- --------------------------------------------------------------------------------
GABELLI CAPITAL ASSET FUND
- --------------------------
[Photo of Mario J. Gabelli, C.F.A., Portfolio Manager]
OBJECTIVE: Growth of capital. Current income is a secondary objective
PORTFOLIO: Primarily common and preferred stocks and other securities
representing the right to acquire common stocks
INCEPTION: May 1, 1995
NET ASSETS AT DECEMBER 31, 1999: $176,086,158
Q. HOW DID THE FUND PERFORM FOR THE YEAR ENDED DECEMBER 31, 1999?
A: For the year ended December 31, 1999, the Gabelli Capital Asset Fund's (the
"Fund") total return was 19.81%.(1) The Standard & Poor's ("S&P") 500(2) and
Russell 2000(3) Indices had returns of 21.04% and 21.35%, respectively, over the
same period. For the three-year period ended December 31, 1999, the Fund's total
return averaged 24.02% annually, versus average annual total returns of 27.56%
and 13.08% for the S&P 500 and Russell 2000 Indices, respectively.
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE IN 1999?
A: At year-end 1999, many investors were left pondering how and why their
individual stock and/or mutual fund portfolios performed so poorly in a year in
which all the leading stock market indices posted strong gains. The answer is
simple. A relative handful of increasingly popular technology and
Internet-related stocks propelled the capitalization weighted market indices
higher, while the majority of stocks languished. If you owned these types of
companies, you were a winner. If you owned index funds, you earned respectable
returns. If you owned most anything else, especially value stocks and most value
oriented funds, you had a "dull year."
How did our largely non-tech, value-oriented portfolio perform so well in this
extremely narrow market? First, we pick businesses with good growth prospects
that are reasonably valued compared to their "intrinsic value." Secondly, we
look for a "catalyst" that will illuminate that underlying value.
The seeds for this year's performance harvest were sown four and five years ago
when we were buying telecom munications, cable television, and media stocks at
what we viewed as bargain basement prices. Our intensive research in these
groups and the identification of the catalysts that would show their value
rewarded us in 1997, 1998 and again this year.
Importantly, despite recent years' excellent performance, our holdings in these
industries remain quite reasonably valued in light of still favorable business
prospects. And, of course, we benefited from financial engineering -
particularly deals, as merger and acquisition activity was at an all time high.
Q. IN WHAT SECTORS DO YOU SEE VALUE?
A: As aforementioned, we believe telecommunications, cable television, and media
stocks still represent good long term value. Each of these industry groups has
strong secular growth prospects and each group is undergoing substantial change
spawned by technological advances and the ongoing elimination of regulatory
barriers. The convergence of the telephone, computer and television is well
underway. Those entities that control data transmis-
================================================================================
"FOR THE YEAR ENDED DECEMBER 31, 1999, THE GABELLI CAPITAL ASSET FUND'S TOTAL
RETURN WAS 19.81%."
================================================================================
sion pipelines (wired and wireless telecommunications and cable television
operators) and content and creativity providers (multimedia companies) will be
major beneficiaries. We also expect to see further consolidation in these
industries as companies seek to broaden their domestic and global franchises and
realize economies of scale.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deductions of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal will fluctuate so that the value of your investment, when
redeemed, may be worth more or less then the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 is not available for direct investment and its
returns do not reflect expenses, which have been deducted from the Fund's
return.
(3) The Russell 2000 Index is an unmanaged index of 2,000 small cap U.S.
stocks that is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The Russell 2000
Index is not available for direct investment and its returns do not
reflect the fees and expenses that have been deducted from the Fund.
- --------------------------------------------------------------------------------
- --
20
- --
<PAGE>
- --------------------------------------------------------------------------------
One can also make a case for quality industrial cyclicals that were largely
ignored by investors this year. At some point, investors will become wary of
paying extremely rich valuations for 1999's market darlings and recognize that
quality industrial cyclicals are excellent fundamental bargains.
Q. WHAT IS YOUR OUTLOOK FOR THE YEAR 2000?
A: The long term bull market in U.S. stocks has been fueled by low inflation,
declining interest rates, strong corporate profit growth, and very favorable
supply/ demand dynamics for equities. As we write, two of the four ingredients
that have been propelling the market remain in place. Corporate profits are
expanding at an attractive rate, and demand for equities continues to outpace
supply. However, inflation has trended modestly higher and market interest rates
are at two-year peaks.
Will inflation remain in the current comfort zone? That depends on whether the
Federal Reserve Board (Fed) can effectively restrain the economy and whether
increased productivity can continue to offset rising wages in a tight labor
market. At present, nobody (including us) can answer these questions. However,
we suspect that if the economy continues to expand at a rate in excess of 5.0%
and the job market continues to tighten, there will be more serious inflationary
implications and interest rates will move even higher. If this economic scenario
unfolds, stocks will likely stall or perhaps correct. If the Fed succeeds in
cooling down the economy and inflation and interest rates stabilize around
current levels, stocks could advance in line with corporate earnings growth.
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
- ----------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIOD ENDED DECEMBER 31, 1999
================================================================================
1 Year .............................................. 19.81%
3 Years ............................................. 24.02%
Since Inception (5/1/95) ............................ 19.49%
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[Plot points to come]
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS AS OF DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. Liberty Media Group Cl. A
- --------------------------------------------------------------------------------
2. Telephone & Data Systems Inc.
- --------------------------------------------------------------------------------
3. Cablevision Systems Corp. Cl. A
- --------------------------------------------------------------------------------
4. Viacom Inc. Cl. A
- --------------------------------------------------------------------------------
5. Media General Inc. Cl. A
- --------------------------------------------------------------------------------
6. MediaOne Group Inc.
- --------------------------------------------------------------------------------
7. Chris Craft Industries Inc
- --------------------------------------------------------------------------------
8. El Paso Electric Co.
- --------------------------------------------------------------------------------
9. Citizens Utilities Co. Cl. B
- --------------------------------------------------------------------------------
10. USA Networks Inc.
- --------------------------------------------------------------------------------
To give you a comparison, the chart above shows the performance of a $10,000
investment made in the Gabelli Capital Asset Fund and in the S&P 500 Index.
- --------------------------------------------------------------------------------
--
21
--
<PAGE>
- --------------------------------------------------------------------------------
GABELLI CAPITAL ASSET FUND
- --------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
----------------------
COMMON STOCKS -- 98.9%
----------------------
Market
Shares Cost Value
- -----------------------------------------------------------------
AGRICULTURE -- 0.6%
89,250 Archer-Daniels-Midland Co. $ 1,490,053 $ 1,087,734
----------- -----------
AUTOMOTIVE -- 0.6%
15,000 General Motors Corp. 988,750 1,090,312
----------- -----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.9%
50,000 Dana Corp. 1,732,048 1,496,875
70,000 GenCorp Inc. 634,385 691,250
68,000 Modine Manufacturing Co. 2,300,741 1,700,000
40,000 Scheib (Earl) Inc.+ 278,875 117,500
60,000 Standard Motor Products Inc. 1,329,363 967,500
20,000 Superior Industries
International Inc. 509,781 536,250
35,000 Tenneco Automotive Inc. 322,819 325,937
22,000 TransPro Inc. 182,531 141,625
60,000 Wynn's International Inc. 719,079 847,500
----------- -----------
8,009,622 6,824,437
----------- -----------
AVIATION: PARTS AND SERVICES -- 1.7%
18,000 AAR Corp. 250,688 322,875
50,000 Barnes Group Inc. 1,200,490 815,625
16,000 Curtiss-Wright Corp. 470,869 590,000
65,000 Fairchild Corp., Cl. A+ 1,251,718 589,062
7,500 Hi-Shear Industries Inc. 21,717 17,344
22,000 Kaman Corp., Cl. A 315,843 283,250
15,000 Moog Inc., Cl. A+ 404,750 405,000
----------- -----------
3,916,075 3,023,156
----------- -----------
BROADCASTING -- 7.0%
70,000 Ackerley Group Inc. 598,717 1,268,750
55,000 Chris-Craft Industries Inc.+ 2,374,656 3,966,875
60,000 Granite Broadcasting Corp.+ 685,316 607,500
18,000 Gray Communications
Systems Inc. 326,825 318,375
80,000 Gray Communications
Systems Inc., Cl. B 1,015,413 1,080,000
15,000 Hearst-Argyle Television Inc.+ 285,505 399,375
50,000 Liberty Corp. 2,460,502 2,109,375
19,000 United Television Inc. 1,676,374 2,616,062
----------- -----------
9,423,308 12,366,312
----------- -----------
BUILDING AND CONSTRUCTION -- 0.6%
2,222 Huttig Building Products Inc.+ 8,642 10,972
35,500 Nortek Inc.+ 1,035,180 994,000
----------- -----------
1,043,822 1,004,972
----------- -----------
Market
Shares Cost Value
- -----------------------------------------------------------------
BUSINESS SERVICES -- 0.1%
35,000 Nashua Corp.+ $ 498,615 $ 262,500
----------- -----------
CABLE -- 6.7%
87,000 Cablevision Systems
Corp., Cl. A+ 761,369 6,568,500
60,000 MediaOne Group Inc.+ 1,847,623 4,608,750
10,000 UnitedGlobalCom Inc., Cl. A+ 72,961 706,250
----------- -----------
2,681,953 11,883,500
----------- -----------
COMPUTER SOFTWARE AND SERVICES -- 0.1%
20,000 Tyler Technologies Inc. 43,700 110,000
----------- -----------
CONSUMER PRODUCTS -- 2.6%
115,000 Carter-Wallace Inc. 1,873,303 2,062,812
42,000 Gallaher Group plc, ADR 902,524 645,750
100,000 General Cigar Holdings Inc.+ 962,873 831,250
18,000 General Cigar Holdings
Inc., Cl. B+(a) 164,173 149,625
25,000 National Presto Industries Inc. 964,266 887,500
----------- -----------
4,867,139 4,576,937
----------- -----------
CONSUMER SERVICES -- 1.7%
200,000 Rollins Inc. 3,862,912 3,000,000
----------- -----------
DIVERSIFIED INDUSTRIAL -- 1.8%
40,000 Ampco-Pittsburgh Corp. 639,126 405,000
10,000 Crane Co. 175,344 198,750
40,000 GATX Corp. 1,147,578 1,350,000
58,000 Katy Industries Inc. 848,600 503,875
19,000 Myers Industries Inc. 266,569 299,250
50,000 WHX Corp.+ 514,794 450,000
----------- -----------
3,592,011 3,206,875
----------- -----------
ENERGY AND UTILITIES -- 6.6%
35,000 Eastern Enterprises 1,371,875 2,010,312
370,000 El Paso Electric Co.+ 3,313,201 3,630,625
20,000 Florida Progress Corp. 939,602 846,250
10,000 Florida Public Utilities Co. 166,612 170,000
85,000 Kaneb Services Inc.+ 259,250 371,875
10,000 New England Electric System 492,951 517,500
20,000 Southwest Gas Corp. 522,646 460,000
9,000 TNP Enterprises Inc. 343,042 371,250
40,000 United Water Resources Inc. 1,344,500 1,367,500
50,000 WICOR Inc. 1,467,581 1,459,375
10,000 Yankee Energy Systems Inc. 410,500 439,375
----------- -----------
10,631,760 11,644,062
----------- -----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
- ---
108
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<PAGE>
- --------------------------------------------------------------------------------
Market
Shares Cost Value
- -----------------------------------------------------------------
ENTERTAINMENT -- 14.5%
77,000 Ascent Entertainment Group Inc.+ $870,278 $ 976,937
5,000 Disney (Walt) Co. 129,492 146,250
25,500 Fisher Companies Inc. 1,722,481 1,574,625
36,000 GC Companies Inc.+ 1,283,693 931,500
181,000 Liberty Media Group, Cl. A+ 1,138,968 10,271,750
5,000 Seagram Co. 169,625 224,688
29,000 Time Warner Inc. 584,210 2,100,687
57,500 USA Networks Inc.+ 786,615 3,176,875
100,000 Viacom Inc., Cl. A+ 1,656,274 6,043,750
----------- -----------
8,341,636 25,447,062
----------- -----------
ENVIRONMENTAL SERVICES -- 0.3%
60,000 EnviroSource Inc.+ 191,935 46,200
25,000 Waste Management Inc. 496,955 429,687
----------- -----------
688,890 475,887
----------- -----------
EQUIPMENT AND SUPPLIES -- 9.6%
35,000 AMETEK Inc. 633,686 667,188
35,000 Belden Inc. 658,062 735,000
25,000 CIRCOR International Inc.+ 269,028 257,813
38,000 CLARCOR Inc. 723,141 684,000
2,000 CTS Corp. 14,963 150,750
25,000 Cuno Inc.+ 469,302 517,578
11,000 Eastern Co. 189,462 171,875
135,500 Fedders Corp. 820,369 745,250
70,000 Flowserve Corp. 1,529,236 1,190,000
11,000 Franklin Electric Co. 361,576 772,063
85,000 Hussmann International Inc. 1,176,750 1,280,313
38,000 IDEX Corp. 1,112,725 1,154,250
13,000 Kollmorgen Corp. 208,144 160,063
70,000 Mark IV Industries Inc. 1,290,963 1,238,125
35,000 Navistar International Corp.+ 1,020,358 1,658,125
28,000 Pittway Corp. 527,107 1,261,750
30,000 Sequa Corp., Cl. A+ 1,048,824 1,618,125
50,000 SPS Technologies Inc.+ 2,114,263 1,596,875
25,000 UCAR International Inc.+ 578,100 445,312
40,000 Watts Industries Inc., Cl. A 557,285 590,000
----------- -----------
15,303,344 16,894,455
----------- -----------
FINANCIAL SERVICES -- 3.5%
22,000 Allstate Corp. 636,172 528,000
65,000 Argonaut Group Inc. 1,964,414 1,291,875
30,000 Block (H&R) Inc. 1,323,538 1,312,500
24,000 Mellon Financial Corp. 758,895 817,500
47,000 Midland Co. 706,479 975,250
59,000 Pioneer Group Inc.+ 1,362,151 929,250
5,000 St. Paul Companies Inc. 158,125 168,438
6,000 Waddell & Reed
Financial Inc., Cl. A 136,800 162,750
----------- -----------
7,046,574 6,185,563
----------- -----------
Market
Shares Cost Value
- -----------------------------------------------------------------
FOOD AND BEVERAGE -- 6.7%
5,000 Bestfoods Inc. $ 252,493 $ 262,813
10,000 Brown-Forman Corp., Cl. A 563,925 539,375
85,000 Celestial Seasonings Inc.+ 994,316 1,581,797
50,000 Corn Products
International Inc. 1,574,140 1,637,500
40,000 General Mills Inc. 1,389,781 1,430,000
18,000 Heinz (H.J.) Co. 965,487 716,625
42,000 Kellogg Co. 1,546,537 1,294,125
65,000 PepsiCo Inc. 2,405,671 2,291,250
22,660 Tootsie Roll Industries Inc. 400,141 746,364
30,000 Twinlab Corp.+ 346,301 238,125
80,000 Whitman Corp. 1,266,773 1,075,000
----------- -----------
11,705,565 11,812,974
----------- -----------
HEALTH CARE -- 2.4%
30,000 American Home Products Corp. 1,291,758 1,183,125
100,000 IVAX Corp.+ 953,380 2,575,000
5,000 Warner-Lambert Co. 414,000 409,688
----------- -----------
2,659,138 4,167,813
----------- -----------
HOTELS AND GAMING -- 3.6%
140,000 Aztar Corp.+ 999,359 1,522,500
15,000 Boca Resorts Inc., Cl. A+ 143,876 146,250
100,000 Gaylord Entertainment
Co., Cl. A 2,735,008 2,993,750
80,000 Hilton Hotels Corp. 1,188,722 770,000
90,000 Jackpot Enterprises Inc. 964,901 748,125
30,000 Trump Hotels & Casino
Resorts Inc.+ 215,792 101,250
----------- -----------
6,247,658 6,281,875
----------- -----------
PAPER AND FOREST PRODUCTS -- 0.9%
150,000 Pactiv Corp.+ 2,102,903 1,593,750
----------- -----------
PUBLISHING -- 7.6%
33,000 Harcourt General Inc. 1,302,376 1,328,250
24,000 Lee Enterprises Inc. 591,706 766,500
25,000 McClatchy Newspapers
Inc., Cl. A 721,881 1,081,250
92,000 Media General Inc., Cl. A 3,989,689 4,784,000
13,000 Meredith Corp. 267,779 541,937
40,000 Penton Media Inc. 605,042 960,000
7,000 PRIMEDIA Inc.+ 87,573 115,500
20,000 Pulitzer Inc. 596,916 806,250
45,100 Reader's Digest
Association Inc., Cl. B 1,122,902 1,195,150
85,000 Thomas Nelson Inc. 1,018,131 786,250
10,000 Times Mirror Co., Cl. A 587,562 670,000
6,000 Tribune Co. 164,400 330,375
----------- -----------
11,055,957 13,365,462
----------- -----------
See accompanying notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
---
109
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<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999 (Continued)
Market
Shares Cost Value
- -----------------------------------------------------------------
REAL ESTATE -- 1.1%
125,000 Catellus Development Corp.+ $ 2,027,651 $ 1,601,563
35,000 Griffin Land & Nurseries Inc.+ 493,263 402,500
----------- -----------
2,520,914 2,004,063
----------- -----------
RETAIL -- 2.3%
5,000 Aaron Rents Inc. 100,625 88,750
10,000 Aaron Rents Inc., Cl. A 199,750 182,500
35,000 Albertson's Inc. 1,099,281 1,128,750
10,000 Blockbuster Inc., Cl. A+ 123,625 133,750
10,000 Hannaford Bros. Co. 719,979 693,125
40,000 Lillian Vernon Corp. 631,288 445,000
53,000 Neiman Marcus Group Inc.+ 1,409,652 1,427,688
----------- -----------
4,284,200 4,099,563
----------- -----------
SATELLITE -- 0.8%
20,000 COMSAT Corp. 576,807 397,500
10,000 General Motors Corp., Cl. H+ 515,292 960,000
----------- -----------
1,092,099 1,357,500
----------- -----------
SPECIALTY CHEMICALS -- 1.9%
40,000 Bush Boake Allen Inc.+ 1,087,692 982,500
10,000 Dexter Corp. 346,313 397,500
40,000 Ferro Corp. 795,700 880,000
60,000 Omnova Solutions Inc. 476,259 465,000
52,000 Sybron Chemicals Inc.+ 1,378,505 611,000
----------- -----------
4,084,469 3,336,000
----------- -----------
TELECOMMUNICATIONS -- 3.6%
28,000 AT&T Canada Inc., Cl. B+ 881,938 1,127,000
250,000 Citizens Utilities Co., Cl. B+ 2,700,319 3,546,875
58,000 Rogers Communications
Inc., Cl. B, ADR+ 435,006 1,435,500
5,000 Viatel Inc.+ 175,080 268,125
----------- -----------
4,192,343 6,377,500
----------- -----------
WIRELESS COMMUNICATIONS -- 6.1%
58,000 Rogers Cantel Mobile
Communications Inc., Cl. B+ 600,232 2,109,750
68,000 Telephone & Data
Systems Inc. 2,837,053 8,568,000
----------- -----------
3,437,285 10,677,750
=========== ===========
TOTAL COMMON STOCKS 135,812,695 174,158,014
----------- -----------
Principal Market
Amount Cost Value
- -----------------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS -- 0.0%
U.S. TREASURY BILLS -- 0.0%
$62,000 U.S. Treasury Bills,
5.14% to 5.49%++,
due 01/13/00 to 01/27/00 $ 61,855 $ 61,855
------------ -----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS
61,855 61,855
------------ -----------
TOTAL INVESTMENTS -- 98.9%
$135,874,550 174,219,869
============
OTHER ASSETS AND
LIABILITIES (NET) -- 1.1% 1,866,289
-----------
- -----------------------------------------------------------------
NET ASSETS -- 100.0% $176,086,158
------------
- -----------------------------------------------------------------
*For Federal tax purposes:
Aggregate cost $136,465,332
============
Gross unrealized appreciation $ 51,044,250
Gross unrealized depreciation (13,289,713)
------------
Net unrealized appreciation $ 37,754,537
============
(a) Security fair valued under procedures established by the Board of
Directors.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
See accompanying notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
- ---
110
- ---
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
DECEMBER 31, 1999
ASSETS:
Investments, at value (Cost $135,874,550) $ 174,219,869
Cash 49,088
Dividends and interest receivable 111,306
Receivable for investments sold 1,871,593
Receivable for Fund shares sold 91,510
Deferred organizational expenses 6,578
-------------
TOTAL ASSETS 176,349,944
-------------
LIABILITIES:
Payable for Fund shares redeemed 64,829
Payable for investment advisory fees 146,556
Other accrued expenses 52,401
-------------
TOTAL LIABILITIES 263,786
-------------
NET ASSETS applicable to 10,072,178 shares
outstanding $ 176,086,158
=============
NET ASSETS CONSIST OF:
Capital stock, at par value $ 10,072
Additional paid-in capital 137,968,153
Distributions in excess of net realized gain
on investments (237,386)
Net unrealized appreciation on investments 38,345,319
-------------
TOTAL NET ASSETS $ 176,086,158
=============
NET ASSET VALUE, offering and redemption
price per share ($176,086,158 / 10,072,178
shares outstanding; 500,000,000 shares
authorized of $0.001 par value) $17.48
======
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1999
INVESTMENT INCOME:
Dividends $ 1,686,240
Interest 304,029
-----------
TOTAL INVESTMENT INCOME 1,990,269
-----------
EXPENSES:
Management fees 1,656,001
Custodian fees 34,064
Legal and audit fees 33,333
Directors' fees 24,868
Organizational expenses 19,998
Shareholder services fees 12,170
Miscellaneous expenses 1,445
-----------
TOTAL EXPENSES 1,781,879
-----------
NET INVESTMENT INCOME 208,390
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments 17,364,582
Net change in unrealized appreciation
on investments 12,026,657
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 29,391,239
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $29,599,629
===========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
---
111
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<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 208,390 $ 257,776
Net realized gain on investments 17,364,582 7,189,741
Net change in unrealized appreciation on investments 12,026,657 5,528,146
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 29,599,629 12,975,663
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (208,945) (257,776)
Net realized gain on investments (16,915,440) (7,198,434)
In excess of net realized gain on investments -- (626,865)
------------- -------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (17,124,385) (8,083,075)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets from capital share transactions 8,249,947 45,118,114
------------- -------------
NET INCREASE IN NET ASSETS 20,725,191 50,010,702
NET ASSETS:
Beginning of period 155,360,967 105,350,265
------------- -------------
End of period $ 176,086,158 $ 155,360,967
============= =============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
- ---
112
- ---
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- ---------------
1. ORGANIZATION
- ---------------
The Gabelli Capital Asset Fund (the "Fund"), a series of Gabelli Capital
Series Funds, Inc. (the "Company"), was organized on April 8, 1993 as a Maryland
corporation. The Company is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund's primary objective is growth of capital. The Fund
commenced investment operations on May 1, 1995. Shares of the Fund are 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. ("Guardian").
- ----------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of its financial statements.
SECURITY VALUATION.
Portfolio securities listed or traded on a nationally recognized
securities exchange, quoted by the National Association of Securities Dealers
Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are valued
at the last sale price on that exchange as of the close of business on the day
the securities are being valued (if there were no sales that day, the security
is valued at the average of the closing bid and asked prices or, if there were
no asked prices quoted on that day, then the security is valued at the closing
bid price on that day). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Directors. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Directors determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair value as determined by the Directors. Debt instruments
having a maturity greater than 60 days are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities. Options
are valued at the last sale price on the exchange on which they are listed. If
no sales of such options have taken place that day, they will be valued at the
mean between their closing bid and asked prices.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME.
Securities transactions are accounted for on the trade date with realized
gain or loss on the sale of investments determined by using the identified cost
method. Interest income (including amortization of premium and accretion of
discount) is recorded as earned. Dividend income is recorded on the ex-dividend
date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS.
Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
PROVISION FOR INCOME TAXES.
The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. As a
result, a Federal income tax provision is not required.
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GABELLI CAPITAL ASSET FUND
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
ORGANIZATIONAL EXPENSES.
A total of $100,000 in expenses was incurred in connection with the
organization of the Fund. These costs were advanced by Guardian and will be
reimbursed by the Fund. These organizational costs were deferred and are being
amortized on a straight-line basis over a period of 60 months from the date the
Fund commenced investment operations.
- -------------------------------------
3. AGREEMENTS WITH AFFILIATED PARTIES
- -------------------------------------
Pursuant to a management agreement (the "Management Agreement"), the Fund
will pay Guardian Investor Services Corporation (the "Manager") a fee, computed
daily and paid monthly, at the annual rate of 1.00% of the value of the Fund's
average daily net assets. Pursuant to an Investment Advisory Agreement among the
Fund, the Manager and the Adviser, the Adviser, under the supervision of the
Company's Board of Directors and the Manager, manages the Fund's assets in
accordance with the Fund's investment objectives and policies, makes investment
decisions for the Fund, places purchase and sale orders on behalf of the Fund,
provides investment research and provides facilities and personnel required for
the Fund's administrative needs. The Adviser may delegate its administrative
role and currently has done so to PFPC Inc.(formerly known as First Data
Investor Services Group, Inc.), the Fund's sub-administrator (the
"Sub-Administrator"). The Adviser will supervise 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
Company who are its affiliates. As compensation for its services and the related
expenses borne by the Adviser, the Manager pays the Adviser a fee, computed
daily and paid monthly, at the annual rate of 0.75% of the value of the Fund's
average daily net assets.
- -----------------------
4. PORTFOLIO SECURITIES
- -----------------------
Purchases and sales of securities for the year ended December 31, 1999,
other than short term securities, aggregated $85,908,157 and $96,593,824,
respectively.
- -------------------------------
5. TRANSACTIONS WITH AFFILIATES
- -------------------------------
During the year ended December 31, 1999, the Fund paid brokerage
commissions of $196,044 to Gabelli & Company, Inc. and its affiliates.
- -----------------------------
6. CAPITAL STOCK TRANSACTIONS
- -----------------------------
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 2,216,370 $ 39,308,449 4,460,537 $ 73,364,220
Shares issued upon re-
investment of dividends 1,002,599 17,124,386 512,885 8,083,075
Shares redeemed (2,738,935) (48,182,888) (2,262,453) (36,329,181)
------------ ------------ ------------ ------------
Net increase 480,034 $ 8,249,947 2,710,969 $ 45,118,114
============ ============ ============ ============
</TABLE>
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<PAGE>
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FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
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 gain 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%
</TABLE>
- ----------
+ 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.
See accompanying notes to financial statements.
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GABELLI CAPITAL ASSET FUND
- --------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
GABELLI CAPITAL ASSET FUND
(A SERIES OF GABELLI CAPITAL SERIES FUND, INC.)
We have audited the accompanying statement of assets and liabilities of
the Gabelli Capital Asset Fund (the Fund) (a series of Gabelli Capital Series
Fund, Inc.) including the portfolio of investments, as of December 31, 1999, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Gabelli Capital Asset Fund of Gabelli Capital Series Fund, Inc. as of December
31, 1999, and the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 11, 2000
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