As filed with the Securities and Exchange Commission on April 28, 2000.
Securities Act File No. 33-61254
Investment Company Act File No. 811-7644
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
Pre-Effective Amendment No.___ ___
Post-Effective Amendment No._7__X_
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ___
Amendment No._9_ _X_
GABELLI CAPITAL SERIES FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
ONE CORPORATE CENTER, RYE, NEW YORK 10580-1434
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 1-800-422-3554
Bruce N. Alpert
Gabelli Funds, LLC
One Corporate Center
RYE, NEW YORK 10580-1434
----------------------------
(Name and Address of Agent for Service)
Copies to:
James E. McKee, Esq. Daniel Schloendorn, Esq.
Gabelli Capital Series Funds, Inc. Willkie Farr & Gallagher
One Corporate Center 787 Seventh Avenue
Rye, New York 10580-1434 New York, New York 10019-6099
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b); or
_X_ on May 1, 2000 pursuant to paragraph (b); or
___ 60 days after filing pursuant to paragraph (a)(1);
___ or __ on __________ pursuant to paragraph (a)(1); or
___ 75 days after filing pursuant to paragraph (a)(2); or
___ on __________ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
PROSPECTUS
MAY 1, 2000
GABELLI CAPITAL
ASSET FUND
INVESTMENT OBJECTIVES:
Gabelli Capital Asset Fund (the "Fund") is the sole series of Gabelli Capital
Series Funds, Inc. (the "Company"). The Fund's primary goal is to seek growth of
capital. Capital is the amount of money you invest in the Fund. The Fund's
secondary goal is to produce current income.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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GABELLI CAPITAL ASSET FUND
<PAGE>
INVESTMENT AND PERFORMANCE SUMMARY
INVESTMENT OBJECTIVE:
The Fund's primary goal is to seek growth of capital. Capital is the amount of
money you invest in the Fund. The Fund's secondary goal is to produce current
income.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund invests primarily in equity securities of companies that are selling in
the public market at a significant discount to their "private market value."
Private market value is the value which the Fund's adviser, Gabelli Funds, LLC
(the "Adviser"), believes informed investors would be willing to pay for a
company. The Adviser considers factors such as price, earnings expectations,
earnings and price histories, balance sheet characteristics and perceived
management skills. The Adviser also considers changes in economic and political
outlooks as well as individual corporate developments. The Fund may also invest
in companies that are involved in corporate reorganizations. Additionally, the
Fund may invest in foreign securities. The Adviser will sell any Fund
investments which lose their perceived value when compared to other investment
alternatives.
PRINCIPAL RISKS:
The Fund's share price will fluctuate with changes in the market value of the
Fund's portfolio securities. Stocks are subject to market, economic and business
risks that cause their prices to fluctuate. Corporate reorganizations involve
the risk that the anticipated transactions may not be completed within the
anticipated time or upon the expected terms, in which case the Fund may suffer a
loss on its investments. Investments in foreign securities involve risks related
to political, social and economic developments abroad, as well as risks
resulting from the differences between the regulations to which U.S. and foreign
issuers and markets are subject. When you sell Fund shares, they may be worth
less than what you paid for them. Consequently, you can lose money by investing
in the Fund. The Fund is also subject to the risk that the portfolio securities'
private market values may never be realized by the market, or their prices may
go down.
WHO MAY WANT TO INVEST:
The Fund is available to the public only through the purchase of certain
variable annuity and variable life insurance contracts issued by The Guardian
Insurance & Annuity Company, Inc. ("GIAC")
The Fund may appeal to you if:
o you are a long-term investor
o you seek both growth of capital and some income
o you believe that the market will favor value over growth stocks over the long
term o you wish to include a value strategy as a portion of your overall
investments
GABELLI CAPITAL ASSET FUND
<PAGE>
You may not want to invest in the Fund if:
o you are seeking a high level of current income
o you are conservative in your investment approach
o you seek to maintain stability of principal more than potential growth of
capital
PERFORMANCE:
The bar chart and table that follow provide an indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year (since 1996), and by showing how the Fund's average annual returns for one
year and the life of the Fund compare to those of a broad-based securities
market index. As with all mutual funds, the Fund's past performance does not
predict how the Fund will perform in the future. Both the chart and the table
assume reinvestment of dividends and distributions.
GABELLI CAPITAL ASSET FUND
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
1996 11.00%
1997 42.60%
1998 11.67%
1999 19.81%
Performance information does not reflect separate accounts or variable insurance
contract fees and charges. If such fees and charges were reflected, the Fund's
returns would be less than those shown. During the period shown in the bar
chart, the highest return for a quarter was 18.13% (quarter ended June 30, 1997)
and the lowest return for a quarter was 14.94% (quarter ended September 30,
1998).
GABELLI CAPITAL ASSET FUND
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
(FOR THE
PERIODS ENDED PAST SINCE
DECEMBER 31, 1999) ONE YEAR MAY 1, 1995*
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Gabelli Capital
Asset Fund 19.81% 19.49%
S&P(R)500 Stock Index** 21.04% 27.51%
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* Commencement of operations.
** The S&P(R) 500 Composite Stock Price Index is a widely recognized, unmanaged
index of common stock prices. The performance of the Index does not include
expenses or fees.
INVESTMENT AND RISK INFORMATION
The primary investment objective of the Fund is growth of capital, and current
income is a secondary objective. The investment objectives of the Fund may not
be changed without shareholder approval.
The Fund's assets will be invested primarily in a broad range of
readily marketable equity securities consisting of: common stock, preferred
stock and securities which may be converted at a later time into common stock.
Many of the common stocks the Fund will buy will not pay dividends; instead,
stocks will be bought for the potential that their prices will increase,
providing capital appreciation for the Fund. The value of equity securities will
fluctuate due to many factors, including the past and predicted earnings of the
issuer, the quality of the issuer's management, general market conditions, the
forecasts for the issuer's industry and the value of the issuer's assets.
Holders of equity securities only have rights to value in the company after all
debts have been paid, and they could lose their entire investment in a company
that encounters financial difficulty. Warrants are rights to purchase securities
at a specified time at a specified price.
The Fund may also use the following investment techniques:
o DEFENSIVE INVESTMENTS. When adverse market or economic conditions occur, the
Fund may temporarily invest all or a portion of its assets in defensive
investments. Such investments include high grade debt securities, obligations
of the U.S. Government and its agencies and instrumentalities and short-term
money market instruments. When following a defensive strategy, the Fund will
be less likely to achieve its investment goal.
o CORPORATE REORGANIZATIONS. Subject to the diversification requirements of its
investment restrictions, the Fund may invest up to 35% of its total assets in
securities for which a tender or exchange offer has been made or announced
and in the securities of companies for which a merger, consolidation,
liquidation or similar reorganization proposal has been announced. The
Adviser will only invest in such securities if it is likely that the amount
of capital appreciation will be significantly greater than the added expenses
of buying and selling
GABELLI CAPITAL ASSET FUND
<PAGE>
securities on a short-term basis. The 35% limitation does not apply to the
securities of companies which may be involved in simply consummating an approved
or agreed upon merger, acquisition, consolidation, liquidation or
reorganization.
o FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets in the
securities of non-U.S. issuers.
The Fund may also engage to a limited extent in other investment practices in
order to achieve its investment goal.
Investing in the Fund involves the following risks:
o MARKET RISK. The principal risk of investing in the Fund is market risk.
Market risk is the risk that the prices of the securities held by the Fund
will change due to general market and economic conditions, perceptions
regarding the industries in which the companies issuing the securities
participate and the issuer company's particular circumstances. These
fluctuations may cause a security to be worth less than it was worth at an
earlier time.
o FUND AND MANAGEMENT RISK. The Fund invests in stocks believed by the Adviser
to be trading at a discount to their private market value (value stocks). The
stocks' price may decline if the market favors other stocks or small
capitalization stocks over stocks of larger companies. If the Adviser is
incorrect in its assessment of the private market values of the securities it
holds, then the value of the Fund's shares may decline. There is also the
risk that the Fund has valued certain of its securities at a higher price
than it can sell them for.
o RISK OF FOCUSING ON CORPORATE REORGANIZATIONS. The Fund may invest a portion
of its assets in securities of companies that are involved or may become
involved in corporate transactions such as tender offers and corporate
reorganizations. The principal risk of this type of investing is that the
anticipated transactions may not be completed at the anticipated time or upon
the expected terms, in which case the Fund may suffer a loss on its
investments. In addition, many companies in the past several years have
adopted so-called "poison pill" and other defensive measures. This may limit
tender offers or other non-negotiated offers for a company and/or prevent
competing offers. Such measures may also limit the amount of securities in
any one issuer that the Fund may buy.
o FOREIGN RISK. Investments in foreign securities involve risks relating to
political, social and economic developments abroad, as well as risks
resulting from the differences between the regulations to which U.S. and
foreign issuers and markets are subject:
-- These risks may include the seizure by the government of company assets,
excessive taxation, withholding taxes on dividends and interest,
limitations on the use or transfer of portfolio assets, and political or
social instability.
GABELLI CAPITAL ASSET FUND
<PAGE>
-- Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against
foreign governments.
-- Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may be
less public information about their operations.
-- Foreign markets may be less liquid and more volatile than U.S. markets.
-- Foreign securities often trade in currencies other than the U.S. dollar,
and the Fund may directly hold foreign currencies and purchase and sell
foreign currencies. Changes in currency exchange rates will affect the
Fund's net asset value, the value of dividends and interest earned, and
gains and losses realized on the sale of securities. An increase in the
strength of the U.S. dollar relative to these other currencies may cause
the value of the Fund to decline. Certain foreign currencies may be
particularly volatile, and foreign governments may intervene in the
currency markets, causing a decline in value or liquidity of the Fund's
foreign currency holdings.
-- Costs of buying, selling and holding foreign securities, including
brokerage, tax and custody costs, may be higher than those involved in
domestic transactions.
-- There is the risk that some countries may restrict the Fund's access to
investments or offer terms that are less advantageous than those for local
investors. This could limit the attractive investment opportunities
available to the Fund.
MANAGEMENT OF THE FUND
THE MANAGER. Guardian Investor Services Corporation (the "Manager"), located at
7 Hanover Square, New York, New York 10004, supervises the performance of
administrative and professional services provided to the Fund by others,
including the Adviser and PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.), the sub-administrator of the Fund (the
"Sub-Administrator"). The Manager also pays the fees of the Adviser. The Manager
serves as investment adviser to fourteen funds with aggregate assets of over $11
billion as of March 31, 2000.
As compensation for its services and the related expenses borne by the Manager,
for the fiscal year ended December 31, 1999, the Fund paid the Manager a fee
equal to 1.00% of the value of the Fund's average daily net assets.
The Company, the Manager, GIAC, the Adviser and the Fund's distributor have
entered into a Participation Agreement regarding the offering of the Fund's
shares as an investment option for variable annuity and variable life contracts
issued by GIAC.
GABELLI CAPITAL ASSET FUND
<PAGE>
THE ADVISER. Pursuant to an Investment Advisory Agreement among the Fund, the
Manager and the Adviser, the Adviser, with principal offices located at One
Corporate Center, Rye, New York 10580-1434, manages the Fund's assets in
accordance with the Fund's investment objectives and policies. The Adviser makes
investment decisions for the Fund, places purchase and sale orders on behalf of
the Fund and provides investment research. The Adviser also supervises the
performance of administrative and professional services provided by others and
pays the compensation of the Sub-Administrator and all officers and directors of
the Fund who are its affiliates. The Adviser also manages several other open-end
and closed-end investment companies in the Gabelli family of funds. The Adviser
is a New York limited liability company organized in 1999 as successor to
Gabelli Group Capital Partners, Inc. (formerly named Gabelli Funds, Inc.), a New
York corporation organized in 1980. The Adviser is a wholly-owned subsidiary of
Gabelli Asset Management Inc. ("GAMI"), a publicly held company listed on the
New York Stock Exchange ("NYSE").
As compensation for its services and the related expenses borne by the Adviser,
for the fiscal year ended December 31, 1999, the Manager paid the Adviser an
annual fee equal to 0.75% of the value of the Fund's average daily net assets.
THE PORTFOLIO MANAGER. Mr. Mario J. Gabelli, CFA, is responsible for
the day-to-day management of the Fund. Mr. Gabelli has been Chairman, Chief
Executive Officer and Chief Investment Officer of the Adviser and its
predecessor since inception and of its parent company, GAMI. Mr. Gabelli also
acts as Chief Executive Officer and Chief Investment Officer of GAMCO Investors,
Inc., a wholly-owned subsidiary of GAMI, and is an officer or director of
various other companies affiliated with GAMI. The Adviser relies to a
considerable extent on the expertise of Mr. Gabelli, who may be difficult to
replace in the event of his death, disability or resignation.
PURCHASE AND REDEMPTION OF SHARES
You may invest in the Fund only by purchasing certain variable annuity and
variable insurance contracts ("Contracts") issued by GIAC. The Fund continuously
offers its shares to GIAC's separate accounts at the net asset value per share
next determined after a proper purchase request has been received by GIAC. GIAC
then offers to owners of the Contracts ("Contractowners") units in its separate
accounts which directly correspond to shares in the Fund. GIAC submits purchase
and redemption orders to the Fund based on allocation instructions for premium
payments, transfer instructions and surrender or partial withdrawal requests
which are furnished to GIAC by such Contractowners. The Fund redeems shares from
GIAC's separate accounts at the net asset value per share next determined after
receipt of a redemption order from GIAC.
THE ACCOMPANYING PROSPECTUS FOR A GIAC VARIABLE ANNUITY OR
VARIABLE LIFE INSURANCE POLICY DESCRIBES THE ALLOCATION, TRANSFER AND WITHDRAWAL
PROVISIONS OF SUCH ANNUITY OR POLICY.
GABELLI CAPITAL ASSET FUND
<PAGE>
PRICING OF FUND SHARES
The Fund's net asset value is calculated on any day the NYSE is open for
trading. The NYSE is open Monday through Friday, but currently is scheduled to
be closed on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and on the preceding Friday or subsequent Monday when a holiday
falls on a Saturday or Sunday, respectively.
The Fund's net asset value is determined as of the close of regular trading on
the NYSE, normally 4:00 p.m. Eastern Time. Net asset value is computed by
dividing the value of the Fund's net assets (i.e. the value of its securities
and other assets less its liabilities, including expenses payable or accrued but
excluding capital stock and surplus) by the total number of its shares
outstanding at the time the determination is made. The Fund uses market
quotations in valuing its portfolio securities. Securities traded primarily on
foreign exchanges are valued at the closing price on such exchange immediately
prior to the close of the NYSE. Short-term investments that mature in 60 days or
less are valued at amortized cost, which the Directors of the Fund believe
represent fair value. The price of Fund shares for purposes of purchase and
redemption orders will be based upon the next calculation of net asset value
after the purchase or redemption order is placed.
The Fund may from time to time hold securities that are primarily listed on
foreign exchanges that trade on weekends or other days when the Fund does not
price shares. Therefore, the Fund's net asset value may change on days when you
are not able to purchase or redeem the Fund's shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
GIAC's separate accounts automatically reinvest, at net asset value, any
dividends and capital gains distributions paid by the Fund in additional shares
of the Fund. There is no fixed dividend rate, and there can be no assurance that
the Fund will pay any dividends or realize any capital gains. However, the Fund
currently intends to pay dividends and capital gains distributions, if any, on
an annual basis. Such dividends and capital gains distributions may be taxable
at different rates depending on the length of time the Fund holds its assets.
Contractowners who own units in a separate account corresponding to shares in
the Fund will be notified when distributions are made.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund has qualified and intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended, in
order to be relieved of federal income tax on that part of its net investment
income and realized capital gains which it distributes to GIAC's separate
accounts. To qualify, the Fund must meet certain relatively complex income and
diversification tests. The loss of such status would result in the Fund being
subject to federal income tax on its taxable income and gains.
GABELLI CAPITAL ASSET FUND
<PAGE>
Federal tax regulations require that mutual funds that are offered through
insurance company separate accounts must meet certain diversification
requirements to preserve the tax-deferral benefits provided by the variable
contracts which are offered in connection with such separate accounts. The
Adviser intends to diversify the Fund's investments in accordance with those
requirements. The prospectuses for GIAC's variable annuities and variable life
insurance policies describe the federal income tax treatment of distributions
from such contracts to Contractowners.
This is only a summary of important federal tax law provisions that can affect
the Fund. Other federal, state, or local tax law provisions may also affect the
Fund and its operations. Anyone who is considering allocating, transferring or
withdrawing monies held under a GIAC variable contract to or from the Fund
should consult a qualified tax adviser.
SPECIAL INFORMATION ABOUT THE FUND
The Fund offers its shares to both variable annuity and variable life insurance
policy separate accounts. The Fund does not anticipate that this arrangement
will disadvantage any Contractowners. The Fund's Board of Directors monitors
events for the existence of any material irreconcilable conflict between or
among Contractowners. If a material irreconcilable conflict arises, one or more
separate accounts may withdraw their investments in the Fund. This could
possibly force the Fund to sell portfolio securities at unfavorable prices. GIAC
will bear the expenses of establishing separate portfolios for variable annuity
and variable life insurance separate accounts if such action becomes necessary;
however, ongoing expenses that are ultimately borne by Contractowners will
likely increase due to the loss of the economies of scale benefits that can be
provided to mutual funds with substantial assets.
GABELLI CAPITAL ASSET FUND
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance since its inception. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in the Fund.
This information has been audited by Ernst & Young LLP, independent auditors,
whose report, along with the Fund's financial statements and related notes, are
included in the annual report, which is available upon request.
PER SHARE AMOUNTS FOR THE FUND'S SHARES OUTSTANDING
THROUGHOUT EACH YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995+
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ................ $16.20 $15.31 $11.55 $10.70 $10.00
Net investment income ............................... 0.02 0.03 0.02 0.02 0.03(a)
Net realized and unrealized gain
on investments .................................... 3.15 1.74 4.88 1.16 0.80
------ ------ ----- ------ ------
TOTAL FROM INVESTMENT OPERATIONS ....................... 3.17 1.77 4.90 1.18 0.83
------ ------ ----- ------ ------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ............................... (0.02) (0.03) (0.02) (0.02) (0.03)
Net realized gain on investments .................... (1.87) (0.78) (1.12) (0.31) (0.09)
In excess of net realized gains on
investments ....................................... -- (0.07) (0.00)(b) -- (0.01)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS .................................... (1.89) (0.88) (1.14) (0.33) (0.13)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ......................... $17.48 $16.20 $15.31 $11.55 $10.70
------ ------ ------ ------ ------
TOTAL RETURN++ ......................................... 19.8% 11.7% 42.6% 11.0% 8.4%
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ................... $176,086 $155,361 $105,350 $51,462 $26,364
Ratio of net investment income to
average net assets .................................. 0.13% 0.19% 0.17% 0.21% 0.75%(c)
Ratio of operating expenses to
average net assets(d) ............................... 1.08% 1.12% 1.17% 1.31% 1.78%(c)
Portfolio turnover rate ................................ 54% 43% 65% 53% 81%
<FN>
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+ From commencement of investment operations on May 1, 1995.
++ 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. Total return for the period of less than
one year is not annualized.
(a)Net investment income before expenses assumed by the Manager and Adviser was
$0.03.
(b) Amount represents less than $0.005 per share.
(c) Annualized.
(d)The ratio of operating expenses to average net assets before reimbursement
of expenses assumed by the Manager and Adviser would have been 1.92% for the
period ended December 31, 1995.
</FN>
</TABLE>
GABELLI CAPITAL ASSET FUND
<PAGE>
THE GABELLI CAPITAL ASSET FUND
FOR MORE INFORMATION:
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's semi-annual and annual reports to shareholders contain additional
information on the Fund's investments. In the Fund's annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected
the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference, and is
legally considered a part of this prospectus.
You can get free copies of these documents and prospectuses of other funds in
the Gabelli family, or request other information and discuss your questions
about the Funds by contacting:
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Gabelli Capital Series Funds, Inc.
One Corporate Center
Rye, NY 10580
Telephone: 1-800-GABELLI (1-800-422-3554)
www.gabelli.com
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You can review the Fund's reports and SAI at the Public Reference Room of the
Securities and Exchange Commission. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
You can get text-only copies:
o For a fee, by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102 or by calling 1-202-942-8090, or by electronic
request at the following email address: [email protected].
o Free from the Commission's Website at http://www.sec.gov
(Investment Company Act file no.: 811-07644)
GABELLI CAPITAL ASSET FUND
<PAGE>
GABELLI CAPITAL ASSET FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
This Statement of Additional Information (the "SAI"), which is not a prospectus,
describes the Gabelli Capital Asset Fund (the "Fund"), a series of Gabelli
Capital Series Funds, Inc., a Maryland corporation (the "Company"). The SAI
should be read in conjunction with the Fund's Prospectus dated May 1, 2000. For
a free copy of the Prospectus, please contact the Fund at the address, telephone
number or Internet Web site printed below.
One Corporate Center
Rye, New York 10580-1434
Telephone 1-800-GABELLI (1-800-422-3554)
HTTP://WWW.GABELLI.COM
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION............................................................2
INVESTMENT STRATEGIES AND RISKS................................................2
INVESTMENT RESTRICTIONS.......................................................10
DIRECTORS AND OFFICERS........................................................12
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS....................................15
INVESTMENT ADVISORY AND OTHER SERVICES........................................16
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................21
PURCHASE AND REDEMPTION OF SHARES.............................................23
DETERMINATION OF NET ASSET VALUE..............................................23
DIVIDENDS, DISTRIBUTIONS AND TAXES............................................24
INVESTMENT PERFORMANCE INFORMATION............................................26
DESCRIPTION OF THE FUND'S SHARES AND VOTING RIGHTS............................27
FINANCIAL STATEMENTS..........................................................29
APPENDIX A - BOND AND PREFERRED STOCK RATINGS................................A-1
<PAGE>
General Information
The Company is a diversified, open-end, management investment company
and commenced operations on May 1, 1995. The Fund is currently the
only series of Gabelli Capital Series Funds, Inc., a corporation
organized under the laws of the State of Maryland on April 8, 1993.
Investment Strategies and Risks
The Prospectus discusses the investment objective of the Fund and the principal
strategies to be employed to achieve that objective. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Fund may invest, additional strategies that the Fund
may utilize and certain risks associated with such investments and strategies.
CONVERTIBLE SECURITIES
The Fund may, as an interim alternative to investment in common stocks, purchase
investment grade convertible debt securities having a rating of, or equivalent
to, at least "BBB" by S&P Ratings Service, a division of McGraw Hill Companies
("S&P") or, if unrated, judged by the Adviser to be of comparable quality.
Securities rated less than "A" by S&P may have speculative characteristics. The
Fund may also invest up to 25% of its assets in convertible debt securities
which have a lesser rating or are unrated, provided, however, that the Fund may
only invest up to 5% of its assets in corporate debt securities with a rating
of, or equivalent to, an S&P rating of CCC or lower. Unrated convertible
securities which, in the judgment of Gabelli Funds, LLC (the "Adviser"), have
equivalent credit worthiness may also be purchased for the Fund. Although lower
rated bonds generally have higher yields, they are more speculative and subject
to a greater risk of default with respect to the issuer's capacity to pay
interest and repay principal than are higher rated debt securities. See Appendix
A - "Bond and Preferred Stock Ratings."
Convertible securities are ordinarily a long-term debt obligation of the issuer
convertible at a stated exchange rate into common stock of the issuer and may
also include short-term debt obligations or preferred stock. As with all fixed
income securities, the market value of convertible securities tends to decline
as interest rates increase and, conversely, to increase as interest rates
decline. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. However, when the
market price of the common stock underlying a convertible security exceeds the
conversion price, the price of the convertible security tends to reflect the
value of the underlying common stock. As the market price of the underlying
common stock declines, the convertible security tends to trade increasingly on a
yield basis, and thus may not depreciate to the same extent as the underlying
common stock. Convertible securities rank senior to common stock in an issuer's
capital structure and are consequently of higher quality and entail less risk
than the issuer's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security.
In selecting convertible securities for the Fund, the Adviser relies primarily
on its own evaluation of the issuer and the potential for capital appreciation
through conversion. It does not rely on the rating of the security or sell
because of a change in rating absent a change in its own evaluation of the
underlying common stock and the ability of the issuer to pay principal and
interest or dividends when due without disrupting its business goals. Interest
or dividend yield is a factor only to the extent it is reasonably consistent
with prevailing rates for securities of similar quality and thereby provides a
support level for the market price of the security. The Fund will purchase the
convertible securities of highly leveraged issuers only when, in the judgment of
the Adviser, the risk of default is outweighed by the potential for capital
appreciation.
The issuers of debt obligations having speculative characteristics may
experience difficulty in paying principal and interest when due in the event of
a downturn in the economy or unanticipated corporate developments. The market
prices of such securities may become increasingly volatile in periods of
economic uncertainty. Moreover, adverse publicity or the perceptions of
investors over which the Adviser
<PAGE>
has no control, whether or not based on fundamental analysis, may decrease the
market price and liquidity of such investments. Although the Adviser will
attempt to avoid exposing the Fund to such risks, there is no assurance that it
will be successful or that a liquid secondary market will continue to be
available for the disposition of such securities.
DEBT SECURITIES
The Fund may purchase debt securities. The Fund will normally purchase only
investment grade debt securities having a rating of, or equivalent to, at least
BBB (which rating may have speculative characteristics) by S&P or, if unrated,
judged by the Adviser to be of comparable quality. However, the Fund may also
invest up to 25% of its assets in more speculative debt securities. Corporate
debt obligations having a B rating will likely have some quality and protective
characteristics which, in the judgment of the rating organization, are
outweighed by large uncertainties or major risk exposures to adverse conditions.
The Fund may invest up to 5% of its assets in corporate debt securities having a
rating of, or equivalent to, an S&P rating of CCC or lower (often referred to in
the financial press as "junk bonds") which the Adviser believes present an
opportunity for significant capital appreciation.
Corporate debt securities which are either unrated or have a predominantly
speculative rating may present opportunities for significant long-term capital
appreciation if the ability of the issuer to repay principal and interest when
due is underestimated by the market or the rating organizations. Because of its
perceived credit weakness, the issuer is generally required to pay a higher
interest rate and/or its debt securities may be selling at a significantly lower
market price than the debt securities of issuers actually having similar
strength. When the inherent value of such securities is recognized, the market
value of such securities may appreciate significantly. The Adviser believes that
its research on the credit and balance sheet strength of certain issuers may
enable it to select a limited number of corporate debt securities, which in
certain markets, will better serve the objective of capital appreciation than
alternative investments in common stocks. Of course, there can be no assurance
that the Adviser will be successful. In its evaluation, the Adviser will not
rely on ratings and the receipt of income is only an incidental consideration.
As in the case of the convertible debt securities discussed above, low rated and
unrated corporate debt securities are generally considered to be more subject to
default and therefore significantly more speculative than those having an
investment grade rating. They also are more subject to market price volatility
based on increased sensitivity to changes in interest rates and economic
conditions or the liquidity of their secondary trading market. The Fund does not
intend to purchase debt securities for which a liquid trading market does not
exist but there can be no assurance that such a market will exist for the sale
of such securities.
OPTIONS
The Fund may purchase or sell options on individual securities as well as on
indices of securities as a means of achieving additional return or of hedging
the value of its portfolio. The Fund will not purchase options if, as a result,
the aggregate cost or proceeds of all outstanding options exceeds 5% of the
Fund's assets. To the extent that puts, straddles and similar investment
strategies involve instruments regulated by the Commodity Futures Trading
Commission, the aggregate initial margin and premiums required to establish such
positions, other than for hedging purposes, will not exceed 5% of the Fund's net
asset value after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into.
A call option is a contract that gives the holder of the option the right, in
return for a premium paid, to buy from the seller the security underlying the
option at a specified exercise price at any time during the term of the option
or, in some cases, only at the end of the term of the option. The seller of the
call option has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price. A put option is a
contract that gives the holder of the option the right in return for a premium
to sell to the seller the underlying security at a specified price. The seller
of the put option, on the other hand, has the obligation to buy the underlying
security upon exercise at the exercise price. The Fund's transactions in options
may be subject to specific segregation requirements. See "Hedging Transactions"
below.
<PAGE>
If the Fund has sold an option, it may terminate its obligation by effecting a
closing purchase transaction. This is accomplished by purchasing an option of
the same series as the option previously sold. There can be no assurance that a
closing purchase transaction can be effected when the Fund so desires.
The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unexercised but
forgoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option. Options purchased and sold other than on an
exchange in private transactions also impose on the Fund the credit risk that
the counterparty will fail to honor its obligations.
INVESTMENTS IN WARRANTS AND RIGHTS
The Fund may invest in warrants and rights (other than those acquired in units
or attached to other securities) which entitle the holder to buy equity
securities at a specific price for or at the end of a specific period of time.
Investing in rights and warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and thus can be a
speculative investment. The value of a right or warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Rights and warrants
generally pay no dividends and confer no voting or other rights other than to
purchase the underlying security.
The Fund may invest in warrants and rights (other than those acquired in units
or attached to other securities) but will do so only if the underlying equity
securities are deemed appropriate by the Adviser for inclusion in the Fund's
portfolio.
INVESTMENTS IN SMALL, UNSEASONED COMPANIES AND OTHER ILLIQUID SECURITIES
The Fund may invest in small, less well-known companies (including predecessors)
which have operated for less than three years. The securities of small,
unseasoned companies may have a limited trading market, which may adversely
affect their disposition and can result in their being priced lower than might
otherwise be the case. If other investment companies and investors who invest in
such issuers trade the same securities when the Fund attempts to dispose of its
holdings, the Fund may have to lower the price, sell other securities instead or
forego an investment opportunity. These companies may have limited product
lines, markets or financial resources and may lack management depth. In
addition, these companies are typically subject to a greater degree of changes
in earnings and business prospects than are larger, more established companies.
Although investing in securities of these companies offers potential for
above-average returns if the companies are successful, the risk exists that the
companies will not succeed and the prices of the companies' shares could
significantly decline in value. This risk could have a negative impact on Fund
management or performance.
The Fund will not invest, in the aggregate, more than 15% of its net assets in
illiquid securities. These securities include securities which are restricted
for public sale, securities for which market quotations are not readily
available, and repurchase agreements maturing or terminable in more than seven
days. Securities freely salable among qualified institutional investors pursuant
to Rule 144A under the Securities Act of 1933, as amended, and as adopted by the
Securities and Exchange Commission ("SEC") may be treated as liquid if they
satisfy liquidity standards established by the Board of Directors. The continued
liquidity of such securities is not as well assured as that of publicly traded
securities, and accordingly, the Board of Directors will monitor their
liquidity.
CORPORATE REORGANIZATIONS
<PAGE>
In general, securities of companies engaged in reorganization transactions sell
at a premium to their historic market price immediately prior to the
announcement of the tender offer or reorganization proposal. However, the
increased market price of such securities may also discount what the stated or
appraised value of the security would be if the contemplated transaction were
approved or consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Adviser which must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offer or as well as the dynamics of the business
climate when the offer or proposal is in progress.
In making such investments, the Fund will not violate any of its diversification
requirements or investment restrictions (see below, "Investment Restrictions")
including the requirements that, except for the investment of up to 25% of its
assets in any one company or industry, not more than 5% of its assets may be
invested in the securities of any issuer. Since such investments are ordinarily
short term in nature, they will tend to increase the Fund's portfolio turnover
ratio, thereby increasing its brokerage and other transaction expenses. The
Adviser intends to select investments of the type described which, in its view,
have a reasonable prospect of capital appreciation which is significant in
relation to both the risk involved and the potential of available alternate
investments.
WHEN ISSUED, DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
The Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the time of the
commitment, with payment and delivery taking place in the future, generally a
month or more after the date of the commitment. While the Fund will only enter
into a forward commitment with the intention of actually acquiring the security,
the Fund may sell the security before the settlement date if it is deemed
advisable.
Securities purchased under a forward commitment are subject to market
fluctuations and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its Custodian cash or liquid
securities with its Custodian in an aggregate amount at least equal to the
amount of its outstanding forward commitments. When the Fund engages in
when-issued, delayed-delivery or forward commitment transactions, it relies on
the other party to consummate the trade. Failure of the other party to do so may
result in the Fund incurring a loss or missing an opportunity to obtain an
advantageous price.
OTHER INVESTMENT COMPANIES
The Fund does not intend to purchase the shares of other open-end investment
companies and reserves the right to invest up to 10% of its total assets in
securities of closed-end investment companies, including small business
investment companies (not more than 5% of its total assets may be invested in
not more than 3% of the voting securities of any investment company). To the
extent that the Fund invests in securities of other investment companies,
shareholders in the Fund may be subject to duplicative advisory and
administrative fees.
SHORT SALES
<PAGE>
The Fund may make short sales of securities. A short sale is a transaction in
which the Fund sells a security it does not own in anticipation that the market
price of that security will decline. The market value of the securities sold
short of any one issuer will not exceed either 5% of the Fund's total assets or
5% of such issuer's voting securities. The Fund will not make a short sale if,
after giving effect to such sale, the market value of all securities sold short
exceeds 10% of the value of its assets or the Fund's aggregate short sales of a
particular class of securities exceeds 10% of the outstanding securities of that
class. Short sales may only be made in securities listed on a national
securities exchange. The Fund may also make short sales "against the box"
without respect to such limitations. In this type of short sale, at the time of
the sale, the Fund owns or has the immediate and unconditional right to acquire
at no additional cost the identical security.
The Fund expects to make short sales both to obtain capital gains from
anticipated declines in securities and as a form of hedging to offset potential
declines in long positions in the same or similar securities. The short sale of
a security is considered a speculative investment technique.
When the Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale in order to
satisfy its obligation to deliver the security upon conclusion of the sale. The
Fund may have to pay a fee to borrow particular securities and is often
obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. Government
Securities or other highly liquid securities. The Fund will also be required to
deposit similar collateral with its Custodian to the extent, if any, necessary
so that the value of both collateral deposits in the aggregate is at all times
equal to the greater of the price at which the security is sold short or 100% of
the current market value of the security sold short. Depending on arrangements
made with the broker-dealer from which it borrowed the security regarding
payment of any amounts received by the Fund on such security, the Fund may not
receive any payments (including interest) on its collateral deposited with such
broker-dealer. If the price of the security sold short increases between the
time of the short sale and the time the Fund replaces the borrowed security, the
Fund will incur a loss; conversely, if the price declines, the Fund will realize
a capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although the Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with banks and non-bank dealers of
U.S. Government securities which are listed as reporting dealers of the Federal
Reserve Bank and which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation. In a repurchase agreement,
the Fund purchases a debt security from a seller which undertakes to repurchase
the security at a specified resale price on an agreed future date. The resale
price generally exceeds the purchase price by an amount which reflects an
agreed-upon market interest rate for the term of the repurchase agreement.
The Fund's risk is primarily that, if the seller defaults, the proceeds from the
disposition of underlying securities and other collateral for the seller's
obligation are less than the repurchase price. If the seller becomes bankrupt,
the Fund might be delayed in selling the collateral. Under the Investment
Company Act of 1940, as amended (the "1940 Act"), repurchase agreements are
considered loans. Repurchase agreements usually are for short periods, such as
one week or less, but could be longer. The Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together with
illiquid securities and other securities for which there are no readily
available quotations, more than 15% of its total assets would be so invested.
The percentage limitation is fundamental and may not be changed without
shareholder approval.
BORROWING
<PAGE>
The Fund may not borrow money except for (1) short-term credits from banks as
may be necessary for the clearance of portfolio transactions, and (2) borrowings
from banks for temporary or emergency purposes, including the meeting of
redemption requests, which would otherwise require the untimely disposition of
its portfolio securities. Borrowing may not, in the aggregate, exceed 15% of the
Fund's total assets after giving effect to the borrowing, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the Fund's assets
after giving effect to the borrowing. The Fund will not make additional
investments when borrowings exceed 5% of assets after giving effect to the
borrowing. The Fund may mortgage, pledge or hypothecate assets to secure such
borrowings. Not more than 20% of the total assets of the Fund may be used as
collateral in connection with the borrowings described above.
HEDGING TRANSACTIONS
FUTURES CONTRACTS. The Fund may enter into futures contracts only for certain
bona fide hedging and risk management purposes. The Fund may enter into futures
contracts for the purchase or sale of debt securities, debt instruments, or
indices of prices thereof, stock index futures, other financial indices, and
U.S. Government securities.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities underlying the
contract at a specified price at a specified future time. A "purchase" of a
futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire the securities underlying the contract at a
specified price at a specified future time.
Certain futures contracts are settled on a net cash payment basis rather than by
the sale and delivery of the securities underlying the futures contracts. U.S.
futures contracts have been designed by exchanges that have been designated as
"contract markets" by the Commodity Futures Trading Commission, an agency of the
U.S. Government, and must be executed through a futures commission merchant
(i.e., a brokerage firm) which is a member of the relevant contract market.
Futures contracts trade on these contract markets and the exchange's affiliated
clearing organization guarantees performance of the contracts as between the
clearing members of the exchange.
These contracts entail certain risks, including but not limited to the
following: no assurance that futures contracts transactions can be offset at
favorable prices, possible reduction of the Fund's yield due to the use of
hedging, possible reduction in value of both the securities hedged and the
hedging instrument, possible lack of liquidity due to daily limits on price
fluctuation, imperfect correlation between the contracts and the securities
being hedged, and potential losses in excess of the amount invested in the
futures contracts themselves.
CURRENCY TRANSACTIONS. The Fund may enter into various currency transactions,
including forward foreign currency contracts, foreign currency or currency index
futures contracts and put and call options on such contracts or on currencies. A
forward foreign currency contract involves an obligation to purchase or sell a
specific currency for a set price at a future date. Forward foreign currency
contracts are established in the interbank market conducted directly between
currency traders (usually large commercial banks or other financial
institutions) on behalf of their customers. Futures contracts are similar to
forward contracts except that they are traded on an organized exchange and the
obligations thereunder may be offset by taking an equal but opposite position to
the original contract, with profit or loss determined by the relative prices
between the opening and offsetting positions. The Fund expects to enter into
these currency contracts in primarily the following circumstances: to "lock in"
the U.S. dollar equivalent price of a security the Fund is contemplating buying
or selling which is denominated in a non-U.S. currency; or to protect against a
decline against the U.S. dollar of the currency of a particular country to which
the Fund's portfolio has exposure. The Fund anticipates seeking to achieve the
same economic result by utilizing from time to time for such hedging a currency
different from the one of the given portfolio security as long as, in the view
of the Adviser, such currency is essentially correlated to the currency of the
relevant portfolio security based on historic and expected exchange rate
patterns.
While currency transactions may limit losses to the Fund as a result of exchange
rate fluctuation they will also limit any gains that might otherwise have been
realized. Currency transactions include the risk that
<PAGE>
securities losses could be magnified by changes in the value of the currency in
which a security is denominated relative to the U.S. dollar.
The Adviser may choose to use such instruments on behalf of the Fund depending
upon market conditions prevailing and the perceived investment needs of the
Fund. Futures contracts, interest rate swaps, options on securities, indices and
futures contracts and certain currency contracts sold by the Fund are generally
subject to segregation and coverage requirements with the result that, if the
Fund does not hold the security or futures contract underlying the instrument,
the Fund will be required to segregate on an ongoing basis with its Custodian,
cash, U.S. Government securities, or other liquid securities in an amount at
least equal to the Fund's obligations with respect to such instruments. Such
amounts fluctuate as the obligations increase or decrease. The segregation
requirement can result in the Fund maintaining securities positions it would
otherwise liquidate or segregating assets at a time when it might be
disadvantageous to do so. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively broad and deep as compared to the markets
for similar instruments which are established in the interbank market. In
accordance with the current position of the staff of the SEC, the Fund will
treat swap transactions as illiquid for purposes of the Fund's policy regarding
illiquid securities.
The Fund may use options and futures to hedge the risks of investing
in the Fund. The success of hedging depends on the Adviser's ability
to predict movements in the prices of the hedged securities and market
fluctuations. The Adviser may not be able to perfectly correlate
changes in the market value of securities and the prices of the
corresponding options or futures. The Adviser may have difficulty
selling or buying futures contracts and options when it chooses and
there may be certain restrictions on trading futures contracts and
options. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. At times, hedging strategies may not be
available, may be too costly to be used effectively or may be unable
to be used for other reasons.
The Fund may also enter into various currency transactions, including forward
foreign currency contracts, foreign currency or currency index futures contracts
and put and call options on such contracts or currencies. Such currency
transactions may limit losses to the Fund due to changes in exchange rates, but
they also limit gains the Fund may have realized otherwise. If the Adviser
wrongly predicts the direction of the change in the value of a foreign currency,
the losses the Fund suffers on a foreign security denominated in that security
could be magnified.
Investment Restrictions
The Fund's investment objectives and the following investment restrictions are
fundamental and may not be changed without the approval of a majority of the
Fund's shareholders, defined as the lesser of (1) 67% of the Fund's shares
present at a meeting if the holders of more than 50% of the outstanding shares
are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. All other investment policies or practices are considered by
the Fund not to be fundamental and accordingly may be changed without
shareholder approval. If a percentage restriction on investment or the use of
assets set forth below is adhered to at the time the transaction is effected,
later changes in percentage resulting from changing market values or total
assets of the Fund will not be considered a deviation from policy. Under such
restrictions, the Fund may not:
1. Purchase the securities of any one issuer, other than the United
States Government, or any of its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer or the Fund would own more
than 10% of the outstanding voting securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to such 5% and 10% limitations;
2. Invest more than 25% of the value of its total assets in any
particular industry;
<PAGE>
3. Purchase securities on margin, but it may obtain such short-term
credits from banks as may be necessary for the clearance of purchases
and sales of securities;
4. Make loans of its assets except for the purchase of debt securities;
5. Borrow money except subject to the restrictions set forth in the SAI;
6. Mortgage, pledge or hypothecate any of its assets except that, in
connection with permissible borrowings mentioned in restriction 5
above, not more than 20% of the assets of the Fund (not including
amounts borrowed) may be used as collateral and except for collateral
arrangements with respect to hedging transactions, short sales,
when-issued and forward commitment transactions and similar investment
strategies;
7. Invest more than 5% of its total assets in more than 3% of the
securities of another investment company or invest more than 10% of
its total assets in the securities of other investment companies, nor
make any such investments other than through purchase in the open
market where to the best information of the Fund no commission or
profit to a sponsor or dealer (other than the customary broker's
commission) results from such purchase;
8. Act as an underwriter of securities of other issuers;
9. Invest, in the aggregate, more than 15% of the value of its total
assets in securities for which market quotations are not readily
available, securities which are restricted for public sale, or in
repurchase agreements maturing or terminable in more than seven days;
10. Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral exploration
or development programs;
11. Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security in connection with any permitted
borrowing, hedging transaction, short sale, when-issued or forward
commitment transaction or similar investment strategy;
12. Participate on a joint, or a joint and several, basis in any
securities trading account; or
13. Invest in companies for the purpose of exercising control.
There will be no violation of any investment restriction if that restriction is
complied with at the time the relevant action is taken notwithstanding a later
change in the market value of an investment, in the net or total assets of the
Fund, in the securities rating of the investment, or any other later change.
Directors and Officers
Under Maryland law, the Company's Board of Directors is responsible for
establishing the Company's policies and for overseeing the management of the
Fund. The Board also elects the Fund's officers who conduct the daily business
of the Company. The Directors and executive officers of the Company, their ages
and their principal occupations during the last five years and their
affiliations, if any with the Adviser, are set forth below. Directors deemed to
be "interested persons" of the Fund for purposes of the 1940 Act are indicated
by an asterisk. Unless otherwise specified, the address of each such person is
One Corporate Center, Rye, New York, 10580-1434.
NAME, AGE AND POSITION(S) PRINCIPAL OCCUPATIONS
WITH COMPANY DURING LAST FIVE YEARS
- ------------ ----------------------
<PAGE>
Mario J. Gabelli, CFA, * Chairman of the Board and Chief
Chairman of the Board, Investment Officer of Gabelli Asset
President and Chief Investment Officer Management Inc. and Chief Investment
Age: 57 Officer of Gabelli Funds, LLC and GAMCO
Investors, Inc.; Chairman of the Board
and Chief Executive Officer of Lynch
Corporation (diversified manufacturing
company) and Chairman of the Board of
Lynch Interactive Corporation
(multimedia and services company);
Director of Spinnaker Industries, Inc.
(manufacturing company); Director or
Trustee of 16 other mutual funds
advised by Gabelli Funds, LLC and its
affiliates.
Anthony J. Colavita, President and Attorney at Law in the
Director law firm of Anthony J. Colavita, P.C.
Age: 64 since 1961; Director or Trustee of 17
other mutual funds advised by abelli
Funds, LLC and its affiliates.
NAME, AGE AND POSITION(S) PRINCIPAL OCCUPATIONS
WITH COMPANY DURING LAST FIVE YEARS
- ------------ ----------------------
Arthur V. Ferrara, * Director of The Guardian Life Insurance
Director Company of America; Formerly, Chairman
Age: 70 of the Board and Chief Executive
Officer from January 1993 to December
1995; President, Chief Executive
Officer and a Director prior thereto;
Director of The Guardian Insurance &
Annuity Company, Inc., Guardian
Investor Services Corporation, and 5
mutual funds within the Guardian Fund
Complex.
Karl Otto Pohl, *+ Member of the Shareholder Committee of
Director Sal Oppenheim Jr. & Cie (private
Age: 70 investment bank); Director of Gabelli
Asset Management Inc. (investment
management), Zurich Allied (insurance
company), and TrizecHahn Corp. (real
estate company); Former President of
the Deutsche Bundesbank and Chairman of
its Central Bank Council from 1980
through 1991; Director or Trustee of
all other mutual funds advised by
Gabelli Funds, LLC and its affiliates.
Anthony R. Pustorino, CPA, Certified Public Accountant; Professor
Director of Accounting, Pace University since
Age: 74 1965; Director or Trustee of 10 other
mutual funds advised by Gabelli Funds,
LLC and its affiliates.
Werner J. Roeder, M.D., Medical Director, Lawrence Hospital and
Director practicing private physician; Director
Age: 59 or Trustee of 10 other mutual funds
advised by Gabelli Funds, LLC and its
affiliates.
Anthonie C. van Ekris, Managing Director of Balmac
Director International Ltd.; Director of
Age: 66 Spinnaker Industries, Inc.; Director of
Stahel Mardmeyer A.Z.; Director or
Trustee of 10 other mutual funds
advised by Gabelli Funds, LLC and its
affiliates.
<PAGE>
NAME, AGE AND POSITION(S) PRINCIPAL OCCUPATIONS
WITH COMPANY DURING LAST FIVE YEARS
- ------------ ----------------------
Bruce N. Alpert, Executive Vice President and Chief
Vice President and Treasurer Operating Officer of Gabelli Funds, LLC
Age: 48 since 1988; President and Director of
Gabelli Advisers, Inc.; and an officer
of all mutual funds advised by Gabelli
Funds, LLC and its affiliates.
James E. McKee, Secretary of Gabelli Funds, LLC; Vice
Secretary President, Secretary and General
Age: 36 Counsel of GAMCO Investors, Inc. since
1993 and of Gabelli Asset Management
Inc. since 1999; Secretary of all
mutual funds advised by Gabelli Funds,
LLC and Gabelli Advisers, Inc. since
August 1995.
- -------------------------
+ Mr. Pohl is a director of the parent company of the Adviser.
The Company has agreed that The Guardian Insurance & Annuity Company,
Inc. ("GIAC") shall have the right to nominate one person for election to the
Company's Board of Directors, and Mr. Ferrara was nominated by GIAC pursuant to
this agreement.
The Company, its investment adviser and principal underwriter have adopted a
code of ethics (the "Code of Ethics") under Rule 17j-1 of the 1940 Act. The Code
of Ethics permits personnel, subject to the Code of Ethics and its restrictive
provisions, to invest in securities, including securities that may be purchased
or held by the Company.
The Company pays each of its Directors who is not a director, officer or
employee of the Manager, the Adviser or any of their affiliates, $3,000 per
annum plus $500 per meeting attended in person or by telephone and reimburses
each Director for related travel and other out-of-pocket expenses. The Company
also pays each Director serving as a member of the Audit, Proxy or Nominating
Committees a fee of $500 per committee meeting if held on a day other than a
regularly scheduled board meeting.
The following table sets forth certain information regarding the compensation of
the Company's Directors. No executive officer or person affiliated with the
Company received compensation in excess of $60,000 from the Company for the
fiscal year ended December 31, 1999.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3)
TOTAL COMPENSATION FROM THE FUND
AGGREGATE COMPENSATION AND FUND COMPLEX
NAME OF PERSON AND POSITION FROM THE FUND PAID TO DIRECTORS *
--------------------------- -------------- -----------------
<S> <C> <C>
Mario J. Gabelli
Chairman of the Board $ 0 $ 0 (17)
Anthony J. Colavita
Director $ 5,000 $ 94,875 (18)
Arthur V. Ferrara
Director $ 0 $ 0 (1)
<PAGE>
Karl Otto Pohl
Director $ 1,250 $ 7,042 (19)
Anthony R. Pustorino
Director $ 6,000 $ 107,250 (11)
Werner Roeder, M.D.
Director $ 6,000 $ 34,859 (11)
Anthonie C. van Ekris
Director $ 5,000 $ 60,000 (11)
<FN>
- ---------------------------
* Represents the total compensation paid to such persons during the
fiscal year ended December 31, 1999. The parenthetical number
represents the number of investment companies (including the Fund) from
which such person receives compensation which are considered part of
the same "fund complex" as the Fund because they have common or
affiliated investment advisers.
</FN>
</TABLE>
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
The separate accounts of GIAC hold the majority of the Fund's shares and
therefore are considered to be control persons of the Fund.
As of April 17, 2000, as a group, the Directors and officers of the Fund owned
less than 1% of the outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
THE MANAGER
Pursuant to a Management Agreement with the Company, Guardian Investor Services
Corporation, (the "Manager"), subject to the supervision of the Board of
Directors of the Company and in conformity with the stated policies of the Fund,
supervises the performance of administrative and professional services provided
by others to the Fund including the Adviser and PFPC Inc. (formerly known as
First Data Investor Services Group, Inc.), the sub-administrator of the Fund
(the "Sub-Administrator"). The management services provided to the Fund are not
exclusive under the terms of the Management Agreement and the Manager is free
to, and does, render management or investment advisory services to others.
The Manager bears all expenses in connection with the services it renders under
the Management Agreement and the costs and expenses payable to the Adviser
pursuant to the Investment Advisory Agreement among the Manager, the Adviser and
the Company.
The Management Agreement provides that absent willful misfeasance, bad faith,
gross negligence or reckless disregard of its duty ("Disabling Conduct"), the
Manager will not be liable for any error of judgment or mistake of law or for
losses sustained by the Fund in connection with the matters relating to the
Management Agreement. However, the Management Agreement provides that the Fund
is not waiving any rights it may have which cannot be waived. The Management
Agreement also provides indemnification for the Manager and its directors,
officers, employees and controlling persons for any conduct that does not
constitute Disabling Conduct.
The Management Agreement is terminable without penalty on sixty days' written
notice by the Manager or by the Fund when authorized by the Directors of the
Company or a majority, as defined in the 1940 Act, of the outstanding shares of
the Fund. The Management Agreement will automatically terminate in the event of
its assignment, as defined in the 1940 Act and rules thereunder. The Management
Agreement provides that, unless terminated, it will remain in effect for two
years following the date of the Agreement and
<PAGE>
thereafter from year to year, so long as such continuance of the Management
Agreement is approved annually by the Directors of the Company or a vote by a
majority of the outstanding shares of the Fund and in either case, by a majority
vote of the Directors who are not interested persons of the Fund within the
meaning of the 1940 Act ("Disinterested Directors") cast in person at a meeting
called specifically for the purpose of voting on the continuance.
During the fiscal years ended December 31, 1999, 1998 and 1997, the Manager
received management fees from the Fund totaling $1,656,001, $1,392,897 and
$700,568, respectively, of which the Manager paid $1,242,001, $1,044,673 and
$525,426 and to the Adviser, respectively, for the same periods.
THE ADVISER
The Adviser is a New York limited liability company which also serves as an
investment adviser to 13 other open-end investment companies, and 4 closed-end
investment companies with aggregate assets in excess of $10.6 billion as of
December 31, 1999. The Adviser is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. Mr. Mario J. Gabelli may be deemed
a "controlling person" of the Adviser on the basis of his controlling interest
of the ultimate parent company of the Adviser. The Adviser has several
affiliates that provide investment advisory services: GAMCO Investor, Inc.
("GAMCO") a wholly-owned subsidiary of the Adviser, acts as investment adviser
for individuals, pension trusts, profit-sharing trusts and endowments, and had
assets under management of approximately $9.4 billion under its management as of
December 31, 1999; Gabelli Advisers, Inc. acts as investment adviser to the
Gabelli Westwood Funds with assets under management of approximately $390
million as of December 31, 1999; Gabelli Securities, Inc. acts as investment
adviser to certain alternative investments products, consisting primarily of
risk arbitrage and merchant banking limited partnerships and offshore companies,
with assets under management of approximately $230 million as of December 31,
1999; and Gabelli Fixed Income LLC acts as investment adviser for the five
portfolios of the Treasurer's Fund and separate accounts having assets under
management of approximately $1.4 billion as of December 31, 1999.
Affiliates of the Adviser may, in the ordinary course of their business, acquire
for their own account or for the accounts of their advisory clients, significant
(and possibly controlling) positions in the securities of companies that may
also be suitable for investment by the Fund. The securities in which the Fund
might invest may thereby be limited to some extent. For instance, many companies
in the past several years have adopted so-called "poison pill" or other
defensive measures designed to discourage or prevent the completion of
non-negotiated offers for control of the company. Such defensive measures may
have the effect of limiting the shares of the company which might otherwise be
acquired by the Fund if the affiliates of the Adviser or their advisory accounts
have or acquire a significant position in the same securities. However, the
Adviser does not believe that the investment activities of its affiliates will
have a material adverse effect upon the Fund in seeking to achieve its
investment objectives. Securities purchased or sold pursuant to contemporaneous
orders entered on behalf of the investment company accounts of the Adviser or
the advisory accounts managed by its affiliates for their unaffiliated clients
are allocated pursuant to principles believed to be fair and not disadvantageous
to any such accounts. In addition, all such orders are accorded priority of
execution over orders entered on behalf of accounts in which the Adviser or its
affiliates have a substantial pecuniary interest. The Adviser may on occasion
give advice or take action with respect to other clients that differs from the
actions taken with respect to the Fund. The Fund may invest in the securities of
companies which are investment management clients of GAMCO. In addition,
portfolio companies or their officers or directors may be minority shareholders
of the Adviser or its affiliates.
Pursuant to an Investment Advisory Agreement, which was approved by the
Directors of the Company at a meeting held on February 16, 2000, the Adviser
furnishes a continuous investment program for the Fund's portfolio, makes the
day-to-day investment decisions for the Fund, arranges the portfolio
transactions of the Fund and generally manages the Fund's investments in
accordance with the stated policies of the Fund, subject to the general
supervision of the Board of Directors of the Company and the Manager.
<PAGE>
Under the Investment Advisory Agreement, the Adviser also: (i) provides the Fund
with the services of persons competent to perform such supervisory,
administrative, and clerical functions as are necessary to provide efficient
administration of the Fund, including maintaining certain books and records and
overseeing the activities of the Fund's Custodian and Transfer Agent; (ii)
oversees the performance of administrative and professional services to the Fund
by others, including the Fund's Sub-Administrator, Custodian, Transfer Agent and
Dividend Disbursing Agent, as well as accounting, auditing and other services
performed for the Fund; (iii) provides the Fund with adequate office space and
facilities; (iv) prepares, but does not pay for, periodic updating of the Fund's
registration statement, Prospectus and SAI, including the printing of such
documents for the purpose of filings with the SEC; (v) supervises the
calculation of the Fund's net asset value per share; (vi) prepares, but does not
pay for, all filings under state law; and (vii) prepares notices and agendas for
meetings of the Company's Board of Directors and minutes of such meetings in all
matters required by the 1940 Act to be acted upon by the Board. The Adviser has
delegated its administrative duties to the Sub-Administrator as described below
under "Sub-Administrator."
The Investment Advisory Agreement provides that absent Disabling Conduct, the
Adviser and its employees, officers, directors and controlling persons are not
liable to the Fund or any of its investors for any act or omission by the
Adviser or for any error of judgment or for losses sustained by the Fund.
However, the Investment Advisory Agreement provides that the Fund is not waiving
any rights it may have with respect to any violation of law which cannot be
waived. The Investment Advisory Agreement also provides indemnification for the
Adviser and each of these persons for any conduct for which they are not liable
to the Fund. The Investment Adviser's Agreement in no way restricts the Adviser
from acting as Adviser to others. The Fund has agreed by the terms of the
Investment Adviser's Agreement that the word "Gabelli" in its name is derived
from the name of the Adviser which in turn is derived from the name of Mario J.
Gabelli; that such name is the property of the Adviser for copyright and/or
other purposes; and that, therefore, such name may freely be used by the Adviser
for other investment companies, entities or products. The Fund has further
agreed that in the event that for any reason, the Adviser ceases to be its
investment adviser, the Fund will, unless the Adviser otherwise consents in
writing, promptly take all steps necessary to change its name to one which does
not include "Gabelli."
The Investment Advisory Agreement provides that, unless terminated, it will
remain in effect for two years following the date of the Agreement and
thereafter from year to year, so long as such continuance of the Investment
Advisory Agreement is approved annually by the Directors of the Company or by a
"majority" (as defined in the 1940 Act) vote of its shareholders and, in either
case, by a majority vote of the Directors who are not parties to the Investment
Advisory Agreement or interested persons of any such party, cast in person at a
meeting called specifically for the purpose of voting on the continuance of the
Investment Advisory Agreement. The Investment Advisory Agreement is terminable
without penalty by the Company on sixty days' written notice by the Manager, the
Adviser or, when authorized by the Directors of the Company, or a majority, as
defined in the 1940 Act, of the outstanding shares of the Fund. The Investment
Advisory Agreement will automatically terminate in the event of its "assignment"
as defined in the 1940 Act.
EXPENSES
In addition to the fees of the Manager, the Fund is responsible for the payment
of all its other expenses incurred in the operation of the Fund, which include,
among other things, expenses for legal and independent auditor's services,
charges of the Custodian, Transfer Agent and Dividend Disbursing Agent and any
persons hired by the Fund, SEC fees, compensation including fees of the Fund's
unaffiliated directors, officers and employees, accounting costs for reports
sent to owners of the Contracts which provide for investment in the Fund
("Contractowner(s)"), the Fund's pro rata portion of membership fees in trade
organizations, fidelity bond coverage for the Fund's officers and employees,
interest, brokerage and other trading costs, taxes, all expenses of computing
the Fund's net asset value per share, expenses involved in registering and
maintaining the registration of the Fund's shares with the SEC and qualifying
the Fund for sale in various jurisdictions and maintaining such qualification,
litigation and other extraordinary or
<PAGE>
non-recurring expenses. HOWEVER, OTHER TYPICAL FUND EXPENSES SUCH AS
CONTRACTOWNER SERVICING, DISTRIBUTION OF REPORTS TO CONTRACTOWNERS AND
PROSPECTUS PRINTING AND POSTAGE WILL BE BORNE BY THE GUARDIAN INSURANCE ANNUITY
COMPANY, INC. ("GIAC").
SUB-ADMINISTRATOR
The Adviser has entered into a Sub-Administration Agreement (the
"Sub-Administration Agreement") with PFPC Inc., a majority owned
subsidiary of PNC Bank Corp. which is located at 101 Federal Street,
Boston, Massachusetts 02110. Under the Sub-Administration Agreement,
the Sub-Administrator (a) assists in supervising all aspects of the
Fund's operations except those performed by the Adviser under its
advisory agreement with the Fund; (b) supplies the Fund with office
facilities (which may be in the Sub-Administrator's own offices),
statistical and research data, data processing services, clerical,
accounting and bookkeeping services, including, but not limited to,
the calculation of the net asset value of shares in the Fund, internal
auditing and legal services, internal executive and administrative
services, and stationery and office supplies; (c) prepares and
distributes materials for all Fund Board of Directors' Meetings
including the mailing of all Board materials and collates the same
materials into the Board books and assists in the drafting of minutes
of the Board Meetings; (d) prepares reports to Fund shareholders, tax
returns and reports to and filings with the SEC and state "Blue Sky"
authorities; (e) calculates the Fund's net asset value per share,
provides any equipment or services necessary for the purpose of
pricing shares or valuing the Fund's investment portfolio and, when
requested, calculates the amounts permitted for the payment of
distribution expenses under any distribution plan adopted by the Fund;
(f) provides compliance testing of all Fund activities against
applicable requirements of the 1940 Act and the rules thereunder, the
Internal Revenue Code of 1986, as amended (the "Code"), and the Fund's
investment restrictions; (g) furnishes to the Adviser such statistical
and other factual information and information regarding economic
factors and trends as the Adviser from time to time may require; and
(h) generally provides all administrative services that may be
required for the ongoing operation of the Fund in a manner consistent
with the requirements of the 1940 Act.
For the services it provides, the Adviser pays the Sub-Administrator an annual
fee based on the value of the aggregate average daily net assets of all funds
under its administration managed by the Adviser as follows: up to $10 billion -
.0275%; $10 billion to $15 billion - .0125%; over $15 billion - .01%. The
Sub-Administrator's fee is paid by the Adviser and will result in no additional
expenses to the Fund.
COUNSEL
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019, serves
as the Fund's legal counsel.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, independent
auditors, have been selected to audit the Fund's annual financial statements.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
<PAGE>
State Street Bank and Trust Company, ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, is the Custodian for the Fund's cash and
securities. Foreign securities purchased by the Fund will be maintained in the
custody of either foreign banks or trust companies that are members of State
Street's Global Custody Network, or foreign depositories used by such members.
State Street is the Transfer Agent for the Fund's shares as well. Boston
Financial Data Services, Inc. ("BFDS"), an affiliate of State Street located at
the BFDS Building, Two Heritage Drive, Quincy, Massachusetts 02171, performs the
services of transfer agent and dividend disbursing agent for the Fund. Neither
BFDS nor State Street assists in or is responsible for investment decisions
involving assets of the Fund.
THE DISTRIBUTOR
The Fund has entered into a Distribution Agreement with Gabelli & Company, Inc.
(the "Distributor"), a New York corporation which is an indirect majority owned
subsidiary of GAMI, having principal offices located at One Corporate Center,
Rye, New York 10580. The Distributor acts as agent of the Fund for the
continuous offering of the Fund's shares to separate accounts of GIAC.
The Distribution Agreement is terminable by the Distributor or the Fund at any
time without penalty on sixty days' written notice, provided, that termination
by the Fund must be directed or approved by the Board of Directors of the
Company or by the vote of the holders of a majority of the outstanding
securities of the Fund. The Distribution Agreement will automatically terminate
in the event of its assignment, as defined in the 1940 Act. The Distribution
Agreement provides that, unless terminated, it will remain in effect for two
years following the date of the Agreement and thereafter from year to year, so
long as continuance of the Distribution Agreement is approved annually by the
Company's Board of Directors or by a majority of the outstanding voting
securities of the Fund, and in either case, also by a majority of the
Disinterested Directors.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Adviser is authorized on behalf of the Fund to
employ brokers to effect the purchase or sale of portfolio securities with the
objective of obtaining prompt, efficient and reliable execution and clearance of
such transactions at the most favorable price obtainable ("best execution") at
reasonable expense. The Adviser is permitted to (1) direct Fund portfolio
brokerage to the Distributor or any other broker-dealer affiliates of the
Adviser; (2) pay commissions to brokers other than the Distributor which are
higher than what might be charged by another qualified broker to obtain
brokerage and/or research services considered by the Adviser to be useful or
desirable for its investment management of the Fund and/or other advisory
accounts under the management of the Adviser and any investment adviser
affiliated with it; and (3) consider the sales of shares of the Fund by brokers
other than the Distributor as a factor in its selection of brokers for the Fund
portfolio transactions.
Transactions in securities other than those for which a securities exchange is
the principal market are generally done through a principal market maker.
However, such transactions may be effected through a brokerage firm and a
commission paid whenever it appears that the broker can obtain a more favorable
overall price. In general, there may be no stated commission in the case of
securities traded on the over-the-counter markets, but the prices of those
securities may include undisclosed commissions or markups. Options transactions
will usually be effected through a broker and a commission will be charged. The
Fund also expects that securities will be purchased at times in underwritten
offerings where the price includes a fixed amount of compensation generally
referred to as the underwriter's concession or discount.
The Adviser currently serves as adviser to a number of investment company
clients and may in the future act as adviser to others. Affiliates of the
Adviser act as investment adviser to numerous private accounts. It is the
practice of the Adviser and its affiliates to cause purchase and sale
transactions to be allocated among the Fund and others whose assets they manage
in such manner as it is deemed equitable. In making such allocations among the
Fund and other client accounts, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.
<PAGE>
The policy of the Fund regarding purchases and sales of securities and options
for its portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient execution of transactions. In seeking to
implement the Fund's policies, the Adviser effects transactions with those
brokers and dealers who the Adviser believes provide the most favorable prices
and are capable of providing efficient executions. If the Adviser believes such
price and execution are obtainable from more than one broker or dealer, it may
give consideration to placing portfolio transactions with those brokers and
dealers who also furnish research and other services to the Fund or the Adviser
of the type described in Section 28(e) of the Securities Exchange Act of 1934.
Such services may include, but are not limited to, any one or more of the
following: information as to the availability of securities for purchase or
sale, statistical or factual information or opinions pertaining to investment;
wire services; and appraisals or evaluations of portfolio securities. The
Adviser may also consider sales of shares of the Fund and any other registered
investment companies managed by the Adviser and its affiliates by brokers and
dealers other than the Distributor as a factor in its selection of brokers and
dealers to execute portfolio transactions for the Fund.
The Adviser may also place orders for the purchase or sale of portfolio
securities with the Distributor, a broker-dealer member of the National
Association of Securities Dealers, Inc. and an affiliate of the Adviser, or any
other broker-dealer affiliate with the Adviser, when it appears that, as an
introducing broker or otherwise, the affiliated broker-dealer can obtain a price
and execution which is at least as favorable as that obtainable by other
qualified brokers.
As required by Rule 17e-1 under the 1940 Act, the Board of Directors has adopted
procedures which provide that commissions paid to the Distributor on stock
exchange transactions may not exceed that which would have been charged by
another qualified broker or member firm able to effect the same or a comparable
transaction at an equally favorable price. Rule 17e-1 and the procedures contain
requirements that the Board, including its "independent" Directors, conduct
periodic compliance reviews of such brokerage allocations. The Adviser and the
Distributor are also required to furnish reports and maintain records in
connection with such reviews.
To obtain the best execution of portfolio transactions on the New York Stock
Exchange ("NYSE"), the Distributor controls and monitors the execution of such
transactions on the floor of the NYSE through independent "floor brokers" or
through the Designated Order Turnaround System of the NYSE. Such transactions
are then cleared, confirmed to the Fund for the account of the Distributor, and
settled directly with the Custodian of the Fund by a clearing house member firm
which remits the commission less its clearance charges to the Distributor. The
Distributor may also effect Fund portfolio transactions in the same manner and
pursuant to the same arrangements on other national securities exchanges which
adopt direct order access rules similar to those of the NYSE.
The following table sets forth certain information regarding brokerage
commissions paid, the brokerage commissions paid to Gabelli affiliates,
percentage of commissions paid to affiliates and percentage of aggregate dollar
amount of transactions involving commissions paid to affiliates for the fiscal
years ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Fiscal Year Ended Commissions
DECEMBER 31, PAID
------------ ----
<S> <C> <C>
Total Brokerage Commissions paid 1997 $128,605
1998 $225,587
1999 $206,269
Brokerage Commissions Paid to 1997 $ 99,105
<PAGE>
Gabelli & Affiliates 1998 $187,764
1999 $196,044
Percentage of Commissions Paid to Affiliates 1999 95.04%
Aggregate Dollar Amount of Transactions Involving Commissions 1999 94.23%
Paid to Affiliates (%)
</TABLE>
PURCHASE AND REDEMPTION OF SHARES
Fund shares are continuously offered to GIAC's separate accounts at the net
asset value per share next determined after a proper purchase request has been
received by GIAC. GIAC then offers to its Contractowners units in its separate
accounts which directly correspond to shares in the Fund. GIAC submits purchase
and redemption orders to the Fund based on allocation instructions for premium
payments, transfer instructions and surrender or partial withdrawal requests
which are furnished to GIAC by such Contractowners.
THE PROSPECTUS FOR A GIAC VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE POLICY
DESCRIBES THE ALLOCATION, TRANSFER AND WITHDRAWAL PROVISIONS OF SUCH ANNUITY OR
POLICY.
Determination of net asset value
In the calculation of the Fund's net asset value: (1) a portfolio security
listed or traded on the NYSE or the American Stock Exchange or quoted by NASDAQ
is valued at its last sale price on that exchange or market (if there were no
sales that day, the security is valued at the mean of the closing bid and asked
prices; if there were no asked prices quoted on that day, the security is valued
at the closing bid price); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
of the current bid and asked prices (if there were no asked prices quoted on
that day, the security is valued at the closing bid price); and (3) when market
quotations are not readily available, portfolio securities are valued at their
fair value as determined in good faith under procedures established by and under
the general supervision of the Company's 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 traded primarily on foreign exchanges are
valued at the closing price on such foreign exchange immediately prior to the
close of the NYSE.
U.S. Government obligations and other debt instruments having 60 days or less
remaining until maturity are stated at amortized cost. Debt instruments having a
greater remaining maturity will be valued at the highest bid price obtained from
a dealer maintaining an active market in that security or on the basis of prices
obtained from a pricing service approved as reliable by the Board of Directors.
All other investment assets, including restricted and not readily marketable
securities, are valued by the Fund under procedures established by and under the
general supervision and responsibility of the Company's Board of Directors
designed to reflect in good faith the fair value of such securities.
Dividends, Distributions and Taxes
All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by GIAC's separate accounts in
additional shares of the Fund. There is no fixed dividend rate, and there can be
no assurance that the Fund will pay any dividends or realize any capital gains.
However, the Fund currently intends to pay dividends and capital gains
distributions, if any, on an annual basis. Contractowners who own units in a
separate account which correspond to shares in the Fund will be notified when
distributions are made.
The Fund is treated as a separate entity for federal income tax purposes. The
Fund has qualified and intends to continue to qualify as a "regulated investment
company" under the Code, in order to be relieved of federal income tax on that
part of its net investment income and realized capital gains which it
distributes to
<PAGE>
GIAC's separate accounts. To qualify, the Fund must meet certain relatively
complex tests. The loss of such status would result in the Fund being subject to
federal income tax on its taxable income and gains. In addition, the Fund must
distribute at least 90% of its net investment income and 90% of its net
tax-exempt interest income each year.
The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. The Adviser intends to diversify the Fund's investments in
accordance with those requirements. The prospectuses for GIAC's variable
annuities and variable life insurance policies describe the federal income tax
treatment of distributions from such contracts.
To comply with regulations under Section 817(h) of the Code, the Fund will be
required to diversify its investments so that on the last day of each calendar
quarter no more than 55% of the value of its assets is represented by any one
investment, no more than 70% is represented by any two investments, no more than
80% is represented by any three investments and no more than 90% is represented
by any four investments. Generally, all securities of the same issuer are
treated as a single investment. For the purposes of Section 817(h) of the Code,
obligations of the U.S. Treasury and each U.S. Government instrumentality are
treated as securities of separate issuers. The Treasury Department has indicated
that it may issue future pronouncements addressing the circumstances in which a
variable annuity contract owner's control of the investments of a separate
account may cause the variable contract owner, rather than the separate
account's sponsoring insurance company, to be treated as the owner of the assets
held by the separate account. If the variable annuity contract owner is
considered the owner of the securities underlying the separate account, income
and gains produced by those securities would be included currently in the
variable annuity contract owner's gross income. It is not known what standards
will be set forth in such pronouncements or when, if at all, these
pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Fund will be able to operate as
described currently in the Prospectus or that the Fund will not have to change
its investment policies or goals.
HEDGING TRANSACTIONS
The Fund's transactions in foreign currencies, forward contracts, options,
futures contracts (including options and futures contracts on foreign
currencies), short sales against the box and warrants will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) may cause the Fund to recognize
income without receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the 90% distribution requirement for avoiding
income tax. The Fund will monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and records
when it engages in a short sale against the box or acquires any foreign
currency, forward contract, option, futures contract, warrant or hedged
investment in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax treaties between
certain countries and the United States may reduce or eliminate such taxes. It
is impossible to determine the rate of foreign tax in advance since the amount
of the Fund's assets to be invested in various countries is not known.
PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign investment entities, called
passive foreign investment companies ("PFICs"), it may be subject to United
States federal income tax on a portion of any "excess
<PAGE>
distribution" or gain from the disposition of such shares even if such income is
distributed as a taxable dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on the Fund in respect of
deferred taxes arising from such distributions or gains. If the Fund were to
invest in a PFIC and elected to treat the PFIC as a "qualified electing fund"
under the Code, in lieu of the foregoing requirements, the Fund might be
required to include in income each year a portion of the ordinary earnings and
net capital gains of the qualified electing fund, even if not distributed to the
Fund, and such amounts would be subject to the 90% and excise tax distribution
requirements described above. In order to make this election, the Fund would be
required to obtain certain annual information from the passive foreign
investment companies in which it invests, which may be difficult or not possible
to obtain.
Alternatively, the Fund may make a mark-to-market election that will result in
the Fund being treated as if it had sold and repurchased all of the PFIC stock
at the end of each year. In this case, the Fund would report gains as ordinary
income and would deduct losses as ordinary losses to the extent of previously
recognized gains. The election, once made, would be effective for all subsequent
taxable years of the Fund, unless revoked with the consent of the IRS. By making
the election, the Fund could potentially ameliorate the adverse tax consequences
with respect to its ownership of shares in a PFIC, but in any particular year
may be required to recognize income in excess of the distributions it receives
from PFICs and its proceeds from dispositions of PFIC company stock. The Fund
may have to distribute this "phantom" income and gain to satisfy its
distribution requirement and to avoid imposition of the 4% excise tax. The Fund
will make the appropriate tax elections, if possible, and take any additional
steps that are necessary to mitigate the effect of these rules.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to Federal, state or local taxes.
Investment Performance Information
The Fund may, from time to time, provide performance information in
advertisements, sales literature or other materials furnished to existing or
prospective owners of GIAC's variable contracts. When performance information is
provided in advertisements, it will include the effect of all charges deducted
under the terms of the specified contract, as well as all recurring and
non-recurring charges incurred by the Fund. All performance results are
historical and are not representative of future results.
Total return and average annual total return reflect the change in value of an
investment in the Fund over a specified period, assuming the reinvestment of all
capital gains distributions and income dividends. Average annual total returns
show the average change in value for each annual period within a specified
period. Total returns, which are not annualized, show the total percentage or
dollar change in value over a specified period. Promotional materials relating
to the Fund's performance will always at least provide average annual total
returns for one, five and ten years (if applicable). The Fund may also compare
its performance to other investment vehicles or other mutual funds which have
similar investment objectives or programs.
Quotations of total return will reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. The Fund's total
return may vary from time to time depending on market conditions, the
compositions of the Fund's portfolio and operating expenses. Total return should
also be considered relative to changes in the value of the Fund's shares and the
risks associated with the Fund's investment objectives and policies. At any time
in the future, total returns may be higher or lower than past total returns and
there can be no assurance that any historical return will continue.
In connection with communicating its total return to current or prospective
shareholders, the Fund may also compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to other unmanaged
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Quotations of the Fund's total return will represent the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of 1, 5, and 10 years, if applicable (up to the life of the Fund), and are
calculated pursuant to the following formula:
<PAGE>
P(1+T)n =ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the redeemable value at the end
of the period of a $1,000 payment made at the beginning of the period). Total
return figures will reflect the deduction of Fund expenses (net of certain
expenses reimbursed by the Manager or the Adviser) on an annual basis, and will
assume that all dividends and distributions are reinvested and will deduct the
maximum sales charge, if any is imposed.
The Fund's average annual total returns for the one year period ended December
31, 1999 and the period from inception on May 1, 1995 through the fiscal year
ended December 31, 1999 were 19.81% and 19.49%, respectively.
In its reports, investor communications or advertisements, the Fund may also
include: (1) descriptions and updates concerning its strategies and portfolio
investments; (2) its goals, risk factors and expenses compared with other mutual
funds; (3) analysis of its investments by industry, country, credit quality and
other characteristics; (4) a discussion of the risk/return continuum relating to
different investments; (5) the potential impact of adding foreign stocks to a
domestic portfolio; (6) the general biography or work experience of the
portfolio manager of the Fund; (7) portfolio manager commentary or market
updates; (8) discussion of macroeconomic factors affecting the Fund and its
investments; and (9) other information of general interest to investors such as
personal financial planning.
Description of the Fund's Shares AND VOTING RIGHTS
The Company has authorized capital stock consisting of one billion shares having
a par value of one-tenth of one cent ($.001) per share. Of these authorized
shares, five hundred million are designated as shares of the Fund. The Company's
Board of Directors has the authority to create additional series funds without
obtaining stockholder approval. The Company is not required, and does not
intend, to hold regular annual shareholder meetings, but may hold special
meetings for consideration of proposals requiring shareholder approval. There
are no conversion or preemptive rights in connection with any shares of the
Fund. All shares, when issued, will be fully paid and nonassessable. Semi-annual
and annual reports will be sent to all Contractowners which include a list of
the Fund's portfolio securities and its financial statements which shall be
audited annually.
Through its separate accounts, GIAC is the Fund's sole stockholder of record,
so, under the 1940 Act, GIAC is deemed to be in control of the Fund.
Nevertheless, when a stockholders' meeting occurs, GIAC solicits and accepts
voting instructions from its Contractowners who have allocated or transferred
monies for an investment in the Fund as of the record date of the meeting. GIAC
then votes the Fund's shares that are attributable to its Contractowners'
interests in the Fund in accordance with their instructions. GIAC will vote any
shares that it is entitled to vote directly due to amounts it has contributed or
accumulated in its separate accounts in the manner described in the prospectuses
for its variable annuities and variable life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Directors.
Financial Statements
The Fund's Financial Statements for the year ended December 31, 1999, including
the Report of Ernst & Young LLP, independent auditors, is incorporated herein by
reference to the Fund's Annual Report. The Fund's Annual Report is available
upon request and without charge. Ernst & Young LLP provides audit services, tax
return preparation and assistance and consultation in connection with certain
SEC filings.
<PAGE>
<PAGE>
APPENDIX A
BOND AND PREFERRED STOCK RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE BOND
RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well as assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE: Moody's may apply numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a midrange ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
<PAGE>
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately based, in which case the rating is not
published in Moody's Investors Service, Inc.'s publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
DESCRIPTION OF S&P'S CORPORATE DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P's. Capacity
to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P's believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
r: The "r" symbol is attached to derivative, hybrid and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks created by the terms of the
obligation.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
aaa: An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
<PAGE>
aa: An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated a is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are, nevertheless expected
to be maintained at adequate levels.
baa: An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
ba: An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b: An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated caa is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payment.
c: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S PREFERRED STOCK RATINGS
AAA: This is the highest rating that may be assigned by S&P's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA: A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A: An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effect of changes in circumstances and economic conditions.
BBB: An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B, CCC: Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock in arrears on
dividends or sinking fund payments but that is currently paying.
<PAGE>
C: A preferred stock rated C is a non-paying issue.
D: A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
<PAGE>
GABELLI CAPITAL SERIES FUNDS, INC.
PART C
OTHER INFORMATION
Item 23.
Exhibits
(a) Articles of Amendment and Restatement dated
April 21, 1995 are incorporated by reference
to Pre-Effective Amendment No. 2 as filed
with the SEC on April 28, 1995 (Accession
No. 0000899140-95-000063) ("Pre-Effective
Amendment No. 2").
(b) Amended and Restated By-Laws dated April 21,
1995 are incorporated by reference to
Pre-Effective Amendment No. 2.
(c) Not Applicable.
(d) Management Agreement between the Registrant
and Guardian Investor Services Corporation
is incorporated by reference to
Pre-Effective Amendment No. 2.
Investment Advisory Agreement between the
Registrant and Gabelli Funds, Inc. is
incorporated by reference to Pre-Effective
Amendment No. 2.
Amendment No. 1 to the Investment
Advisory Agreement between the Registrant
and Gabelli Funds, LLC dated February 17,
1999, is filed herewith.
(e) Distribution Agreement between the
Registrant and Gabelli & Company, Inc. is
incorporated by reference to Pre-Effective
Amendment No. 2.
(f) Not Applicable.
(g) Custodian Contract between the Registrant
and State Street Bank and Trust Company is
incorporated by reference to Pre-Effective
Amendment No. 2.
(h) Transfer Agency and Service Agreement
between the Registrant and State Street Bank
and Trust Company is incorporated by
reference to Pre-Effective Amendment No. 2.
Participation Agreement among the
Registrant, Gabelli Funds, Inc., Gabelli &
Company, Inc., The Guardian Insurance &
Annuity Company, Inc. and Guardian Investor
Services Corporation is incorporated by
reference to Pre-Effective Amendment No. 2.
(i) Consent of Counsel is filed herewith.
(j) Consent of Independent Auditors is filed
herewith.
<PAGE>
Powers of Attorney for Mario J. Gabelli,
Anthony J. Colavita, Arthur V. Ferrara, Karl
Otto Pohl, Anthony R. Pustorino, Werner J.
Roeder and Anthonie C. van Ekris are
incorporated by reference to Post-Effective
Amendment No. 3. to the Registration
Statement as filed with the SEC via EDGAR on
April 30, 1997.
Certified Resolution of Board authorizing
signature on behalf of Registrant pursuant
to Power of Attorney is incorporated by
reference to Post-Effective Amendment No. 5.
to the Registration Statement as filed with
the SEC via EDGAR on March 1, 1999.
(k) Not Applicable.
(l) Purchase Agreement dated April 26, 1995
between the Registrant and The Guardian
Insurance & Annuity Company, Inc. is
incorporated by reference to Pre-Effective
Amendment No. 2.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Revised Code of Ethics for the Registrant,
Gabelli Funds, LLC and Gabelli & Company,
Inc. is filed herewith.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 25. INDEMNIFICATION
The response to this Item 25 is incorporated by reference to
Pre-Effective Amendment No. 2.
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Guardian Investor Services Corporation is the manager of the
Registrant (the "Manager"). The list required by this Item 26 of directors,
officers or partners of the Manager, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by the Manager or such directors, officers or partners during the past two
fiscal years, is incorporated by reference to Form ADV filed by the Manager
under the Investment Advisers Act of 1940 (SEC File No. 801-9654).
Gabelli Funds, LLC (the "Adviser") is a registered investment
adviser providing investment management and administrative services to the
Registrant. The Adviser also provides similar services to other mutual funds.
The information required by this Item 26 with respect to any other business,
profession, vocation or employment of a substantial nature engaged in by
directors and officers of the Adviser during the past two years is incorporated
by reference to Form ADV filed by the Adviser pursuant to the Investment
Advisers Act of 1940 (SEC File No. 801-37706).
<PAGE>
Item 27. PRINCIPAL UNDERWRITERS
(a) Gabelli & Company, Inc. ("Gabelli & Company")
currently acts as distributor for The Gabelli Asset
Fund, The Gabelli Growth Fund, The Gabelli Equity
Trust Inc., The Gabelli Global Multimedia Trust Inc.,
The Gabelli Convertible Securities Fund, Inc., The
Gabelli Blue Chip Value Fund, The Gabelli Utility
Trust, The Gabelli Utilities Fund, The Gabelli Mathers
Fund, Gabelli Equity Series Funds, Inc., Gabelli Gold
Fund, Inc., The Gabelli Money Market Funds, Gabelli
Investor Funds, Inc., The Gabelli Value Fund Inc.,
Gabelli Global Series Funds, Inc., Gabelli
International Growth Fund, Inc., Gabelli Capital
Series Funds, Inc. and The Gabelli Westwood Funds.
(b) The information required by this Item 27 with respect
to each director, officer or partner of Gabelli &
Company is incorporated by reference to Schedule A of
Form BD filed by Gabelli & Company pursuant to the
Securities Exchange Act of 1934, as amended (SEC File
No. 8-21373).
(c) Not Applicable.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents required by
Section 31(a) of the Investment Company Act of 1940, as amended and Rules 31a-1
through 31a-3 thereunder are maintained at the offices of the Adviser, Gabelli
Funds, LLC, One Corporate Center, Rye, New York 10580-1434; PFPC Inc., 101
Federal Street, Boston, Massachusetts 02110; State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110; and Boston Financial
Data Services, Inc., Two Heritage Drive, North Quincy, Massachusetts 02171.
Item 29. MANAGEMENT SERVICES
Not Applicable.
Item 30. UNDERTAKINGS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant, GABELLI CAPITAL
SERIES FUNDS, INC., certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933, as amended, and has
duly caused this Post-Effective Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Rye and State of New York, on the 28th day of April, 2000.
GABELLI CAPITAL SERIES FUNDS, INC.
By: /S/ MARIO J. GABELLI*
---------------------------
Mario J. Gabelli
Chairman of the Board
and President
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 7 to its Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
SIGNATURES TITLE DATE
<S> <C> <C>
/S/ MARIO J. GABELLI* Chairman of the Board, April 28, 2000
- ---------------------
Mario J. Gabelli President and Chief Investment Officer
/S/ BRUCE N. ALPERT Vice President and Treasurer April 28, 2000
- --------------------
Bruce N. Alpert (Principal Financial and Accounting Officer)
/S/ ANTHONY J. COLAVITA* Director April 28, 2000
- ------------------------
Anthony J. Colavita
/S/ ARTHUR V. FERRARA* Director April 28, 2000
- ----------------------
Arthur V. Ferrara
/S/ KARL OTTO POHL* Director April 28, 2000
- -------------------
Karl Otto Pohl
/S/ ANTHONY R. PUSTORINO* Director April 28, 2000
- -------------------------
Anthony R. Pustorino
/S/ WERNER J. ROEDER* Director April 28, 2000
- ---------------------
Werner J. Roeder
ANTHONIE C. VAN EKRIS* Director April 28, 2000
- ----------------------
Anthonie C. van Ekris
*By:/S/ BRUCE N. ALPERT
--------------------
Bruce N. Alpert
Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
(d) Amendment No. 1 to the
Investment Advisory Agreement
between the Registrant and
Gabelli Funds, LLC.
(i) Consent of Counsel.
(j) Consent of Independent
Auditors.
(p) Revised Code of Ethics for the
Registrant, Gabelli Funds, LLC
and Gabelli & Company, Inc.
EXHIBIT (D)
AMENDMENT NO. 1
TO THE INVESTMENT ADVISORY AGREEMENT
This Amendment No. 1 dated as of February 17, 1999 is entered into by
Gabelli Funds, LLC (the "Adviser") and Gabelli Capital Series Funds, Inc. (the
"Company").
WHEREAS, the predecessor to the Adviser and the Company entered into an
Investment Advisory Agreement dated as of May 1, 1995 (the "Investment Advisory
Agreement"); and
WHEREAS, the Adviser and the Company wish to amend the Investment
Advisory Agreement to reflect the change in the Adviser's name;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The name "Gabelli Funds, Inc." in the Investment Advisory
Agreement is hereby deleted in all places where it appears and
replaced with the name "Gabelli Funds, LLC".
2. The Investment Advisory Agreement shall remain in full force
and effect in all other respects.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date and year first written above.
GABELLI CAPITAL SERIES FUNDS, INC. GABELLI FUNDS, LLC
By: /s/ Bruce Alpert By: /s/ Gus Coutsouros
EXHIBIT (I)
CONSENT OF COUNSEL
Gabelli Capital Asset Fund
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 7 (the "Amendment") to the
Registration Statement on Form N-1A (Securities Act File No. 33-61254,
Investment Company Act File No. 811-7644) of Gabelli Capital Asset Fund (the
"Fund") under the caption "Counsel and Independent Auditors" and to the Fund's
filing a copy of this Consent as an exhibit to the Amendment.
/S/ WILLKIE FARR & GALLAGHER
----------------------------
Willkie Farr & Gallagher
April 26, 2000
New York, New York
EXHIBIT (J)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Investment Advisory and Other Services" and "Financial Statements"
and to the use of our report dated February 11, 2000 on the financial statements
of Gabelli Capital Asset Fund, which is incorporated by reference in this
Registration Statement (Form N-1A No. 33-61254)of The Gabelli Capital Series
Funds,Inc.
ERNST & YOUNG LLP
New York, New York
April 26, 2000
EXHIBIT (P)
SECTION S
CODE OF ETHICS
Gabelli Funds, LLC
GAMCO Investors, Inc.
Gabelli & Company, Inc.
Gabelli Advisers, Inc.
Gabelli Fixed Income LLC
Each Registered Investment Company
or series thereof (each of which
is considered to be a Company
for this purpose) for which any
of the Companies listed above
presently or hereafter provides
investment advisory or principal
underwriting services, other
than a money market fund or a
fund that does not invest in
Securities.
INTRODUCTION
This Code of Ethics establishes rules of conduct for persons who are
associated with the companies named above or with the registered investment
companies for which such companies provide investment advisory or principal
underwriter services. The Code governs their personal investment and other
investment-related activities.
The basic rule is very simple: put the client's interests first. The
rest of the rules elaborate this principle. Some of the rules are imposed
specifically by law. For example, the laws that govern investment advisers
specifically prohibit fraudulent activity, making statements that are not true
or that are misleading or omit something that is significant in the context and
engaging in manipulative practices. These are general words, of course, and over
the years the courts, the regulators and investment advisers have interpreted
these words and established codes of conduct for their employees and others who
have access to their investment decisions and trading activities. Indeed, the
rules obligate investment advisers to adopt written rules that are reasonably
designed to prevent the illegal activities described above and must follow
procedures that will enable them to prevent such activities.
This Code is intended to assist the companies in fulfilling their
obligations under the law. The first part lays out who the Code applies to, the
second part deals with
<PAGE>
personal investment activities, the third part deals with other sensitive
business practices, and subsequent parts deal with reporting and administrative
procedures.
The Code is very important to the companies and their employees.
Violations can not only cause the companies embarrassment, loss of business,
legal restrictions, fines and other punishments but for employees can lead to
demotion, suspension, firing, ejection from the securities business and very
large fines.
I. APPLICABILITY
A. The Code applies to each of the following:
1. The Companies named or described at the top of page one of the
Code and all entities that are under common management with
these Companies or otherwise agree to be subject to the Code
("Affiliates"). A listing of the Affiliates, which is
periodically updated, is attached as Exhibit A.
2. Any officer, director or employee of any Company, Affiliate or
Fund Client (as defined below) whose job regularly involves
him in the investment process. This includes the formulation
and making of investment recommendations and decisions, the
purchase and sale of securities for clients and the
utilization of information about investment recommendations,
decisions and trades. Due to the manner in which the Companies
and the Affiliates conduct their business, every employee
should assume that he is subject to the Code unless the
Compliance Officer specifies otherwise.
3. With respect to all of the Companies, Affiliates and Fund
Clients except Gabelli & Company, Inc., any natural person who
controls any of the Companies, Affiliates or Fund Clients and
who obtains information regarding the Companies' or the
Affiliates' investment recommendations or decisions. However,
a person whose control arises only as a result of his official
position with such entity is excluded. Disinterested directors
of Fund Clients, for example, are excluded from coverage under
this item.
4. With respect to all of the Companies and Fund Clients except
Gabelli & Company, Inc., any director, officer, general
partner or person performing a similar function even if he has
no knowledge of and is not involved in the investment process.
Disinterested directors of Fund Clients and independent
directors of Affiliates are included in coverage under this
item.
<PAGE>
5. As an exception, the Code does not apply to any director,
officer or employee of any Fund Client (such as certain of The
Gabelli Westwood Funds) with respect to which the Companies'
services do not involve the formulation or making of
investment recommendations or decisions or the execution of
portfolio transactions if that person is also a director,
officer or employee of any entity that does perform such
services (such as Westwood Management Corp.). These
individuals are covered by codes of ethics adopted by such
entities.
B. Definitions
1. ACCESS PERSONS. The Companies and the persons described in
items (A)2 and (A)3 above other than those excluded by item
(A)5 above.
2. ACCESS PERSON ACCOUNT. Includes all advisory, brokerage, trust
or other accounts or forms of direct beneficial ownership in
which one or more Access Persons and/or one or more members of
an Access Person's immediate family have a substantial
proportionate economic interest. Immediate family includes an
Access Person's spouse and minor children living with the
Access Person. A substantial proportionate economic interest
will generally be 10% of the equity in the account in the case
of any single Access Person and 25% of the equity in the
account in the case of all Access Persons in the aggregate,
whichever is first applicable. Investment partnerships and
similar indirect means of ownership other than registered
open-end investment companies are also treated as accounts.
As an exception, accounts in which one or more Access Persons
and/or their immediate family have a substantial proportionate
interest which are maintained with persons who have no
affiliation with the Companies and with respect to which no
Access Person has, in the judgment of the Compliance Officer
after reviewing the terms and circumstances, any direct or
indirect influence or control over the investment or portfolio
execution process are not Access Person Accounts.
As a further exception, subject to the provisions of Article
II(I)7, bona fide market making accounts of Gabelli & Company,
Inc. are not Access Person Accounts.
As a further exception, subject to the provisions of Article
II(I)7, bona fide error accounts of the Companies and the
Affiliates are not Access Person Accounts.
<PAGE>
3. ASSOCIATE PORTFOLIO MANAGERS. Access Persons who are engaged
in securities research and analysis for designated Clients or
are responsible for investment recommendations for designated
Clients but who are not principally responsible for investment
decisions with respect to any Client accounts.
4. CLIENTS. Investment advisory accounts maintained with any of
the Companies or Affiliates by any person, other than Access
Person Accounts. However, Fund Clients covered by item (A)(5)
above are considered Client accounts only with respect to
employees specifically identified by the Compliance Officer as
having regular information regarding investment
recommendations or decisions or portfolio transactions for
such Fund Clients.
5. COMPANIES. The companies named or described at the top of page
one of the Code.
6. COMPLIANCE OFFICER. The persons designated as the compliance
officers of the Companies.
7. COVERED PERSONS. The Companies, the Access Persons and the
persons described in item (A)4 above.
8. FUND CLIENTS. Clients that are registered investment companies
or series thereof.
9. PORTFOLIO MANAGERS. Access Persons who are principally
responsible for investment decisions with respect to any
Client accounts.
10. SECURITY. Any financial instrument treated as a security for
investment purposes and any related instrument such as a
futures, forward or swap contract entered into with respect to
one or more securities, a basket of or an index of securities
or components of securities. However, the term security does
not include securities issued by the Government of the United
States, bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt instruments,
including repurchase agreements, or shares of registered
open-end investment companies.
II. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
A. Basic Restriction on Investing Activities
If a purchase or sale order is pending or under active
consideration for any Client account by any Company or Affiliate,
neither the same Security nor any related Security (such as an
option, warrant or convertible security) may be bought or sold for
any Access Person Account.
<PAGE>
B. Initial Public Offerings
No Security or related Security may be acquired in an initial
public offering for any Access Person Account.
C. Blackout Period
No Security or related Security may be bought or sold for the
account of any Portfolio Manager or Associate Portfolio Manager
during the period commencing seven (7) days prior to and ending
seven (7) calendar days after the purchase or sale (or entry of an
order for the purchase or sale) of that Security or any related
Security for the account of any Client with respect to which such
person has been designated a Portfolio Manager or Associate
Portfolio Manager, unless the Client account receives at least as
good a price as the account of the Portfolio Manager or Associate
Portfolio Manager and the Compliance Officer determines under the
circumstances that the Client account has not been adversely
affected (including with respect to the amount of such Security
able to be bought by the Client account) by the transaction for
the account of the Portfolio Manager or Associate Portfolio
Manager.
D. Short-term Trading
No Security or related Security may, within a 60 day period, be
bought and sold or sold and bought at a profit for any Access
Person Account if the Security or related Security was held at any
time during that period in any Client account.
E. Exempt Transactions
Participation on an ongoing basis in an issuer's dividend
reinvestment or stock purchase plan, participation in any
transaction over which no Access Person had any direct or indirect
influence or control and involuntary transactions (such as
mergers, inheritances, gifts, etc.) are exempt from the
restrictions set forth in paragraphs (A) and (C) above without
case by case preclearance under paragraph (G) below.
F. Permitted Exceptions
Purchases and sales of the following Securities for Access Person
Accounts are exempt from the restrictions set forth in paragraphs
A, C and D above if such purchases and sales comply with the
pre-clearance requirements of paragraph (G) below:
1. Non-convertible fixed income Securities rated at least "A";
<PAGE>
2. Equity Securities of a class having a market capitalization in
excess of $1 billion;
3. Equity Securities of a class having a market capitalization in
excess of $500 million if the transaction in question and the
aggregate amount of such Securities and any related Securities
purchased and sold for the Access Person Account in question
during the preceding 60 days does not exceed 100 shares;
4. Municipal Securities; and
5. Securities transactions effected for federal, state or local
income tax purposes that are identified to the Compliance
Officer at the time as being effected for such purposes.
In addition, the exercise of rights that were received pro rata
with other security holders is exempt if the pre-clearance
procedures are satisfied.
G. Pre-Clearance of Personal Securities Transactions
No Security may be bought or sold for an Access Person Account
unless (i) the Access Person obtains prior approval from the
Compliance Officer or, in the absence of the Compliance Officer,
from the general counsel of Gabelli Asset Management Inc.; (ii)
the approved transaction is completed on the same day approval is
received; and (iii) the Compliance Officer or the general counsel
does not rescind such approval prior to execution of the
transaction (See paragraph I below for details of the
Pre-Clearance Process.)
H. Private Placements
The Compliance Officer will not approve purchases or sale of
Securities that are not publicly traded, unless the Access Person
provides full details of the proposed transaction (including
written certification that the investment opportunity did not
arise by virtue of such person's activities on behalf of any
Client) and the Compliance Officer concludes, after consultation
with one or more of the relevant Portfolio Managers, that the
Companies would have no foreseeable interest in investing in such
Security or any related Security for the account of any Client.
I. Pre-Clearance Process
1. No Securities may be purchased or sold for any Access Person
Account unless the particular transaction has been approved in
writing by the Compliance Officer or, in his absence, the
general counsel of Gabelli Asset Management Inc. The
Compliance
<PAGE>
Officer shall review not less frequently than weekly reports
from the trading desk (or, if applicable, confirmations from
brokers) to assure that all transactions effected for Access
Person Accounts are effected in compliance with this Code.
2. No Securities may be purchased or sold for any Access Person
Account other than through the trading desk of Gabelli &
Company, Inc., unless express permission is granted by the
Compliance Officer. Such permission may be granted only on the
condition that the third party broker supply the Compliance
Officer, on a timely basis, duplicate copies of confirmations
of all personal Securities transactions for such Access Person
in the accounts maintained with such third party broker and
copies of periodic statements for all such accounts.
3. A Trading Approval Form, attached as Exhibit B, must be
completed and submitted to the Compliance Officer for approval
prior to entry of an order.
4. After reviewing the proposed trade, the level of potential
investment interest on behalf of Clients in the Security in
question and the Companies' restricted lists, the Compliance
Officer shall approve (or disapprove) a trading order on
behalf of an Access Person as expeditiously as possible. The
Compliance Officer will generally approve transactions
described in paragraph (F) above unless the Security in
question or a related security is on the Restricted List or
the Compliance Officer believes for any other reason that the
Access Person Account should not trade in such Security at
such time.
5. Once an Access Person's Trading Approval Form is approved, the
form must be forwarded to the trading desk (or, if a third
party broker is permitted, to the Compliance Officer) for
execution on the same day. If the Access Person's trading
order request is not approved, or is not executed on the same
day it is approved, the clearance lapses although such trading
order request maybe resubmitted at a later date.
6. In the absence of the Compliance Officer, an Access Person may
submit his or her Trading Approval Form to the general counsel
of Gabelli Asset Management Inc. Trading approval for the
Compliance Officer must be obtained from the general counsel,
and trading approval for the general counsel must be obtained
from the Compliance Officer. In no case will the Trading Desk
accept an order for an Access Person Account unless it is
accompanied by a signed Trading Approval Form.
<PAGE>
7. The Compliance Officer shall review all Trading Approval
Forms, all initial, quarterly and annual disclosure
certifications and the trading activities on behalf of all
Client accounts with a view to ensuring that all Covered
Persons are complying with the spirit as well as the detailed
requirements of this Code. The Compliance Officer will review
all transactions in the market making accounts of Gabelli &
Company, Inc. and the error accounts of the Companies and the
Affiliates in order to ensure that such transactions are bona
fide market making or error transactions or are conducted in
accordance with the requirements of this Article II.
III. OTHER INVESTMENT-RELATED RESTRICTIONS
A. Gifts
No Access Person shall accept any gift or other item of more than
$100 in value from any person or entity that does business with or
on behalf of any Client.
B. Service As a Director
No Access Person shall commence service on the Board of Directors
of a publicly traded company or any company in which any Client
account has an interest without prior authorization from the
Compliance Committee based upon a determination that the Board
service would not be inconsistent with the interests of the
Clients. The Compliance Committee shall include the senior
Compliance Officer of Gabelli Asset Management Inc., the general
counsel of Gabelli Asset Management Inc. and at least two of the
senior executives from among the Companies.
IV. REPORTS AND ADDITIONAL COMPLIANCE PROCEDURES
A. Every Covered Person, except independent directors of Affiliates
of the Companies, must submit a report (a form of which is
appended as Exhibit C) containing the information set forth in
paragraph (B) below with respect to transactions in any Security
in which such Covered Person has or by reason of such transaction
acquires, any direct or indirect beneficial ownership (as defined
in Exhibit D) in the Security, and with respect to any account
established by the Covered Person in which any Securities were
held for the direct or indirect benefit of the Covered Person;
PROVIDED, HOWEVER, that:
1. a Covered Person who is required to make reports only because
he is a director of one of the Fund Clients and who is a
"disinterested"
<PAGE>
director thereof need not make a report with respect to any
transactions other than those where he knew or should have
known in the course of his duties as a director that any Fund
Client of which he is a director has made or makes a purchase
or sale of the same or a related Security within 15 days
before or after the purchase or sale of such Security or
related Security by such director.
2. a Covered Person need not make a report with respect to any
transaction effected for, and Securities held in, any account
over which such person does not have any direct or indirect
influence or control; and
3. a Covered Person will be deemed to have complied with the
requirements of this Article IV insofar as the Compliance
Officer receives in a timely fashion duplicate monthly or
quarterly brokerage statements or transaction confirmations on
which all transactions required to be reported hereunder are
described.
B. A Covered Person must submit the report required by this Article
to the Compliance Officer no later than 10 days after the end of
the calendar quarter in which the transaction or account to which
the report relates was effected or established, and the report
must contain the date that the report is submitted.
1. This report must contain the following information with
respect to transactions:
a. The date of the transaction, the title and number of
shares and the principal amount of each Security
involved;
b. The nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition);
c. The price at which the transaction was effected; and
d. The name of the broker, dealer or bank with or through
whom the transaction was effected.
2. This report must contain the following information with
respect to accounts established:
a. The name of the broker, dealer or bank with whom the
account was established; and
b. The date the account was established.
<PAGE>
C. Any report submitted to comply with the requirements of this
Article IV may contain a statement that the report shall not be
construed as an admission by the person making such report that he
has any direct or indirect beneficial ownership in the Security to
which the report relates. A person need not make any report under
this Article IV with respect to transactions effected for, and
Securities held in, any account over which the person has no
direct or indirect influence or control
D. No later than 10 days after beginning employment with any of the
Companies or Affiliates or otherwise becoming a Covered Person,
each Covered Person (except for a "disinterested" director of the
Fund Client who is required to submit reports solely by reason of
being such a director) must submit a report containing the
following information:
1. The title, number of shares and principal amount of each
Security in which the Covered Person had any direct or
indirect beneficial ownership when the person became a Covered
Person;
2. The name of any broker, dealer or bank with whom the Covered
Person maintained an account in which any Securities were held
for the direct or indirect benefit of the Covered Person as of
the date the person became a Covered Person; and
3. The date that the report is submitted.
The form of such report is attached as Exhibit E.
E. Annually each Covered Person must certify that he has read and
understood the Code and recognizes that he is subject to such
Code. In addition, annually each Covered Person must certify that
he has disclosed or reported all personal Securities transactions
required to be disclosed or reported under the Code and that he is
not subject to any regulatory disability described in the annual
certification form. Furthermore, each Covered Person (except for a
"disinterested" director of the Fund Client who is required to
submit reports solely by reason of being such a director) annually
must submit a report containing the following information (which
information must be current as of a date no more than 30 days
before the report is submitted):
1. The title, number of shares and principal amount of each
Security in which the Covered Person had any direct or
indirect beneficial ownership;
<PAGE>
2. The name of any broker, dealer or bank with whom the Covered
Person maintains an account in which any Securities are held
for the direct or indirect benefit of the Covered Person; and
3. The date that the report is submitted.
The form of such certification and report is attached as Exhibit
F.
F. At least annually (or quarterly in the case of Items 4 and 5
below), each of the Companies that has a Fund Client or that
provides principal underwriting services for a Fund Client shall,
together with each Fund Client, furnish a written report to the
Board of Directors of the Fund Client that:
1. Describes any issues arising under the Code since the last
report.
2. Certifies that the Companies have developed procedures
concerning Covered Persons' personal trading activities and
reporting requirements relevant to such Fund Clients that are
reasonably necessary to prevent violations of the Code;
3. Recommends changes, if any, to the Fund Clients' or the
Companies' Codes of Ethics or procedures;
4. Provides a summary of any material or substantive violations
of this Code by Covered Persons with respect to such Fund
Clients which occurred during the past quarter and the nature
of any remedial action taken; and
5. Describes any material or significant exceptions to any
provisions of this Code of Ethics as determined under Article
VI below.
G. The Compliance Officer shall notify each employee of any of the
Companies or
Affiliates as to whether such person is considered to be an Access
Person or Covered Person and shall notify each other person that
is considered to be an Access Person or Covered Person.
V. SANCTIONS
Upon discovering that a Covered Person has not complied with the
requirements of this Code, the Board of Directors of the relevant
Company or of the relevant Fund Client, whichever is most appropriate
under the circumstances, may impose on that person whatever sanctions
the Board deems appropriate, including, among other things,
disgorgement of profit, censure, suspension or termination of
employment. Material violations of requirements of this Code by
employees of
<PAGE>
Covered Persons and any sanctions imposed in connection therewith shall
be reported not less frequently than quarterly to the Board of
Directors of any relevant Company or Fund Client, as applicable.
VI. EXCEPTIONS
The Compliance Committee of the Companies reserves the right to decide,
on a case-by-case basis, exceptions to any provisions under this Code.
Any exceptions made hereunder will be maintained in writing by the
Compliance Committee and presented to the Board of Directors of any
relevant Fund Client at its next scheduled meeting.
VII. PRESERVATION OF DOCUMENTS
This Code, a copy of each report by a Covered Person, any written
report made hereunder by the Companies or the Compliance Officer, lists
of all persons required to make reports, a list of any exceptions, and
the reasons therefor, with respect to Article II.B, and any records
under Article II.G with respect to purchases pursuant to Article II.H
above, shall be preserved with the records of the relevant Company and
any relevant Fund Client for the period required by Rule 17j-1.
VIII. OTHER LAWS, RULES AND STATEMENTS OF POLICY
Nothing contained in this Code shall be interpreted as relieving any
Covered Person from acting in accordance with the provision of any
applicable law, rule or regulation or any other statement of policy or
procedure governing the conduct of such person adopted by the
Companies, the Affiliates or the Fund Clients.
IX. FURTHER INFORMATION
If any person has any question with regard to the applicability of the
provisions of this Code generally or with regard to any Securities
transaction or transactions, he should consult the Compliance Officer.
<PAGE>
EXHIBIT A
LIST OF AFFILIATES OF THE COMPANIES
ALCE Partners, L.P.
Darien Associates LLC
Gabelli Asset Management Inc.
Gabelli Associates Fund
Gabelli Associates Limited
Gabelli Fixed Income Distributors
Gabelli Fixed Income, Inc.
Gabelli Global Partners, L.P.
Gabelli Global Partners, Ltd.
Gabelli International Gold Fund Limited
Gabelli International Limited
Gabelli International II Limited
Gabelli International Securities Limited
Gabelli Multimedia Partners, L.P.
Gabelli Performance Partnership L.P.
Gabelli Securities, Inc.
Gemini Capital Management Ltd.
GLI, Inc.
Gabelli Group Capital Partners, Inc. and its subsidiaries
Gabelli Global Partners, L.P.
Gabelli Global Partners, Ltd.
Gabelli European Partners, Ltd.
Gabelli Fund, LDC
MJG Associates, Inc.
New Century Capital Partners, L.P.
<PAGE>
EXHIBIT B
PRE-CLEARANCE TRADING APPROVAL FORM
I, ______________________________________ (name), am an Access Person or
authorized officer thereof and seek pre-clearance to engage in the transaction
described below for the benefit of myself or another Access Person:
ACQUISITION OR DISPOSITION (circle one)
Name of Account:________________________________________________________________
Account Number:_________________________________________________________________
Date of Request:________________________________________________________________
Security:_______________________________________________________________________
Amount or # of Shares:__________________________________________________________
Broker:_________________________________________________________________________
If the transaction involves a Security that is not publicly traded, a
description of proposed transaction, source of investment opportunity and any
potential conflicts of interest:
I hereby certify that, to the best of my knowledge, the transaction described
herein is not prohibited by the Code of Ethics and that the opportunity to
engage in the transaction did not arise by virtue of my activities on behalf of
any Client.
Signature:________________________________ Print Name:__________________________
APPROVED OR DISAPPROVED(Circle One)
Date of Approval:_________________________
Signature:________________________________ Print Name:__________________________
If approval is granted, please forward this form to the trading desk (or if a
third party broker is permitted, to the Compliance Officer) for immediate
execution.
<PAGE>
EXHIBIT C
TRANSACTION REPORT
Report submitted by:____________________________________________________________
Print Name
This transaction report (the "Report") is submitted pursuant to Section IV (B)
of the Code of Ethics of the Companies and supplies information with respect to
transactions in any Security in which you may be deemed to have, or by reason of
such transaction acquire, any direct or indirect beneficial ownership interest,
and with respect to accounts established by you in which any Securities were
held for your direct or indirect benefit, for the period specified below. If you
were not employed by or affiliated with us during this entire period, amend the
dates specified below to cover your period of employment or affiliation.
Unless the context otherwise requires, all terms used in the Report shall have
the same meaning as set forth in the Code of Ethics.
If you have no reportable transactions or new accounts, sign and return this
page only. If you have reportable transactions or new accounts, complete, sign
and return Page 2 and any attachments.
I HAD NO REPORTABLE SECURITIES TRANSACTIONS OR ACCOUNTS ESTABLISHED DURING THE
PERIOD____________________ THROUGH________________. I CERTIFY THAT I AM FULLY
FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE, THE
INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
Signature_______________________________________________________________________
Position________________________________________________________________________
Date____________________________________________________________________________
<PAGE>
Page 2
TRANSACTION REPORT
Report submitted by:____________________________________________________________
Print Name
The following tables supply the information required by Section IV (B) of the
Code of Ethics for the period specified below. Transactions reported on
brokerage statements or duplicate confirmations actually received by the
Compliance Officer do not have to be listed although it is your responsibility
to make sure that such statements or confirmations are complete and have been
received in a timely fashion.
<TABLE>
<CAPTION>
TRANSACTIONS
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Whether Purchase,
Sale, Short Sale or Name of Broker/Dealer
Other Type of with or through Whom Nature of
Securities (Name Date of Disposition or Quantity of Price per Share the Transaction Ownership of
and Symbol) Transaction Acquisition Securities or Other Unit was Effected Securities
</TABLE>
<TABLE>
<CAPTION>
NEW ACCOUNTS ESTABLISHED
___________________________________________________________________________________________________________________________________
<S> <C> <C>
NAME OF BROKER, DEALER OR BANK ACCOUNT NUMBER DATE ACCOUNT ESTABLISHED
</TABLE>
* To the extent specified above, I hereby disclaim beneficial ownership of any
securities listed in this Report or brokerage statements or transaction
confirmations provided by me.
I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST
OF MY KNOWLEDGE, THE INFORMATION IN THIS REPORT IS TRUE AND CORRECT FOR THE
PERIOD OF___________________ THROUGH_________________.
Signature____________________________________ Date_____________________________
Position_____________________________________
<PAGE>
EXHIBIT D
BENEFICIAL OWNERSHIP
For purposes of the attached Code of Ethics, "beneficial ownership" shall be
interpreted in the same manner as it would be in determining whether a person is
subject to the provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder, except the determination of direct or
indirect beneficial ownership shall apply to all securities that a Covered
Person has or acquires. The term "beneficial ownership" of securities would
include not only ownership of securities held be a Covered Person for his own
benefit, whether in bearer form or registered in his name or otherwise, but also
ownership of securities held for his benefit by others (regardless of whether or
how they are registered) such as custodians, brokers, executors, administrators,
or trustees (including trusts in which he has only a remainder interest), and
securities held for his account by pledges, securities owned by a partnership in
which he is a member if he may exercise a controlling influence over the
purchase, sale of voting of such securities, and securities owned by any
corporation or similar entry in which he owns securities if the shareholder is a
control-ling shareholder of the entity and has or shares investment control over
the entity's portfolio.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which a Covered Person is a legatee or beneficiary
unless there is a specified legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as beneficially
owned by a Covered Person where such person enjoys "financial benefits
substantially equivalent to ownership." The Securities and Exchange Commission
has said that, although the final determination of beneficial ownership is a
question to be determined in the light of the facts of the particular case,
generally a person is regarded as the beneficial owner of securities held in the
name of his or her spouse and their minor children. Absent special circumstances
such relationship ordinarily results in such person obtaining financial benefits
substantially equivalent to ownership, E.G., application of the income derived
from such securities to maintain a common home, or to meet expenses that such
person otherwise would meet from other sources, or the ability to exercises a
controlling influence over the purchase, sale or voting of such securities.
A Covered Person also may be regarded as the beneficial owner of securities held
in the name of another person, if by reason of any contract, understanding,
relationship, agreement, or other agreement, he obtains therefrom financial
benefits substantially equivalent to those of ownership.
A Covered Person also is regarded as the beneficial owner of securities held in
the name of a spouse, minor children or other person, even though he does not
obtain therefrom the aforementioned benefits of ownership, if he can vest or
revest title in himself at once or at some future time.
<PAGE>
EXHIBIT E
INITIAL HOLDINGS REPORT
Report submitted by:____________________________________________________________
Print Name
This initial holdings report (the "Report") is submitted pursuant to Section IV
(D) of the Code of Ethics of the Companies and supplies information with respect
to any Security in which you may be deemed to have any direct or indirect
beneficial ownership interest and any accounts established by you in which any
Securities were held for your direct or indirect benefit, as of the date you
became subject to the Code of Ethics.
Unless the context otherwise requires, all terms used in the Report shall have
the same meaning as set forth in the Code of Ethics.
If you have no reportable Securities or accounts, sign and return this page
only. If you have reportable Securities or accounts, complete, sign and return
Page 2 and any attachments.
I HAVE NO REPORTABLE SECURITIES OR ACCOUNTS AS OF_______________ . I CERTIFY
THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY
KNOWLEDGE, THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
Signature_______________________________________________________________________
Position________________________________________________________________________
Date____________________________________________________________________________
<PAGE>
Page 2
INITIAL HOLDINGS REPORT
Report submitted by:____________________________________________________________
Print Name
The following tables supply the information required by Section IV (D) of the
Code of Ethics as of the date you became subject to the Code.
<TABLE>
<CAPTION>
SECURITIES HOLDINGS
________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Name of Broker/Dealer Where Nature of Ownership of
SECURITIES (NAME AND SYMBOL) QUANTITY OF SECURITIES SECURITIES ARE HELD SECURITIES
</TABLE>
ACCOUNTS
________________________________________________________________________________
NAME OF BROKER, DEALER OR BANK ACCOUNT NUMBER
I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST
OF MY KNOWLEDGE, THE INFORMATION IN THIS REPORT IS TRUE AND CORRECT AS OF
__________________________________.
Signature____________________________________ Date_____________________________
Position_____________________________________
<PAGE>
EXHIBIT F
ANNUAL CERTIFICATION OF CODE OF ETHICS
A. I (a Covered Person) hereby certify that I have read and understood the
Code of Ethics dated February 15, 2000, and recognize that I am subject
to its provisions. In addition, I hereby certify that I have disclosed
or reported all personal Securities transactions required to be
disclosed or reported under the Code of Ethics;
B. Within the last ten years there have been no complaints or disciplinary
actions filed against me by any regulated securities or commodities
exchange, any self-regulatory securities or commodities organization,
any attorney general, or any governmental office or agency regulating
insurance, securities, commodities or financial transactions in the
United States, in any state of the United States, or in any other
country;
C. I have not within the last ten years been convicted of or acknowledged
commission of any felony or misdemeanor arising out of my conduct as an
employee, salesperson, officer, director, insurance agent, broker,
dealer, underwriter, investment manager or investment advisor; and
D. I have not been denied permission or otherwise enjoined by order,
judgment or decree of any court of competent jurisdiction, regulated
securities or commodities exchange, self-regulatory securities or
commodities organization or other federal or state regulatory authority
from acting as an investment advisor, securities or commodities broker
or dealer, commodity pool operator or trading advisor or as an
affiliated person or employee of any investment company, bank,
insurance company or commodity broker, dealer, pool operator or trading
advisor, or from engaging in or continuing any conduct or practice in
connection with any such activity or the purchase or sale of any
security.
E. Unless I am exempt from filing an Annual Holdings Report (as a
"disinterested" director of a Fund Client or an independent director of
an Affiliate), I have attached a completed Annual Holdings Report which
is accurate as of a date no more than 30 days ago.
Print Name:___________________________________________________________
Signature:____________________________________________________________
Date:_________________________________________________________________
<PAGE>
Page 2
ANNUAL HOLDINGS REPORT
Report submitted by:____________________________________________________________
Print Name
The following tables supply the information required by Section IV (E) of the
Code of Ethics as of a date no more than 30 days before this report is
submitted. If you have no reportable Securities holdings or accounts, write
"None" in the space provided.
<TABLE>
<CAPTION>
SECURITIES HOLDINGS
________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Name of Broker/Dealer Where Nature of Ownership of
SECURITIES (NAME AND SYMBOL) QUANTITY OF SECURITIES SECURITIES ARE HELD SECURITIES
</TABLE>
ACCOUNTS
________________________________________________________________________________
NAME OF BROKER, DEALER OR BANK ACCOUNT NUMBER
Signature____________________________________ Date_____________________________
Position_____________________________________
