist
which would make such a practice detrimental to the best interests of the Fund.
If payment for shares redeemed is made wholly or partly in portfolio securities,
brokerage costs may be incurred by the investor in converting the securities to
cash. The Fund will not distribute in-kind portfolio securities that are not
readily marketable. The Fund has filed a formal election with the SEC pursuant
to which the Fund will only effect a redemption in portfolio securities where
the particular shareholder of record is redeeming more than $250,000 or 1% of
the Fund's total net assets, whichever is less, during any 90 day period. In the
opinion of the Fund's management, however, the amount of a redemption request
would have to be significantly greater than $250,000 or 1% of total net assets
before a redemption wholly or partly in portfolio securities was made.
Cancellation of purchase orders for Fund shares (as, for example, when
checks submitted to purchase shares are returned unpaid) causes a loss to be
incurred when the net asset value of the Fund shares on the date of cancellation
is less than on the original date of purchase. The investor is responsible for
the loss, and the Fund, to the extent permissible by law, may reimburse itself
or Gabelli & Company for the loss by automatically redeeming shares from any
account registered at any time in that shareholder's name, or by seeking other
redress. In the event shares held in the account of the shareholder are not
sufficient to cover such loss, Gabelli & Company will promptly reimburse the
Fund for the amount of such unrecovered loss.
NET ASSET VALUE
For purposes of determining the Fund's net asset value per share,
readily marketable portfolio securities listed on the NYSE are valued, except as
indicated below, at the last sale price reflected at the close of the NYSE on
the business day as of which the value is being determined. If there has been no
sale on that day, the securities are valued at the mean of the closing bid and
asked prices on that day. If no bid or asked prices are quoted on that day, then
the security is valued by that method as the Board of Directors shall determine
in good faith to reflect its fair market value, although the actual calculation
may be done by others. Options are priced at 4:15 p.m. and are generally valued
at the last sale price or, in the absence of a last sale price, the last offer
price. Readily marketable securities not listed on the NYSE but listed on other
national securities exchanges or admitted to trading on the National Association
of Securities Dealers Automated Quotations, Inc. ("NASDAQ") National List are
valued in like manner. Portfolio securities traded on more than one national
securities exchange are valued at the last sale price on the business day as
21
<PAGE>
of which that value is being determined as reflected on the composite tape at
the close of the exchange representing the principal market for the securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Adviser to
be over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ, or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or other comparable sources as the Board of Directors
deems appropriate to reflect their fair value.
U.S. Government obligations and other debt instruments having sixty
days or less remaining until maturity are stated at amortized cost. Debt
instruments having a greater remaining maturity will be valued at the highest
bid price obtained for a dealer maintaining an active market in that security or
on the basis of prices obtained from a pricing service approved as reliable by
the Board of Directors. All other investment assets, including restricted and
not readily marketable securities, are valued by the Fund under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Directors designed to reflect in good faith the fair value of
such securities.
DIVIDENDS, DISTRIBUTIONS AND TAXES
GENERAL
Dividends and distributions will be automatically reinvested for each
shareholder's account at net asset value in additional shares of the Fund,
unless the shareholder instructs the Fund to pay all dividends and distributions
in cash and to credit the amounts to his or her brokerage account or to pay the
amounts by check. Fractional shares may be paid in cash. Dividends from net
investment income, if any, and distributions of any net realized capital gains
earned by the Fund will be paid annually.
Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, the Fund must distribute during each calendar
year, at least the sum of (1) 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) 98% of its
capital gains in excess of its capital losses for the twelve-month period ending
on October 31 of the calendar year, or upon election during the calendar year
and (3) all ordinary income and net capital gains for previous years that were
not previously distributed. A distribution will be treated as paid during the
calendar year if it is paid during the calendar year or declared by the Fund in
October, November or December of the year, payable to shareholders of record as
of a specified date in such a month and actually paid by the Fund during January
of the following year. Any such distributions paid during January of the
following year will be deemed to be paid and received on December 31 of the year
the distributions are declared.
Gains or losses on the sales of securities by the Fund will be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses.
The Fund has qualified and intends to continue to qualify as a
"Regulated Investment Company" under Subchapter M of the Code. If so qualified,
the Fund will not be subject to federal income tax on its net investment income
and net short-term and long-term capital gains, if any, realized during any
taxable year in which it distributes such income and capital gains to its
shareholders. Although the Fund is non-diversified for purposes of the 1940 Act,
the Fund nevertheless is subject to diversification requirements under
Subchapter M. In general, the Code requires the Fund to diversify its holdings
so that, at the close of each quarter of its taxable year, (1) at least 50% of
the value of its total assets consist of cash, cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities limited
22
<PAGE>
generally with respect to any one issuer to not more than 5% of the total assets
of the Fund and not more than 10% of the outstanding voting securities of each
issuer, and (2) not more than 25% of the value of its assets is invested in the
securities of any issuer (other than U.S. Government securities or the
securities of other regulated investment companies).
If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends shall be
included in the Fund's gross income as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date on which a
buyer of the stock would not be entitled to receive the declared, but unpaid,
dividends) or (b) the date the Fund acquired such stock. Accordingly, in order
to satisfy its income distribution requirements, the Fund may be required to pay
dividends based on anticipated earnings, and shareholders may receive dividends
in an earlier year than would otherwise be the case.
The Fund's transactions in futures contracts and options will be
subject to special provisions of the Code that, among other things, may affect
the character of gains and losses realized by the Fund (i.e., may affect whether
gains or losses are ordinary or capital), may accelerate recognition of income
to the Fund and may defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also (a) will require the Fund to mark-to-market certain types of the positions
in its portfolio (i.e., treat them as if they were closed out), and (b) may
cause the Fund to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy the 90% and 98% distribution
requirements for avoiding income and excise taxes described above and in the
Prospectus. The Fund anticipates that its futures contracts and options
activities will not cause it to violate the 30% requirement described in the
Prospectus. The Fund will monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and records
when it acquires any futures contract, option or hedged investment in order to
mitigate the effect of these rules and prevent disqualification of the Fund as a
regulated investment company.
DISTRIBUTIONS
Distributions of investment company taxable income (which includes
interest and the excess of net short-term capital gains over long-term capital
losses, but not the excess of net long-term capital gains over net short-term
capital losses) are taxable to a U.S. shareholder as ordinary income, whether
paid in cash or shares. Dividends paid by the Fund will qualify for the 70%
deduction generally available for dividends received by corporations to the
extent the Fund's income consists of qualified dividends received from U.S.
corporations. Distributions of net capital gains (which consists of the excess
of net long-term capital gains over net short-term capital losses), if any, are
taxable as long-term capital gains, whether paid in cash or in shares,
regardless of how long the shareholder has held the Fund's shares, and are not
eligible for the dividends received deduction. Shareholders receiving
distributions in the form of newly issued shares will have a basis in such
shares of the Fund equal to the fair market value of such shares on the
distribution date. If the net asset value of shares is reduced below a
shareholder's cost as a result of a distribution by the Fund, such distribution
will be taxable even though it represents a return of invested capital. The
price of shares purchased at this time may reflect the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will receive a
distribution which will nevertheless be taxable to them.
SALES OF SHARES
Upon a sale or exchange of his or her shares, a shareholder will
realize a taxable gain or loss depending upon his or her basis in the shares.
The gain or loss will be treated as long-term capital gain or loss if the shares
have been held for more than one year. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such case, the basis of the shares acquired
23
<PAGE>
will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of long-term capital gains received by the shareholder with
respect to such shares. However, capital losses are deductible only against
capital gains plus, for individuals, up to $3,000 of ordinary income.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at the rate of
31% with respect to (1) taxable dividends and distributions and (2) proceeds of
any redemptions of Fund shares if a shareholder fails to provide the Fund with
his or her correct taxpayer identification number or to make required
certifications, or who has been notified by the Internal Revenue Service that he
or she is subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's federal income
tax liability.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known. Because the Fund will not have more than 50% of its
total assets invested in securities of foreign governments or corporations, the
Fund will not be entitled to "pass-through" to shareholders the amount of
foreign taxes paid by the Fund.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state, local or foreign taxes.
CALCULATION OF INVESTMENT PERFORMANCE
From time to time, the Fund may quote its performance in advertisements
or in reports and other communications to shareholders.
AVERAGE ANNUAL TOTAL RETURN
The Fund's "average annual total return" figures, as described in the
Prospectus, are computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P(1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning of a
1-, 5- or 10-year period at the end of a 1-,
5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
The following average annual total return figures calculated in
accordance with the above formula assume that the maximum 5.5% sales load has
been deducted from the hypothetical $1,000 initial investment at the time of
purchase.
24
<PAGE>
15.7% for the one-year fiscal period from January 1, 1995 through
December 31, 1995;
17.3% for the fiscal per period from January 1, 1991 through December
31, 1995.
11.9% for the period from the Fund's commencement of operations on
September 29, 1989 through December 31, 1995.
AGGREGATE TOTAL RETURN
The Fund's aggregate total return figures, as described in the
Prospectus, represent the cumulative change in the value an investment in the
Fund for the specified period and are computed according to the following
formula:
AGGREGATE TOTAL RETURN = ERV-P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning of
a 1-, 5-, or 10-year period (or fractional
portion thereof) at the end of the 1-, 5-,
or 10-year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
The Fund's aggregate total return was as follows for the periods
indicated:
22.5% for the one-year fiscal period from January 1, 1995 through
December 31, 1995;
113.9% for the period from the Fund's commencement of operations on
September 29, 1989 through December 31, 1995.
These aggregate total return figures do not assume that the maximum
5.5% sales load has been deducted from the investment at the time of purchase.
If the maximum sales charge had been deducted at the time of purchase, the
Fund's aggregate total returns for the same periods would have been 15.7% and
102.2%, respectively.
The Fund's performance will vary from time to time depending upon
market conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because the performance will fluctuate, it may not provide a basis
for comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing the Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
COUNSEL
Willkie Farr & Gallagher, 153 E. 53rd Street, New York, New York
10022, serves as legal counsel for the Fund.
25
<PAGE>
EXPERTS
The financial statements included in this Statement of Additional
Information have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of that firm as experts in
auditing and accounting. Price Waterhouse LLP serves as the Fund's independent
accountants and in that capacity audits the Fund's annual financial statements.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Boston Safe, an indirect wholly owned subsidiary of Mellon Bank
Corporation., is located at One Boston Place, Boston, Massachusetts 02108, and
acts as custodian of the Fund's cash and securities. BFDS, an affiliate of State
Street Bank and Trust Company ("State Street"), is located at the BFDS Building,
Two Heritage Drive, Quincy, MA 02171 and acts as the Fund's transfer agent and
dividend disbursing agent. Neither Boston Safe, BFDS nor State Street assists in
or is responsible for investment decisions involving assets of the Fund.
GENERAL INFORMATION
The Fund's Articles of Incorporation provides that to the fullest
extent that limitations on the liability of Directors and officers are permitted
by the Maryland General Corporation Law, the Securities Act of 1933, as amended,
and the 1940 Act, Directors and officers shall be indemnified by the Fund
against judgments, penalties, fines, excise taxes, settlements and reasonable
expenses actually incurred in connection with any action, suit or other
proceeding. To the fullest extent permitted by Maryland General Corporation Law,
as amended from time to time, the Fund's Articles of Incorporation also provide
that no Director or officer of the Fund shall be personally liable to the Fund
or its shareholders for money damages, except to the extent such exemption from
liability or limitation thereof is not permitted by the 1940 Act. Nothing in the
Articles of Incorporation protects a Director against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty involved in the conduct of his office.
The Fund reserves the right to create and issue a number of series of
shares, in which case the shares of each series would have equal rights with
respect to voting, dividends and distributions upon liquidation, but would vote
separately to approve management agreements or changes in investment policies.
Shares of all series would vote together in the election or selection of
Directors, principal underwriters and accountants. Upon liquidation of the Fund,
shareholders of each series would be entitled to share pro rata in the net
assets of their respective series available for distribution to shareholders.
Shareholders are entitled to one vote for each full share held and
proportionate, fractional votes for fractional shares held and may vote in the
election of Directors and on other matters submitted to meetings of
shareholders. It is not contemplated that regular annual meetings of
shareholders will be held. A meeting will be called to consider replacing the
Fund's Directors upon the written request of the holders of 10% of the Fund's
shares. Shareholders have no preemptive or conversion rights.
The Adviser's investment personnel may invest in securities for their
own account pursuant to a Code of Ethics that establishes procedures for
personal investing and restricts certain transactions.
26
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.
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
A-1
<PAGE>
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately based, in which case the rating is not published in
Moody's Investors Service, Inc.'s publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believe possess the strongest investment attributes are designated by the
symbols Aa-1, A-1, Baa-1, and B-1.
STANDARD & POOR'S RATINGS SERVICE
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P").
Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in the highest rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
A-2
<PAGE>
NR: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-3
THE GABELLI VALUE FUND INC.
PART C
FINANCIAL STATEMENTS AND EXHIBITS
THE GABELLI VALUE FUND INC.
Part C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A: Financial Highlights
Part B: Audited financial statements for the fiscal year ended
December 31, 1995 are included in the Statement of Additional
Information:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets for years ended December 31,
1994 and December 31, 1995
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Part C: Consent of Independent Accountants is filed herein.
(b) Exhibits
All references are to the Registrant's registration statement on Form
N-1A as filed with the Securities and Exchange Commission ("SEC") on
July 24, 1989, File Nos. 33-30139 and 811-5848 (the "Registration
Statement").
(1) Registrant's Articles of Incorporation are incorporated by
reference to the Registration Statement.
(2) Registrant's Bylaws are incorporated by reference to Pre-
Effective Amendment No. 2 to the Registration Statement, as filed with
the SEC on September 20, 1989 ("Pre-Effective Amendment No. 2").
(3) Not Applicable.
(4) Specimen copies of certificates for shares issued by Registrant
are incorporated by reference to Pre-Effective Amendment No. 2.
(5) Form of Investment Advisory Agreement with Gabelli Funds dated
March 1, 1994 is incorporated by reference to Post-Effective Amendment
No. 7 to the Registration Statement, as filed with the SEC on March 1,
1994 ("Post-Effective Amendment No. 7").
(6)(a) Form of Distribution Agreement (Subscription Period) with
Gabelli & Company, Inc. and Shearson Lehman Hutton Inc. dated
September 21, 1989 is incorporated by reference to Pre-Effective
Amendment No. 1 to the Registration Statement, as filed with the SEC
on August 29, 1989 ("Pre-Effective Amendment No. 1").
(6)(b) Distribution Agreement with Gabelli & Company, Inc. dated
July 30, 1993 is incorporated by reference to Post-Effective Amendment
No. 7.
(6)(c) Designated Dealer Agreement with Gabelli & Company, Inc.
dated September 18, 1989 is incorporated by reference to Post-
Effective Amendment No. 9 to the Registration Statement as filed with
the SEC on May 1, 1995 ("Post-Effective Amendment No. 9.").
(7) Not applicable.
(8) Form of Custody Agreement with Boston Safe Deposit and Trust
Company dated September 19, 1989 is incorporated by reference to Pre-
Effective Amendment No. 1.
(9)(a) Transfer Agency Agreement with State Street Bank and Trust
Company dated November 17, 1993 is incorporated by reference to Post-
Effective Amendment No. 7.
(9)(b) Sub-Administration Agreement with Boston Advisors dated
March 1, 1994 is incorporated by reference to Post-Effective Amendment
No. 8 to the Registration Statement, as filed with the SEC on April
29, 1994.
(9)(c) Assignment of Sub-Administration Agreement dated May 1,
1994 with The Shareholder Services Group, Inc. ("TSSG") is
incorporated by reference to Post-Effective Amendment No. 9.
(10) Not applicable.
(11)(a) Consent of Independent Accountants is filed herewith.
(11)(b) Powers of Attorney are filed herewith.
(12) Not applicable.
(13) Subscription Agreement is incorporated by reference to Pre-
Effective Amendment No. 2.
(14) Plan for Individual Retirement Accounts is incorporated by
reference to Post-Effective Amendment No. 1 to the Registration
Statement, as filed with the SEC on March 29, 1990 ("Post-Effective
Amendment No. 1").
(15) Form of Plan of Distribution is incorporated by reference to
Pre-Effective Amendment No. 2.
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 1.
(17) Financial Data Schedule is filed herewith.
(18) Not applicable.
Item 25. Persons Controlled by or Under Common Control with
Registrant.
None
Item 26: Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders
As of April 15, 1996
Common Stock 36,068
Value $.001 per
Share
Item 27: Indemnification
The response to this Item 27 is incorporated by reference to
Pre-Effective Amendment No. 2.
Item 28: Business and Other Connections of Investment Adviser
Gabelli Funds, Inc. (the "Adviser") is a registered investment
adviser providing investment management and administrative services to
the Registrant. The Adviser also provides similar services to other
mutual funds.
The information required by this Item 28 with respect to any
other business, profession, vocation or employment of a substantial
nature engaged in by directors and officers of the Adviser during the
past two years is incorporated by reference to Form ADV filed by the
Adviser pursuant to the Investment Advisers Act of 1940 (SEC File No.
801-37706).
Item 29: Principal Underwriter
Gabelli & Company Inc. currently acts as distributor for The
Gabelli Asset Fund, The Gabelli Equity Series Funds, Inc., The Gabelli
Growth Fund, The Gabelli Global Convertible Securities Fund, The
Gabelli Equity Trust Inc., The Gabelli Global Multimedia Trust Inc.,
The Gabelli Small Cap Growth Fund, The Gabelli Equity Income Fund, The
Gabelli Gold Fund, The Gabelli U.S. Treasury Money Market Fund, The
Gabelli ABC Fund, The Gabelli Value Fund Inc., The Gabelli Global
Interactive Couch Potato Fund, The Gabelli International Growth
Fund, Inc., Gabelli Capital Asset Fund, The Gabelli Global Series
Funds, Inc. and The Westwood Funds.
The information required by this Item 29 with respect to each
director, officer or partner of Gabelli & Company, Inc. is
incorporated by reference to Schedule A of Form BD filed by Gabelli &
Company, Inc. pursuant to the Securities Exchange Act of 1934, as
amended (SEC File No. 8-21373).
Item 30. Location of Accounts and Records
All accounts, books and other documents required by Section
31(a) of the 1940 Act and Rules 31a-1 through 31a-3 thereunder are
maintained at the offices of Gabelli Funds, Inc., One Corporate
Center, Rye, New York, First Data Investor Services Group, Inc. One
Exchange Place, Boston, Massachusetts: Boston Safe Deposit and Trust
Company, One Boston Place, Boston, Massachusetts; State Street Bank
and Trust Company c/o Boston Financial Data Services, Inc., Two
Heritage Drive, Quincy, Massachusetts.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes to furnish to each person to
whom a Prospectus of the Registrant is delivered a copy of the
Registrant's latest annual report, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the
requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the
City of Rye and State of New York, on the 29th day of April, 1996.
THE GABELLI VALUE FUND INC.
(Registrant)
By: Mario J. Gabelli*
Mario J. Gabelli
Chairman of the Board of Directors
______________________________________________________________________________
Pursuant to the requirments of the Securities Act of 1933, this
registration statement has been signed
below by the following persons in the capacities and on the date indicated.
Signature: Title: Date:
Mario J. Gabelli* Chairman of the Board, April 29, 1996
Mario J. Gabelli (President and Chief
Investment Officer)
/s/ Bruce N. Alpert Vice President and Treasurer April 29, 1996
Bruce N. Alpert (Chief Operating Officer)
Bill Callaghan* Director April 29, 1996
Bill Callaghan
Felix J. Christiana* Director April 29, 1996
Felix J.Christiana
Anthony J. Colavita* Director April 29, 1996
Anthony J. Colavita
Robert J. Morrissey* Director April 29, 1996
Robert J. Morrissey
Katl Otto Pohl* Director April 29, 1996
Karl Otto Pohl
Anthony R. Pustorino* Director April 29, 1996
Anthony R. Pustorino
*By: /s/ Bruce N. Alpert
Bruce N. Alpert
Attorney-in-Fact
Copies of Powers of Attorney are filed herein.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(11)(a) Consent of Independent Accountants
(11)(b) Powers of Attorney
(17) Financial Data Schedule
Consent of Independent Accounts
We hereby consent to the use in the Statement of Additional
Information constituting part of this Post-Effective Amendment No.
10 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 13, 1996, relating to the
financial statements and financial highlights of The Gabelli Value
Fund, which appears in such Statement of Additional Information, and
to the incorporation by reference of our report into the Prospectus
which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Experts" in such
Statement of Additional Information and to the reference to us under
the heading "Financial Highlights" in such Prospectus.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 29, 1996
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint
Mario J. Gabelli, Bruce N. Alpert and J. Hamilton Crawford, Jr., and
each of them singly, true and lawful attorneys, with full power to
them and each of them, to sign for us, and in our hands and in the
capacities indicated below, any and all Registration Statements on
Form N-1A of The Gabelli Value Fund Inc., and any and all amendments
thereto, and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said attorneys, and
each of them acting alone, full authority and power to do and perform
each and every act and thing requisite or necessary to be done in the
premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys
or any or them may lawfully do or cause to be done by virtue thereof.
WITNESS our hands as of the dates set forth below:
Signature: Title:
Date:
/s/ Mario J. Gabelli Chairman of the Board
February 28, 1995
Mario J. Gabelli of Directors
/s/ William Callaghan Director
February 28, 1995
William Callaghan
/s/ Felix J. Christiana Director
February 28, 1995
Felix J. Christiana
/s/ Anthony J. Colavita Director
February 28, 1995
Anthony J. Colavita
/s/ Robert J. Morrissey Director
February 28, 1995
Robert J. Morrissey
/s/ Karl Otto Pohl Director
February 28, 1995
Karl Otto Pohl
/s/ Anthony R. Pustorino Director
February 28, 1995
Anthony R. Pustorino
G:\SHARED\3RDPARTY\GABVALUE\SIGNATURE\POAEDGAR.DOC
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 0
<NAME> GABELLI VALUE FUND INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 389,855,478
<INVESTMENTS-AT-VALUE> 488,733,987
<RECEIVABLES> 5,869,647
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,956
<TOTAL-ASSETS> 494,607,590
<PAYABLE-FOR-SECURITIES> 5,413,713
<SENIOR-LONG-TERM-DEBT> 0
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</TABLE>
