<PAGE>
THE GABELLI VALUE FUND INC.
ANNUAL REPORT
DECEMBER 31, 1998
****
Morningstar rating(TM) of The Gabelli Value Fund was 4 stars for the three year
period ended 12/31/98 among 2802 domestic equity funds, and 3 stars overall
and for the five year period ended 12/31/98 among 2802 and 1702 domestic
equity funds, respectively.
TO OUR SHAREHOLDERS,
In the fourth quarter of 1998, three Federal Reserve interest rate cuts
seemed to make all the world's economic problems disappear and stocks rebounded
to near record levels. Treasury bond prices, which had rallied in a classic
"flight to quality", declined as investors poured back into the equities market.
Despite all the global economic shocks and uncertainty regarding the
U.S. economy and corporate profits, the Standard & Poor's 500 Index recorded its
fourth consecutive year of double digit gains. Mid-cap stocks lagged, but still
finished 1998 with respectable gains. Although rebounding strongly from third
quarter lows, small cap stocks, as represented by the Russell 2000 Index, never
made it back into the black.
INVESTMENT PERFORMANCE
For the fourth quarter ended December 31, 1998, The Gabelli Value Fund's
(the "Fund") total return was 19.8%. The Standard & Poor's ("S&P") 500, Value
Line Composite and Russell 2000 Indices had returns of 21.4%, 18.1% and 16.3%,
respectively, over the same period. Each index is an unmanaged indicator of
stock market performance. The Fund was up 23.2% for 1998. The S&P 500 and Value
Line Composite rose 28.7% and 5.8%, respectively, while the Russell 2000
declined 2.6% over the same twelve month period.
For the five year period ended December 31, 1998, the Fund's total
return averaged 19.5% annually versus average annual total returns of 24.1%,
15.3% and 11.9% for the S&P 500, Value Line Composite and Russell 2000,
respectively. Since inception on September 29, 1989 through December 31, 1998,
the Fund had a cumulative total return of 325.0%, which equates to an average
annual return of 16.9%.
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect historical risk adjusted performance as of December 31, 1998 and
are subject to change every month. Morningstar ratings are calculated from a
Fund's three, five and ten year average annual returns in excess of 90-day
T-Bill returns with appropriate fee adjustments and a risk factor that reflects
fund performance below 90-day T-Bill returns. The top 10% of the funds in an
investment category receive five stars, the next 22.5% receive four stars, the
next 35% receive three stars, the next 22.5% receive two stars and the bottom
10% receive one star.
<PAGE>
INVESTMENT RESULTS (a)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Quarter
------------------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1998: Net Asset Value....... $16.43 $16.94 $14.71 $16.08 $16.08
Total Return.......... 14.9% 3.1% (13.2)% 19.8% 23.2%
- -----------------------------------------------------------------------------------------------------------------
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, 1998 (a)
- -----------------------------------------------
<S> <C>
1 Year .............................. 23.2%
.............................. 16.5%(c)
5 Year .............................. 19.5%
.............................. 18.1%(c)
Life of Fund (b)...................... 16.9%
.............................. 16.2%(c)
- -----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dividend History
- --------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ------------------- ---------------- -------------------
<S> <C> <C>
December 28, 1998 $1.490 $15.54
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 investment operations on September 29,
1989. (c) Includes the effect of the maximum 5.5% sales charge at beginning of
period.
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI VALUE FUND, THE CONSUMER PRICE INDEX +10% AND THE S&P 500 INDEX
[GRAPH]
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 nine years at
The Gabelli Value Fund and for over 21 years at Gabelli Asset Management
Company. In past reports, we have tried to articulate our investment philosophy
and methodology. The accompanying graphic further illustrates the interplay
among the four components of our valuation approach.
[GRAPH]
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.
3
<PAGE>
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. equity markets. 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
OUTLOOK FOR 1999
Mario Gabelli, our Chief Investment Officer, has appeared in the
prestigious BARRON'S Roundtable discussion annually since 1980. Many of our
readers have enjoyed the inclusion of selected and edited comments from BARRON'S
Roundtable in previous reports to shareholders. Once again, we are including
selected comments of Mario Gabelli from BARRON'S 1999 Roundtable. For our
shareholders who prefer to view the entire interview, the complete text is
available on the Internet at www.barrons.com.
- --------------------------------------------------------------------------------
January 18, 1999 BARRON'S - Roundtable '99
- --------------------------------------------------------------------------------
BARRON'S
ROUNDTABLE
-------------------
MARIO GABELLI
Chairman and Chief Investment Officer.
Gabelli Funds, Rye. New York
- --------------------------------------------------------------------------------
BARRON'S ("Q"): A new year, a new market environment? Meaning, are investors
going to have to grapple with seismic economic shifts as well as impeachment and
Y2K?
GABELLI ("G"): Let's focus on the U.S. economy. I'm in the camp that argues that
consumers are going to get another tailwind. There is going to be a major tax
cut that is going to be very stimulative to the consumer. If I'm a consumer
today, I feel good. I'm working. Gasoline, I just went and bought a tankful. I
paid 20 cents a gallon less than it cost me the last time I filled up.
Q: You obviously don't do it often.
G: What I mean is that on 500 gallons of gas, I save 100 bucks. That's two bucks
a week. That's terrific. There are
4
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January 18, 1999 BARRON'S - Roundtable '99
50 million vehicles on the road. At two bucks a week, that's $100 million a
week, that's around $5 billion annually going back into consumers' pockets. I
just refinanced my mortgage. I got a jumbo $240,000 loan at 67U8%. I'm saving
1%, that's $2,400, that's another $45 or so a week and I'm going to get a tax
cut. And I own Internet stocks. I think this is terrific.
Q: But you could see long-term interest rates going up soon because Japan may be
asking for their savings back.
G: Well, they have gone up to 5.3%, but still, I just refinanced my house, so I
feel good. You can talk about long-term rates, but my mortgage is what I look at
as a consumer. Besides, looking at the redressing of imbalances, one of the
concerns we had was that the dollar was too strong. Now if you look at the
dollar versus the euro, this morning it was 114, and versus the yen it was 107.
So when translating Euroland earnings into U.S. dollars, companies that are
operating there could get a terrific tailwind. Reported S&P earnings, I think,
could be a lot better than people expect, because they've forgotten the currency
factor. Especially if I have 2% real growth in Euroland and I have companies
that are now rationalizing and getting the benefit of synergies. The companies I
talk to in the U.S. that have big operations in Europe are all saying, "Hey, in
the last couple of months, we are getting a big benefit from currency." That
could continue for the next half. So the U.S. economy is reasonably good.
Earnings and cash flow for the companies I follow should be up 5%, 7%, 8% in
1999. I think the U.S. portion of non-U.S. earnings could translate better. So I
can't make anything but an optimistic case, let's put it that way, for corporate
profits. The other element in 1999 that I have to factor in is that some of the
companies I'm talking to and listening to say they are worried about a Y2K
problem. So the fourth quarter of 1999 will likely have a big inventory bulge.
That is certainly a plus, from what I see, for shipments.
Let me give you one other element on earnings: A lot of corporate
controllers and a lot of CFOs squirreled away earnings in the first and second
quarters of last year. Then the accounting problems of Cendant and others
emerged. So now you will not squirrel away earnings in that fourth quarter or in
the first half anymore. You are not going to play that game -- as much. I can
see reported earnings doing better than economic earnings over the next couple
of quarters, just because you are not going to use the other side of your pencil
or whatever they use nowadays.
Another item to consider is that virtually every country in Europe now has a
socialist government. The Italians probably have a Communist government. I mean,
how are they going to sit back and not undo what they've done? They've
constrained, they constrained, until they could introduce their single economic
unit. Now, why not do the reverse of that? Why don't you factor that into your
thinking?
Q: It may be bullish for those economies. But it means reflation, it means
higher interest rates, lower P/E ratios.
G:: Oh, yes. That's what I'm saying. It's the reflationary theme.
Changing gears to the manufacturing sector of the economy -- people are
asking, "Where is it?" It is being transported outside of the United States.
Machine-tool orders in November were $440 million, down from $532 million.
You see it in the farm-equipment industry, the domestic construction equipment
industry; and manufacturing jobs are disappearing, probably. When Cuba opens up,
labor rates will go from $1 an hour to $1 a day, if you are looking at Mexico
versus Cuba.
Q: But is this a hollowing-out of the economy? Or is this a transition to the
brave new Internet Age?
G: Adam Smith is alive and well.
I have to stay with the bullish interpretation of all these dynamics. The
notion of globalization of the economy and the movement of capital around to the
lowest cost . . . every country, as long as you have free trade, is going to
contribute to global wealth at some point. What's more, the Japanese, as they
come out of their problems, eventually will be going from seeking share of
market on a global basis to seeking share of profits. That has to be good for
corporate profitability around the world.
5
<PAGE>
January 18, 1999 BARRON'S - Roundtable '99
Q: What is your conclusion on the market?
G: Let me give you some numbers on the flow of funds. Cash into the market from
stock buybacks in 1998 was $207 billion, up from $181 billion. Mutual-fund
inflow was $176 billion, down from $232 billion. IPOs, which hit a big air
pocket, are starting to accelerate again but were $108 billion last year, down
from $118 billion. Other elements were foreign purchases of U.S. stocks and U.S.
purchases of non-stock assets. But the big element that makes those flows look
tiny was that deals in the U.S. alone amounted to $1.6 trillion. Now, for you
cynics who'd argue how much was in cash, the cash portion was $672 billion, up
from $414 billion last year. So money moving from savers into the stock market
wasn't as dynamic a flow-of-funds element as how much came into the market being
recycled from transactions. Again, incrementally in 1998 an unprecedented $250
billion came into the market from the cash portion of deals, that's 1 1/2 times
the amount that came in via mutual funds -- U.S. only, not globally. It is just
a phenomenon that has to be constantly hammered away at.
Q: [Some of the biggest cap stocks are up over 100%. Such moves are clearly
unsustainable.]
G: Some of that is part of the migration of money into indexing -- which is
mindlessly buying stocks based on their index weightings. It's just
self-reinforcing. I don't know the numbers for 1998, but the trend has been more
mutual-fund purchases of index funds. More defined-benefit plans going into the
index funds. And those funds have to, by definition, buy mindlessly based on
capitalization. And that is going to continue.
Q: Until you get to the last guy.
G: I will tell you a story. I'm creating this. But in 1973, it was conventional
wisdom that McDonald's had a market capitalization greater than all of the steel
industry's, and that we were going to become a nation of hamburger flippers --
indeed, that the world was going that way. Every cycle has the same thing. You
know, somebody sits up and says AOL and Amazon.com have caps greater than the
steel industry's. But that is what Schumpeter said, creative destruction is one
of the great virtues of capitalism. It's very positive.
Q: [How about what is going on in Washington?]
G: Going back to interest rates, I think there's plenty of margin of flexibility
on the short end. Real rates are much too high here. They should migrate down.
The dollar -- I don't know how Greenspan handles it. It is a challenge. The
balance-of-payments deficit is going to go way up. I believe, based on last
month's deficit, the run rate was about $180 billion. But $250 billion sounds
like a reasonable number. That has got to, with a new currency bloc in Europe,
create all sorts of question marks that I don't have an answer to. Those are
moving parts. We don't invest that way. We just think about these things.
Q: Doesn't anyone find all this blind faith in Greenspan and Rubin "doing the
right thing" a mite discomforting?
G: The concern isn't that they won't do the right thing, but that Rubin and
Greenspan retire like Mantle and Maris.
Q: But in general, you are bullish?
G: On the world economy.
Q: And on equities?
G: No, not on equities. There is no margin of safety in stocks. Absolutely none.
But I do think Adam Smith is alive and well. Once you can start migrating labor
and goods to the highest efficiency, you create incredible opportunities on a
global scale. We don't have those efficiencies baked into the system. But there
are enormous birthing pains. You saw these birthing pains in Southeast Asia. But
I don't think that's a big depressive because the sunshine in the valley is that
we'll come out in a world in which profits are the driver. That is pretty
interesting.
Q: But Mario, where will rates go?
G: Like 5 3/4%-6%. Long rates have already started up. But I see short rates
coming down.
Q: If Ed Hyman is right and there isn't much nominal growth in the economy,
won't that make it difficult for small companies?
G: The comment I want to make -- this is very important -- is that the business
people I talk to really were shocked by the virtual shutdown of the
6
<PAGE>
January 18, 1999 BARRON'S - Roundtable '99
capital markets following the [John] Meriwether debacle. Not only did the
spreads widen, but the market started closing on them. That is creating a
backlash in terms of either selling out -- the option which I happen to be fond
of -- and also in terms of bringing back a margin of safety to their balance
sheets and their perspectives on how to run their businesses. From the market's
point of view, looking out over the next five years, I still think we are in a
world in which corporate profits can rise -- not return on equity, where I can't
see much improvement, not return on sales, where I can't see much improvement
from here. But I can see maintaining some of these levels. I see these global
synergies, the Exxon-Mobils, adding to profitability. There won't necessarily be
revenue synergies in some of these, but there'll certainly be margin synergies,
capital synergies, and efficiency elements. So I still see a 6%-8% secular
growth rate over the next five years in corporate profits. For 1999 I am in the
camp that has S&P earnings up, because over one-third of the earnings mix in the
S&P is non-U.S. Now, that's leaving Brazil aside, because it is part of my wall
of worry -- I have my A-B-C-D issues: Asia, Brazil, Clinton and the Dollar are
the things I worry about. But in terms of my model, where I have interest rates
backing up, and earnings at that level, the market has absolutely no margin of
safety. So we could see it up 3%, down 20%. Probably somewhere in-between at the
end of the year. With much more volatility. I think volatility is increased by
the new generation of traders. Individuals now come in to work and trade. Or
they don't even come in to work. There is nothing between them and a buy/sell
decision except their finger on a mouse. There is no broker who has a boss
asking, "Hey, is he churning? Is he overinvesting?" There is nothing there. So
the volatility you saw from July through the beginning of January I think is
just the way the world's going to be. As long as you are treating stocks like
commodities, you have to expect that to continue. And they are trading stocks
like they are soybeans.
Q: So the stock market will be the pits?
G: There'll be great opportunities to make a lot of money if you short. If you
go long, then it's just going to be a terrific eclectic market.
Q: What will make the small-fry go up, especially if the S&P sells off and the
economy is no great shakes?
G: Forcing transactions, by managements, that narrow the spreads between their
intrinsic values and the stock prices.
Q: It looks like Mario wants to talk tulips next.
G: Our goal always has been to make 10% real by picking stocks that we hope,
after taxes, after inflation, accomplish that. So we try to find companies at a
significant margin of safety to intrinsic value. The second part of our strategy
is to try to buy things for the long term, because it's not only what you make,
but what you keep. We'd rather pay 20% long-term capital-gains taxes than 40% on
ordinary income from trading. But we're here in January of 1999, and even 25%
looks awfully dull when you make that in one week -- 50%, in Amazon. So I have
succumbed and I am going to recommend only stocks that have grown to the sky --
Excite, uBid, eBay, Amazon and that's it. Nothing else! You can also have my
tulips, Arthur. Don't say I never gave you anything. They're starting to wilt --
ART SAMBERG: Am I allowed to eat them?
G: Do anything you like. Charles MacKay wrote about all this in 1841, in
Extraordinary Popular Delusions and the Madness of Crowds.
Anyway, when we look at stocks, we also look for a catalyst. Forcing
transactions. That is, a management, if they are alert and sensitive, can do
things like buying back stock, like LBOs or financial engineering. One of the
dynamics that have been in place for the last four years is deals. Deals will
continue in 1999 -- a year in which the Exxons and the Mobils are driving values
by becoming global, further reinforcing their positions. There are a lot of
areas where that's happening.
Q: Thanks , Mario. [ ]
7
<PAGE>
YEAR END REVIEW
For the fourth quarter of 1998, rather than repeating the economic and
market dynamics that we discussed in our third quarter report to shareholders,
we invite our shareholders to review these comments from the third quarter
report. The report is available on our website at www.gabelli.com.
As is our custom at year end, we tally up our winners and losers and
comment on their prospects for the year ahead. Our cable television, cable
television network and telecommunications holdings performed well, with
Cablevision Systems, Tele-Communications Inc./Liberty Media Group, Viacom, and
Century Telephone Enterprises near the top of our performance list.
Once again, deals also provided a strong tailwind for the portfolio.
AT&T's landmark acquisition of Tele-Communications Inc. helped both directly
(TCI is a substantial portfolio holding), and indirectly, by surfacing the real
world economic value of other cable television franchises in the portfolio.
Completed and/or pending deals for American Stores, COMSAT and Southwest Gas
also gave the portfolio a boost.
Despite the strong performance of cable operators, cable television
network companies and selected telecommunications providers, we still see value
in these groups. AT&T's acquisition of TCI will not likely be the last major
deal involving long distance providers and cable operators. We expect to see
more deals or joint ventures as competitors scramble to match the new AT&T's
ability to provide long distance and local telephony, high speed Internet access
and home entertainment services. As cable systems are upgraded to provide more
channel capacity, the value of quality cable networks should continue to rise.
We believe the large telecommunications groups will continue to get bigger as
they swallow smaller telecommunications companies.
Energy and industrial cyclicals dominate the bottom of our performance
ledger. With oil prices collapsing, energy stocks like Pennzoil and Global
Marine declined sharply. The current consensus seems to be that oil will remain
near $10 per barrel or lower for many years. We are not so sure. Inventories
have been growing, but not to levels that would imply a long term glut. If OPEC
can enforce production discipline--and it is certainly in all the members' best
interest to do so--and if Asian economies begin to recover, we think oil prices
may surprise on the upside. We note that the last time we saw such a strong
consensus on oil prices was in the late 1970s when the experts were predicting
$60 per barrel of oil. We also are reminded that John D. Rockefeller built an
enormous personal fortune buying oil companies during periods of depressed
pricing.
Cyclical companies like Deere, Dana Corp. and Aeroquip-Vickers also slid
as Asian economic weakness sent commodity prices plummeting and demand for
agricultural and industrial equipment slackened. The earnings outlook for
cyclical companies in many industries remains clouded. However, our cyclical
holdings are financially stable, dominant market share franchises capable of
weathering a downturn and emerging even stronger when their industries rebound.
Short term earnings uncertainty rarely persuades us to abandon such quality
companies.
8
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ONE IF BY LAND, TWO IF BY SEA
This was to be Paul Revere's signal to alert his fellow patriots to a
British invasion of Boston. The British are coming and so are the Germans.
Daimler Benz/Chrysler, British Petroleum/Amoco, Deutsche Bank/Bankers Trust and
Scottish Power/PacifiCorp are just a few of the major acquisitions of American
companies by European powerhouses. In 1998, there were a significant number of
transatlantic deals, exceeding total volume of the last three years combined.
With Euroland now a reality and the new euro off to a firm start relative to the
dollar, we believe transatlantic deal activity will accelerate in the year ahead
as dominant European companies target what is still the biggest consumer market
in the world. This will add mass and power to what we have called the "Third
Great Wave of Takeovers". It should also help our portfolio.
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.
American Bankers Insurance Group Inc. (ABI - $48.375 - NYSE), based in Miami, is
a leading provider of credit insurance and credit-related insurance products
both in the U.S. and abroad. Founded in 1949, ABI now has $3.3 billion in assets
and should collect $2.8 billion in gross premiums in 1998. ABI has a heavy
emphasis on contingent commission and captive reinsurance plans, which help to
preserve the company's margins, mitigate volatility and ensure highly visible
earnings. Because of such plans, ABI is not so much an insurer but a
distribution company servicing an insurance product. Since the termination of
its agreement to be acquired by Cendant Corp., ABI has focused on closing new
business in its pipeline. As such, top line growth is expected to improve in the
near future and return to a more normal 10% to 12% growth rate in 1999.
AMP Inc. (AMP - $52.0625 - NYSE) is the leading designer, manufacturer and
marketer of a broad range of electronic, electrical and electro-optic connection
devices, interconnection systems and connector-intensive assemblies. Its major
markets include consumer and industrial (roughly 28% of sales), communications
(25%), automotive (24%) and personal computer (20%). About 50% of sales are to
Europe and the Asia/Pacific region. AlliedSignal (ALD - $44.3125 - NYSE) made an
unsolicited bid for AMP in August, offering $44.50 per share. The AlliedSignal
offer has been topped by AMP's planned merger with Tyco International (TYC -
$75.4375 - NYSE).
Cablevision Systems Corp. (CVC - $50.1875 - AMEX) is one of the nation's leading
telecommunications and entertainment companies, with a portfolio of operations
that span state-of-the-art, high-speed multimedia delivery, subscription cable
television services, championship professional sports teams and national cable
television networks. Headquartered in Bethpage, NY, Cablevision serves more than
3.4 million cable customers primarily in three core markets: New York, Boston
and Cleveland. Cablevision is a leader in delivering cutting-edge technological
innovation, such as Optimum TV. Through its Rainbow
9
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Media Holdings subsidiary, Cablevision manages and develops internationally
recognized content offerings such as the popular national television networks,
American Movie Classics, Bravo and The Independent Film Channel. Cablevision has
a controlling interest in New York City's famed Madison Square Garden which
includes the arena complex, the NY Knicks, the NY Rangers and the MSG network.
Cablevision operates Radio City Entertainment and holds a long-term lease of
Radio City Music Hall, home of the world famous Radio City Rockettes.
Carter-Wallace Inc. (CAR - $19.625 - NYSE) markets toiletries, pharmaceuticals,
diagnostic specialties, proprietary drugs and pet products. Carter-Wallace
products include such recognized brand names as Arrid deodorant, Nair hair
remover and Pearl Drops toothpaste. Asteline, a nasal spray for allergies
introduced last year, is expected to be profitable in the fiscal year ending
March 1999.
Chris-Craft Industries Inc. (CCN - $48.1875 - NYSE), through its 80% ownership
of BHC Communications (BHC - $122.00 - AMEX), is primarily a television
broadcaster. BHC owns and operates UPN affiliated stations in New York (WWOR),
Los Angeles (KCOP) and Portland (KPTV). BHC also owns 59% of United Television
(UTVI - $115.00 - Nasdaq), which operates an NBC affiliate, an ABC affiliate and
five UPN affiliates. United Television purchased WHSW in Baltimore for $80
million. The station's call letters have been changed to WUTB and the station
became a UPN affiliate. UTVI has an agreement to purchase WRBW, a UPN affiliate
in Orlando, for $60 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 $1.4 billion in cash and marketable
securities.
Media General Inc. (MEG'A - $53.00 - AMEX) is a Richmond, Virginia-based
communications company, publishing newspapers throughout the Southeast with
daily circulation of about 250,000. Media General operates fourteen network
television stations in Southeastern markets, including Tampa, Jacksonville and
Birmingham 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.
MediaOne Group Inc. (UMG - $47.00 - NYSE) is one of the nation's leading
broadband services company. It provides more than five million subscribers in 17
states with basic and premium cable television services and has recently
introduced high speed Internet access, telephone services and digital television
in some of its service areas. MediaOne was created from the 1996 union of
telecommunications company MediaOne Group (formerly US West Media Group) and
Continental Cablevision. Headquartered in Englewood, Colorado, MediaOne provides
high quality cable television services. The company is conducting a national
upgrade of its hybrid fiber optic/coaxial cable ("HFC") network to broadband
technology which improves traditional cable service and enables next-generation
products and services. The Group's investment interests include 25% of Time
Warner Entertainment
10
<PAGE>
(which includes Warner Brothers Studio and Home Box Office), 24% of PCS Prime
Co. and almost 27% of TeleWest plc.
Navistar International Corp. (NAV - $28.50 - NYSE) is the leading North American
producer of heavy and medium duty trucks and school buses under the
International brand. The company is also the leading supplier of mid-range, 160
to 300 horsepower, diesel engines. NAV has an approximate 40% share of the
medium duty truck market and 20% share of the heavy duty truck market. NAV
participates in cyclical industries. Nonetheless, the company generates
substantial cash flow, which is not presently taxed due to Navistar's large
(nearly $1.6 billion) tax loss carryforwards. Part of the anticipated increase
in cash flow is likely to be directed to a six year, $650 million capital
spending, development and production program for the company's "next generation"
truck.
TCI Ventures Group (TCIVA - $23.5625 - Nasdaq) is a portfolio of
telecommunications investments essentially controlled by Dr. John Malone of
Tele-Communications Inc. (TCOMA - $55.3125 - Nasdaq). The company has interests
in telephony and programming businesses together with a 39% equity interest in
United Video Satellite Group (UVSGA - $23.625 - Nasdaq) and a 39% equity
interest in @Home (ATHM - $74.25 - Nasdaq). The company is slated to be part of
the transaction proposed by AT&T (T - $75.25 - NYSE) to acquire all of the TCI
group, whereupon TCIVA's shares are to be converted into Liberty Media Group.
Tele-Communications Inc. (TCOMA - $55.3125 - Nasdaq), one of the largest cable
television operators in the U.S., is guided by Dr. John 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 access
business, dubbed "@Home". AT&T (T - $75.25 - NYSE) has agreed to acquire
Tele-Communications, offering 0.7757 AT&T shares for each TCOMA share. In
anticipation of TCOMA's merger with AT&T, Tele-Communications has announced it
will merge with TCI Communications.
Telephone & Data Systems Inc. (TDS - $44.9375 - AMEX) is a diversified
telecommunications company with established cellular and local telephone
operations and a developing personal communications services ("PCS") business.
TDS provides high quality telecommunications services to 2.4 million customers
in 35 states. TDS owns 81.1% of United States Cellular Corp. (USM - $38.00 -
AMEX), the nation's seventh largest cellular telephone company. It also owns
82.4% of Aerial Communications Inc. (AERL - $5.875 - Nasdaq), TDS's PCS
subsidiary which owns the licenses to provide PCS service in six major trading
areas ("MTAs") encompassing approximately 27.6 million population equivalents.
On December 8, 1998, TDS announced its intent to spin-off its Aerial stake to
existing TDS shareholders on a tax-free basis and focus on its core wireline and
cellular operations. The transaction is expected to close in six to nine months.
11
<PAGE>
USA Networks Inc. (USAI - $33.125 - Nasdaq), through its subsidiaries, engages
in diversified media and electronic commerce businesses that include: electronic
retailing, ticketing operations and television broadcasting. Chairman and CEO
Barry Diller has brought together under one umbrella: the USA Network, the
Sci-Fi Channel, USA Networks Studios, USA Broadcasting, The Home Shopping
Network and the Ticketmaster Group. The plan is to integrate these assets,
leveraging programming, production capabilities and electronic commerce across
this strong distribution platform.
Viacom Inc. (VIA'A - $73.5625 - AMEX), long a major provider of entertainment
"content", has evolved into one of the world's dominant media companies. The
addition of Paramount Communications, Blockbuster Entertainment (acquired in
1994), along with publisher Simon & Schuster, makes Viacom one of the largest
entertainment and publishing companies. Non-core assets are being divested and
debt has been reduced to approximately $8 billion. Viacom is focusing on global
expansion of its media franchises. Viacom is particularly well-positioned in
music (notably MTV) and cable networks (such as Nickelodeon).
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 the advantages of converting to a Roth IRA and to discuss
your investment choices.
INTERNET
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Asset Management 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].
12
<PAGE>
IN CONCLUSION
Despite ongoing global economic uncertainty, the popular market indices
are once again in record territory. While we will always have a "wall of worry",
we believe the economy and the capital market landscape for 1999 will provide
stock pickers like us the opportunity to unearth well-managed companies, trading
at significant discounts to their private market value, that should benefit from
sustainable long term economic dynamics. The Fund is invested in what we believe
to be undervalued companies in much more reasonably priced sectors of the
market. We will continue striving to provide shareholders with our long term
performance goal of a real rate of return of 10% each year.
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.
As always, we thank you for your loyalty and support during a period
that tested all equity investors' resolve. We hope you will continue to share
our enthusiasm and commitment to value investing.
Sincerely,
MARIO J. GABELLI
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
January 29, 1999
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1998
-----------------
Media General Inc. Navistar International Corp.
Viacom Inc. USA Networks Inc.
Cablevision Systems Corp. Chris-Craft Industries Inc.
MediaOne Group Inc. Telephone & Data Systems
Tele-Communications Inc. TCI Ventures Group
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
13
<PAGE>
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS -- 95.4%
AGRICULTURE--0.9%
440,000 Archer-Daniels-Midland
Co. ..................... $ 7,486,501 $ 7,562,500
------------ ------------
AUTOMOTIVE: PARTS AND
ACCESSORIES--2.0%
320,000 Dana Corp................. 13,373,002 13,080,000
90,700 Modine Manufacturing
Co. ..................... 3,198,459 3,287,875
------------ ------------
16,571,461 16,367,875
------------ ------------
AVIATION: PARTS AND SERVICES--1.1%
30,000 Barnes Group Inc.......... 839,781 881,250
200,000 Coltec Industries Inc..... 2,984,627 3,900,000
242,000 Fairchild Corp., Cl. A+... 4,694,927 3,811,500
12,000 Precision Castparts
Corp..................... 586,944 531,000
------------ ------------
9,106,279 9,123,750
------------ ------------
BROADCASTING--5.7%
160,000 Ackerley Group Inc........ 2,481,450 2,920,000
532,020 Chris-Craft Industries
Inc+..................... 14,432,238 25,636,714
165,000 Gray Communications
Systems Inc., Cl. B...... 2,336,155 2,258,437
250,000 Grupo Televisa SA, GDR+... 5,440,829 6,171,875
122,000 Liberty Corp.............. 3,230,519 5,993,250
275,000 Paxson Communications
Corp., Cl. A+............ 2,227,090 2,526,562
------------ ------------
30,148,281 45,506,838
------------ ------------
BUSINESS SERVICES--1.0%
148,900 Berlitz International
Inc., New+............... 2,619,820 4,318,100
200,000 Cendant Corp.............. 3,468,100 3,812,500
------------ ------------
6,087,920 8,130,600
------------ ------------
CABLE--18.5%
1,100,000 Cablevision Systems Corp.,
Cl. A+................... 13,122,474 55,206,250
1,000,000 MediaOne Group Inc. ...... 25,374,115 47,000,000
720,000 TCI Ventures Group........ 5,192,986 16,965,000
520,000 Tele-Communications Inc.,
Cl. A New+............... 7,098,661 28,762,500
------------ ------------
50,788,236 147,933,750
------------ ------------
COMMUNICATIONS EQUIPMENT--0.3%
30,000 Northern Telecom Ltd. .... 561,375 1,503,750
30,000 Scientific-Atlanta
Inc. .................... 545,488 684,375
------------ ------------
1,106,863 2,188,125
------------ ------------
CONSUMER PRODUCTS--2.4%
499,400 Carter-Wallace Inc. ...... 7,468,996 9,800,725
161,000 General Cigar Holdings
Inc. .................... 2,082,704 1,398,688
168,000 General Cigar Holdings
Inc., Cl. B+(a).......... 1,414,002 1,459,500
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
125,000 Hartmarx Corp.+........... $ 963,262 $ 703,125
170,000 Ralston Purina Group...... 2,968,479 5,503,750
41,700 Syratech Corp.+........... 983,310 667,200
------------ ------------
15,880,753 19,532,988
------------ ------------
CONSUMER SERVICES--1.5%
500,000 Loewen Group Inc.......... 7,823,809 4,218,750
445,000 Rollins Inc............... 7,847,076 7,787,500
------------ ------------
15,670,885 12,006,250
------------ ------------
DIVERSIFIED INDUSTRIAL--1.6%
50,000 Ampco-Pittsburgh Corp. ... 250,017 543,750
78,000 Honeywell Inc. ........... 4,961,384 5,874,375
219,000 Katy Industries Inc. ..... 1,863,784 3,846,187
60,000 Lamson & Sessions Co.+.... 355,813 307,500
234,000 Tyler Corp.+.............. 533,750 1,433,250
110,000 WHX Corp. ................ 1,372,882 1,106,875
------------ ------------
9,337,630 13,111,937
------------ ------------
ENERGY AND UTILITIES--2.0%
581,881 Citizens Utilities Co.,
Cl. B+................... 5,686,477 4,727,780
25,000 Global Marine Inc. ....... 350,569 229,687
225,000 PennzEnergy Co.+.......... 6,599,240 3,670,313
225,000 Pennzoil-Quaker State
Co.+..................... 6,760,197 3,332,813
135,000 Southwest Gas Corp. ...... 2,471,679 3,628,125
------------ ------------
21,868,162 15,588,718
------------ ------------
ENTERTAINMENT--15.2%
180,660 Ascent Entertainment Group
Inc.+.................... 1,859,301 1,332,367
75,000 GC Companies Inc.+........ 3,225,056 3,121,875
82,000 Tele-Communications Inc./
Liberty Media Group, Cl.
A........................ 3,110,118 3,777,125
785,000 USA Networks Inc.+........ 10,226,703 26,003,125
1,182,000 Viacom Inc., Cl. A+....... 38,028,497 86,950,875
------------ ------------
56,449,675 121,185,367
------------ ------------
EQUIPMENT AND SUPPLIES--9.4%
320,000 Aeroquip-Vickers Inc. .... 12,032,162 9,580,000
200,000 AMP Inc. ................. 7,949,424 10,412,500
40,000 Deere & Co. .............. 968,254 1,325,000
180,000 Flowserve Corp. .......... 4,720,835 2,981,250
130,000 Gerber Scientific Inc. ... 1,111,661 3,095,625
235,000 Hussmann International
Inc. .................... 1,899,947 4,553,125
970,000 Navistar International
Corp. ................... 25,705,000 27,645,000
263,600 Pittway Corp., Cl. A...... 541,880 8,715,275
75,000 Sequa Corp., Cl. A+....... 2,704,459 4,490,625
24,500 Sequa Corp., Cl. B+....... 1,203,320 1,800,750
7,500 Smith (A.O.) Corp. ....... 208,100 182,578
------------ ------------
59,045,042 74,781,728
------------ ------------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES--1.8%
200,000 American Bankers Insurance
Group Inc. .............. $ 11,910,501 $ 9,675,000
20,000 BA Merchant Services
Inc. .................... 401,000 402,500
5,000 Bankers Trust Corp. ...... 426,812 427,186
5,000 Chase Manhattan Corp. .... 207,425 340,312
8,000 Donaldson, Lufkin &
Jenrette Inc. ........... 199,250 328,000
29,000 Lehman Brothers Holdings
Inc. .................... 602,074 1,277,813
10,000 Merrill Lynch & Co. ...... 625,031 667,500
77,200 Pioneer Group Inc. ....... 1,755,222 1,524,700
------------ ------------
16,127,315 14,643,011
------------ ------------
FOOD AND BEVERAGE--4.5%
33,739 Advantica Restaurant Group
Inc.+.................... 315,000 208,760
100,000 Corn Products
International Inc. ...... 3,140,399 3,037,500
250,000 PepsiCo Inc. ............. 8,762,129 10,234,375
90,000 Quaker Oats Co. .......... 3,168,057 5,355,000
45,000 Seagram Co. .............. 1,491,525 1,710,000
606,500 Whitman Corp. ............ 7,093,618 15,389,938
------------ ------------
23,970,728 35,935,573
------------ ------------
HEALTH CARE--0.5%
300,000 IVAX Corp.+............... 2,829,106 3,731,250
------------ ------------
HOTELS AND GAMING--2.5%
530,000 Aztar Corp.+.............. 3,726,948 2,683,125
175,000 Circus Circus Enterprises
Inc.+.................... 4,050,062 2,001,563
220,301 Gaylord Entertainment Co.,
Cl. A.................... 6,362,950 6,636,568
260,000 Hilton Hotels Corp.(b).... 5,650,416 4,972,500
250,000 Mirage Resorts Inc.+...... 3,914,193 3,734,375
------------ ------------
23,704,569 20,028,131
------------ ------------
METALS AND MINING--0.4%
32,000 Barrick Gold Corp. ....... 722,074 624,000
150,000 Echo Bay Mines Ltd+....... 937,791 262,500
70,000 Homestake Mining Co. ..... 861,938 643,125
55,000 Placer Dome Inc. ......... 651,512 632,500
365,000 Royal Oak Mines Inc.+..... 533,236 91,250
300,000 TVX Gold Inc.+............ 845,911 543,750
------------ ------------
4,552,462 2,797,125
------------ ------------
PUBLISHING--14.0%
58,000 McGraw-Hill Companies
Inc. .................... 2,530,138 5,908,750
1,678,000 Media General Inc., Cl.
A(c)..................... 34,018,852 88,934,000
145,000 Meredith Corp. ........... 2,875,207 5,491,875
170,000 Penton Media Inc. ........ 730,046 3,442,500
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
60,000 Reader's Digest
Association Inc., Cl.
A........................ $ 1,540,326 $ 1,511,250
200,000 Reader's Digest
Association Inc., Cl.
B........................ 4,830,612 4,825,000
22,000 Tribune Co. .............. 1,324,538 1,452,000
------------ ------------
47,849,719 111,565,375
------------ ------------
REAL ESTATE--1.5%
700,000 Catellus Development
Corp.+................... 8,760,036 10,018,750
130,000 Griffin Land & Nurseries
Inc.+.................... 1,463,689 1,657,500
------------ ------------
10,223,725 11,676,250
------------ ------------
RETAIL--1.6%
17,100 Burlington Coat Factory
Warehouse Corp. ......... 242,094 278,944
120,000 Food Lion Inc., Cl. A..... 1,264,234 1,275,000
50,000 Ingles Markets Inc., Cl.
A........................ 654,178 546,875
130,000 Lillian Vernon Corp. ..... 1,856,440 2,145,000
252,400 Neiman Marcus Group
Inc.+.................... 5,150,219 6,294,225
120,000 Republic Industries
Inc. .................... 2,071,514 1,770,000
------------ ------------
11,238,679 12,310,044
------------ ------------
SATELLITE--0.8%
150,000 COMSAT Corp. ............. 3,501,997 5,400,000
50,000 Loral Space &
Communications Ltd.+..... 703,875 890,625
180,000 TCI Satellite
Entertainment Inc., Cl.
A+....................... 1,374,860 258,750
------------ ------------
5,580,732 6,549,375
------------ ------------
SPECIALTY CHEMICALS--0.5%
150,000 Ferro Corp. .............. 1,952,269 3,900,000
------------ ------------
TELECOMMUNICATIONS--1.8%
168,462 Commonwealth Telephone
Enterprises Inc.+........ 2,991,361 5,643,477
185,000 Frontier Corp. ........... 5,798,072 6,290,000
134,000 RCN Corp.+................ 729,739 2,370,125
------------ ------------
9,519,172 14,303,602
------------ ------------
WIRELESS COMMUNICATIONS--3.9%
90,000 Century Telephone
Enterprises Inc. ........ 1,308,054 6,075,000
90,000 Rogers Cantel Mobile
Communications Inc., Cl.
B........................ 1,053,629 1,096,875
250,000 Telecom Italia Mobile
SpA...................... 332,242 1,844,628
500,000 Telephone & Data Systems
Inc...................... 20,601,199 22,468,750
------------ ------------
23,295,124 31,485,253
------------ ------------
TOTAL COMMON STOCKS....... 480,391,288 761,945,415
------------ ------------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
THE GABELLI VALUE FUND INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
PREFERRED STOCK -- 0.5%
PUBLISHING--0.5%
155,500 News Corp. Ltd., ADR
Preference Shares........ $ 2,390,998 $ 3,838,906
------------ ------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
CORPORATE BONDS -- 0.1%
ENTERTAINMENT--0.1%
$ 497,000 Viacom Inc., Sub. Deb.
8.00%, 07/07/06.......... 322,429 518,123
------------ ------------
REPURCHASE AGREEMENT -- 0.2%
2,105,000 Agreement with J.P. Morgan
& Co. Inc., 4.70%, due
01/04/99(d).............. 2,105,000 2,105,000
------------ ------------
U.S. GOVERNMENT OBLIGATIONS -- 3.1%
25,105,000 U.S. Treasury Bills, 4.44%
to 4.54%++, due
02/04/99................. 25,001,342 25,001,342
------------ ------------
TOTAL INVESTMENTS --
99.3%.................... $510,211,057* 793,408,786
============
OTHER ASSETS AND
LIABILITIES (NET)--0.7%................ 5,403,475
------------
NET ASSETS -- 100.0% (49,692,065 shares
outstanding)........................... $798,812,261
============
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE.................................. $16.08
-----
-----
MAXIMUM OFFERING PRICE PER SHARE
($16.08/.945, based on maximum sales
charge of 5.5% of the offering price at
December 31, 1998.).................... $17.02
-----
-----
SHARES VALUE
------------ ------------
SECURITY SOLD SHORT
<C> <S> <C> <C>
COMMON STOCK
Park Place Entertainment Corp.
(Proceeds $69,873)..................... 10,000 $63,750
------
------
* For Federal tax purposes:
Aggregate cost.................. $510,754,549
============
Gross unrealized appreciation... $311,426,990
Gross unrealized depreciation... (28,772,753)
------------
Net unrealized appreciation..... $282,654,237
============
</TABLE>
- ---------------
<TABLE>
<C> <S> <C> <C> <C>
(a) Security fair valued as determined by the Board of
Directors.
(b) Security pledged as collateral for short sale.
(c) Security considered an affiliated holding because the
Fund owns at least 5% of the outstanding shares. (See
Note 8.)
(d) Agreement dated 12/31/98 to be repurchased at
$2,106,099. Collateralized by $2,105,000 U.S.
Treasury Bond, 6.88% due 03/31/00 (value $2,147,162).
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
THE GABELLI VALUE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- ----------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $510,211,057)............... $793,408,786
Cash.................................................... 440,736
Dividends and interest receivable....................... 201,778
Receivable for investments sold......................... 6,214,457
Receivable for Fund shares sold......................... 2,250,293
Variation margin........................................ 5,835
------------
TOTAL ASSETS.......................................... 802,521,885
------------
LIABILITIES:
Payable for investments purchased....................... 1,714,691
Payable for Fund shares redeemed........................ 617,047
Payable for investment advisory fees.................... 640,397
Payable for distribution fees........................... 365,854
Payable for shareholder servicing fees.................. 102,000
Security sold short, at value (Proceeds $69,873)........ 63,750
Payable to custodian.................................... 45,000
Other accrued expenses.................................. 160,885
------------
TOTAL LIABILITIES..................................... 3,709,624
------------
NET ASSETS applicable to 49,692,065 shares
outstanding.......................................... $798,812,261
============
NET ASSETS CONSIST OF:
Shares of capital stock, at par value................... $ 49,692
Additional paid-in capital.............................. 514,550,399
Accumulated net realized gain on investments, futures
contracts and foreign currency transactions........... 1,008,318
Net unrealized appreciation on investments.............. 283,203,852
------------
TOTAL NET ASSETS...................................... $798,812,261
============
NET ASSET VALUE and redemption price per share
($798,812,261 / 49,692,065 shares outstanding;
300,000,000 shares authorized of $0.001 par value)... $16.08
------
------
Maximum offering price per share ($16.08 / .945, based
on maximum sales charge of 5.5% of the offering price
at December 31, 1998)................................ $17.02
------
------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- ----------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$9,818)............................................... $ 4,726,696
Interest................................................ 2,392,736
------------
TOTAL INVESTMENT INCOME............................... 7,119,432
------------
EXPENSES:
Investment advisory fees................................ 7,237,856
Distribution fees....................................... 1,814,756
Shareholder services fees............................... 515,559
Shareholder communications expenses..................... 109,435
Custodian fees.......................................... 178,294
Directors' fees......................................... 69,231
Legal and audit fees.................................... 39,800
Miscellaneous expenses.................................. 158,047
------------
TOTAL EXPENSES........................................ 10,122,978
------------
NET INVESTMENT LOSS................................... (3,003,546)
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments, futures contracts and
foreign currency transactions......................... 65,087,664
Net realized gain on investments in securities of
affiliated issuers.................................... 6,035,057
Net change in unrealized appreciation on investments and
foreign currency transactions......................... 78,651,758
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS........... 149,774,479
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $146,770,933
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment loss...................................... $ (3,003,546) $ (2,253,147)
Net realized gain on investments, futures contracts and
foreign currency transactions........................... 71,122,721 99,629,391
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 78,651,758 103,506,441
------------ ------------
Net increase in net assets resulting from
operations........................................... 146,770,933 200,882,685
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain on investments......................... (67,357,159) (96,768,357)
------------ ------------
Total distributions to shareholders................... (67,357,159) (96,768,357)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets from capital share
transactions............................................ 122,851,446 31,596,675
------------ ------------
Net increase in net assets............................ 202,265,220 135,711,003
NET ASSETS:
Beginning of period...................................... 596,547,041 460,836,038
------------ ------------
End of period............................................ $798,812,261 $596,547,041
============ ============
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
THE GABELLI VALUE FUND INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION. 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"). The Fund's primary objective is long term
capital appreciation. The Fund commenced investment operations on September 29,
1989.
2. SIGNIFICANT ACCOUNTING POLICIES. 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 listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day, except for open short positions, which are
valued at the last asked price). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. 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 Gabelli Funds, Inc.
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Directors. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Directors determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair value as determined by the Directors. Short term debt
instruments having a greater maturity are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities. Options
are valued at the last sale price on the exchange on which they are listed. If
no sales of such options have taken place that day, they will be valued at the
mean between their closing bid and asked prices.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Bank of
New York, with member banks of the Federal Reserve System or with other brokers
or dealers that meet credit guidelines established by the Directors. 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. The Fund will always
receive and maintain securities as collateral whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement. The Fund will make payment for such securities
only upon physical delivery or upon evidence of book entry transfer of the
collateral to the account of the custodian. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to maintain the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are
18
<PAGE>
THE GABELLI VALUE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
commenced with respect to the seller of the security, realization of the
collateral by the Fund may be delayed or limited.
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 gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. At December 31, 1998, there were no open futures contracts.
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.
SECURITIES SOLD SHORT. A short sale involves selling a security which the Fund
does not own. The proceeds received for short sales are recorded as liabilities
and the Fund records an unrealized gain or loss to the extent of the difference
between the proceeds received and the value of the open short position on the
day of determination. The Fund records a realized gain or loss when the short
position is closed out. By entering into a short sale, the Fund bears the market
risk of an unfavorable change in the price of the security sold short. Dividends
on short sales are recorded as an expense by the Fund on the ex-dividend date
and interest expense is recorded on the accrual basis.
FOREIGN CURRENCY TRANSLATION. 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 at the exchange rate prevailing
on the respective dates of such transactions. Unrealized gains and losses, which
result from changes in foreign exchange rates and/or changes in market prices of
securities, have been included in unrealized appreciation/depreciation on
investments and foreign currency transactions. 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.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using 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.
19
<PAGE>
THE GABELLI VALUE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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, 1998 resulting
from different book and tax accounting policies for currency gains and losses
and certain distributions received by the Fund are reclassified between net
investment income (loss) and net realized gain (loss) on investments at year
end. For the year ended December 31, 1998, reclassifications were made to
increase accumulated net investment loss for $3,003,546 and decrease accumulated
net realized gain on investments, futures contracts and foreign currency
transactions for $3,003,546.
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.
Dividends and interest from non-U.S. sources received by the Fund are generally
subject to non-U.S. withholding taxes at rates ranging up to 30%. Such
withholding taxes may be reduced or eliminated under the terms of applicable
U.S. income tax treaties, and the Fund intends to undertake any procedural steps
required to claim the benefits of such treaties.
3. INVESTMENT ADVISORY AGREEMENT. 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% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Directors of the Fund who are its affiliates.
4. DISTRIBUTION PLAN. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the year ended
December 31, 1998, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an indirect wholly-owned subsidiary of the Adviser, of
$1,814,756, or 0.25% of average daily net assets, the annual limitation under
the Plan. Such payments are accrued daily and paid monthly.
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the year ended
December 31, 1998, other than short term securities, aggregated $346,992,822 and
$313,139,326, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1998, the
Fund paid brokerage commissions of $391,750 to Gabelli & Company, Inc. and its
affiliates. During the year ended December 31, 1998, Gabelli & Company, Inc.
informed the Fund that it received $367,320 from investors representing
commissions (sales charges and underwriting fees) on sales of Fund shares.
20
<PAGE>
THE GABELLI VALUE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
7. CAPITAL STOCK TRANSACTIONS. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold................................................. 27,523,248 $ 432,994,065 1,973,979 $ 29,851,529
Shares issued upon reinvestment of dividends................ 3,911,560 60,786,193 6,078,762 85,160,680
Shares redeemed............................................. (23,466,641) (370,928,812) (6,348,961) (83,415,534)
----------- ------------- ---------- ------------
Net increase........................................ 7,968,167 $ 122,851,446 1,703,780 $ 31,596,675
=========== ============= ========== ============
</TABLE>
8. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS. The 1940 Act defines
affiliated issuers as those in which the Fund's holdings of an issuer represent
5% or more of the outstanding voting securities of the issuer. A summary of the
Fund's transactions in the securities of these issuers during the year ended
December 31, 1998, is set forth below:
<TABLE>
<CAPTION>
PERCENT
VALUE AT OWNED
BEGINNING SHARES ENDING REALIZED DIVIDEND DECEMBER 31, OF SHARES
SHARES SOLD SHARES GAIN INCOME 1998 OUTSTANDING
--------- -------- --------- ---------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Media General Inc., Cl. A........... 2,030,000 (352,000) 1,678,000 $6,035,057 $955,920 $88,934,000 6.40%
========== ======== ===========
</TABLE>
9. SUBSEQUENT EVENT. On February 9, 1999, the Adviser reorganized its
operations and corporate structure by transferring a portion of its assets and
liabilities to a successor adviser, Gabelli Funds, LLC, which is wholly owned by
Gabelli Asset Management Inc., a newly formed publicly traded company that is
80% owned by the former Adviser. Counsel to the former Adviser has concluded
that the ownership change does not constitute an assignment as defined by the
1940 Act.
21
<PAGE>
THE GABELLI VALUE FUND INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 14.30 $ 11.52 $ 11.61 $ 10.49 $ 12.09
-------- -------- -------- -------- --------
Net investment income/(loss).............................. (0.05) (0.05) (0.02) 0.05 0.09
Net realized and unrealized gain/(loss) on investments.... 3.32 5.55 1.04 2.30 (0.09)
-------- -------- -------- -------- --------
Total from investment operations.................... 3.27 5.50 1.02 2.35 0.00
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income..................................... -- -- -- (0.05) (0.09)
In excess of net investment income........................ -- -- -- -- (0.00)(a)
Net realized gain on investments.......................... (1.49) (2.72) (1.10) (1.18) (1.50)
In excess of net realized gain on investments............. -- -- -- -- (0.01)
Paid-in capital........................................... -- -- (0.01) -- --
-------- -------- -------- -------- --------
Total distributions................................. (1.49) (2.72) (1.11) (1.23) (1.60)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 16.08 $ 14.30 $ 11.52 $ 11.61 $ 10.49
======== ======== ======== ======== ========
Total return+....................................... 23.2% 48.2% 8.7% 22.5% 0.0%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)...................... $798,812 $596,547 $460,836 $486,144 $436,629
Ratio of net investment income/(loss) to average net
assets.................................................. (0.41)% (0.45)% (0.12)% 0.42% 0.73%
Ratio of operating expenses to average net assets......... 1.40% 1.42% 1.40% 1.50% 1.50%
Portfolio turnover rate................................... 46% 44% 37% 65% 67%
</TABLE>
- ---------------
+ 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.
See accompanying notes to financial statements.
22
<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, 1998, 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, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York
February 25, 1999
1998 TAX NOTICE TO SHAREHOLDERS (UNAUDITED)
For the year ended December 31, 1998, the Fund paid to shareholders, on December
28, 1998, an ordinary income dividend (comprised of net investment income and
short term capital gains) totaling $0.421 per share and long term capital gains
totaling $1.069 per share. For the year ended December 31, 1998, 24.20% 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
year 1998 which was derived from U.S. Treasury securities was 0.00%. 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.
23
<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 & Lynch
Gabelli Asset Management
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 DISBURSING
AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Willkie Farr & Gallagher
UNDERWRITER
Gabelli & Company, Inc.
- ---------------------------------------
This report is submitted for the
general information of the shareholders
of The Gabelli Value Fund Inc. It is
not authorized for distribution to
prospective investors unless preceded
or accompanied by an effective
prospectus.
- ---------------------------------------
[PHOTO]
THE
GABELLI
VALUE
FUND
INC.
ANNUAL REPORT
DECEMBER 31, 1998
