<PAGE>
THE GABELLI VALUE FUND INC.
One Corporate Center
Rye, New York 10580-1434
ANNUAL REPORT
DECEMBER 31, 1996
TO OUR SHAREHOLDERS:
In the fourth quarter of 1996, we experienced one of the most breathtaking
rallies in stock market history. Investors saw the Clinton victory, combined
with the Republicans retaining control of Congress, as the best of all possible
worlds and poured money into equities. Blue chip stocks led the post-election
charge, with the Standard & Poor's 500 Index (S&P 500) and the Dow Jones
Industrial Average (DJIA) surging to record levels. This strong fourth quarter
capped a second great year for U.S. equities, concluding one of the best
two-year periods in history.
INVESTMENT PERFORMANCE
For the twelve months ended December 31, 1996, the Gabelli Value Fund's
(the "Fund") total return was 8.7% compared to returns of 23.0%, 13.4%, and
14.8% over the same period for the S&P 500, the Value Line Composite, and
Russell 2000 Index, respectively. Each index is an unmanaged indicator of stock
market performance. During the three months ended December 31, 1996, the Fund's
net asset value remained flat, ending the quarter at $11.52 per share after
adjusting for the $1.11 per share dividend paid on December 27, 1996. The S&P
500, the Value Line Composite and the Russell 2000 Index increased 8.3%, 5.3%
and 4.1%, respectively, over the same period.
For the five year period ended December 31, 1996, the Value Fund's return
averaged 15.9% annually, outpacing average annual returns of 15.2%, 15.3%, and
15.6% for the S&P 500, Value Line Composite, and Russell 2000 Index,
respectively.
Since inception on September 29, 1989 through December 31, 1996, the Fund
has had a total return of 132.6%, which equates to an average annual return of
12.3% over its life. As of December 31, 1996, the Fund's total net assets were
$460.8 million.
<TABLE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE GABELLI VALUE FUND AND THE S&P 500 INDEX
<CAPTION>
9/29/89 12/89 12/90 12/91 12/92
<S> <C> <C> <C> <C> <C>
Gabelli Value Fund $9,450 $9,648 $9,108 $10,502 $11,836
S&P 500 Index $10,000 $10,210 $9,893 $12,910 $13,556,
12/93 12/94 12/95 12/96
<S> <C> <C> <C> <C>
Gabelli Value Fund $16,510 $16,510 $20,220 $21,979*
S&P 500 Index $14,925 $15,119 $20,803 $25,558
<FN>
* Past performance is not predictive of future performance. Includes effect of
maximum sales charge of 5.5%
</TABLE>
<PAGE>
<TABLE>
INVESTMENT RESULTS (a)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION> Quarter
------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1996: Net Asset Value ....................... $12.88 $13.08 $12.63 $11.52 $11.52
Total Return .......................... 10.9% 1.6% (3.4)% 0.0% 8.7%
- -------------------------------------------------------------------------------------------------------------------
1995: Net Asset Value ....................... $11.41 $11.75 $12.81 $11.61 $11.61
Total Return .......................... 8.8% 3.0% 9.0% 0.3% 22.5%
- -------------------------------------------------------------------------------------------------------------------
1994: Net Asset Value ....................... $11.37 $11.55 $12.43 $10.49 $10.49
Total Return .......................... (6.0)% 1.6% 7.6% (2.7)% 0.0%
- -------------------------------------------------------------------------------------------------------------------
1993: Net Asset Value ....................... $11.15 $11.93 $13.92 $12.09 $12.09
Total Return .......................... 10.1% 7.0% 16.7% 1.5% 39.4%
- -------------------------------------------------------------------------------------------------------------------
1992: Net Asset Value ....................... $10.40 $ 9.84 $10.04 $10.13 $10.13
Total Return .......................... 9.7% (5.4)% 2.0% 6.4% 12.7%
- -------------------------------------------------------------------------------------------------------------------
1991: Net Asset Value ....................... $ 9.51 $ 9.50 $ 9.57 $ 9.48 $ 9.48
Total Return .......................... 11.8% (0.1)% 0.7% 2.5% 15.3%
- -------------------------------------------------------------------------------------------------------------------
1990: Net Asset Value ....................... $ 9.23 $ 9.36 $ 8.19 $ 8.51 $ 8.51
Total Return .......................... (2.4)% 1.4% (12.5)% 9.0% (5.6)%
- -------------------------------------------------------------------------------------------------------------------
1989: Net Asset Value ....................... --- --- --- $ 9.58 $ 9.58
Total Return .......................... --- --- --- 2.1%(b) 2.1%(b)
DIVIDEND HISTORY
--------------------------------------------------------
Average Annual Returns - December 31, 1996 (a) Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------------------------------------- ----------------- -------------- ------------------
1 Year ............................... 8.7% December 27, 1996 $1.110 $11.57
............................... 2.7%(c) December 27, 1995 $1.230 $11.56
5 Year ............................... 15.9% December 30, 1994 $1.600 $10.49
............................... 14.6%(c) December 31, 1993 $2.036 $12.09
Life of Fund (b) ..................... 12.3% December 31, 1992 $0.553 $10.13
............................... 11.5%(c) December 31, 1991 $0.334 $ 9.48
December 31, 1990 $0.420 $ 8.51
March 19, 1990 $0.120 $ 9.21
December 29, 1989 $0.0678 $ 9.58
<FN>
(a) Total returns and average annual returns reflect changes in share price and reinvestment of dividends and are net of
expenses. The net asset value of the Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future results. Investment returns and the
principal value of an investment will fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of operations on September 29, 1989. (c) Includes the effect of the maximum 5.5%
sales charge at beginning of period.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
WHAT WE DO
We do what is described as bottom-up research: we read annual reports; we
visit the competition; we talk to customers; we go belly to belly with
management. We structure our portfolio by picking stocks.
In past reports, we have tried to articulate our investment philosophy and
methodology. The following graphic further illustrates the interplay among the
four components of our valuation approach.
[ART]
2
<PAGE>
Our focus is on free cash flow; earnings before interest, taxes,
depreciation and amortization (EBITDA) minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value (PMV) estimates.
Finally, we look for a catalyst; something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing world-wide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as increased focus on productivity
enhancing goods and services.
COMMENTARY
THE 1996 STOCK MARKET: BLUE CHIP GROWTH STOCKS LAP THE FIELD
In 1995, the stock market clicked on all six cylinders. Moderate economic
growth, low inflation, declining interest rates, soaring corporate profits,
reasonable valuations, and strong cash flows into equity mutual funds all
powered broad-based market momentum. In 1996, three of these cylinders began
misfiring. Long bond rates rose 100 basis points before subsiding to year-end
1995 levels. Corporate profits were up 10%, a good showing, but well below
1995's 18% gains. Equities valuations, at least for large cap stocks, became
distinctly rich relative to historic benchmarks. Despite running on only three
cyclinders, the market, as represented by the Dow Jones Industrial Average and
the S&P 500, barreled ahead before stalling in December.
Shrinking supply and strong demand for stocks, particularly the blue chips,
were the primary forces driving the popular indices. Merger and acquisition
activity (over one trillion for 1996) and share repurchase programs (about $30
billion) reduced stock inventories. The flood of money into equity mutual funds
(over $220 billion -- with the overwhelming majority going into large cap growth
funds including S&P 500 index funds) supercharged demand for a relative handful
of market pacesetters. In addition, the "Vinik Effect" (you lose your job for
holding cash or bonds) inspired many equity fund managers to run almost all the
fundamental red lights.
3
<PAGE>
We motored ahead at a good clip, but with the seat belts fastened and
obeying all the fundamental rules of the road. Our performance was uninspiring
relative to the heavy-footed large cap growth stock funds, but competitive with
small and mid-cap indices. Most importantly, we made substantial progress
without risking the kind of collisions that can occur when excessive equities
valuations run headlong into economic reality.
1997: MARKET MOMENTUM
Surveying the road ahead, we don't see any major economic road blocks. The
economy is slowing, but shows no signs of breaking down into recession. While we
may see some unpleasant surprises (such as the report of stronger than expected
new housing starts that rocked the bond and stock markets on New Year's Eve),
inflation should remain relatively subdued.
Does this mean interest rates will come down? The bond bulls are
forecasting long rates as low as 5% by year-end 1997. We are not so sanguine. If
inflation is overstated in the Consumer Price Index (CPI), and if the federal
government restructures the CPI and subsequently alters the Cost of Living
Adjustments (COLAs) for entitlement programs like Social Security, interest
rates could trend lower. However, investors must be wary of Federal Reserve
Chairman Greenspan, the grinch who tried to steal Christmas . His
well-publicized comments about the consequences of investors' "irrational
exuberance" only briefly restrained the market. If investors continue to ignore
this warning, he may pump the monetary brakes or perhaps just postpone an
economically justifiable rate cut until investors come to their senses. Also,
foreign investors, most notably the Japanese, may shy away from the U.S.
Treasury market, keeping longer term interest rates at or even above current
levels.
Our conclusion from all this conjecture is, despite a relatively benign
economic environment (low inflation, stable interest rates and respectable
corporate earnings), the Dow and S&P 500 will lose momentum in 1997. Blue chip
stocks are already discounting a whole lot of good news. At best, we believe
investors will pause to see if their rosy expectations are met. At worst, we
could see a 10% correction in the big cap indices.
We feel more constructive about selected small- to mid-cap stocks. Be
reminded, broader market and small cap indices trailed the Dow and S&P 500 by
considerable margins in 1996. We believe investors will recognize the folly in
continuing to chase a small handful of stocks simply because they are going up
in price. Why pay two to three times earnings growth rates for the so called
"New Nifty Fifty" when there are so many high quality second-tier stocks with as
good or better earnings prospects trading at much more reasonable multiples?
OUR INVESTMENT STRATEGY
Whatever the market has in store for us, we will continue to focus on
value. We are favoring industries and individual companies in the early stages
of sustainable long-term earnings uptrends and other fundamentally attractive
opportunities which participated only marginally in the 1996 bull market.
Aerospace component manufacturers should post superior earnings gains for the
next three to five years as airlines throughout the world continue to build and
refurbish their fleets. Auto aftermarket companies
4
<PAGE>
should grow earnings as the economy and new car sales slow. As Personal
Communications Services (PCS) systems come on line in the year ahead, cellular
telephone companies, which have been under the cloud of future competition from
PCS, will have an opportunity to demonstrate the long-term viability of what we
believe will remain a good growth business. Entertainment software and cable
network stocks, which were panned in 1996, will get more favorable reviews from
investors in the year ahead.
Finally, and perhaps most importantly for 1997 return prospects, corporate
restructurings in the form of mergers and sales and spin-offs of assets will
continue at a feverish pace. There is a strong global appetite for extending
product lines and distribution systems via acquisitions. The world is awash in
liquidity and stock is an increasingly valuable currency. So, the "let's make a
deal" market we have experienced in the last few years will continue. In
response, corporate managements that hope to remain independent are under
pressure to surface the value of their businesses by jettisoning underperforming
divisions, spinning off undervalued assets and repurchasing shares. Deals and
corporate events of this nature will trigger some of the biggest stock advances
in 1997.
DON'T LEAVE HOME WITHOUT US HARVEY
In past letters to you, we've written about the terrific job American
Express Company (AXP - $56.50 - NYSE) Chairman and CEO, Harvey Golub, has done
in reshaping the company via the sale and spin-offs of marginally profitable
businesses (retail stock brokerage and insurance), adding more complementary
ones (travel agencies and public accounting firms), and reinvigorating its bread
and butter charge card business. By so doing, Mr. Golub has turned an unfocused,
undermanaged financial services conglomerate into a dynamic company that should
enjoy double-digit annual earnings growth for the balance of the decade.
Harvey may not stop there. Recently, it was revealed that Golub had met
with Citicorp Chairman John Reed to discuss a possible business combination.
Negotiations ended with no agreement being reached. There was some speculation
that General Electric Company (GE - $98.875 - NYSE) might be another potential
suitor, a rumor that GE quickly denied. We doubt Harvey is aggressively shopping
the company and acknowledge there are only a handful of buyers world-wide that
could swallow a company as big as American Express. But, we applaud Mr. Golub
for continuing to examine strategies to further surface shareholder value.
We think American Express remains a good value, with or without any
corporate restructuring. The charge card business is holding its own in the U.S.
and could improve dramatically if Golub is successful in forging an alliance
with a major bank to issue its cards. International expansion could further
improve the card business. American Express Financial Advisors (the former IDS)
is a great domestic money management franchise with $140 billion in assets,
growing 20% per year. With American Express now the 20th largest accounting firm
in the U.S., it can more effectively cross-market its money management business.
If Mr. Golub is seriously contemplating a major restructuring of the company,
American Express Financial Advisors is an undervalued asset that would get a
better appraisal as a stand-alone company or as an acquisition for a major
European bank looking for entry into the American money management business.
5
<PAGE>
SHOPPING SPREE?
In our last letter, we commented on Kohlberg Kravis Roberts' (KKR)
acquisition of the Bruno's supermarket chain. In December, Safeway Stores Inc.
(SWY - $42.75 - NYSE), another supermarket company controlled by KKR, bought
Vons Cos. (VON - $59.875 - NYSE) a mid-sized California-based grocery chain. KKR
is not the only player in the game. In July, 1996, the Netherland's Royal Ahold
N.V. purchased Stop & Shop Companies Inc. Clearly, the supermarket industry is
in the midst of a major consolidation phase.
Who is the next to go? Giant Food Inc. (GFS'A - $34.50 - ASE), a rapidly
expanding chain of 171 supermarkets in the mid-Atlantic region, may be on the
block. Its founder and Chairman, Izzy Cohen (a great patriarch), passed away in
November, 1995. Prior to his passing, the U.K.'s J. Sainsbury Ltd. bought 50% of
the voting shares and a large stake in the non-voting shares of the company. It
has since bought more non-voting shares. Mr. Cohen's heirs, directors and senior
management of the company own the other 50% of the voting shares. In 1983, J.
Sainsbury bought 20% of Shaw's, a smaller New England supermarket chain, and
acquired the balance four years later after the company had grown substantially.
Will it accelerate its investment timetable with Giant Food? We wouldn't be
surprised. As we write, Giant Food is embroiled in a strike with the Teamsters
Union. However, we believe Giant Food will resolve its labor difficulties and
remain one of the highest margin supermarket companies in the industry.
Once the dust is settled, J. Sainsbury may make its move. We do not believe
the family and management will allow Sainsbury to steal the company. We would
expect a price in the mid $40s or higher if competition for the company develops
from some other entity like Royal Ahold (which has made four supermarket
acquisitions in the last five years). If nothing happens, Giant Food will
continue to grow earnings at a nice clip as it expands its high-margin
franchise.
A NEW PEPSI GENERATION
Coca-Cola Company (KO - $52.625 - NYSE), one of Wall Street's favorite
stocks, trades around 40 times earnings, which are expected to grow at 17% to
18% annually over the next five years. PepsiCo, Inc. (PEP - $29.25 - NYSE)
trades at about 20 times earnings, which we believe will grow at 14% to 15%
annually over the same time period. Put another way, Coke is trading at 2.3
times its anticipated earnings growth rate versus Pepsi's 1.3 times EPS growth
rate. This doesn't make a lot of sense to us.
Yes, Pepsi has some problems, most notably in its international beverage
and restaurant divisions. New Chairman Roger Enrico is addressing these
problems. In the international beverage arena he is scaling back resources in
regions like Latin America, where Pepsi has a limited market share and is at a
distinct competitive disadvantage to Coke. He is increasing investment in
Eastern Europe and the Far East, where Pepsi has significant market share and a
better competitive position. In the restaurant division, Pepsi is
"refranchising" (selling company-owned stores to franchisees) its Pizza Hut,
Taco Bell, and Kentucky Fried Chicken chains. We think this is a small first
step that will eventually lead to spinning off the restaurant division, with its
relatively low return on capital.
6
<PAGE>
Pepsi's domestic beverage business is doing quite nicely and its Frito Lay
snack food business dominates the industry with a 50% market share in the U.S.
This compares to a 30% share in the international snack food market; a market
share we believe will increase along with substantial international growth in
the salty snack food category. We estimate Pepsi's private market value (PMV) at
$43 per share today, growing to $50 by 1998. Mr. Enrico is an aggressive,
shareholder sensitive manager who will take the necessary steps to narrow the
spread between stock price and business value.
OUR APPROACH
The Fund is a non-diversified mutual fund which invests in a concentrated
portfolio of equity securities believed to have favorable EBITDA prospects. This
strategy allows the Fund to make larger commitments in industries or companies
which we believe offer dynamic growth opportunities, than are possible with a
more diversified portfolio. Consistent with this approach, the top ten holdings
of the Fund represented over 45% of the portfolio at December 31, 1996.
LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Fund.
Favorable EBITDA prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
Century Telephone Enterprises, Inc. (CTL - $30.875 - NYSE) is an independent
telecommunications company based in Monroe, Louisiana with about 500,000 access
lines in 14 states in the South and Midwest. As such, it is a way to play the
migration trend to rural America. Through acquisitions, CTL has created clusters
of rural telephone and cellular companies within commuting distance of
metropolitan areas in 14 states including Wisconsin, Louisiana, Michigan, Ohio
and Arkansas. These systems have typically provided growth in excess of the
industry average. Management is expected to be less aggressive in its
acquisition program which should permit CTL's existing strong geographic
positioning to demonstrate an earnings growth rate of 15% or more to the year
2000.
Chris-Craft Industries, Inc. (CCN - $41.875 - NYSE), through its 76% ownership
of BHC Communications, Inc., is primarily a television broadcaster. BHC owns and
operates UPN-affiliated TV stations in New York (WWOR), Los Angeles (KCOP) and
Portland (KPTV). BHC also controls over 58% of United Television, Inc., which
operates an NBC affiliate, an ABC affiliate and three UPN affiliates. BHC had
owned 100% of United Paramount Network (UPN), but Viacom exercised its option to
purchase 50% of UPN for $160 million, which is equal to about one-half of UPN's
operating losses to date. With about $1.5 billion in cash and marketable
securities, the Chris-Craft complex is strongly positioned to expand its
operations. CCN's station group covers almost 20% of U.S. TV households.
----------------------
Chris-Craft Industries
----------------------
76%
----------------------
BHC Communications
----------------------
58%
----------------------
United Television
----------------------
7
<PAGE>
General Electric Company (GE - $98.875 - NYSE), with an equity market valuation
of over $170 billion, is the largest U.S. company. GE has passed Nippon
Telegraph & Telephone Corporation to become the world's largest industrial
company as well. The company is poised to become the world's most profitable
company. Operating segments include aircraft engines, appliances, broadcasting
(NBC), industrial products, plastic materials, power generating turbines and a
hugely successful financial services business. Under Jack Welch's guidance, GE
has recorded a series of impressive earnings gains which are anticipated to
continue into the next century.
Grupo Televisa S.A. (TV - $25.625 - NYSE) is a Mexican-based entertainment
company that dominates the Spanish speaking world through its fully integrated
mix of content and distribution. The stock has suffered in line with the Mexican
market and economy. Nevertheless, it remains an excellent vehicle for accessing
the growth in disposable income among the Spanish speaking population on a
global basis. Its business mix includes film, music, cable television and
broadcasting. Grupo Televisa also has valuable holdings in PanAmSat Corporation
(SPOT - $28.00 - NASDAQ) and Univision Communications Inc. (UVN - $37.00 -
NYSE).
Media General, Inc. (MEG'A - $30.25 - ASE) our largest holding representing 14%
of our portfolio, is a Richmond, VA-based company, publishing daily newspapers
in Tampa, Winston-Salem and throughout Virginia. Media General owns three
network television stations in Tampa, Charleston, and Jacksonville and a cable
television franchise in Fairfax County, VA. The relaxation of broadcast station
ownership restrictions provided by The Telecommunications Reform Act of 1996 is
driving industry consolidation and is increasing the franchise values of strong,
well-positioned media properties such as those owned by Media General. Media
General recently closed its purchase of Park Acquisitions, Inc. for $710
million. The acquisition includes ten television stations, 29 daily newspapers
and 82 weekly newspapers. Through its hubris and thirst for "size", management
has neglected its shareholders, but the slump in stock price makes it a hold.
Quaker Oats Company (OAT - $38.125 - NYSE) has three brand franchises: Quaker
Oats grain-based products, Gatorade, and Snapple. It is the dominant player in
hot cereals, rice cakes, and golden grain products, while maintaining a
profitable #4 position in ready-to-eat cereals. Gatorade is a global brand name
with world-wide sales of approximately $1.4 billion. In the U.S., Gatorade has
maintained a dominant market share of over 80%, despite intense competition from
Coca-Cola and PepsiCo. Finally, William Smithburg, Chairman and CEO has
personally taken on responsibility for returning Snapple to profitability.
Tele-Communications, Inc. (TCOMA - $13.0625 - NASDAQ), the largest cable TV
operator in the U.S., serving about 14 million subscribers, is guided by Dr.
John C. Malone - one of the most shareholder sensitive managers we have found.
Given that regulation has historically played a major role in the valuation of
cable properties, we believe that the passage of The Telecommunications Reform
Act of 1996, combined with the current deregulatory climate in Congress, could
prove to be a significant catalyst for cable stocks. Strategically, TCOMA is a
well-positioned industry leader, from its wireless telephony PCS venture with
Sprint, Comcast and Cox, to its innovative Internet access business, dubbed
"@Home", to its 80% ownership of Tele-Communications International, Inc.
8
<PAGE>
Tele-Communications, Inc./Liberty Media Group (LBTYA - $28.5625 - NASDAQ) owns a
collection of interests in some of the most powerful programming entities in the
world. Liberty Media is the second largest investor in Time Warner Inc. (TWX -
$37.50 - NYSE), the world's largest media company. Liberty Media, News
Corporation Limited (NWS - $20.875 - NYSE), and Tele-Communications
International, Inc. (TINTA - $13.25 - NASDAQ) have created a global sports
joint-venture, called Fox Sports, that will offer an integrated package of
sports programming across network broadcast, national cable, and regional cable
channels. Liberty's 49% owned Discovery Communications is a major
advertiser-supported basic cable network that includes the flagship Discovery
Channel, The Learning Channel, and developing businesses such as Discovery
Europe and Animal Planet. We consider Liberty Media to be ideally positioned to
benefit from expanding distribution channels, including direct broadcast
satellite ventures like DirecTV and the Internet.
Time Warner Inc. (TWX - $37.50 - NYSE), having completed its acquisition of
Turner Broadcasting, is the world's largest diversified media and publishing
company. The combined companies will have more than $21 billion in revenues and
control a host of powerful media brands, such as CNN, Warner Brothers film, HBO,
and Time magazine. Under the leadership of Chairman Gerald Levin and
Vice-Chairman Ted Turner, Time Warner is now focused on reducing debt and
simplifying its capital structure. Achievement of both goals would be greatly
aided by a successful restructuring of the Time Warner Entertainment partnership
with U.S. West Media Group. Time Warner's holiday film, Space Jam, starring
Michael Jordan and Bugs Bunny was a hit at the box office.
Westinghouse Electric Corp. (WX - $19.875 - NYSE) is a multi-industry company
whose dominant focus for growth and investment is now broadcasting. The company
acquired CBS Inc. for $5.4 billion, creating the nation's largest television and
radio broadcaster. Since the acquisition, management has paid down over $4
billion in debt through asset sales, primarily of its defense electronics and
office furnishing units. The remaining industrial portfolio includes Power
Systems, Thermo King Refrigeration Unit, Government Systems, and assorted
electronics-related businesses. The company has closed its acquisition of
Infinity Broadcasting, a major operator of radio stations, for $3.7 billion in
stock. The merger will combine the #1 and #2 U.S. radio companies to form a
radio group colossus with a strong presence in the nation's largest radio
markets. As part of its program to restructure the company, management is
expected to split apart Westinghouse's industrial and media operations in the
latter part of the year.
MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment is $1,000. No initial minimum is
required for those establishing an Automatic Investment Plan.
INTERNET
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Mutual Funds, quarterly reports, closing prices, IRAs, 401(k)s and other
current news. You can also send us e-mail at [email protected].
9
<PAGE>
IN CONCLUSION
If we may borrow former N.Y. Knicks and current Miami Heat coach Pat
Riley's trademarked expression, we don't think the market will "three-peat" in
1997. We see less risk and higher return potential in selected small and mid cap
stocks, which are priced much more reasonably than the large cap growth stocks
that benefited most from the "irrational exuberance" that so concerns Fed
Chairman Greenspan. Corporate restructurings of every variety from mergers to
asset sales and spin-offs will provide a tailwind for value oriented investors.
We remind ourselves and our shareholders that investing is not a sprint but
a marathon. The swift hare will shine during many stages. But, the tortoise, who
carries the heavy protective shell of fundamental discipline, will triumph in
the end. We will continue to do what we do best: work hard to identify
fundamentally undervalued companies that will, over the long term, provide
consistently attractive investment returns.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's NASDAQ symbol is GABVX. Please call us during the
day for further information.
We thank you for your confidence in our investing abilities and wish you a
productive and financially rewarding 1997.
Sincerely,
/s/ Marlo J. Gabelli, CFA
------------------------------
MARIO J. GABELLI, CFA
President and
Chief Investment Officer
January 15, 1997
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
10
<PAGE>
<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.
- --------------------------------------------------------------------------------
18
<PAGE>
[PICTURE
THE GABELLI VALUE FUND INC. OF
One Corporate Center MARIO J.
Rye, New York 10580-1434 GABELLI]
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
BOARD OF DIRECTORS
Mario J. Gabelli, CFA Robert J. Morrissey
Chairman and Chief Attorney-at-Law
Investment Officer Morrissey & Hawkins
Gabelli Funds, Inc. THE
Bill Callaghan Karl Otto Pohl GABELLI
President Former President
Bill Callaghan Associates Deutsche Bundesbank VALUE
Felix J. Christiana Anthony R. Pustorino FUND
Former Senior Vice President Certified Public Accountant
Dollar Dry Dock Savings Bank Professor, Pace University INC.
Anthony J. Colavita
Attorney-at-Law
Anthony J. Colavita, P.C.
OFFICERS
Mario J. Gabelli, CFA Bruce N. Alpert
President and Chief Chief Operating Officer,
Investment Officer Vice President and
Treasurer
James E. McKee
Secretary
CUSTODIAN
Boston Safe Deposit and Trust Company
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Willkie Farr & Gallagher
UNDERWRITER
Gabelli & Company, Inc.
- -----------------------------------------------------------
This report is submitted for the general information of the ANNUAL REPORT
shareholders of The Gabelli Value Fund Inc. It is not DECEMBER 31, 1996
authorized for distribution to prospective investors unless
preceded or accompanied by an effective prospectus.
- -----------------------------------------------------------
