<PAGE>
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ----------- ------------
<C> <S> <C>
COMMON STOCKS--98.0%
AUTOMOTIVE: PARTS AND ACCESSORIES--2.2%
30,000 Brad Ragan Inc.+ ...................... $ 870,000
35,000 Echlin Inc. ........................... 1,227,183
142,000 Federal-Mogul Corp. ................... 5,271,750
92,225 Handy & Harman......................... 2,109,647
50,000 Johnson Controls Inc. ................. 2,478,125
50,000 Quaker State Corp. .................... 853,125
------------
12,809,830
------------
AVIATION: PARTS AND SERVICE--0.6%
167,000 Coltec Industries Inc.+................ 3,611,375
------------
BROADCASTING--11.1%
100,000 Ackerley Group Inc. ................... 1,806,250
520,192 Chris-Craft Industries Inc. ........... 27,407,616
80,000 Gray Communications Systems
Inc., Class B........................ 2,000,000
515,000 Grupo Televisa SA, GDR+................ 18,443,438
110,000 Liberty Corp. ......................... 4,977,500
60,000 LIN Television Corp.+.................. 2,797,500
195,000 Paxson Communications Corp.,
Class A+............................. 2,266,875
18,500 United Television Inc. ................ 1,928,625
------------
61,627,804
------------
BUSINESS SERVICES--0.9%
126,000 Berlitz International Inc.,
New+................................. 3,346,875
150,000 Nashua Corp.+.......................... 1,715,625
------------
5,062,500
------------
CABLE--13.6%
300,000 Cablevision Systems Corp., Class A+.... 18,825,000
180,000 Gaylord Entertainment Co., Class A..... 4,646,250
301,429 TCI Ventures Group..................... 6,216,973
550,771 Tele-Communications Inc., Class A+..... 11,290,806
636,000 Tele-Communications Inc./Liberty
Media Group, Class A+................ 19,040,250
700,000 US WEST Media Group+................... 15,618,750
------------
75,638,029
------------
COMMUNICATIONS EQUIPMENT--0.7%
33,000 Northern Telecom Ltd. ................. 3,429,938
30,000 Scientific-Atlanta Inc. ............... 678,750
------------
4,108,688
------------
CONSUMER PRODUCTS--3.6%
330,000 Carter-Wallace Inc. ................... 5,445,000
40,000 Fortune Brands Inc. ................... 1,347,500
90,000 Gallaher Group plc, ADR+............... 1,726,875
200,000 General Cigar Holdings Inc.+........... 5,775,000
47,000 Ralston Purina Group................... 4,159,500
41,700 Syratech Corp.+........................ 1,438,650
------------
19,892,525
------------
CONSUMER SERVICES--2.5%
250,000 HSN Inc.+.............................. 10,156,250
150,000 Ticketmaster Group Inc.+............... 3,487,500
------------
13,643,750
------------
<CAPTION>
MARKET
SHARES VALUE
- ----------- ------------
<C> <S> <C>
DIVERSIFIED INDUSTRIAL--1.9%
22,000 Honeywell Inc. ........................ $ 1,478,125
115,000 ITT Industries Inc. ................... 3,816,563
217,500 Katy Industries Inc. .................. 3,915,000
55,000 Lamson & Sessions Co.+................. 422,813
300,000 Tyler Corp.+........................... 1,031,250
------------
10,663,751
------------
ENERGY--2.1%
40,000 Pennzoil Co. .......................... 3,187,500
119,000 Southwest Gas Corp. ................... 2,335,375
100,000 Tejas Gas Corp.+....................... 6,006,250
------------
11,529,125
------------
ENTERTAINMENT--9.6%
145,660 Ascent Entertainment Group Inc.+....... 1,675,090
35,000 GC Companies Inc.+..................... 1,505,000
530,000 Time Warner Inc. ...................... 28,719,375
690,000 Viacom Inc., Class A+.................. 21,691,875
------------
53,591,340
------------
EQUIPMENT AND SUPPLIES--6.6%
45,000 Aeroquip-Vickers Inc. ................. 2,205,000
100,000 AMP Inc. .............................. 5,356,250
50,000 Ampco-Pittsburgh Corp. ................ 937,500
37,000 Deere & Co. ........................... 1,988,750
130,000 Gerber Scientific Inc. ................ 3,144,375
10,000 IDEX Corp. ............................ 343,750
85,000 Ingersoll-Rand Co. .................... 3,660,313
110,000 Navistar International Corp.+.......... 3,038,750
132,000 Pittway Corp., Class A................. 8,571,750
70,000 Sequa Corp., Class A+.................. 4,033,750
23,000 Sequa Corp., Class B+.................. 1,443,250
53,000 Smith (A.O.) Corp. .................... 2,100,025
------------
36,823,463
------------
FINANCIAL SERVICES--1.2%
50,000 American Express Co. .................. 4,093,750
45,000 Lehman Brothers Holdings Inc. ......... 2,413,125
------------
6,506,875
------------
FOOD AND BEVERAGE--4.1%
230,000 Quaker Oats Co. ....................... 11,586,250
60,000 Seagram Co. Ltd. ...................... 2,115,000
330,000 Whitman Corp. ......................... 8,992,500
------------
22,693,750
------------
HEALTH CARE--0.8%
200,000 IVAX Corp.+............................ 2,350,000
20,000 Rhone-Poulenc Rorer Inc. .............. 1,933,750
------------
4,283,750
------------
HOTELS AND GAMING--5.5%
450,000 Aztar Corp.+........................... 3,318,750
145,000 Circus Circus Enterprises Inc.+........ 3,652,188
300,000 ITT Corp., New+........................ 20,325,000
110,000 Mirage Resorts Inc.+................... 3,313,750
------------
30,609,688
------------
</TABLE>
10
<PAGE>
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ----------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
METALS AND MINING--1.1%
50,000 Barrick Gold Corp..................... $ 1,237,500
165,000 Echo Bay Mines Ltd. .................. 938,438
70,000 Homestake Mining Co. ................. 1,071,875
70,000 Placer Dome Inc. ..................... 1,338,750
470,000 Royal Oak Mines Inc.+................. 1,321,875
------------
5,908,438
------------
PUBLISHING--18.2%
210,000 Golden Books Family
Entertainment Inc.+................. 2,336,250
90,000 Harcourt General Inc. ................ 4,460,625
55,000 McGraw-Hill Companies Inc. ........... 3,722,813
2,100,000 Media General Inc., Class A........... 83,212,500
235,000 Meredith Corp. ....................... 7,784,375
------------
101,516,563
------------
REAL ESTATE--1.8%
390,000 Catellus Development Corp.+........... 8,092,500
100,000 Griffin Land & Nurseries Inc.+........ 1,712,500
------------
9,805,000
------------
RETAIL--2.5%
23,000 Burlington Coat Factory
Warehouse Corp.+.................... 485,875
92,000 Giant Food Inc., Class A.............. 2,995,750
35,000 Hartmarx Corp.+....................... 301,875
102,400 Lillian Vernon Corp. ................. 1,734,400
260,000 Neiman Marcus Group Inc.+............. 8,320,000
------------
13,837,900
------------
SPECIALITY CHEMICAL--0.7%
95,000 Ferro Corp. .......................... 3,627,813
------------
TELECOMMUNICATIONS--1.8%
15,000 Aliant Communications Inc. ........... 363,750
75,000 C-TEC Corp.+.......................... 3,750,000
150,000 Southern New England
Telecommunications Corp. ........... 6,140,625
------------
10,254,375
------------
<CAPTION>
MARKET
SHARES VALUE
- ----------- ------------
<C> <S> <C>
WIRELESS COMMUNICATIONS--4.9%
400,000 Century Telephone Enterprises Inc. ... $ 17,600,000
70,000 COMSAT Corp., Series 1................ 1,666,875
40,000 Loral Space & Communications
Ltd.+............................... 825,000
150,000 TCI Satellite Entertainment
Inc., Class A+...................... 1,134,375
250,000 Telecom Italia Mobile SpA............. 992,092
112,000 Telephone and Data Systems
Inc. ............................... 5,040,000
------------
27,258,342
------------
TOTAL COMMON STOCKS................................ 545,304,674
------------
PREFERRED STOCK--0.5%
PUBLISHING--0.5%
157,750 News Corp. Ltd., Sponsored ADR
Preference Shares................... 2,829,641
------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C>
CORPORATE BOND--0.1%
ENTERTAINMENT--0.1%
$497,000 Viacom Inc., Sub. Deb.,
8.00% due 07/07/06.................. 495,136
------------
TOTAL INVESTMENTS
(Cost $350,886,411)(a).................. 98.6% 548,629,451
OTHER ASSETS AND LIABILITIES (NET)........ 1.4 7,812,009
---- ------------
NET ASSETS
(35,383,670 shares outstanding)......... 100.0% $556,441,460
----- ------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE......................... $15.73
======
MAXIMUM OFFERING PRICE PER SHARE
($15.73/.945, BASED ON MAXIMUM SALES
CHARGE OF 5.5% OF THE OFFERING PRICE
AT SEPTEMBER 30, 1997).................. $16.65
======
</TABLE>
- ------------------------------
(a) Aggregate cost for Federal tax purposes was $351,223,579. Net unrealized
appreciation for Federal tax purposes was $197,405,872 (gross unrealized
appreciation was $203,696,546 and gross unrealized depreciation was
$6,290,674).
+ Non-income producing security
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
11
<PAGE>
THE GABELLI VALUE FUND INC.
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily
by calling
1-800-GABELLI after 6:00 P.M.)
<TABLE>
<S> <C>
BOARD OF DIRECTORS
Mario J. Gabelli, CFA Robert J. Morrissey
Chairman and Chief Attorney-at-Law
Investment Officer Morrissey & Hawkins
Gabelli Funds, Inc.
Bill Callaghan Karl Otto Pohl
President Former President
Bill Callaghan Associates Deutsche Bundesbank
Felix J. Christiana Anthony R. Pustorino
Former Senior Vice President Certified Public Accountant
Dollar Dry Dock Savings Bank Professor, Pace University
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
</TABLE>
CUSTODIAN
Boston Safe Deposit and Trust Company
TRANSFER AGENT AND DIVIDEND 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 shareholders of The
Gabelli Value Fund Inc. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF MAN]
THE
GABELLI
VALUE
FUND
INC.
THIRD QUARTER REPORT
SEPTEMBER 30, 1997
<PAGE>
THE GABELLI VALUE FUND INC.
One Corporate Center
Rye, New York 10580-1434
THIRD QUARTER REPORT
SEPTEMBER 30, 1997
TO OUR SHAREHOLDERS,
In the third quarter of 1997, buoyed by low inflation, solid corporate
earnings, and ongoing merger and acquisition activity, stocks posted solid
gains. In the process, the market overcame global currency instability and
attendant concerns regarding the earnings prospects for multi-national consumer
staple companies such as Coca-Cola, Gillette, and Proctor and Gamble. As
demonstrated by the Fund's outstanding returns, stock pickers like us were well
rewarded for our efforts.
INVESTMENT PERFORMANCE
For the third quarter ended September 30, 1997, the Gabelli Value Fund's
total return was 11.5%. The Standard & Poor's (S&P) 500, Value Line Composite
and Russell 2000 Index had returns of 7.5%, 12.7% and 14.9%, respectively, over
the same period. Each index is an unmanaged indicator of stock market
performance. The Fund is up 36.5% year-to-date. The S&P 500, Value Line
Composite and Russell 2000 rose 29.6%, 29.9% and 26.6%, respectively, over the
same nine month period.
For the five year period ended September 30, 1997, the Fund's return
averaged 22.0% annually, versus average annual returns of 20.8%, 20.4% and 20.5%
for the S&P 500, Value Line Composite and Russell 2000, respectively. Since
inception on September 29, 1989 through September 30, 1997, the Fund has a total
return of 217.7%, which equates to an average annual return of 15.5%.
WHAT WE DO
The success of momentum investing in recent years and investors' desire for
instant gratification have combined to make value investing appear dull. At the
risk of being dull, we will once again describe the "boring" value approach that
has seen us through both good and bad markets over the last eight years at The
Gabelli Value Fund and for over 20 years at Gabelli Asset Management Company. 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.
[Triangle
artwork]
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT RESULTS (a)
- --------------------------------------------------------------------------------------------
QUARTER
---------------------------------------------------
1st 2nd 3rd 4th Year
<S> <C> <C> <C> <C> <C>
1997: Net Asset Value.... $11.63 $14.11 $15.73 -- --
Total Return....... 1.0% 21.3 11.5% -- --
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)
</TABLE>
<TABLE>
<CAPTION>
Dividend History
-----------------------------------------------------
Average Annual Returns - September 30, 1997(a) Payment (ex) Date Rate Per Share Reinvestment Price
- ------------------------------------------------ ----------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
1 Year ............................. 36.5% December 27, 1996 $ 1.110 $11.57
............................. 28.9%(c) December 27, 1995 $ 1.230 $11.56
5 Year ............................. 22.0% December 30, 1994 $ 1.600 $10.49
............................. 20.6%(c) December 31, 1993 $ 2.036 $12.09
Life of Fund (b) .................... 15.5% December 31, 1992 $ 0.553 $10.13
............................. 14.7%(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
</TABLE>
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of operations on September 29, 1989. (c)
Includes the effect of the maximum 5.5% sales charge at beginning of period.
- --------------------------------------------------------------------------------
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 worldwide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
COMMENTARY
Deal Activity Surfaces Value
A component of our investment methodology is to identify industry and
sector trends and themes ahead of the curve and position ourselves to benefit
from these developments. Industry consolidation is one such trend. As we have
discussed in previous letters, the continued strong activity in mergers and
acquisitions is providing a tailwind to the outstanding performance of the Fund
this year. The accompanying tables illustrate how deal activity surfaced value
in a small sample of the portfolio holdings.
1997 Completed Deals
<TABLE>
<CAPTION>
Fund Holding 1997 Closing Date 1997 % Return(a)
------------ ----------------- ----------------
<S> <C> <C>
International Family Entertainment Inc. 9/5 125.4%
Delchamps Inc. 9/12 54.2%
Percentage Changes Through 9/30/97 For Announced Deals
Current Fund Holdings Third Quarter Return (b) Year-to-Date Return (b)
--------------------- ------------------------ -----------------------
Ticketmaster Group Inc. 39.9% 91.8%
ITT Corp. 11.0% 56.2%
Gaylord Entertainment Co. 11.9% 12.8%
LIN Television Corp. 5.7% 10.4%
</TABLE>
(a) Represents changes in share price and dividends paid from December 31, 1996
through the closing date.
(b) Represents changes in share price and dividends paid from the beginning of
the period through September 30, 1997.
3
<PAGE>
The Economy And The Stock Market: "Bear Watch"
In view of still favorable economic and investment demographic trends, the
Dow Jones Industrial Average is fairly, if not fully, valued at around 8,000. We
do not see many rampant excesses in the current market, but the margin of safety
is razor thin. As the doctors in charge of your financial health, we are always
looking for things that may cause investor indigestion. Accordingly, we are
keeping a close watch on the following developments that may cause us to change
our economic and market diagnoses.
Inflation Watch
In 1981-82, then President Reagan dealt a knockdown blow to labor by
breaking the air traffic controllers strike. The settlement in the recent UPS
strike may indicate labor is finally getting up off the canvas. Labor represents
about two-thirds of U.S. industries' total costs. If labor is making a comeback,
we may see more inflation than the consensus expects.
Profit Taking
Wall Street was soundly in favor of a reduction in the capital gains tax
rate. Long term, it is a positive for stocks. However, shorter term, it may
entice investors to take some profits. Increased profit taking could temporarily
alter the very favorable supply and demand profile stocks have enjoyed for the
last several years.
Currency Turmoil - Asian Flu
Thus far, the currency crises in Thailand, the Philippines, Malaysia, and
Singapore have not spread to the Hong Kong dollar, which is the most stable and
critical currency in the region. The same is true in Latin America, where the
recent run on the Brazilian real has failed to upset the Mexican peso. If this
currency virus were to spread further, worldwide stock markets would likely
experience some vertigo.
Stormy Weather
On the food front, El Nino, the unusual weather pattern that threatens
warm, wet weather throughout the U.S. may play havoc with commodities prices. A
late planting season in the Midwest could send food prices higher. A warm winter
throughout the Northern states could send fuel prices lower while oil continues
to be in short term imbalance on the supply side. This could impact earnings
patterns for companies in a range of industry groups.
Having listed some of the things that could disrupt a still favorable
backdrop for the economy and stock market, let us acknowledge the positives.
Inflation remains restrained. With a historically large spread between inflation
and interest rates along the yield curve, rates could trend down from current
levels. Corporate earnings should grow by 8% to 9% in 1998. We do not believe
price/earnings multiples are likely to expand substantially in the year ahead,
but earnings progress could push the stock market higher. Specific to the Fund,
which owns many smaller companies in attractive niche businesses, the lower
capital gains tax rate should help promote even more deal activity in smaller
firms since family managements will be able to keep more of the proceeds from
any such transactions.
4
<PAGE>
INDEXING REVISITED
In our first quarter 1997 report, we examined the phenomenon of S&P 500
Index fund investing and its impact on the market. In defending active
management in general and our value style in particular, we voiced two concerns
about S&P indexing. First, that valuations do matter and that the valuations for
the mega-cap growth stocks, which have such a disproportionate influence on the
capitalization weighted S&P, were more than a little rich. Second, that which
goes up the most is most vulnerable to any change in investor perception.
Our concerns were validated in August, when Coca-Cola (KO - $61.00 - NYSE)
and Gillette (G - $86.3125 - NYSE) plummeted following warnings of modestly
slowing growth. They took a few other large-cap market favorites with them,
dragging the S&P 500 down 5.6% for the month. Broader market indices held
relatively steady in August, with the mid-cap S&P 400 down just 0.1% and the
Russell 2000 gaining 2.3%.
Does this mean investors are abandoning blue chips with bloated valuations
and once again focusing on the kind of fundamental values more readily available
elsewhere? It's too early to tell. Coke, Gillette and many other mega-cap
branded consumer goods companies have bounced off their lows, and despite still
fanciful valuations, could regain momentum. Of importance, is that for the first
time in years, investors got a taste of what can happen to the S&P 500 when
something goes wrong for a few of its heav ily weighted component stocks. It may
be more than just a coincidence that in the week ending September 24, there was
a net outflow from S&P 500 Index funds for the first time in two years.
We will continue to preach for our own church. Valuations do matter and,
over time, investors who buy good companies at bargain prices will generate very
attractive returns. Value investors may not outperform momentum players in an
euphoric market environment like 1995-96; they should, however, excel in flat
and down markets. The tortoise and the hare analogy is valid. We know who wins
the race in the end.
CABLE TELEVISION NETWORKS: GET THEM WHILE THEY'RE HOT
When we began accumulating cable television network companies, they were
priced like straw hats in winter. Today, they are hot retail items. Within the
last six months, Fox purchased International Family Entertainment, the Johnson
family and Liberty Media (LBTYA - $29.9375 -NASDAQ) agreed to jointly buy BET
Holdings Inc. (BTV - $52.875 - NYSE), Westinghouse (WX - $27.0625 - NYSE)
announced the acquisition of The Nashville Network and Country Music Channel
from Gaylord Entertainment (GET - $25.8125 - NYSE) and Seagram's (VO - $35.25 -
NYSE) negotiated the purchase of the other 50% of the USA Network from partner
Viacom (VIA - $31.4375 -ASE). All of these deals are being done at cash flow
multiples in the high teens. With the U.S. Supreme Court upholding "must carry"
rules that require cable systems to air local network programming, entrenched
cable networks are of increasing value to entertainment software producers and
distributors, particularly in a "capacity" constrained cable world.
Most of the smaller independent cable network companies are gone or going
from our portfolio at very nice premiums to our purchase prices. MAY THEY REST
IN PEACE. We still own major cable network operators such as Liberty Media (with
stakes in The Discovery Channel, Court TV, Black Entertainment Television, QVC,
Home Shopping Network, Liberty Sports Networks and Time Warner, a
5
<PAGE>
"clearinghouse" of cable network properties), Viacom (MTV, VH1 and Nickelodeon),
Time Warner (TWX - $54.1875 - NYSE) (CNN, CNBC, TNT and the new Cartoon
Channel), Seagram's (soon to be 100% owner of the USA Network) and Cablevision
Systems (CVC - $62.75 - ASE) (Rainbow cable network properties). With the
exception of Liberty Media, these are not pure cable network plays. The relative
success of their other businesses will have a material impact on their stock
prices. However, we do not believe the full value of these companies' cable
network operations are reflected in their current stock prices.
THE AUTO AFTER-MARKET: COMING TOGETHER
The auto after-market industry has suffered in recent years as it worked
off an extended inventory glut resulting from the elimination of middlemen in
the distribution system. Today, that excess inventory is largely history. Parts
makers like Echlin (ECH - $35.0625 - NYSE) and Federal Mogul (FMO - $37.125 -
NYSE) have restructured operations. They are entering a period of very easy
earnings comparisons. They do relatively little foreign business, so they are
not subject to the vicissitudes of currency swings. Finally, they are much less
cyclical than most industrial companies. Yet, they trade at big price/earnings
and price/cash flow discounts to the market. Investors have largely overlooked
this industry group. If earnings come in as strong as we anticipate, it should
attract investor attention.
LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
Cablevision Systems Corp. (CVC - $62.75 - ASE), based in Woodbury, NY, is a
major cable TV operator serving 2.9 million subscribers, including managed
systems. CVC's cable systems generate average monthly subscriber revenues among
the highest in the industry. CVC has exercised its option to purchase ITT's 50%
stake in MSG (Madison Square Garden) Properties, including the NY Knicks and NY
Rangers. Cablevision is also purchasing Tele-Communications Inc.'s ten New York
area cable properties with roughly 820,000 subscribers by issuing over 12
million shares (a one-third interest in the company) and assuming about $670
million of TCI's debt. The company's new, vigorous activity includes the sale of
a 40% stake in Rainbow Sports to a News Corp./TCI joint venture with the
proceeds used to pay down a significant portion of MSG's debt. With its upgraded
cable systems, CVC is well-positioned to offer telephony, high speed data and
enhanced video services.
Century Telephone Enterprises Inc. (CTL - $44.00 - NYSE) is an incumbent local
phone company based in Monroe, Louisiana with over 500,000 access lines in 14
states in the South and Midwest. Century Telephone also offers wireless service
and Internet access. Through acquisitions, CTL has created clusters of rural
telephone and cellular companies within commuting distance of metropolitan areas
in states including Wisconsin, Michigan, Ohio, Louisiana and Arkansas. Now, with
the $2.2 billion acquisition of Portland, Oregon-based Pacific Telecom, CTL is
adding seven states, ten cellular markets and 640,000 access lines to its
business base. The acquired operations are expected to nearly double Century's
revenues. The company continues to build value through other ventures, primarily
its long distance and competitive local exchange carrier (CLEC) operations. In
March, CTL surfaced some of the hidden value in its CLEC business with its
agreement to sell Metro Access Networks (MAN) to Brooks Fiber Properties (BFPT -
$46.6875 - NASDAQ) in exchange for approximately 12% of BFPT's common equity.
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Chris-Craft Industries Inc. (CCN - $52.6875 - NYSE), through its 78% ownership
of BHC Communications (BHC - $129.50 - ASE), 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 owns 59% of United
Television (UTVI - $104.25 - NASDAQ), which operates an NBC affiliate, an ABC
affiliate and three UPN affiliates. United Television has announced plans to
purchase WRBW, a UPN affiliate in Orlando, for approximately $60 million and
WHSW in Baltimore for $80 million. Chris-Craft's television stations constitute
one of the nation's largest television station groups, reaching approximately
22% of U.S. households. The Chris-Craft complex is debt free and strongly
positioned to expand its operations with roughly $1.6 billion in cash and
marketable securities.
[Chris-Craft, BHC and United Television Chart Graphic]
Grupo Televisa SA (TV - $35.8125 - NYSE) is a Mexico-based entertainment company
that dominates the Spanish speaking world through its fully integrated mix of
content and distribution. The company is an excellent vehicle for accessing the
growth in disposable income among the Spanish speaking population on a global
basis. The business mix includes film, music, cable television and broadcasting.
Grupo Televisa also has valuable holdings in PanAmSat (SPOT - $43.125 - NASDAQ)
and Univision Communications (UVN - $54.25 - NYSE). A five year restructuring
plan - "Televisa 2000" - is designed to cut costs by $90 million annually over
the next three years and to raise Televisa's cash flow margin by more than 25%.
ITT Corp. (ITT - $67.75 - NYSE) shareholders benefitted when Hilton Hotels won a
surprise court ruling blocking ITT from splitting into three companies without a
shareholder vote, breathing new life into Hilton's $11.5 billion attempt to take
over the hotel and casino company. A U.S. District court ruled that ITT was
violating its responsibility to shareholders by denying them a vote. The ruling
gives Hilton another chance at winning its bid for ITT. Hilton offered $55 per
share ($10.5 billion) in January. It raised that to $70 per share ($11.5
billion) in August. ITT called the offer inadequate. Instead, ITT announced in
July it had a better plan to boost the value of its shares by separating its
hotel and casino companies, technical schools and international phone book
businesses, as well as buying back a quarter of its shares at $70 each ($2.1
billion) and nearly half its public debt for another $2 billion. Investors will
now vote on slates of directors from both companies on November 12 to determine
the fate of ITT's Sheraton hotels and Caesars casinos.
Media General Inc. (MEG'A - $39.625 - ASE), our largest holding representing 15%
of our portfolio, is a Richmond, VA- based communications company that publishes
20 daily newspapers throughout the Southeast. Media General operates fourteen
network television stations in Southeastern markets, includi ng Birmingham,
Tampa and Jacksonville and two cable television systems in Virginia. 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. The company also produces newsprint from
recycled newspapers. Through its hubris and thirst for "size", management has
neglected its shareholders. We encourage management to stop overpaying for
acquisitions and to focus cash flow on stock buybacks.
Time Warner Inc. (TWX - $54.1875 - NYSE), having completed its acquisition of
Turner Broadcasting in the fourth quarter of 1996, is the world's largest
diversified media and publishing company. The combined companies have more than
$23 billion in revenues and over $4.5 billion in EBITDA. Together they control a
host of powerful media brands, such as CNN, Warner Brothers, HBO, Cinemax and
Time and People
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magazines. Under the leadership of Chairman Gerald Levin and Vice Chairman Ted
Turner, Time Warner is now focused on reducing its almost $13 billion in debt
and simplifying its capital structure. Cash flow in 1997 is demonstrating a
substantial increase as the companies reap the synergies of their merged
activities.
Tele-Communications Inc./Liberty Media Group (LBTYA - $29.9375 - 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, the world's
largest media company. Liberty Media, News Corp. and Tele-Communications
International Inc. (TINTA - $16.375 - NASDAQ) have created a global sports joint
venture, Fox Sports, that offers 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.
US West Media Group (UMG - $22.3125 - NYSE) is an owner and operator of
cellular, cable TV and telephone directory businesses in the United States and
in various international markets. It recently announced its intentions, along
with parent US West Communications, to effect a complete spin-off of UMG from US
West Communications. This will result in the replacement of existing target
stock with common stock. In the future, UMG is likely to seek transactions that
reduce the leverage on its balance sheet and increase its scale in the cable TV
industry in key markets.
Viacom Inc. (VIA - $31.4375 - ASE; VIA'B - $31.625 - ASE), long a major provider
of entertainment "content", has evolved into one of the world's dominant media
companies. Following its acquisitions of Paramount Communications and
Blockbuster Entertainment, the company is now divesting non-core assets to
reduce debt and is focusing on the global expansion of its media franchises. The
company divested its cable systems subsidiary in a transaction with
Tele-Communications Inc. which reduced Viacom's debt by $1.7 billion and the
number of common shares outstanding by about 4%. Its radio group, Evergreen
Media, is being sold for $1.1 billion in cash. Until the company divests of its
publishing business and Blockbuster, Viacom will remain a loaded laggard. Viacom
is well-positioned in music (notably MTV) and cable networks such as
Nickelodeon, USA (50% interest) and the Sci-Fi Channel.
MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. 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, IRAs, 401(k)s, quarterly reports, closing prices and other
current news. You can send us e-mail at [email protected].
8
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IN CONCLUSION
Little has changed in the favorable economic backdrop for stocks. That does
not necessarily mean there are not potential problems that could upset the
market apple cart. Barring any unexpected economic dilemmas, stocks should
continue to deliver respectable returns. More important, in our view, the market
is broadening and investors once again appear to be focusing on fundamental
value. Already, strong deal activity is gaining momentum. The capital gains tax
cut should encourage smaller niche companies' "urge to merge" in the year ahead.
We close ever mindful of the potholes that will invariably challenge
equities investors, but remain confident the Fund's portfolio is well-positioned
to endure the long investment journey to your financial success.
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
business day for further information.
We thank you for your confidence in our investment abilities and will
strive to preserve the assets you have entrusted to us. Sincerely,
Sincerely,
/s/ Mario J. Gabelli
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
October 25, 1997
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TOP TEN HOLDINGS
SEPTEMBER 30, 1997
Media General Inc. TCI/Liberty Media Group
Time Warner Inc. Cablevision Systems Corp.
Chris-Craft Industries Inc. Grupo Televisa SA
Viacom Inc. Century Telephone Enterprises Inc
ITT Corp. US West Media Group
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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.
9
<PAGE>
THE GABELLI VALUE FUND INC.
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily
by calling
1-800-GABELLI after 6:00 P.M.)
<TABLE>
<S> <C>
BOARD OF DIRECTORS
Mario J. Gabelli, CFA Robert J. Morrissey
Chairman and Chief Attorney-at-Law
Investment Officer Morrissey & Hawkins
Gabelli Funds, Inc.
Bill Callaghan Karl Otto Pohl
President Former President
Bill Callaghan Associates Deutsche Bundesbank
Felix J. Christiana Anthony R. Pustorino
Former Senior Vice President Certified Public Accountant
Dollar Dry Dock Savings Bank Professor, Pace University
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
</TABLE>
CUSTODIAN
Boston Safe Deposit and Trust Company
TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Willkie Farr & Gallagher
UNDERWRITER
Gabelli & Company, Inc.
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This report is submitted for the general information of the shareholders of The
Gabelli Value Fund Inc. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF MAN]
THE
GABELLI
VALUE
FUND
INC.
THIRD QUARTER REPORT
SEPTEMBER 30, 1997
