THE GABELLI VALUE FUND INC.
PROSPECTUS
May 1, 1997
GABELLI FUNDS, INC.
Investment Adviser
GABELLI & COMPANY, INC.
Distributor
TABLE OF CONTENTS
Page
Prospectus Summary.................................................2
The Fund's Expenses...............................................3
Financial Highlights...............................................4
The Fund and its Investment Policies...............................5
Other Investments.................................................6
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
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No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus, the Additional
Statement and in the Fund's official sales literature in connection with the
offering of the Fund's shares, and if given or made, such information or
representation may not be relied upon as authorized by the Fund, its Investment
Adviser, Distributor or any affiliate thereof.
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<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
Gabelli Funds, Inc.
Investment Adviser
PROSPECTUS May 1, 1997
.........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) of Fund shares. The minimum initial investment is
$1,000 except for investments made through the Automatic Investment Plan
(see "Purchase of Shares - Automatic Investment Plan"). There is no minimum
requirement for subsequent purchases, although some brokers or dealers may
impose their own minimum requirements (see "Retirement Plans"). Investments
for Individual Retirement Accounts ("IRAs") 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 should 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 ("Additional
Statement"), dated May 1, 1997, that is available upon request and without
charge (i) by calling or writing the Fund at the telephone number or
address set forth above, (ii) in the manner described under "Purchase of
Shares" herein or (iii) by contacting the broker through whom you purchased
shares or Gabelli & Company, Inc. ("Gabelli & Company"). Also, the
Additional Statement is available for reference, along with other
materials, on the Securities and Exchange Commission ("SEC") Internet web
site (http://www.sec.gov). The Additional Statement has been filed with the
SEC and is incorporated by reference into this Prospectus in its entirety.
.........Shares of the Fund are not deposits, obligations of, or endorsed by any
bank, and are not insured or guaranteed by any bank, the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency. An
investment in the Fund involves investment risks, including the possible
loss of principal. ------------------------
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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>
5
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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 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 Additional
Statement. 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. See "Management of the Fund."
How to Purchase Shares: Shares of the Fund may be purchased through certain
registered broker-dealers and from 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 except for
investments made through the Automatic Investment Plan for which there is no
initial minimum investment required. See "Purchase of Shares Automatic
Investment Plan." The Fund imposes no minimum for subsequent investments
although some registered broker-dealers may impose their own minimum.
Investments through certain retirement plans, however, have different
requirements. See "Retirement Plans."
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."
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 and capital gains distributions, if any,
on an annual basis. See "Dividends, Distributions and Taxes."
<TABLE>
<CAPTION>
THE FUND'S EXPENSES
<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
Exchange fee......................................................................................... None
Annual Fund Operating Expenses (Percent of average daily net assets):
Management fees...................................................................................... 1.00%
Distribution (Rule 12b-1) expenses*.................................................................. 0.25%
Other expenses....................................................................................... 0.15%
----
Total Operating Expenses............................................................................. 1.40%
====
.........
* 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").
</TABLE>
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
expenses shown are the levels incurred during the preceding fiscal year.
<PAGE>
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 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>
<S> <C> <C> <C> <C>
1 3 5 10
year years years years
A shareholder would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and redemption
at the end of each time period.................................... $68 $97 $127 $214
.........
** The amounts listed in this example should not be considered as
representative of past or 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%.
</TABLE>
Management's Discussion and Analysis of the Fund's performance during the fiscal
year ended December 31, 1996 is included in the Fund's Annual Report to
Shareholders dated December 31, 1996. The Fund's Annual Report to Shareholders
may be obtained upon request and without charge by writing or calling the Fund
at the address or telephone number listed on the Prospectus cover.
<PAGE>
6
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FINANCIAL HIGHLIGHTS
The following information, insofar as it pertains to each of the five
years in the period ended December 31, 1996, has been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report on this
information appears in the Additional Statement. This table should be read in
conjunction with the financial statements and related notes that are included in
the Additional Statement.
Per share amounts for a Fund share outstanding throughout each period/year ended
December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991(a) 1990 1989*
---- ---- ---- ---- ---- ------- ---- ----
Operating performance:
Net asset value, beginning of year.......... $11.61 $ 10.49 $ 12.09 $ 10.13 $ 9.48 $ 8.51 $ 9.58 $ 9.45
------ ------- ------- ------- ------ ------ ------ ------
Net investment income/(loss)................ (0.02) 0.05 0.09 0.05 0.09 0.13 0.45 0.16
Net realized and unrealized gain/(loss) on
investments............................... 1.04 2.30 (0.09) 3.95 1.11 1.17 (0.98) 0.04
---- ----- ------- ----- ----- ----- ------- -----
Total from investment operations............ 1.02 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........................ (1.10) (1.18) (1.50) (1.99) (0.46) (0.14) --- (0.01)
Paid-in capital............................. (0.01) --- --- --- --- --- --- ---
Distributions in excess of net realized gains --- (0.01) --- --- --- --- ---
------------- ----- -------- ------- ----- ----- ---- ------
Total distributions......................... (1.11) (1.23) (1.60) (2.04) (0.55) (0.33) (0.54) (0.07)
------ ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year................ $11.52 $ 11.61 $ 10.49 $ 12.09 $ 10.13 $ 9.48 $ 8.51 $ 9.58
====== ======= ======= ======= ======= ====== ====== ======
Total return **........................... 8.7% 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). $460,836 $486,144 $436,629 $491,193 $423,381 $574,676 $850,685 $1,126,146
Ratio of net investment income
to average net assets/(loss)............ (0.12)% 0.42% 0.73% 0.38% 0.75% 1.43% 4.45% 6.06%+
Ratio of operating expenses to
average net assets...................... 1.40% 1.50 1.50% 1.53% 1.52% 1.45% 1.39% 1.48%+
Portfolio turnover rate..................... 37.1% 64.6% 66.6% 21.4% 0.1% 16.2% 58.6% 73.3%
Average commission rate
(per share of security) (c)............... $0.0498 N/A N/A N/A N/A N/A N/A N/A
.........
* 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
$0.005 per share. (c) Average commission rate (per share of security) as
required by amended SEC disclosure requirements effective for fiscal
years beginning after September 1, 1995.
</TABLE>
<PAGE>
23
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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 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 Additional Statement.
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 Additional Statement.
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 exchange therefor. 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 Services, 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 Additional Statement.
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 the Fund's portfolio.
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 Depositary 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
Additional Statement.
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.
In addition, the Fund may invest in money market mutual funds not
affiliated with the Fund, Lehman Brothers or Gabelli & Company. The investment
policy with respect to investment companies generally is set forth below under
"Other Investment Companies."
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 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 in small, less well-known companies (including
predecessors) which have operated less than three years. The securities of these
kinds of companies may have limited liquidity.
The Fund will not invest, in the aggregate, 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 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 a substantial portion of its assets 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 weakened capacity 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 Additional
Statement. 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 Additional Statement.
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 purposes 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.
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 Additional Statement.
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 Additional Statement.
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 Additional
Statement.
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;
having aggregate assets as of April 1, 1997, in excess of $4.0 billion. GAMCO
Investors, Inc. ("GAMCO"), an investment adviser for individuals, pension
trusts, profit-sharing trusts and endowments, is a wholly-owned subsidiary of
the Adviser with aggregate assets in excess of $4.9 billion under its management
as of April 1, 1997. Teton Advisers LLC, an affiliate of the Adviser, manages
the Westwood Funds with aggregate assets of approximately $123 million as of
April 1, 1997. 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. 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. The Additional Statement
contains further information about the Advisor's agreement with the Fund (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, Chief Executive
Officer and Chief Investment 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.
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.
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%.
<PAGE>
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 Additional Statement.
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 certain retirement
plans and the Automatic Investment Plan, however, have lower minimum
requirements. See "Retirement Plans" and "Automatic Investment Plan." 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 ownership of 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
the net asset value next 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>
<S> <C> <C> <C>
Sales Charge Sales Charge Reallowance
as % of the as % of to Soliciting
Amount of Investment Offering Price Amount Invested Broker-Dealers
- -------------------- -------------- --------------- --------------
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 (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.
.........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, 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; (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 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 and distributing the Fund's Prospectus, Additional
Statement 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
purchase check has been honored, 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.
<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. The investor's 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, the request will be processed
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 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 a holiday 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, normally 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.
Further information regarding the Fund's valuation policies is contained in
the Additional Statement 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 IRA for the
spouse under the same conditions and contribute a combined maximum $4,000
annually to 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. 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.
.........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 Additional Statement.
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 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, it 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
Additional Statement, 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, Massachusetts
02171.
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 Additional
Statement included in such Registration Statement may be obtained without
charge from the Fund or Gabelli & Company.
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, 1997
.........This Statement of Additional Information ("Additional Statement") 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
supplemented from time to time, dated May 1, 1997 (the "Prospectus"). This
Additional Statement 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
or writing the Fund at the telephone number and address set forth above or by
contacting the broker through whom you purchased shares or Gabelli & Company,
Inc. Also, this Additional Statement is available, along with other materials,
on the Securities and Exchange Commission ("SEC") Internet web site
(http://www.sec.gov).
TABLE OF CONTENTS
Page
Investment Policies........................................... 2
Other Investments............................................. 2
Special Investment Methods.................................... 4
Investment Restrictions....................................... 10
Directors and Officers........................................ 12
The Adviser................................................... 15
Sub-Administrator............................................. 16
Distributor................................................... 16
Distribution Plan............................................. 17
Portfolio Transactions and Brokerage.......................... 17
Redemption of Shares.......................................... 19
Net Asset Value............................................... 20
Dividends, Distributions and Taxes............................ 21
Calculation of Investment Performance......................... 23
Counsel....................................................... 24
Experts....................................................... 24
Custodian, Transfer Agent and Dividend Disbursing Agent....... 24
General Information........................................... 25
Financial Statements.......................................... 26
Appendix A: Description of Corporate Bond Ratings............. A-1
<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 offeror 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 Fund's portfolio turnover
ratio 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 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 convertible 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 securitie 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 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 maket 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 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 in the public market that 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
Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Service
("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.
.........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.
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 liquid portfolio securities 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.
.........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. 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 portfolio 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 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;
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.
<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, Address, Age and Principal Occupations During Last Five Years;
Position(s) with Fund Affiliations with the Adviser
<S> <C>
Mario J. Gabelli, CFA,* 54 Chairman of the Board, Chief Executive Officer and Chief Investment
Chairman, President and Officer of Gabelli Funds, Inc. and of GAMCO Investors, Inc.;
Chief Investment Officer Chairman of the Board, President and Chief Investment Officer of
Gabelli Capital Series Fund, Inc.,
The Gabelli Equity Trust Inc. and
The Gabelli Global Multimedia
Trust Inc.; President, Director
and Chief Investment Officer of
Gabelli Global Series Funds, Inc.,
Gabelli Investor Funds, Inc.,
Gabelli Equity Series Funds, Inc.
and The Gabelli Convertible
Securities Fund, Inc.; Trustee of
The Gabelli Asset Fund, The
Gabelli Growth Fund and The
Gabelli Money Market Funds;
Director of Gabelli Gold Fund,
Inc., Gabelli International Growth
Fund, Inc. and The Treasurer's
Fund, Inc.; Chairman and Chief
Executive Officer of Lynch
Corporation.
Bill Callaghan, 53 President of Bill Callaghan Associates Ltd. (executive search
Director company); Director of The Gabelli Equity Trust Inc. and The Gabelli
Global Multimedia Trust Inc.
Felix J. Christiana, 72 Formerly Senior Vice President of Dry Dock Savings Bank in White
Director Plains, New York; Director of Gabelli Global Series Funds, Inc., The
Gabelli Equity Trust Inc., The Gabelli Global Multimedia Trust Inc.,
The Gabelli Convertible Securities Fund, Inc., Gabelli Equity Series
Funds, Inc. and The Treasurer's Fund, Inc. and Trustee of The
Gabelli Asset Fund and The Gabelli Growth Fund.
Anthony J. Colavita, 62 President and Attorney at Law in the law firm of Anthony J.
Director Colavita, P.C.; Director of Gabelli Global Series Funds, Inc.,
Gabelli Investor Funds, Inc., The
Gabelli Convertible Securities
Fund, Inc., Gabelli Gold Fund,
Inc., Gabelli International Growth
Fund Inc., Gabelli Capital Series
Funds, Inc., Gabelli Equity Series
Funds, Inc. and The Treasurer's
Fund, Inc.; and Trustee of The
Gabelli Asset Fund, The Gabelli
Growth Fund, The Gabelli Money
Market Funds and the Westwood
Funds.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name, Address, Age and Principal Occupations During Last Five Years;
Position(s) with Fund Affiliations with the Adviser
<S> <C>
Robert J. Morrissey, 56 Partner in the law firm of Morrissey Hawkins; Former partner in the
Director law firm of Withington Cross Park & Groden; and Director of Gabelli
Equity Series Funds, Inc.
Karl Otto Pohl, *+ 67 Managing Partner of Sal. Oppenheim jr. & Cie. (private investment
Director bank); Board Member of IBM World Trade Europe/Middle East/Africa
Corp., Bertlesmann AG, Zurich
Versicherungs - Gesellschaft
(insurance); the International
Advisory Board of General Electric
Company and JP Morgan & Co.;
Supervisory Board Member of Royal
Dutch ROBECo/o Group (petroleum
company); Advisory Director of
Unilever N.V. and Unilever
Deutschland; Director or Trustee
of all Funds advised by Gabelli
Funds, Inc. and The Treasurer's
Fund, Inc.
Anthony R. Pustorino, CPA, 71 Certified Public Accountant; Professor of Accounting, Pace
Director University; Director of The Gabelli Equity Trust Inc., The Gabelli
Global Multimedia Trust Inc., The
Gabelli Convertible Securities
Fund, Inc., Gabelli Equity Series
Funds, Inc., Gabelli Capital
Series Funds, Inc. and The
Treasurer's Fund, Inc.; and
Trustee of The Gabelli Asset Fund
and The Gabelli Growth Fund.
Bruce N. Alpert, 45 Vice President and Chief Operating Officer of the investment
Chief Operating Officer, advisory division of the Adviser; Vice President and Treasurer of
Vice President and Treasurer The Gabelli Equity Trust Inc., The Gabelli Convertible Securities
Fund Inc., 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. and
The Gabelli Money Market Funds;
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.
James E. McKee, 33 Vice President and General Counsel of GAMCO Investors, Inc. since
Secretary 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
SEC in New York (1992-1993); Staff
attorney with the SEC in New York
(1989-1992).
- ---------------------
+ 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.
</TABLE>
<PAGE>
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, 1996, such fees totaled $90,613.
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, 1997, as a group the Directors and
officers of the Fund owned less than 1% of the outstanding shares of common
stock of the Fund.
<TABLE>
<CAPTION>
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, 1996.
Compensation Table
Total Compensation
from the Fund and
Aggregate Compensation from the Fund Complex
Name of Person and Position Fund paid to Directors*
<S> <C> <C> <C>
Mario J. Gabelli $ 0 $ 0
Chairman of the Board
Bill Callaghan $14,000 $34,500 (3)
Director
Felix J. Christiana $14,000 $74,000 (11)
Director
Anthony J. Colavita $16,500 $70,000 (14)
Director
Robert J. Morrissey $15,500 $24,500 (3)
Director
Karl Otto Pohl $13,000 $77,750 (16)
Director
Anthony R. Pustorino $19,000 $84,500 (9)
Director
* Represents the total compensation paid to such persons during the fiscal
year ending December 31, 1996 by investment companies (including the Fund)
from which such person receives compensation that are part of the same fund
complex as the Fund because they have common or affiliated investment
advisers. The number in parentheses represents the number of such
investment companies.
</TABLE>
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, Inc., 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 most recently 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 February 26, 1997. Pursuant to the Advisory
Agreement, the Fund employs the 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 generally is 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 Additional Statement);
(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, 1994, December 31, 1995 and December 31, 1996, the Fund paid
investment advisory fees to the Adviser amounting to $4,613,924, $4,750,908 and
$4,983,647, respectively.
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 SEC and state
"Blue Sky" authorities; (e) calculates the Fund's net asset value per share,
provides any equipment or services necessary for the purpose of pricing shares
or valuing the Fund's investment portfolio and, when requested, calculates the
amounts permitted for the payment of distribution expenses under any
distribution plan adopted by the Fund; (f) provides compliance testing of all
Fund activities against applicable requirements of the 1940 Act and the rules
thereunder, the Code, and the Fund's investment restrictions; (g) furnishes to
the Adviser such statistical and other factual information and information
regarding economic factors and trends as the Adviser from time to time may
require; and (h) generally provides all administrative services that may be
required for the ongoing operation of the Fund in a manner consistent with the
requirements of the 1940 Act.
For the services it provides, the Advisor pays the Sub-Administrator an
annual fee based on the value of the aggregate average daily net assets of all
funds under its administration managed by the Adviser as follows: up to $1
billion - 0.10%; $1 billion to $1.5 billion - 0.08%; $1.5 billion to $3 billion
- - 0.03%; over $3 billion - 0.02%.
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 majority owned
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."
For the fiscal years ended December 31, 1994, December 31, 1995, and
December 31, 1996, commissions (sales charges) on sales of the Fund's shares
received by Gabelli & Company were $200,857, $336,808, and $227,803,
respectively.
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, 1996, the
Fund made aggregate distribution payments of approximately $1,245,912 to
Designated Dealers pursuant to the Plan. Such payments included payments of
approximately $114,512 for support services, $179,100 to sales personnel of
Designated Dealers, $76,200 for advertising expenses and $23,100 for printing
and mailing expenses and also payments of $853,000 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 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 executed
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.
<TABLE>
<CAPTION>
The following table sets forth certain information regarding the Fund's
payment of brokerage commissions to Gabelli & Company and Keeley Investment
Corp. ("Keeley"). A significant shareholder of Keeley is a director of company
that is an affiliate of the Adviser:
<S> <C> <C>
Fiscal Year Ended
December 31, Commissions Paid
Total Brokerage Commissions 1994 $622,746
1995 $554,829
1996 $446,848
Commissions paid to Gabelli & Company 1994 $25,912
1995 $118,214
1996 $110,275
Commissions paid to Keeley Investment Corp. 1994 $9,415
1995 $5,800
1996 $5,110
% of Total Brokerage Commissions paid to Gabelli & Company 1996 24.7%
% of Total Brokerage Commissions paid to Keeley Investment Corp. 1996 1.1%
% of Total Transactions involving Commissions paid to 1996 24.8%
Gabelli & Company
% of Total Transactions involving Commissions paid to 1996 1.0%
Keeley Investment Corp.
</TABLE>
.........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, as
amended. 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 $446,848 on
portfolio transactions in the principal amounts of $302,528,151 during
1996. The average commission on these transactions was $0.0498 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 System of the NYSE. These transactions are then
cleared, confirmed to the Fund for the account of Gabelli & Company, and settled
directly with the custodian of the Fund by a clearing house member firm which
remits the commission less its 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.
.........The Fund's portfolio turnover rate for the fiscal years ended
December 31, 1995 and December 31, 1996 were 64.6% and
37.15%, respectively.
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 regular trading session of the NYSE on the business day as of which
such value is being determined. If there has been no sale on such day, the
securities are valued at the mean of the closing bid and asked prices on
such day. If no asked prices are quoted on such day, then the security is
valued at the closing bid price on such day. If no bid or asked prices are
quoted on such day, then the security is valued by such method as the Board
of 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.
.........Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Adviser to
be over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Directors deems appropriate to reflect their fair value. If no asked prices are
quoted on such day, then the security is valued at the closing bid price on such
day. If no bid or asked prices are quoted on such day, then the security is
valued at the closing bid price on such day. If no bid or asked prices are
quoted on such day, then the security is valued by such method as the Board of
Directors shall determine in good faith to reflect its fair market value.
.........Portfolio securities traded on more than one national securities
exchange or market are valued according to the broadest and most
representative market as determined by the Adviser. Securities traded
primarily on foreign exchanges are valued at the closing price on such
foreign exchange immediately prior to the close of the NYSE.
.........United States Government obligations and other debt instruments having
60 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 from a dealer maintaining an active market in that security
or on the basis of prices obtained from a pricing service approved as reliable
by the Board of Directors. All other investment assets, including restricted and
not readily marketable securities, are valued under procedures established by
and under the general supervision and responsibility of the Fund's Board of
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 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 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.
<PAGE>
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.
2.7% for the one year period from January 1, 1996 through
December 31, 1996
14.6% for the five year period from January 1, 1992 through
December 31, 1996
11.5% for the period from the Fund's inception on
September 29, 1989
through December 31, 1996.
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:
<PAGE>
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:
8.7% for the one year fiscal period from January 1, 1996 through December 31,
1996
92.6% for the five year period from January 1, 1992 through December 31, 1996
132.6% for the period from the Fund's inception on September 29, 1989
through December 31, 1996.
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 2.7%, 81.9%
and 121.9%, 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.
EXPERTS
The financial statements included in this Additional Statement 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, MASSACHUSETTS 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.
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1996
================================================================================
<CAPTION>
MARKET
SHARES COST VALUE
- ------------ ------------ ------------
<C> <S> <C> <C>
COMMON STOCKS--99.0%
BROADCASTING--17.1%
86,000 Ackerley Communications,
Inc..................... $ 1,189,500 $ 1,010,500
511,837 Chris-Craft Industries,
Inc..................... 13,819,204 21,433,174
80,000 Gray Communications
Systems, Inc., Class
B....................... 1,545,744 1,360,000
775,000 Grupo Televisa S.A.,
GDR +................... 17,146,149 19,859,375
110,000 Liberty Corporation...... 2,631,819 4,317,500
60,000 LIN Television
Corporation +........... 1,745,322 2,535,000
100,000 New World Communications
Group Incorporated,
Class A +............... 2,207,645 2,525,000
200,000 Paxson Communications
Corporation, Class
A +..................... 1,609,935 1,575,000
136,800 United Television,
Inc..................... 12,000,973 11,781,900
620,000 Westinghouse Electric
Corp.................... 9,452,290 12,322,500
------------ ------------
63,348,581 78,719,949
------------ ------------
PUBLISHING--16.9%
240,000 Golden Books Family
Entertainment, Inc. +... 3,727,751 2,670,000
65,000 McGraw-Hill Companies,
Inc..................... 2,247,736 2,998,125
2,170,000 Media General, Inc.,
Class A................. 47,907,175 65,642,500
120,000 Meredith Corporation..... 4,711,358 6,330,000
20,000 News Corporation Limited,
Sponsored ADR Preference
Shares.................. 331,000 352,500
------------ ------------
58,925,020 77,993,125
------------ ------------
CONSUMER PRODUCTS--9.7%
150,000 American Brands, Inc..... 6,189,153 7,443,750
330,000 Carter-Wallace, Inc...... 4,541,331 5,156,250
77,500 Culbro Corporation +..... 2,160,039 5,027,813
175,000 General Electric
Company................. 8,855,331 17,303,125
87,000 Ralston Purina Group..... 3,949,192 6,383,625
105,000 Syratech Corporation +... 1,881,863 3,307,500
------------ ------------
27,576,909 44,622,063
------------ ------------
CABLE--8.4%
206,500 Cablevision Systems
Corporation, Class
A +..................... 9,136,711 6,324,062
80,000 General Instrument
Corporation +........... 2,140,385 1,730,000
400,000 International Family
Entertainment, Inc.,
Class B +............... 6,274,475 6,200,000
955,000 Tele-Communications,
Inc., Class A +......... 9,476,528 12,474,688
424,000 Tele-Communications,
Inc./Liberty Media
Group, Class A +........ 8,410,527 12,110,500
------------ ------------
35,438,626 38,839,250
------------ ------------
ENTERTAINMENT--6.5%
29,000 GC Companies, Inc. +..... $ 1,046,951 $ 1,004,125
550,000 Time Warner Inc.......... 19,482,981 20,625,000
235,000 Viacom Inc., Class A +... 5,716,210 8,107,500
------------ ------------
26,246,142 29,736,625
------------ ------------
FOOD AND BEVERAGE--6.3%
200,000 PepsiCo, Inc............. 6,309,950 5,850,000
330,000 Quaker Oats Company...... 11,335,758 12,581,250
40,000 Seagram Company Ltd...... 1,090,750 1,550,000
330,000 Whitman Corporation...... 2,667,417 7,548,750
30,000 Wrigley (Wm.) Jr.
Company................. 1,517,512 1,687,500
------------ ------------
22,921,387 29,217,500
------------ ------------
EQUIPMENT AND SUPPLIES--5.7%
65,700 AMP Incorporated......... 2,551,375 2,521,237
50,000 Ampco-Pittsburgh
Corporation............. 250,017 600,000
19,000 Brad Ragan, Inc.+........ 459,325 584,250
42,000 Deere & Company.......... 734,850 1,706,250
140,000 Gerber Scientific,
Inc..................... 1,080,076 2,082,500
9,500 IDEX Corporation......... 287,850 378,812
70,000 Ingersoll-Rand Company... 2,609,908 3,115,000
110,000 Navistar International
Corporation +........... 1,814,337 1,003,750
185,000 Pittway Corporation,
Class A................. 1,191,397 9,897,500
64,000 Sequa Corporation, Class
A +..................... 2,095,534 2,512,000
5,000 Sequa Corporation, Class
B +..................... 189,250 250,000
50,000 TRINOVA Corporation...... 1,460,160 1,818,750
------------ ------------
14,724,079 26,470,049
------------ ------------
WIRELESS COMMUNICATIONS--5.4%
100,000 AirTouch Communications
Inc. +.................. 2,299,273 2,525,000
430,000 Century Telephone
Enterprises, Inc........ 8,640,669 13,276,250
75,000 COMSAT Corporation,
Series 1................ 1,661,787 1,846,875
40,000 Loral Space &
Communications Inc. +... 501,500 735,000
100,000 TCI Satellite
Entertainment Inc.,
Class A +............... 966,556 987,500
500,000 Telecom Italia Mobile
SpA..................... 655,379 1,264,008
115,000 Telephone and Data
Systems, Inc............ 4,731,975 4,168,750
------------ ------------
19,457,139 24,803,383
------------ ------------
HOTELS/GAMING--4.6%
450,000 Aztar Corporation +...... 3,180,597 3,150,000
65,000 Circus Circus
Enterprises, Inc. +..... 1,751,028 2,234,375
100,000 Hilton Hotels
Corporation............. 1,532,500 2,612,500
230,000 ITT Corporation, New +... 10,761,367 9,976,250
150,000 Mirage Resorts,
Incorporated +.......... 1,513,037 3,243,750
------------ ------------
18,738,529 21,216,875
------------ ------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
<TABLE>
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1996
================================================================================
<CAPTION>
MARKET
SHARES COST VALUE
- ------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES--3.0%
135,000 American Express
Company................. $ 3,122,010 $ 7,627,500
150,000 Lehman Brothers Holdings
Inc..................... 2,641,250 4,706,250
30,000 Salomon Inc.............. 1,167,750 1,413,750
------------ ------------
6,931,010 13,747,500
------------ ------------
DIVERSIFIED INDUSTRIAL--2.6%
10,000 Brady (W.H.) Co., Class
A....................... 163,069 246,250
32,000 Honeywell, Inc........... 1,389,402 2,104,000
120,000 ITT Industries Inc....... 2,858,725 2,940,000
217,500 Katy Industries, Inc..... 1,818,150 3,153,750
60,000 Lamson & Sessions
Co. +................... 341,438 435,000
20,000 Minnesota Mining and
Manufacturing Company... 1,360,188 1,657,500
30,000 Trinity Industries,
Inc..................... 361,680 1,125,000
178,000 Tyler Corporation +...... 519,950 333,750
------------ ------------
8,812,602 11,995,250
------------ ------------
RETAIL--2.3%
35,000 Burlington Coat Factory
Warehouse
Corporation +........... 433,125 455,000
34,000 Giant Food Inc., Class
A....................... 1,144,387 1,173,000
25,000 Hartmarx Corporation +... 170,000 140,625
100,000 Lillian Vernon
Corporation............. 1,347,359 1,225,000
300,000 Neiman Marcus Group,
Inc. +.................. 5,260,114 7,650,000
------------ ------------
8,354,985 10,643,625
------------ ------------
AUTOMOTIVE: PARTS AND ACCESSORIES--2.0%
50,000 Echlin Inc............... 1,671,750 1,581,250
140,000 Federal-Mogul
Corporation............. 2,812,442 3,080,000
25,000 GenCorp Inc.............. 376,250 453,125
87,225 Handy & Harman........... 1,342,771 1,526,438
20,000 Johnson Controls, Inc.... 553,343 1,657,500
50,000 Quaker State
Corporation............. 570,157 706,250
------------ ------------
7,326,713 9,004,563
------------ ------------
TELECOMMUNICATIONS--1.9%
25,000 Aliant Communications
Inc..................... 335,337 425,000
59,000 BCE Inc.................. 2,010,525 2,817,250
76,000 C-TEC Corporation +...... 1,270,000 1,843,000
40,000 Northern Telecom
Limited................. 1,517,750 2,475,000
30,000 Southern New England
Telecommunications
Corporation............. 921,603 1,166,250
------------ ------------
6,055,215 8,726,500
------------ ------------
METALS AND MINING--1.4%
55,000 Barrick Gold
Corporation............. $ 1,524,880 $ 1,574,375
152,000 Echo Bay Mines Ltd....... 1,426,656 1,010,313
70,000 Homestake Mining
Company................. 1,323,250 997,500
70,000 Placer Dome Inc.......... 1,728,613 1,522,500
425,000 Royal Oak Mines Inc. +... 1,767,424 1,381,250
------------ ------------
7,770,823 6,485,938
------------ ------------
CONSUMER SERVICES--1.3%
247,500 HSN, Inc.+............... 5,295,948 5,878,125
------------ ------------
AVIATION: PARTS AND SERVICES--1.0%
186,500 Coltec Industries
Inc. +.................. 2,698,152 3,520,187
34,000 Hudson General
Corporation............. 625,007 1,266,500
------------ ------------
3,323,159 4,786,687
------------ ------------
REAL ESTATE--1.0%
400,000 Catellus Development
Corporation +........... 3,336,439 4,550,000
------------ ------------
BUSINESS SERVICES--0.9%
127,000 Berlitz International,
Inc., New +............. 1,892,836 2,651,125
138,000 Nashua Corporation....... 5,428,519 1,656,000
------------ ------------
7,321,355 4,307,125
------------ ------------
SPECIALITY CHEMICAL--0.7%
110,000 Ferro Corporation........ 2,046,238 3,121,250
------------ ------------
ENERGY--0.2%
40,000 Southwest Gas
Corporation............. 702,100 770,000
------------ ------------
COMMUNICATIONS EQUIPMENT--0.1%
30,000 Scientific-Atlanta,
Inc..................... 545,488 450,000
------------ ------------
TOTAL COMMON STOCKS.................... 355,198,487 456,085,382
------------ ------------
PRINCIPAL
AMOUNT
- ------------
CORPORATE BOND--0.1%
ENTERTAINMENT--0.1%
$ 497,000 Viacom Inc., Sub. Deb.,
8.00% due 07/07/2006.... 322,429 481,158
------------ ------------
REPURCHASE AGREEMENT--0.8%
3,865,000 Agreement with Morgan
(J.P.) & Co.,
Incorporated, 6.50% due
01/02/1997(a)........... 3,865,000 3,865,000
------------ ------------
TOTAL INVESTMENTS................ 99.9%
$359,385,916(b) 460,431,540
============
OTHER ASSETS AND LIABILITIES
(NET)............................. 0.1 404,498
------ ------------
NET ASSETS...................... 100.0%
$460,836,038
====== ============
<FN>
- ---------------
(a) Agreement dated 12/31/1996, to be repurchased at $3,866,396 collateralized
by $3,024,000 U.S. Treasury Bond, 9.25% due 02/15/2016 (value $3,942,691).
(b) Aggregate cost for Federal tax purposes was $359,747,501. Net unrealized
appreciation for Federal tax purposes was $100,684,039 (gross unrealized
appreciation was $114,075,633 and gross unrealized depreciation was
$13,391,594).
+ Non-income producing security
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
THE GABELLI VALUE FUND INC.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
===========================================================
<S> <C>
ASSETS:
Investments, at value (Cost
$359,385,916)............................ $460,431,540
Cash....................................... 6,824
Receivable for investments sold............ 1,436,765
Dividends and interest receivable.......... 449,547
Receivable for Fund shares sold............ 81,135
------------
Total Assets............................. 462,405,811
------------
LIABILITIES:
Payable for Fund shares redeemed........... 573,782
Payable for investment advisory fee........ 397,566
Accrued shareholder communications
expense.................................. 247,983
Payable for distribution fees.............. 215,482
Accrued Directors' fees.................... 21,000
Accrued expenses and other payables........ 113,960
------------
Total Liabilities........................ 1,569,773
------------
Net assets applicable to 40,020,118
shares of common stock outstanding... $460,836,038
============
NET ASSETS CONSIST OF:
Shares of common stock at par value........ $ 40,020
Additional paid-in capital................. 360,111,950
Distributions in excess of net realized
gain on investments...................... (361,585)
Net unrealized appreciation of
investments.............................. 101,045,653
------------
Total Net Assets......................... $460,836,038
============
Net Asset Value and redemption price per
share ($460,836,038 / 40,020,118 shares
outstanding; 300,000,000 shares
authorized of $0.001 par value)........ $11.52
======
Maximum offering price per share ($11.52
/ .945, based on maximum sales charge
of 5.5% of the offering price at
December 31, 1996)..................... $12.19
======
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
==========================================================
<S> <C>
INVESTMENT INCOME:
Dividend income (net of foreign withholding
taxes of $35,097)........................ $ 5,240,919
Interest income............................ 1,128,778
------------
Total Investment Income.................. 6,369,697
------------
EXPENSES:
Investment advisory fee.................... 4,983,647
Distribution fees.......................... 1,245,912
Shareholder services fees.................. 346,796
Directors' fees............................ 90,613
Legal and audit fees....................... 41,748
Other...................................... 277,225
------------
Total Expenses........................... 6,985,941
------------
NET INVESTMENT LOSS.......................... (616,244)
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS:
Net realized gain on securities sold....... 42,311,374
Net realized loss on futures
transactions............................. (756,644)
Net realized gain on option transactions... 4,705
Net realized gain on foreign currency
transactions............................. 217
------------
Net realized gain on investments......... 41,559,652
------------
Net unrealized appreciation of securities,
foreign currency and other assets and
liabilities:
Beginning of year........................ 98,878,573
End of year.............................. 101,045,653
------------
Change in net unrealized appreciation
of securities, foreign currency and
other assets and liabilities......... 2,167,080
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS................................ 43,726,732
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $ 43,110,488
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/96 12/31/95
------------ ------------
<S> <C> <C>
Net investment income/(loss)............................................... $ (616,244) $ 2,002,360
Net realized gain on investments........................................... 41,559,652 46,633,649
Net change in unrealized appreciation of investments....................... 2,167,080 45,158,696
------------ ------------
Net increase in net assets resulting from operations....................... 43,110,488 93,794,705
Distributions to shareholders from:
Net investment income.................................................... -- (1,998,027)
Net realized gain on investments......................................... (40,850,492) (45,317,754)
Paid-in capital.......................................................... (189,371) --
Net increase/(decrease) in net assets from Fund share transactions......... (27,378,880) 3,036,372
------------ ------------
Net increase/(decrease) in net assets...................................... (25,308,255) 49,515,296
NET ASSETS:
Beginning of year.......................................................... 486,144,293 436,628,997
------------ ------------
End of year................................................................ $460,836,038 $486,144,293
============ ============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
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 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.
OPTION ACCOUNTING. 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. Upon the purchase of a put or call option by
the Fund, the premium paid is recorded as an investment, the value of which is
marked-to-
14
<PAGE>
THE GABELLI VALUE FUND INC. -- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
market daily. When a purchased option expires, the Fund will realize a loss in
the amount of the cost of the option. When the Fund enters into a closing sale
transaction, the Fund will realize a gain or loss depending on whether the sales
proceeds from the closing sale transaction are greater or less than the cost of
the option. When the Fund exercises a put option, it will realize a gain or loss
from the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid.
When the Fund exercises a call option, the cost of the security which the Fund
purchases upon exercise will be increased by the premium originally paid. When
the Fund writes an option, an amount equal to the premium received by the Fund
is recorded as a liability the value of which is marked-to-market daily. When a
written option expires, the Fund realizes a gain equal to the amount of the
premium received. When the Fund enters into a closing purchase transaction, the
Fund realizes a gain (or loss if the cost of the closing purchase transaction
exceeds the premium received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is eliminated. When a call option is exercised, the Fund realizes a
gain or loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. When a put option is
exercised, the amount of the premium originally received will reduce the cost of
the security which the Fund purchased upon exercise.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is the Fund may forego the opportunity
of profit if the market price of the underlying security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the underlying security decreases and the option
is exercised. In addition, there is a risk 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. Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investments held by the Fund, timing differences and differing
characterization of distributions made by the Fund. Permanent differences
incurred during the year ended December 31, 1996 resulting from different book
and tax accounting policies for currency gains and losses and a net operating
loss, are reclassified between net investment income and net realized gains at
year end. The reclassifications for the year ended December 31, 1996 were a
decrease to accumulated net investment income of $616,244 and a decrease to
accumulated net realized gain on
15
<PAGE>
THE GABELLI VALUE FUND INC. -- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
investments of $616,244. Paid-in capital was reduced by $189,371 due to a return
of capital for tax purposes.
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.
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, 1996.
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, 1996, other than U.S. government and
short-term securities, aggregated $176,593,397 and $223,087,836 respectively.
Option activity for the year ended December 31, 1996 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
--------- -------
<S> <C> <C>
Options outstanding at December 31, 1995............. 0 $ 0
Options written...................................... 300 50,236
Options expired...................................... (100) (4,705)
Options exercised.................................... (200) (45,531)
---- --------
Options outstanding at December 31, 1996............. 0 $ 0
==== ========
</TABLE>
5. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1996, the
Fund incurred brokerage commissions of $115,385 to Gabelli & Company and its
affiliates. For the year ended December 31, 1996, Gabelli & Company informed the
Fund that it received $227,803 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
12/31/96 12/31/95
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................ 2,702,873 $ 33,238,448 2,510,990 $ 31,004,832
Shares issued upon reinvestment of dividends....... 3,106,012 35,936,555 3,413,613 39,463,662
Shares redeemed.................................... (7,670,956) (96,553,883) (5,667,280) (67,432,122)
---------- ------------ ---------- ------------
Net increase/(decrease)............................ (1,862,071) $(27,378,880) 257,323 $ 3,036,372
========== ============ ========== ============
</TABLE>
16
<PAGE>
<TABLE>
THE GABELLI VALUE FUND INC.
FINANCIAL HIGHLIGHTS
=============================================================================================================================
Per share amounts for a Fund share outstanding throughout each year ended December 31,
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year............................. $ 11.61 $ 10.49 $ 12.09 $ 10.13 $ 9.48
-------- -------- -------- -------- --------
Net investment income/(loss)................................... (0.02) 0.05 0.09 0.05 0.09
Net realized and unrealized gain/(loss) on investments......... 1.04 2.30 (0.09) 3.95 1.11
-------- -------- -------- -------- --------
Total from investment operations............................... 1.02 2.35 0.00 4.00 1.20
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................................ -- (0.05) (0.09) (0.01) (0.09)
Distributions in excess of net investment income............. -- -- (0.00)(a) (0.04) --
Net realized gains........................................... (1.10) (1.18) (1.50) (1.99) (0.46)
Distributions in excess of net realized gains................ -- -- (0.01) -- --
Paid-in capital.............................................. (0.01) -- -- -- --
-------- -------- -------- -------- --------
Total distributions............................................ (1.11) (1.23) (1.60) (2.04) (0.55)
-------- -------- -------- -------- --------
Net asset value, end of year................................... $ 11.52 $ 11.61 $ 10.49 $ 12.09 $ 10.13
======== ======== ======== ======== ========
Total return*.................................................. 8.7% 22.5% 0.0% 39.4% 12.7%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)............................. $460,836 $486,144 $436,629 $491,193 $423,381
Ratio of net investment income/(loss) to average net
assets..................................................... (0.12)% 0.42% 0.73% 0.38% 0.75%
Ratio of operating expenses to average net assets............ 1.40% 1.50% 1.50% 1.53% 1.52%
Portfolio turnover rate........................................ 37.1% 64.6% 66.6% 21.4% 0.1%
Average commission rate (per share of security)(b)............. $ 0.0498 N/A N/A N/A N/A
<FN>
- ---------------
* 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.
(a) Amount represents less than $0.005 per share.
(b) Average commission rate (per share of security) as required by amended SEC disclosure requirements effective for fiscal
years beginning after September 1, 1995.
</TABLE>
- ------------------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1996
Media General, Inc. Century Telephone Enterprises, Inc.
Chris-Craft Industries, Inc. Quaker Oats Company
Time Warner Inc. Tele-Communications, Inc.
Grupo Televisa S.A Westinghouse Electric Corp.
General Electric Company TCI/Liberty Media Group
- ------------------------------------------------------------------------
17
<PAGE>
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, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 14, 1997
- --------------------------------------------------------------------------------
1996 TAX NOTICE TO SHAREHOLDERS (UNAUDITED)
For the year ended December 31, 1996, the Fund paid to shareholders, on December
27, 1996, ordinary income dividends (comprised of net investment income and
short-term capital gains) totaling $0.124 per share. Additionally, on that date,
the Fund paid $0.986 per share in long-term capital gains. For 1996, 45.13% 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
1996 which was derived from U.S. Treasury securities was 7.20%. Such income may
be 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 1996. 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>
shared/3rdparty/gabcapas/PEA/#11/497c.doc
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.
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 ("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.
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.
