GABELLI VALUE FUND INC, N-30D, 1998-03-06

GABELLI VALUE FUND INC
N-30D, 1998-03-06

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<PAGE>
THE GABELLI VALUE FUND INC.
One Corporate Center
Rye, New York 10580-1434
ANNUAL REPORT
DECEMBER 31, 1997

TO OUR SHAREHOLDERS,

Driven by low inflation, low interest rates, good corporate earnings gains,
deals, stock repurchase programs and liquidity (the continuing strong flow of
cash into U.S. equity funds), stocks posted strong gains in 1997. Until
correcting in late December, large cap growth stocks continued to lead the
market parade. However, large cap value and mid and small cap indices also
posted solid gains.

In the fourth quarter of 1997, the U.S. stock market suffered repeated
bouts of the Asian Flu. As we write, the patient remains unstable. While the
International Monetary Fund is ministering to ailing Asian economies, the ever
vigilant Dr. Greenspan is carefully monitoring the U.S. economy's vital signs.
As we head into 1998, we will be making our rounds as well. We are relatively
pleased with the patient's condition, but as always, are on the lookout for any
symptoms of a relapse.

INVESTMENT PERFORMANCE

THE GABELLI VALUE FUND'S PORTFOLIO MANAGER, MARIO J. GABELLI, WAS RECENTLY
NAMED THE DOMESTIC EQUITY FUND MANAGER OF THE YEAR FOR 1997 BY MORNINGSTAR.

For the fourth quarter ended December 31, 1997, The Gabelli Value Fund's
total return was 8.6%. The Standard & Poor's (S&P) 500, Value Line Composite and
Russell 2000 Index had returns of 2.9%, (1.1)% and (3.4)%, respectively, over
the same period. Each index is an unmanaged indicator of stock market
performance. The Fund was up 48.2% for 1997. The S&P 500, Value Line Composite
and Russell 2000 rose 33.4%, 28.5% and 22.4%, respectively, over the same twelve
month period.

For the five year period ended December 31, 1997, the Fund's return
averaged 22.4% annually, versus average annual returns of 20.3%, 17.8% and 16.4%
for the S&P 500, Value Line Composite and Russell 2000, respectively. Since
inception on September 29, 1989 through December 31, 1997, the Fund has a total
return of 244.9%, which equates to an average annual return of 16.2%.

<PAGE>
INVESTMENT RESULTS (a)

<TABLE>
=====================================================================================================================
<CAPTION>
QUARTER
------------------------------------------------------
1ST 2ND 3RD 4TH YEAR
--- --- --- --- ----
<C> <C> <C> <C> <C> <C>
1997: Net Asset Value ............. $11.63 $14.11 $15.73 $14.30 $14.30
Total Return ................ 1.0% 21.3% 11.5% 8.6% 48.2%
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>
- --------------------------------------------------------
AVERAGE ANNUAL RETURNS - DECEMBER 31, 1997--(a)
- --------------------------------------------------------
<C> <C>
1 Year ........................................ 48.2%
........................................ 40.1%(c)
5 Year ........................................ 22.4%
........................................ 21.1%(c)
Life of Fund (b) .............................. 16.2%
........................................ 15.4%(c)
- --------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
DIVIDEND HISTORY
- ----------------------------------------------------------
PAYMENT (EX) DATE RATE PER SHARE REINVESTMENT PRICE
- ----------------- -------------- ------------------
<S> <C> <C>
December 29, 1997 $2.720 $14.01
December 27, 1996 $1.110 $11.57
December 27, 1995 $1.230 $11.56
December 30, 1994 $1.600 $10.49
December 31, 1993 $2.036 $12.09
December 31, 1992 $0.553 $10.13
December 31, 1991 $0.334 $ 9.48
December 31, 1990 $0.420 $ 8.51
March 19, 1990 $0.120 $ 9.21
December 29, 1989 $0.068 $ 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.

<PAGE>

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI VALUE FUND AND THE S&P 500 INDEX

[CHART]

12/97
Gabelli Growth Fund $32,579
S&P 500 Index $34,122

WHAT WE DO [LOGO]

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.

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

<PAGE>

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

1997 REVISITED

Year ends are always time for reflection. We look back over the last twelve
months and assess what went right and what went wrong. To borrow from Joseph
Heller's classic novel CATCH 22, we tally the "feathers in our cap" and "black
eyes". In 1997, the former vastly outnumber the latter. Heading our "feathers in
the cap" list is deals. During the year, the Fund bid a cheerful farewell to
several portfolio holdings which found new homes under other corporate roofs.
Also prominent on our list are cable television stocks, Cablevision Systems (CVC
- - $95.75 - ASE), Tele-Communications Inc. (TCOMA - $14.875 - Nasdaq) and USWEST
Media Group (UMG - $28.875 - NYSE) which gained 212.7%, 113.9% and 57.1%,
respectively, over the course of the year, thanks to better than generally
expected cash flow growth and Bill Gates' decision that coaxial cable will be
the most effective digital highway into the home. Cable network stocks, BET
Holdings (BTV - $54.625 - NYSE) and Home Shopping Network (HSNI - $51.50 -
Nasdaq), also soared as investors acknowledged the escalating value of these
entrenched distribution channels. Niche industrial companies like Tyler Corp.
(TYL - $5.50 - NYSE), Navistar (NA V - $24.8125 - NYSE), Federal Mogul (FMO -
$40.50 - NYSE) and Ampco-Pittsburgh (AP - $19.5625 - NYSE) were near the top of
our leader board. Broadcasters, including Gray Communications (GCS'B - $25.75 -
NYSE), Grupo Televisa (TV - $13.0625 - NYSE), Media General (MEG'A - $41.8125 -
ASE) and Ackerley Group (AK - $16.9375 - NYSE), also buoyed performance.

Our positions in niche industrial companies also contributed to returns. In
the past, we have often discussed the new competitive strengths of American
industry, the prospects for improving earnings and the likelihood that smaller
niche players would be targeted by larger competitors. All three factors
combined to help boost our industrial holdings in 1997.

Our "black eyes" list was dominated by several relatively small positions
in gold stocks, which lost their glitter as gold prices collapsed. Auto parts
stocks like Johnson Controls (JCI - $47.75 - NYSE) and Echlin (ECH - $36.1875 -
NYSE) also disappointed despite, in our opinion, offering excellent fundamental
value.

CONTINUED ON PAGE 12 . . .

<PAGE>

BARRON'S 1998 ROUNDTABLE

We would like to share with you excerpts from BARRON'S 1998 Roundtable
interview with our Chief Investment Officer. Discussion of individual companies
is not necessarily reflective of the Fund's entire portfolio.

- --------------------------------------------------------------------------------
January 26, 1998 BARRON'S o Roundtable'98
- --------------------------------------------------------------------------------

DISCORDANT NOTES

OUR PANEL TAKES DIFFERENT TACKS IN AN UNCERTAIN MARKET

Fasten your seat belts. You're in for a bumpy ride in this, the second
installment of Barron's 1998 Investment Roundtable. Maybe it was all panelist
Mario Gabelli's fault. The recorded strains of the hymn he played at the
session's start sounded eerily discordant in the coolly stark precincts of the
SohoGrandHotel, where we met. But more likely, Mr. Market was to blame. With one
full week of 1998 trading under his belt when the 11 members our Roundtable met
with a phalanx of this magazine's editors on the morning of Monday, January 12,
Mr. Market was refusing to follow the bull's script. The DJIA had lost 222
points the previous Friday and escalating turmoil in Asia that morning briefly
knocked the blue-chip average to what stands so far as its low in this nascent
year. Certainly not the end of the world, the panel agreed. But beyond that, the
consensus cracked.

The disagreements, some of them sharp, were many -- and are clearly
reflected in the investment selections made by the four panelists who are
featured in this middle section of the Roundtable: Mario Gabelli, Archie
MacAllaster, Felix Zulauf and Scott Black.

When it came time to talk about the market, Mario shed the religious
trappings and came down squarely on the side of agnosticism -- the index will
fluctuate 10%, in each direction -- but he's still a true believer in deals. The
more the merrier. Thus, the founder and guiding light of Gabelli Asset
Management and Chairman of Gabelli Funds, Inc. waxed enthusiastic

BARRON'S
ROUNDTABLE
-----------------------
BARTON BIGGS
SCOTT BLACK
MARIO GABELLI
ARCHIE MACALLASTER
JOHN NEFF
MARC PERKINS
JAMES ROGERS
ART SAMBERG
OSCAR SCHAFER
CARLENE MURPHY ZIEGLER
FELIX ZULAUF
-----------------------

about values to be surfaced and synergism to be unleashed in heavy-metal
industries, the media and via the Internet. Not exactly new themes for Mario.
But why mess with success? Buoyed by a slew of spinoffs, split-ups, takeouts and
the like, the list of stocks Mario picked last year racked up peak gains
averaging almost 60% -- the same sort of moves that propelled no fewer than four
of his mutual funds to the top of the growth-fund rankings for '97.

For all the details, read on.

-- KATHRYN M. WELLING

BARRON'S: MARIO, DID YOU PREPARE A DANCE TO GO ALONG WITH THE SONG YOU PLAYED
EARLIER?

GABELLI: "Nearer My God to Thee" just isn't that kind of ditty. My conclusion,
in the earlier part of the meeting [Roundtable, Part 1, January 19] was that the
market has a certain framework -- about 10% downside to get intrinsic value,
with a lot of dynamics at work, and maybe up 10% looking out 18 months. We want
to look out to the middle of 1999 to generate long-term capital gains because
the long-term capital gains rate is now 20% for an 18-month holding period --
and it's not only what you make, but what you keep.

One dynamic I look for in the market is a continuation of deals; 1998
- --------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
January 26, 1998 BARRON'S o Roundtable'98
- --------------------------------------------------------------------------------

will again be a record year for transactions, with other forms of financial
engineering-split-ups, split-offs, leveraged stubs, consolidation plays-also
being drivers. As I have indicated in the past, in the Nineties, one of the
themes is consolidation. You buy a fragmented industry and get the benefits of
synergistic dynamics at work. You eliminate overhead. You get economies of scale
in the financial and operating areas.

We've talked in earlier Roundtables about banks, brokers, broadcasters.
We've talked about the consolidation in the defense industry, which is almost
over in the U.S. The utilities industry is absolutely just in the beginning
stage of a major consolidation play. We've talked about the Bell operating
companies. In fact, you've had two phone deals already in 1998: Southern New
England Telecom, which I was going to talk about, and, obviously, AT&T'S buying
Teleport Communications Group. The names I'm looking at in the financial
engineering area are GAYLORD ENTERTAINMENT and WHITMAN -- the Pepsi bottling
part after Whitman is split into three parts. In the telephone area, TELEPHONE &
DATA SYSTEMS. Consolidation is still going on among the vendors to Boeing:
SEQUA, SPS TECHNOLOGIES AND FAIRCHILD. There is going to be continued
consolidation in the auto-parts industry. My favorite is ECHLIN. And there is a
lot to happen, still, in the cable, television and broadcasting area. That's it.
Thanks.

Q: WON'T THE STOCK MARKET DECLINE PUT A DAMPER ON ALL THE DEALS? A LOT ARE FOR
BOTH CASH AND STOCK. IF THE STOCKS FLAME OUT, SO DO THE DEALS.

GABELLI: The chairman of Wells Fargo put it well when he reportedly said, "At
these kinds of multiples, these kinds of prices, if somebody came to you with a
story that would cause the currency of the combined company to appreciate, then
I am open to it." The notion of using equity as a currency for deals in part is
driven by the dictates of pooling-of-interests accounting. But it's also driven
by the fact that equity is a surrogate for junk bonds in the 'Eighties and
company-issued debt in the 'Sixties. Some of it is junk equity. There is no
question that you want to leverage it out. The banks, at this point, are
reasonably flush with cash. You can borrow today at rates of 53\4% and 6%.
Locking in those kinds of rates will still be a driver of transactions. The
first two megadeals we've seen this year used paper. SBC COMMUNICATIONS -- the
old Southwestern Bell-buying SOUTHERN NEW ENGLAND TELECOM was a $4 billion deal
using SBC paper, and AT&T is using its stock to buy Teleport. In addition, in
between those, we've already seen probably 20 or 30 other transactions using a
combination of cash and stock as currency. I don't see any reason why deals
should slow. With the long-term capital-gains rate coming down, it seems to me
that the sun, the moon and the stars are all in alignment on this. That is, I am
getting reasonably good EBITDA. I am getting a high multiple of EBITDA. I am
going to be able to use the lowest possible capital gains rate. So there is a
lot of motivation for companies to sell or enter into financial transactions.
Plus, there are still a lot of drivers of financial engineering. So everything
that I've thought about since the day General Electric set off this trend by
going after Kemper in a hostile transaction, which happened to be March 14,
1994, continues to drive transactions. They are global, they are synergistic,
and there are still dynamics in the consolidation phase. But unlike 1994 -- when
trying to make money in the market was like walking through waist-high mud -- in
1998, you still have an exit strategy, one based on a large number of deals. You
are seeing a lot more overbids, and the buyers are all types. I think that
continues.

NEFF: Over-bids? Do you mean somebody bidding more than the first suitor?

GABELLI: Right. For example, in your industry, John -- not that I want to tie
you to the steel industry -- Bethlehem Steel bid for Lukens. Allegheny Teledyne
bid for Lukens. Now we have another round coming. I mean, Kollmorgen has knocked
on the door at Pacific Scientific. You'll see more over-bids. But let me put
some meat on that bare-bones overview I gave you. Today I am going to talk about
two loaded laggards. One is VIACOM, which was trading on Friday [January 9]
around 40. There are two classes of stock. There's VIA, with 69.5 million shares
outstanding, of which [Viacom Chairman] Sumner Redstone owns two-thirds. My
clients own seven million of the balance; I want to give full disclosure,
otherwise, Archie will ask. Then there also are 284 million common shares out,
so there are 354 million shares in total. They have about $8 billion of debt and
$1 billion of preferred, so say $9 billion of debt and preferred. I believe,
over the next 12 months, you will see them selling their publishing business.
[Viacom on January 14 announced plans to sell the educational, professional and
reference publishing operations of its Simon & Schuster unit as part of a
strategic restructuring, assisted by Morgan Stanley.] Publishing is about

- --------------------------------------------------------------------------------

<PAGE>

a $400 million EBITDA business. They should get 12-14 times EBITDA, or $5-$6
billion, for it. They have a tax basis of $3.5 billion on it. They should be
able to sell Blockbuster, or do a tracking stock with it or liquefy part of it.
They should get $3-$4 billion for that, even in today's world. They are changing
the dynamics of the business by having the movie companies provide videos and
share in the rental revenues, instead of just buying the videos.

Q: BUT BLOCKBUSTER STILL HAS THE SAME MANAGEMENT. WHAT'S TO KEEP IT FROM
SCREWING UP AGAIN?

GABELLI: No, it doesn't -- Sumner Redstone is still there. But he's changed the
management at Blockbuster. I am arguing that Blockbuster and the publishing unit
will be sold for $9 billion. A year from now, Viacom will be a company with no
debt and two businesses. One, a world-class cable network, which includes MTV,
Nickelodeon, Nick at Nite; the other, the movie studio. Even though Disney and
Fox are coming after Nickelodeon, its cable networks' $1 billion of cash flow
should grow 12%-15% for the next three-four years.

Q: HOW DO YOU KNOW REDSTONE ISN'T GOING TO TAKE THE DOUGH AND DO THE SAME DUMB
THING HE DID WITH BLOCKBUSTER?

GABELLI: Let's not get into revisionist history here.

Q: THAT IS WHAT WE ARE ABOUT TO GET.

GABELLI: I am not defending Sumner Redstone, but I am going to talk about Sumner
Redstone. What happened was that, as a theater operator back in the 'Sixties,
'Seventies and 'Eighties, you always lusted for the casting couch-tried to buy a
movie studio. So when Paramount put itself up for sale in 1993, he bid. But to
get Paramount, Redstone needed cash flow. He bought Blockbuster to get it. It
was the steppingstone in his strategy and he knew then that it was a lousy
tactic.

Q: WELL, HE KEPT THAT TO HIMSELF.

GABELLI: I don't think so. It was fairly obvious what [H. Wayne] Huizenga had
created in Blockbuster -- and what its vulnerable parts were. Anyway, now Viacom
has MTV, Show-time and the broadcast stations that generate $1 billion of cash
flow annually. There are 350 million shares, a $14 billion market cap. So, in
effect, you get the very attractive movie studio free, plus you get other
assets. When I shake it all out, I get a value of about $65 a share. I am buying
this stock. You don't have to buy it.

The second, equally loaded laggard I want to talk about is SEAGRAM. VO is
the symbol. But this is not about VO on the rocks, it's about VO on the upswing.
The stock was probably down 15% last year. There are 347 million shares. The
debt is a little more difficult to get your hands around because [Seagram CEO]
Edgar Bronfman Jr. made a strategic decision to go to war against Sumner
Redstone. He beat him in court and was then able to buy the USA Network and the
Sci-Fi Channel for $1.7 billion. When I work the numbers, I come up with a debt
figure of about $4 billion. What Bronfman then did was package those channels
with most of his Universal TV production operation and exchange the whole bunch
for 45% of Home Shopping Network, or 72 million shares, plus some cash.
Seagram's distilled-spirits business, pre-Asia, was going to do about $900
million in EBITDA. I am now estimating only $700 million. Two reasons: One, all
the Martells that were sold for X-dollars per bottle in Asia. They may be
drinking more over there, but they now are drinking their inventory as opposed
to buying more. So Seagram's EBITDA will be $200 million lower than expected,
earnings about $100 million lower. Tropicana is doing quite well, about $250
million of EBITDA. So the liquids businesses generate a total of about $950
million of cash flow. I could sell those businesses today for around $9.5
billion. Grand Metropolitan and Guinness merged last year [creating a company
called DIAGEO], changing the critical scale in the spirits business. So I think
Seagram has to take the distilled business and merge it with ALLIED DOMECQ, or
figure out some other strategy there. [On January 18, the Sunday Telegraph of
London reported that the two companies were discussing merging their
alcoholic-beverage businesses.]

The second thing Seagram now has going for it is that it has become a
dominant player in electronic commerce. As Arthur talked about earlier
[Roundtable, Part 1], when you have a brand name, you now can sell on the
Internet into the global marketplace. Electronic commerce, to me, is where Sears
Roebuck was 100 years ago. I will not buy a product anywhere today without
checking out the brand and the price on the Internet and figuring out how to get
it delivered to me. Amazon.com sells you a book; you get it in the mail. I have
looked for ways to participate. What is emerging as a pure wonderful play on
this -- aside from CENDANT (the new name of the merger between CUC International
and HFS Inc.) and a couple of others -- is the one that I like, Home Shopping
Network. [HSN CEO] Barry Diller, through HSN, has become a major outsourcer of
electronic commerce and will be one of the leading factors on a global basis. So
Home Shopping

- --------------------------------------------------------------------------------

<PAGE>

Network is structurally attractive over the next five years as an entertainment
play, an electronic-commerce play. Seagram realized: "Hey, we can't own this
kind of talent. Let's rent it. Let's get involved with Barry Diller."

Q: WHAT'S SEAGRAM WORTH?

GABELLI: What I'm sitting on in Seagram is a liquids business worth $9.5
billion, or 10 times EBITDA. It also has 26 million shares of TIME WARNER,
valued in the market at $1.5 billion. Its 72 million shares of HSN trade at
anywhere from 45 to 50 each -- but that probably legs in, over the next five
years, as the dominant player in electronic-commerce marketplace. Could be a
very attractive long-term vehicle. Plus, you get a movie studio. Look at it any
way you want, you get a movie studio free. This company is reasonably attractive
at 31.

SCHAFER: What are you saying all the pieces of Seagram are worth?

GABELLI: There's an $11 billion market cap, $4 billion of debt, coming down to
$3 billion, when the deal with HSN settles. You can look at it two ways, Oscar.
You can say they have $1.5 billion of Time Warner and $3.5 billion of Home
Shopping. Time Warner is for sale, but Home Shopping is not. Home Shopping will
have 170 million shares out soon. There will be a very thick prospectus coming
out in the next 30 days. I think you will see Barry Diller splitting it up. The
electronic-commerce business, which will consist of the old Home Shopping
Network and Ticketmaster, will have $250 million of EBITDA. It'll be a terrific
vehicle for outsourcing electronic commerce -- probably one of the very few
companies that have conceptualized how to actually fulfill sales via the
Internet on a global basis. Then HSN also has a TV station operation, called
Silver King Broadcasting. Its negative cash flow is $30 million annually, but
Diller will now marry that with USA, one of the leading cable networks in the
country, and Sci-Fi, which is rapidly growing -- and they have $200 million of
cash flow. As I fast-forward three to four years, I can see $1 billion of cash
flow from HSN's businesses -- and a company that then can grow double-digits,
exponentially. So I like Home Shopping, I like Seagram's ownership in HSN. That
is why I am beating on the table.

Q: COULDN'T THEY BLOW THE WHOLE THING WITH ONE BAD MOVIE?

GABELLI: Well, TITANIC was a $250 million film-but I did play the song.

Q: FIVE YEARS FROM NOW, THE STUDIOS WILL BE SPENDING $1 BILLION TO MAKE A
PICTURE

GABELLI: You could say "Play It Again, Sam," too. Cleopatra does

- --------------------------------------------------
Gabelli's Picks
Price
Company Sym. Exch. 1/6/97
- --------------------------------------------------
Whitman (Pepsi) wi WH NYSE 15-18
Tel & Data Systems TDS ASE 44 3/4
Sequa A SQAA NYSE 64 3/8
SPS Technologies ST NYSE 39 15/16
Fairchild FA NYSE 21 9/16
Echlin ECH NYSE 34 3/4
Viacom A VIA ASE 42 1/4
Seagram VO NYSE 32 15/16
HSN HSNI NNM 47 3/4
Time Warner TWX NYSE 59 7/16
USWest Media Group UMG NYSE 28 5/16
Cablevision Systems A CVC ASE 88 5/8
Lillian Vernon LVC ASE 16 5/8

"Hall of Shame"

Pennzoil PZL NYSE 60 3/8
Reader's Digest A RDA NYSE 22 7/8
Gaylord Entertainment GET NYSE 30 1/16
- --------------------------------------------------

happen. And Water World. And Titanic. Very expensive films. But then you have
movies that are less expensive to produce, like THE LOST WORLD: JURASSIC PARK,
that are equally popular -- sometimes more popular. On balance, owning creative
copyright and content through a filmed-entertainment company and leveraging it
up on a global basis with captive distribution has proven to be a reasonably
good business.

Another one I want to recommend is USWEST MEDIA GROUP, which is going
through financial engineering. US West created USWest Media as a tracking stock.
Within the next 60 days, they will convert it to standard C corporation form and
spin it off. USWest Media will then be the third- or second-largest cable
company. As I fast-forward, a year from now, Time Warner will have somehow
figured out a way to buy USWest Media and then spin it off to the public,
packaged as a cable company. The stock is at 29. It is worth $45. CABLEVISION
SYSTEMS, which I did not recommend a year ago, but which I have recommended in
the past -- and which my clients own a lot of sells for 90 and has two
businesses: cable systems and a cable network. The cable network is Rainbow
Media Holdings, 25% owned by NBC, 75% owned by Cablevision. There are three
wonderful channels: American Movie Classics, Bravo and Romance. No one can be
without Romance.

Q: THAT'S VERY TOUCHING.

SCHAFER: Don't they have Madison Square Garden, too?

GABELLI: They sold 40% of their stake in Madison Square Garden to Fox, so they
own only 60% of the Garden, which has turned out to be absolutely a phenomenal
deal. When I look out into 1999 and 2000 -- at least

- --------------------------------------------------------------------------------

<PAGE>

18 months from now, when I'll have a long-term capital gain -- I see a company,
assuming this transaction with TCI Inc. gets closed in the next 60 days, with
3.2 million cable customers clustered in Cleveland, Boston and New York. A
business unit that will have cash flow at least $1 billion in the year 2000 in
cable, which is worth 10 times that. And a company that has wonderful
programming -- in sports, as well as in the three genres I've already mentioned.
It'll be worth $250 a share at that time.

Q: ISN'T CABLEVISION ALSO A COMPANY WITH A WONDERFUL BALANCE SHEET?

GABELLI: They have a $2.5 billion deficit in book. They have $4.2 billion of
debt. There is a very limited margin of safety.

Q: IF, BY CHANCE, INTEREST RATES WERE TO RISE, COULD IT COPE?

GABELLI: There are 90 million shares authorized. There are 25 million shares
publicly outstanding now. There will be 37 million when this deal with TCI is
concluded. So you have 37 million shares in a very highly leveraged company. If
things look dark in the world, they will look better for the shareholders,
because [Cablevision Chairman] Chuck Dolan at that point probably will dial
[President] Bob Wright at NBC and say, "Bob ..."

Q: DO YOU HAVE ANOTHER IDEA, MARIO?

GABELLI: Small-cap stocks that derive their demand from the airline business in
some fashion. Either they sell components to Boeing or they sell and service
parts. The first one is SEQUA, which sells components for engine repairs and
overhauls. General Electric just bought two companies in the business, one of
which was Greenwich Air Services, which in turn was buying UNC Inc. AlliedSignal
just bought an aircraft-parts distribution division from Fairchild's Banner
Aerospace. The company I like is Sequa. Traded on the NYSE, 10.9 million shares
out. The stock is 66. [Chairman] Norman Alexander is over 80. The earnings for
1998 will be $4.75. They will go to $7.50 in '99. They will be close to $10 in
the year 2000. The value of the business, if Norman decides not to wake up, or
decides to sell-or to wake up and sell --

Q: YOU'RE LOOKING FOR TROUBLE AGAIN.

GABELLI: -- he could sell the pieces, based on recent transactions -- and
applying a lowly multiple of eight times EBITDA to Chromalloy, which is a
world-class business -- for $200 a share. I think that $200 becomes $300 by the
year 2001. So, with the stock at 65, I have an incredible margin of safety,
assuming Norman Alexander stays the course. I mean, he just put [Apollo
Advisors' founding partner] Leon Black on the board, which is the first sign of
fresh air I have seen in the company.

Q: WHAT KIND OF AIR? LEON BLACK?

GABELLI: Fresh.

Q: YOU'VE BEEN INSIDE TOO LONG.

GABELLI: My second small-cap is SPS TECHNOLOGIES. Twelve million shares; a $40
stock. NYSE; $480 million of equity; $100 million of debt.

NEFF: Tell where it's headquartered.

GABELLI: Jenkintown, Pennsylvania.

NEFF: Almost in Philadelphia.

GABELLI: I was just there. Went through the factory about four weeks ago.
Charlie Grigg came on board as the CEO three or four years ago. The fastener
business is doing extremely well. And they are creating a second window that is
growing exponentially by consolidating the fragmented $2 billion bonded-metals
and magnets business. They are buying up small companies, have made over a dozen
acquisitions. Earnings should ramp up -- $3.10, $3.60, $4, $5. The company is
worth $60 a share today and it will be worth $100 in five years. It's a
spectacular play. Fairchild, I won't go into much. The stock is around 20.
Another fastener company. Jeffrey Steiner runs it. They just did an offering to
liquefy, through DLJ; 20 million shares out. They control Banner Aerospace.

Q: ANOTHER SUPPLIER TO BOEING?

GABELLI: Yes, Boeing will produce 550 planes in 1998.

Q: DON'T YOU THINK BOEING IS VULNERABLE TO A LOT OF CANCELLATIONS OUT OF ASIA?

GABELLI: Absolutely. There is going to be all sorts of that. But the age of the
aircraft, the fact that they need to be more fuel-efficient, or more
noise-efficient, and some growth around the world will keep Boeing working. The
problem is the ramp rate goes to 550-600 planes a year -- then flattens. So
these companies, over the next two years, will have good earnings growth -- then
go flat in that part of the business. You can't buy these stocks for those
orders, because the market is already discounting the flattening. You're buying
them because the cash flow is terrific and there will be a round of
consolidations. Fairchild will probably be taken over by Textron. Or they'll
merge with SPS Technologies. Someone has to merge with somebody in this
business. There are too many companies. Then, the financial engineers will do
something. In the

- --------------------------------------------------------------------------------

<PAGE>

case of SPS Technologies, which is a nuts-and-bolts company, Charlie Grigg is
first-class. These three are small-cap stocks that are going to be terrific in
relation to value and in relation to earnings over the next 12-18 months. I want
to own them all -- as I do -- I want to own the whole companies for my clients.

Q: YOU MAY HAVE TO. IS THAT IT?

GABELLI: Another financial engineering company is Gaylord Entertainment, which
sold its Country Music Television and its Nashville Network to Westinghouse
Electric. Shareholders got Westinghouse stock, plus shares in this spun-off
company. One of the last Morris trusts. Gaylord is one of the three new
companies in my Hall of Shame this year, because of the way they handled the
sale of their cable networks to Westinghouse. They had no upside protection.
Westinghouse stock went from 17 to 28 while the deal was pending, and we were
stuck at a $17 valuation. It was a disgrace. Still, Gaylord today has 32 million
shares. The stock sells at 30 on the NYSE. That is a $1 billion market cap. It
has a few hundred million of debt. For that you get a hotel that everyone wants
to own -- 2,950 rooms, $100 million of EBITDA, about 88% occupancy last year,
but they added a new wing. It will go to about 95% occupancy this year, with an
average daily room rate of about $130.

Q: THIS IS OPRYLAND?

GABELLI: The hotel. It's in Nashville. That hotel, someone with a paper clip, or
a paired REIT, or some desire to own it, will pay $1 billion for. I think
[Hilton Hotels CEO Stephen] Bollenbach would buy it. The balance of the business
is probably worth another $500 million. The biggest value in that is a CBS
station in Dallas, a stand-alone station that they could probably sell for $350
million. I also like it because of something else: Country-and-western music
originates in Nashville. Everyone goes to the place that they own, called the
Ryman Auditorium, to perform. So if you are Garth Brooks, you go there to play.
It is like everyone coming to Barron's.

Q: THANKS.

GABELLI: You're welcome. In three years they will be the foremost
country-and-western music company in the world. But you don't pay for that in
Gaylord's stock.

NEFF: Mario, I thought Opryland died. Can the hotel stand on its own?

GABELLI: The amusement park itself, if Premier Parks were running it, or if you
and I were running it, could be rejuvenated. But Gaylord decided to contribute
that land to a mall operator. I thought it was a mistake. But they were not
doing a good job of running the amusement park. They also have some radio
stations. There are a lot of assets.

ZIEGLER: What are they going to do with the land? Turn it into a shopping mall?

GABELLI: Yes. They also own a stake in Bass Pro, the fishing-gear outfit. They
own 10% of the Texas Rangers. There are a lot of assets there.

Q: YOU MENTIONED THAT GAYLORD IS IN YOUR "HALL OF SHAME." YOU'D BETTER EXPLAIN.

GABELLI: These are not short ideas. My Hall of Shame is reserved for companies
with interesting values -- but with managements who just feel like they own the
companies. Who stand in the way of deals that would surface values, for reasons
of their own. Like Norman Alexander at Sequa. It's my version of tar and
feathers.

Another company in my Hall of Shame this year is Pennzoil, just because of
the way they totally ignored shareholders' desire to get a high price for the
company. Flatly refused to consider Union Pacific Resources' bid.

Q: WHAT'S YOUR THIRD HALL OF SHAMER?

GABELLI: Reader's Digest Association, just because of the way they are handling
this whole management transition. Lowering the options exercise price. But the
virtue of Reader's Digest is that they have an ability to do order fulfillment
on a global basis. The stock is at 23; there are 100 million shares. There is no
debt. Earnings are hard to get a handle on. But their major asset is an ability
to generate lists and to fulfill the still-embryonic electronic-commerce
industry on a global basis. That has a value to large customers and companies --
an increasing one, now that brands can be exploited via the Internet. Reader's
Digest today has about a $2.5 billion market cap. Look at the size of the
mega-deals today. We think it'll be taken over. Another company -- this one is
not in my Hall of Shame, but it's one, like Reader's Digest, that has good
fulfillment capabilities -- is Lillian Vernon. She runs a nice little mail-order
operation. The people who are going to sell merchandise on the Internet will try
to migrate -- and take over these companies. Plus, there is a consolidation
going on in the catalogue industry. This is one of the companies that will be
taken over. The stock is at 16.

Q: WHAT ELSE?

GABELLI: Pepsi/Whitman -- the new company about to be created, effective

- --------------------------------------------------------------------------------

<PAGE>

January 30. Illinois Central became Whitman Corp. Whitman has three parts
- --Hussmann, Midas and Pepsi-Cola General Bottlers. The first two are about to be
spun off. The part I want to talk about is what will be left in Whitman, the
Pepsi bottler. There are 102 million shares. The stock is trading at 15-18, on a
when-distributed basis. The new Whitman, to me, is similar to what Coca-Cola
Enterprises was when I found it back in the 1980s when it went public. This may
well become [PepsiCo CEO] Roger Enrico's engine for rejuvenating Pepsi's
independent bottling system. The documents are out. If we are right,
Pepsi/Whitman should earn about 70 cents a share in '98, marching up at about a
15% compounded growth rate. Its cash flow will be fairly significant. Also,
Pepsi went to them and said, "We want you to be the bottler in Poland. We want
you to be the bottler in Russia."

Q: DO YOU BUY WHITMAN NOW, OR WAIT?

GABELLI: You can buy Whitman today, for $25. It's about to be split into three.
For every share of Whitman, you get a half-share of Hussmann. Hussmann will
eventually be sold. It is like Thermo King, a very attractive operation in the
refrigeration business. For every share of Whitman you get one-sixth of a share
of Midas. And you get a share of Pepsi/Whitman. It is probably extremely poorly
managed today, at the top. But the business itself is terrific. They are the
Pepsi bottler covering about 12% of the U.S., primarily around Chicago-Heartland
USA. This is a terrific vehicle for Roger Enrico. They already own 20%. I think
it becomes the vehicle that Pepsi does its bottling acquisitions through-much
the way Coca-Cola did it with CCE. Neff: To the degree that Coca-Cola is
essentially giving away carbonated colored sugar water, doesn't it make it
awfully tough for other bottlers? Gabelli: The bottling business in the U.S. is
very attractive, very successful. What it requires, however, is some skill
economics, when you do the routes, when you buy the vending machines --

NEFF: Vending is good, but the rest-the supermarket price of soft drinks

MACALLASTER: Soft-drink margins in the U.S. are much lower than anyplace else in
the world. Except maybe Canada.

NEFF: Coke keeps going for market share. Are they going to stop doing that?

GABELLI: If you want a drop-dead analogy, all you have to do is read the CCE
prospectus. I am running out of time, so I can't do it for you.

Another company that could go either way -- become a consolidator or be
consolidated -- is an old favorite with a new management: Echlin. The stock is
35; there are 63 million shares. Fiscal year ends August 31. They will earn, for
the current year, about $2.35. You'll have about a 20% earnings growth rate over
the next three to five years in Echlin.

Q: THEY DEPEND ENORMOUSLY ON THE WEATHER. THIS WARM WINTER IS NOT GOING TO GIVE
ECHLIN A VERY BIG YEAR.

GABELLI: There are 200 million cars and trucks on the road in the U.S.
Another 400 million more on the road around the world. That's 600 million
vehicles. The growth rate for vehicles on the road in Europe is 3%-4%. In the
U.S., it is about 2.2%, and in Latin America, it is much higher. In Asia, you
can pick any number you want. Someone has to supply spare parts on an ongoing
basis for the engines, braking systems, safety items. This company is
emerging as the preeminent manufacturer, supplier and distributor of parts on
a global basis for the vehicle population.

Q: THAT HAS BEEN THE ARGUMENT FOREVER.

GABELLI: And there's new management.

BLACK: But the gross margins have been coming down. The channel of distribution
has changed over the last few years in the business, from the jobbers to direct
sales to the big retailers like the AutoZones. That has put the arm on these
people's gross margins. I have owned things like Standard Motor in the past. But
we are out of them because the gross margins keep going down and down. I know
you said there is new management, but they have been telling this story for a
while-we have called them. And they've had 12 down quarters in a row. Gabelli:
Call them again. You're dated. Larry McCurdy just took over the helm of the
company. There is some low-hanging fruit. There will be changes in the way they
manufacture. The distribution channel is an issue -- but not a dominant issue.
It is the way you manufacture, the way you distribute on a global basis. Because
there are no AutoZones in Europe or Latin America. Even in the U.S., Echlin is
changing its product mix. They will get their earnings up. You will see eight
straight up quarters. You will have a stock that will either be taken over or be
in the mid-50s in two years. That's not a lot of money, but it is up 50%; that's
okay.

THANK YOU, MARIO.

- --------------------------------------------------------------------------------
Reprinted by permission. The views expressed in this article reflect those of
the portfolio manager only through 1/19/98. The portfolio manager's views are
subject to change at any time based on market and other conditions.

<PAGE>

AND THE WINNER IS?

Despite giving up a lot of financial weight and reach to its better known
opponent, little Starwood Lodging (HOT - $57.875 - NYSE) upset Hilton Hotels
(HLT - $29.75 - NYSE) in the battle for ITT (ITT - $82.875 -NYSE). The deal,
which is scheduled to close in February 1998, is for 30% in cash and the balance
in Starwood stock -- about an $83 per share value at year end. We sided with the
heavily favored Hilton, primarily due to the higher cash component of its offer.
However, since the cost per share of the Fund's ITT holdings was approximately
$39 per share, we were hardly distraught over the outcome.

BOTTOMS UP

We believe the biblical adage "those that are last shall be first" may be
prophetic for several of the laggards in the Fund's portfolio. Seagram stock
declined 16.6% in 1997. Investors appear to think Seagram (VO - $32.3125 - NYSE)
will have a tough time competing against the new Grand Metropolitan/Guiness
combination, which will be a global spirits powerhouse. The fact that 20% of
Seagram's spirits sales are from Asia is another justifiable concern. Problems
duly noted, we see a company that is making some good moves. Seagram bought out
partner Viacom's (VIA - $40.875 - ASE) 50% stake in the USA Network and then
repackaged it in a deal with Home Shopping Network's Barry Diller, a terrific
entertainment programmer. We believe Diller will further energize USA and
Seagram will put the $1.2 billion in cash received in the transaction to good
use by making an acquisition to bolster its spirits business and/or by funding
another round of share repurchases. In fiscal 1997 (June 30) the company
repurchased 11 million shares and thus far in fiscal 1998, it has brought in
another 10 million. Its other businesses are doing relatively well. Under Frank
Biondi's leadership, MCA is rebounding. Tropicana is generating plenty of cash.
Seagram still has 26.8 million shares of Time Warner (TWX - $62.00 -NYSE) worth
approximately $1.65 billion and over 70 million shares of Home Shopping Network
- -- a stock we like. While Seagram's short term earnings prospects are cloudy, we
believe the stock is trading well below the company's increasing economic value.

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.

CENTURY TELEPHONE ENTERPRISES INC. (CTL - $49.8125 - NYSE), based in Monroe,
Louisiana, is the tenth largest local telephone company with over 500,000 access
lines in 14 states in the South and Midwest. Century Telephone is also the tenth
largest domestic cellular company. 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. 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.

<PAGE>

[FLOW CHART]
Chris-Craft Industries
78%
BHC Communications
59%
United Television

CHRIS-CRAFT INDUSTRIES INC. (CCN - $52.3125 - NYSE), through its 78% ownership
of BHC Communications (BHC - $130.25 - 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 - $103.875 - 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 $1.5 billion in cash and
marketable securities.

GRUPO TELEVISA SA (TV - $38.6875 - 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 - $69.8125 - 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%.

MEDIA GENERAL INC. (MEG'A - $41.8125 - ASE) is a Richmond, VA-based
communications company, publishing 20 daily newspapers throughout the Southeast.
Media General operates fourteen network television stations in Southeastern
markets, including 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 at its Garden State Paper Co.

SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORP. (SNG - $50.3125 - NYSE) is a
holding company for Southern New England Telephone (SNET) which provides
telephone services for most of Connecticut. SNET has had success in expanding
into the long distance market in its home territory, gathering a 40% share of
the long distance market in Connecticut. SBC Communications has agreed to
acquire SNET for $4.26 billion in stock.

TELE-COMMUNICATIONS INC. (TCOMA - $27.9375 - NASDAQ), one of the largest cable
TV operators in the U.S., is guided by Dr. John C. Malone - one of the most
shareholder sensitive managers we have found. Regulation has historically played
an important role in the valuation of cable properties. Passage of The
Telecommunications Reform Act of 1996, combined with the current deregulatory
climate in Congress, is providing a significant catalyst for cable stocks. TCOMA
is a well-positioned industry leader, from its wireless telephony PCS venture
with Sprint, Comcast and Cox Communications to its innovative Internet

<PAGE>

access business, dubbed "@Home", and its 80% stake in Tele-Communications
International Inc. (TINTA - $18.00 - Nasdaq). An important strategic shift for
the company is underway as some cable properties are being sold or transferred
to allianced-partners, shifting debt and strengthening the company's balance
sheet. So far, deals shaving over 3 million subscribers and shifting over $4
billion in debt have been announced. Cost reduction programs, including overhead
reduction, are showing substantial progress and increasing operating cash flow.

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.

THE ROTH IRA

The Taxpayer Relief Act of 1997 included new tax incentives and more
opportunities to save for retirement and other major expenditures. The Roth IRA
is just one of these new opportunities now available at Gabelli Funds. Our
investor representatives are available at 1-800-GABELLI (1-800-422-3554) to
speak with you about establishing a new Roth IRA and to discuss your investment
choices.

GABELLI U.S. TREASURY MONEY MARKET FUND

Shareholders of any of the Gabelli Funds may invest in The Gabelli U.S.
Treasury Money Market Fund with an initial investment of $3,000 or more. The
Fund provides checkwriting and exchange privileges. The Fund's expenses are
capped at .30% of average net assets, making it one of the most attractive U.S.
Treasury-only money market funds. With dividends that are exempt from state and
local income taxes in all states, the Fund is an excellent vehicle in which to
store idle cash. An investment in The Gabelli U.S. Treasury Money Market Fund is
neither insured nor guaranteed by the U.S. Government. There can be no assurance
that the Fund will maintain a stable $1 per share net asset value. Call us at
1-800-GABELLI (1-800-422-3554) for a prospectus which gives a more complete
description of the Fund, including management fees and expenses. Read the
prospectus carefully before you invest or send money.

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].

<PAGE>

IN CONCLUSION

1997 was yet another very good year for equity investors. If earnings
expectations are realized, 1998 may be a reasonably good year as well. We do
have our reservations and are mindful that at current valuations, stocks are
well above the safety net. As always, we are focusing on value--stocks trading
at a material discount to their longer term intrinsic value. We believe this
discipline will effectively preserve and enhance the value of the assets you
have entrusted to us.

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.

Sincerely,

/s/ Mario J. Gabelli, CFA

MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
February 1, 1998

------------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1997
-----------------

Media General Inc. Grupo Televisa SA
Viacom Inc. Century Telephone Enterprises Inc
Chris-Craft Industries Inc. Tele-Communications Inc.
Cablevision Systems Corp. Echlin Inc.
US West Media Group Southern New England Telecom.
------------------------------------------------------------------

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.

<PAGE>

THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS--96.7%
AEROSPACE--0.8%
185,000 Fairchild Corp., Class A+.......... $ 3,747,335 $ 4,601,875
------------ ------------
AUTOMOTIVE: PARTS AND
ACCESSORIES--3.9%
400,000 Echlin Inc. ....................... 13,013,518 14,475,000
50,000 Federal-Mogul Corp. ............... 1,088,331 2,025,000
92,225 Handy & Harman..................... 1,430,521 3,181,763
40,000 Johnson Controls Inc. ............. 1,126,000 1,910,000
35,000 Quaker State Corp. ................ 414,064 498,750
30,000 Ragan (Brad) Inc +................. 702,688 1,095,000
------------ ------------
17,775,122 23,185,513
------------ ------------
AVIATION: PARTS AND SERVICES--0.6%
158,000 Coltec Industries Inc.+............ 2,291,727 3,663,625
------------ ------------
BROADCASTING--10.8%
110,000 Ackerley Group Inc. ............... 1,514,638 1,863,125
520,192 Chris-Craft Industries Inc. +...... 13,617,185 27,212,544
100,000 Gray Communications Systems Inc.,
Class B........................... 2,045,561 2,575,000
470,000 Grupo Televisa SA, GDR +........... 10,261,969 18,183,125
110,000 Liberty Corp. ..................... 2,631,819 5,142,500
100,000 LIN Television Corp. +............. 3,883,986 5,450,000
230,000 Paxson Communications Corp., Class
A +............................... 1,826,124 1,696,250
21,000 United Television Inc. ............ 1,917,574 2,181,375
------------ ------------
37,698,856 64,303,919
------------ ------------
BUSINESS SERVICES--0.5%
119,000 Berlitz International Inc., New +.. 1,749,388 3,168,375
------------ ------------
CABLE--13.4%
168,000 BET Holdings Inc., Class A+........ 8,819,978 9,177,000
18,750 Cable Michigan Inc. +.............. 118,625 428,906
282,000 Cablevision Systems Corp., Class
A+................................ 11,828,881 27,001,500
290,000 TCI Ventures Group................. 2,559,509 8,210,625
550,000 Tele-Communications Inc., Class A,
New +............................. 6,993,370 15,365,625
680,000 US WEST Media Group +.............. 15,038,107 19,635,000
------------ ------------
45,358,470 79,818,656
------------ ------------
COMMUNICATIONS EQUIPMENT--0.5%
26,000 Northern Telecom Ltd. ............. 980,550 2,314,000
30,000 Scientific-Atlanta Inc. ........... 545,488 502,500
------------ ------------
1,526,038 2,816,500
------------ ------------
CONSUMER PRODUCTS--2.7%
330,000 Carter-Wallace Inc. ............... 4,490,743 5,568,750
55,000 Gallaher Group plc, ADR +.......... 999,158 1,175,625
180,000 General Cigar Holdings Inc., Class
B +............................... 1,687,164 3,892,500
45,000 Ralston Purina Group............... 1,661,971 4,182,188
41,700 Syratech Corp. +................... 983,310 1,480,350
------------ ------------
9,822,346 16,299,413
------------ ------------
CONSUMER SERVICES--2.8%
250,000 HSN Inc. +......................... 5,306,006 12,875,000
180,000 Ticketmaster Group Inc. +.......... 2,873,107 4,140,000
------------ ------------
8,179,113 17,015,000
------------ ------------
</TABLE>

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
DIVERSIFIED INDUSTRIAL--3.3%
60,000 Honeywell Inc. .................... $ 3,582,671 $ 4,110,000
115,000 ITT Industries Inc. ............... 2,740,975 3,608,125
216,000 Katy Industries Inc. .............. 1,812,634 4,401,000
55,000 Lamson & Sessions Co. +............ 318,688 319,687
32,000 Lukens Inc. ....................... 911,600 914,000
140,000 TriMas Corp. ...................... 4,804,250 4,812,500
300,000 Tyler Corp. +...................... 751,050 1,650,000
------------ ------------
14,921,868 19,815,312
------------ ------------
ENERGY--3.5%
94,000 Pennzoil Co. ...................... 6,964,133 6,280,375
128,000 Southwest Gas Corp. ............... 2,340,775 2,392,000
200,000 Tejas Gas Corp. +.................. 12,102,225 12,250,000
------------ ------------
21,407,133 20,922,375
------------ ------------
ENTERTAINMENT--9.2%
175,660 Ascent Entertainment Group
Inc. +............................ 1,801,193 1,822,472
80,601 Gaylord Entertainment Co., Class
A................................. 2,066,284 2,574,194
34,000 GC Companies Inc. +................ 1,248,451 1,610,750
100,000 Time Warner Inc. .................. 4,154,570 6,200,000
1,050,000 Viacom Inc., Class A +............. 31,761,547 42,918,750
------------ ------------
41,032,045 55,126,166
------------ ------------
EQUIPMENT AND SUPPLIES--6.0%
40,700 Aeroquip-Vickers Inc. ............. 1,182,742 1,996,844
245,000 AMP Inc............................ 10,111,503 10,290,000
50,000 Ampco-Pittsburgh Corp. ............ 250,018 978,125
32,000 Deere & Co. ....................... 570,933 1,866,000
135,000 Gerber Scientific Inc. ............ 1,147,264 2,683,125
3,000 IDEX Corp. ........................ 60,600 104,625
27,000 Ingersoll-Rand Co.................. 653,323 1,093,500
34,000 Navistar International Corp. +..... 322,700 843,625
132,000 Pittway Corp., Class A............. 729,436 9,190,500
70,000 Sequa Corp., Class A +............. 2,361,709 4,554,375
24,500 Sequa Corp., Class B +............. 1,203,320 1,825,250
5,000 Smith (A.O.) Corp. ................ 208,100 210,625
------------ ------------
18,801,648 35,636,594
------------ ------------
FINANCIAL SERVICES--0.8%
25,000 American Express Co. .............. 592,989 2,231,250
45,000 Lehman Brothers Holdings Inc. ..... 812,875 2,295,000
------------ ------------
1,405,864 4,526,250
------------ ------------
FOOD AND BEVERAGE--3.7%
215,000 Quaker Oats Co. ................... 7,327,682 11,341,250
100,000 Seagram Co. Ltd. .................. 3,285,906 3,231,250
290,000 Whitman Corp. ..................... 2,374,575 7,558,125
------------ ------------
12,988,163 22,130,625
------------ ------------
HEALTH CARE--0.3%
240,000 IVAX Corp. +....................... 2,280,950 1,620,000
------------ ------------
HOTELS AND GAMING--2.3%
455,000 Aztar Corp. +...................... 3,211,159 2,843,750
145,000 Circus Circus Enterprises Inc. +... 3,750,090 2,972,500
90,000 Hilton Hotels Corp................. 2,476,007 2,677,500
35,000 ITT Corp., New +................... 2,703,084 2,900,625
110,000 Mirage Resorts Inc. +.............. 1,136,669 2,502,500
------------ ------------
13,277,009 13,896,875
------------ ------------
</TABLE>

See Notes to Financial Statements.

<PAGE>
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
METALS AND MINING--1.0%
601,000 Barrick Gold Corp. ................ $ 1,532,475 $ 1,117,500
170,000 Echo Bay Mines Ltd. +.............. 1,148,957 414,375
110,000 Homestake Mining Co. .............. 1,687,313 976,250
112,000 Placer Dome Inc. .................. 1,999,638 1,421,000
700,000 Royal Oak Mines Inc. +............. 2,156,025 1,093,750
300,000 TVX Gold Inc. +.................... 845,911 1,012,500
------------ ------------
9,370,319 6,035,375
------------ ------------
PUBLISHING--17.1%
205,000 Golden Books Family Entertainment
Inc. +............................ 3,030,481 2,114,063
35,000 Harcourt General Inc. ............. 1,611,750 1,918,437
55,000 McGraw-Hill Companies Inc. ........ 2,210,701 4,070,000
2,030,000 Media General Inc., Class A........ 43,860,520 84,879,375
170,000 Meredith Corp. .................... 3,346,094 6,066,875
111,000 Reader's Digest Association Inc.,
Class B........................... 2,589,140 2,705,625
------------ ------------
56,648,686 101,754,375
------------ ------------
REAL ESTATE--2.4%
610,000 Catellus Development Corp. +....... 7,276,592 12,200,000
130,000 Griffin Land & Nurseries Inc. +.... 1,463,689 2,015,000
------------ ------------
8,740,281 14,215,000
------------ ------------
RETAIL--2.3%
15,000 Burlington Coat Factory Warehouse
Corp. ............................ 154,391 246,562
92,000 Giant Food Inc., Class A........... 2,978,075 3,099,250
35,000 Hartmarx Corp. +................... 216,313 266,875
110,000 Lillian Vernon Corp................ 1,509,277 1,828,750
282,500 Neiman Marcus Group Inc. +......... 5,219,760 8,545,625
------------ ------------
10,077,816 13,987,062
------------ ------------
SPECIALITY CHEMICAL--0.6%
142,500 Ferro Corp. ....................... 1,796,269 3,464,531
------------ ------------
TELECOMMUNICATIONS--3.2%
250,000 Citizen Utilities Co., Class B +... 2,461,902 2,406,250
46,300 Commonwealth Telephone Enterprises
Inc. +............................ 331,188 1,198,013
70,000 RCN Corp. +........................ 752,257 2,397,500
260,000 Southern New England
Telecommunications Corp........... 10,571,975 13,081,250
------------ ------------
14,117,322 19,083,013
------------ ------------
WIRELESS COMMUNICATIONS--5.0%
355,000 Century Telephone Enterprises
Inc............................... 7,188,300 17,683,438
100,000 COMSAT Corp. ...................... 2,038,321 2,425,000

MARKET
SHARES COST VALUE
------ ---- ------

40,000 Loral Space & Communications
Ltd. +............................ $ 501,500 $ 857,500
160,000 TCI Satellite Entertainment Inc.,
Class A +......................... 1,440,750 1,100,000
250,000 Telecom Italia Mobile SpA.......... 332,242 1,153,901
141,000 Telephone and Data Systems Inc..... 6,045,799 6,565,313
------------ ------------
17,546,912 29,785,152
------------ ------------
TOTAL COMMON STOCKS........................... 372,560,680 576,871,581
------------ ------------
PREFERRED STOCK--0.5%
PUBLISHING--0.5%
157,750 News Corp. Ltd., Sponsored ADR
Preference Shares................. 2,428,236 3,135,281
------------ ------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C> <C>
CORPORATE BOND--0.1%
ENTERTAINMENT--0.1%
$ 497,000 Viacom Inc., Sub.
Deb., 8.00% due
07/07/06........... 322,429 502,902
------------ ------------
U.S.TREASURY BILL--1.9%
11,000,000 5.331%++ due
01/22/98++......... 10,966,601 10,966,601
------------ ------------
REPURCHASE AGREEMENT--0.6%
3,590,000 Agreement with
Salomon Inc., 6.70%
due 01/02/98 (a)... 3,590,000 3,590,000
------------
TOTAL INVESTMENTS........... 99.8% $389,867,946(b) 595,066,365
============
OTHER ASSETS AND
LIABILITIES (NET).......... 0.2 1,480,676
----- ------------
NET ASSETS
(41,723,898 shares
outstanding)............... 100.0% $596,547,041
===== ============
NET ASSET VALUE AND
REDEMPTION PRICE PER
SHARE...................... $14.30
=====
MAXIMUM OFFERING PRICE PER SHARE
($14.30 / .945, based on
maximum sales charge of
5.5% of the offering price
at December 31, 1997)...... $15.13
=====
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS DEPRECIATION
- ---------- ------------
<C> <S> <C>
FUTURES CONTRACTS--SHORT POSITION
(80) S&P 500 Index Futures, 03/08/98....... $ (646,450)
------------
</TABLE>

- ---------------

(a) Agreement dated 12/31/97 to be repurchased at $3,591,336 collateralized by
$2,379,000 U.S. Treasury Bond, 10.625% due 08/15/15 (value $3,757,946).
(b) Aggregate cost for Federal tax purposes was $390,317,138. Net unrealized
appreciation for Federal tax purposes was $204,749,227 (gross unrealized
appreciation was $212,280,806 and gross unrealized depreciation was
$7,531,579).
+ Non-income producing security
++ Represents annualized yield at date of purchase.
++ At 12/31/97, $1,000,000 in principal amount was segregated for futures
contracts.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt

See Notes to Financial Statements.

<PAGE>

THE GABELLI VALUE FUND INC.

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- ----------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $389,867,946)....... $595,066,365
Cash............................................ 6,998
Receivable for investments sold................. 2,330,172
Receivable for Fund shares sold................. 407,382
Dividends and interest receivable............... 327,412
Other receivable................................ 4,000
------------
TOTAL ASSETS.................................. 598,142,329
------------
LIABILITIES:
Payable for investment advisory fees............ 496,722
Payable for Fund shares redeemed................ 452,802
Payable for distribution fees................... 298,422
Payable for investments purchased............... 51,544
Accrued shareholder communications expense...... 48,000
Accrued Directors' fees......................... 30,169
Other accrued expenses.......................... 217,629
------------
TOTAL LIABILITIES............................. 1,595,288
------------
NET ASSETS applicable to 41,723,898 shares of
common stock outstanding.................... $596,547,041
============
NET ASSETS CONSIST OF:
Shares of common stock at par value............. $ 41,724
Additional paid-in capital...................... 391,706,921
Accumulated net realized gain on investments.... 246,302
Net unrealized appreciation on investments...... 204,552,094
------------
TOTAL NET ASSETS.............................. $596,547,041
============
NET ASSET VALUE and redemption price per share
($596,547,041 / 41,723,898 shares
outstanding; 300,000,000 shares authorized
of $0.001 par value)........................ $14.30
=====
Maximum offering price per share ($14.30 (DIVIDEND
SIGN) .945, based on maximum sales charge of 5.5%
of the offering price at December 31,
1997)....................................... $15.13
=====
</TABLE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income (net of foreign withholding
taxes of $21,001)........................... $ 4,176,213
Interest income............................... 735,560
-----------
TOTAL INVESTMENT INCOME..................... 4,911,773
-----------
EXPENSES:
Investment advisory fees...................... 5,036,742
Distribution fees............................. 1,259,185
Shareholder services fees..................... 510,194
Directors' fees............................... 102,293
Legal and audit fees.......................... 49,024
Miscellaneous expenses........................ 207,482
-----------
TOTAL EXPENSES.............................. 7,164,920
-----------
NET INVESTMENT LOSS............................ (2,253,147)
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS:
Net realized gain on investments.............. 100,420,766
Net realized loss on futures transactions..... (789,350)
Net realized loss on foreign currency
transactions................................ (2,025)
-----------
Net realized gain on investments............ 99,629,391
-----------
Net unrealized appreciation on investments:
Beginning of year........................... 101,045,653
End of year................................. 204,552,094
-----------
Change in net unrealized appreciation on
investments............................. 103,506,441
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS................................... 203,135,832
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... $200,882,685
===========
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/97 12/31/96
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment loss...................................... $ (2,253,147) $ (616,244)
Net realized gain on investments......................... 99,629,391 41,559,652
Net change in unrealized appreciation on investments..... 103,506,441 2,167,080
------------ ------------
Net increase in net assets resulting from operations..... 200,882,685 43,110,488
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................... -- --
Net realized gain on investments......................... (96,768,357) (40,850,492)
Paid-in capital.......................................... -- (189,371)
Net increase/(decrease) in net assets from Fund share
transactions............................................... 31,596,675 (27,378,880)
------------ ------------
Net increase/(decrease) in net assets....................... 135,711,003 (25,308,255)
NET ASSETS:
Beginning of year........................................... 460,836,038 486,144,293
------------ ------------
End of year................................................. $596,547,041 $460,836,038
============ ============
</TABLE>

See Notes to Financial Statements.

<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; if there were no asked
prices quoted on such day, then the security is valued at the closing bid price
on such day. Readily marketable securities traded in the over-the-counter
market, including listed securities whose primary market is believed by Gabelli
Funds, Inc. (the "Adviser") to be over-the-counter but excluding securities
admitted to trading on the Nasdaq National List, are valued at the mean of the
current bid and asked prices as reported by Nasdaq, or, in the case of
securities not quoted by Nasdaq, the National Quotation Bureau or other
comparable sources as the Board of Directors deems appropriate to reflect their
fair value. If no asked prices are quoted on such day, then the security is
valued at the closing bid price on such day. If no bid or asked prices are
quoted on such day, then the security is valued under the relevant procedure for
the previous day or by such method as shall be determined by the Adviser or the
Board of Directors. Portfolio securities traded on more than one national
securities exchange or market are valued according to the broadest and most
representative market, as determined by the Adviser. Securities 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. 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.

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 included in
unrealized appreciation/depreciation on investments. The Fund recognizes a
realized gain or loss when the contract is closed.

<PAGE>
THE GABELLI VALUE FUND INC. -- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.

FOREIGN CURRENCY. The books and records of the Fund are maintained in United
States (U.S.) dollars. Foreign currencies, investments and other assets and
liabilities are translated into U.S. dollars at the exchange rates prevailing at
the end of the period, and purchases and sales of investment securities, income
and expenses are translated on the respective dates of such transactions.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/depreciation on investments. 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 on investments. 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 by the identified 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 investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund. Permanent
differences incurred during the year ended December 31, 1997 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, 1997 were an increase to accumulated net investment income of $2,253,147 and
a decrease to accumulated net realized gain on investments of $2,253,147 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, to provide a continuous investment program for the Fund's portfolio,
provide all facilities and personnel, including offices, required for its
administrative management and pay the compensation of all officers and Directors
of the Fund who are its affiliates.

<PAGE>
THE GABELLI VALUE FUND INC. -- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

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 wholly-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, 1997, other than short-term
securities, aggregated $219,763,558 and $300,392,435, respectively.

5. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1997, the
Fund paid brokerage commissions of $227,799 to Gabelli & Company and its
affiliates. For the year ended December 31, 1997, Gabelli & Company informed the
Fund that it received $72,835 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
12/31/97 12/31/96
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold................................................. 1,973,979 $ 29,851,529 2,702,873 $ 33,238,448
Shares issued upon reinvestment of dividends................ 6,078,762 85,160,680 3,106,012 35,936,555
Shares redeemed............................................. (6,348,961) (83,415,534) (7,670,956) (96,553,883)
---------- ------------ ---------- ------------
Net increase/(decrease)..................................... 1,703,780 $ 31,596,675 (1,862,071) $(27,378,880)
========== ============ ========== ============
</TABLE>

<PAGE>

THE GABELLI VALUE FUND INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

Selected data for a share of capital stock outstanding throughout each year
ended December 31,

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year........................ $ 11.52 $ 11.61 $ 10.49 $ 12.09 $ 10.13
-------- -------- -------- -------- --------
Net investment income/(loss).............................. (0.05) (0.02) 0.05 0.09 0.05
Net realized and unrealized gain/(loss) on investments.... 5.55 1.04 2.30 (0.09) 3.95
-------- -------- -------- -------- --------
Total from investment operations.......................... 5.50 1.02 2.35 0.00 4.00
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... -- -- (0.05) (0.09) (0.01)
Distributions in excess of net investment income.......... -- -- -- (0.00)(a) (0.04)
Net realized gains........................................ (2.72) (1.10) (1.18) (1.50) (1.99)
Distributions in excess of net realized gains............. -- -- -- (0.01) --
Paid-in capital........................................... -- (0.01) -- -- --
-------- -------- -------- -------- --------
Total distributions....................................... (2.72) (1.11) (1.23) (1.60) (2.04)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR.............................. $ 14.30 $ 11.52 $ 11.61 $ 10.49 $ 12.09
======== ======== ======== ======== ========
Total return*............................................. 48.2% 8.7% 22.5% 0.0% 39.4%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $596,547 $460,836 $486,144 $436,629 $491,193
Ratio of net investment income/(loss) to average net
assets.................................................... (0.45)% (0.12)% 0.42% 0.73% 0.38%
Ratio of operating expenses to average net assets........... 1.42% 1.40% 1.50% 1.50% 1.53%
Portfolio turnover rate..................................... 43.9% 37.1% 64.6% 66.6% 21.4%
Average commission rate per share(b)........................ $ 0.0484 $ 0.0498 N/A N/A N/A
</TABLE>

- ---------------

<TABLE>
<C> <S>
* 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.
(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>

See Notes to Financial Statements.

<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, 1997, 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, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
February 20, 1998

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1997 TAX NOTICE TO SHAREHOLDERS (UNAUDITED)

For the year ended December 31, 1997, the Fund paid to shareholders, on December
29, 1997, an ordinary income dividend (comprised of net investment income and
short-term capital gains) totaling $0.23 per share. Additionally, on that date,
the Fund paid $2.49 per share in long-term capital gains. For 1997, 48.64% 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
1997 which was derived from U.S. Treasury securities was 3.00%. 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 1997. 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 specific situation.
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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 [PHOTO OF GABELLI]
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.

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 THE
Dollar Dry Dock Savings Bank Professor, Pace University
GABELLI
Anthony J. Colavita
Attorney-at-Law VALUE
Anthony J. Colavita, P.C.
OFFICERS FUND
Mario J. Gabelli, CFA Bruce N. Alpert
President and Chief Chief Operating Officer, INC.
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.

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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 ANNUAL REPORT
or accompanied by an effective DECEMBER 31, 1997
prospectus.
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