--------------------------------------------------------------------------------
Gabelli Capital Asset Fund.
-----------------------------------
[PHOTO OMITTED]
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 June 30, 1999: $173,580,237
Q. How did the Fund perform for the first six months of 1999?
A. For the six months ended June 30, 1999, the Gabelli Capital Asset Fund's
total return was 13.77%(1). The Standard & Poor's 500 Index(2) (S&P 500) and
Russell 2000(3) Index had returns of 12.38% and 9.24%, respectively, over the
same period.
Value stocks excelled in the second quarter of 1999. Cyclical stocks
ignited the rally, with the stronger than anticipated economy bolstering the
earnings outlook for economically sensitive companies. Other value sectors
caught the spark as investors began rotating out of richly valued growth stocks
into more reasonably priced companies in a wide range of industries. The
Internet balloon did not burst, but enough hot air escaped to bring the ".com"
companies closer to earth.
Also, small cap stocks finally emerged from what has been a long and
painful bear market. For the first time in seven quarters, the Russell 2000
outpaced the S&P 500 on its way to posting double digit returns for the quarter.
Q. What factors affected the Fund's performance?
A. In general, investors' focus on value stocks and smaller cap stocks provided
a tailwind for the portfolio. More specifically, our cyclical holdings performed
quite well, as investors rotated into fundamentally attractive industrial
companies benefiting from the strong economy. The positions in energy stocks
buoyed returns, as oil prices rose from severely depressed levels. The Fund's
telecommunications investments also contributed to returns, with technological
advances, new services, deregulation and consolidation continuing to drive the
group. The cable and media holdings drifted. We still see great value in this
sector, but suspect this group was due for a rest following several years of
exceptional performance.
Q. What is your outlook for the remainder of the year?
A. In general, first quarter earnings met consensus estimates and second quarter
earnings should be stronger than anticipated, with particularly good comparisons
to 1998's second quarter, when General Motor's strike and the plunge in energy
prices crimped reported results. However, interest rates are higher, and until
we see convincing evidence that inflation is firmly under control, rates are not
likely to trend much lower. With the S&P 500's gains already approximating 1999
earnings growth forecasts, we see an inadequate "margin of safety" in the stock
market. Money flowing into the markets, particularly from deal activity, is the
fuel powering a market that still favors stocks. However, money is no longer
pouring into equity mutual funds at the rates we have seen in previous years.
All this conjecture leads us to the opinion that stock selectivity remains
crucial over the next twelve months.
================================================================================
In general, first quarter earnings met consensus estimates and second
quarter earnings should be stronger than anticipated, with particularly
good comparisons to 1998's second quarter, when General Motor's strike and
the plunge in energy prices crimped reported results.
================================================================================
We believe value and smaller cap stocks should continue to outperform the
large cap growth sector in the quarters ahead. Growth has outperformed value for
five years and large cap stocks have outperformed small caps
(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 than 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 the fees and expenses that have been deducted from the Fund.
(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.
--------------------------------------------------------------------------------
12
<PAGE>
--------------------------------------------------------------------------------
for nearly as long. This is not unusual. Style and capitalization sectors
generally take lengthy turns leading the market. Does the ascent of value and
small cap stocks this quarter signify a major change in market leadership? One
quarter of outperformance does not a trend make. But, fundamentals favor value
stocks and small cap equities going forward. Despite the strong second quarter
rally, based on historical measurements, value stocks remain inexpensive and
growth stocks are still overvalued. Small cap stocks offer the dual advantages
of generally better earnings growth prospects than large caps and materially
lower price/earnings and price/cash flow multiples.
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
-------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ..................................................... 11.78%
3 Years .................................................... 21.80%
Since Inception (5/1/95) ................................... 20.58%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
--------------------------------------------------------------------------------
1. Telephone & Data Systems Inc.
--------------------------------------------------------------------------------
2. Liberty Media Group Cl. A
--------------------------------------------------------------------------------
3. Cablevision Systems Corp. Cl. A
--------------------------------------------------------------------------------
4. Viacom Inc. Cl. A
--------------------------------------------------------------------------------
5. MediaOne Group Inc.
--------------------------------------------------------------------------------
6. Media General Inc. Cl. A
--------------------------------------------------------------------------------
7. American Bankers Insur. Group
--------------------------------------------------------------------------------
8. Rollins Inc.
--------------------------------------------------------------------------------
9. USA Networks Inc.
--------------------------------------------------------------------------------
10. Gaylord Entertainment Co. New
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
13
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund
--------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
----------------------
COMMON STOCKS -- 93.1%
----------------------
<TABLE>
<CAPTION>
Market
Shares Cost Value
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agriculture -- 1.2%
88,550 Archer-Daniels-Midland Co. $ 1,559,531 $ 1,366,991
20,000 Pioneer Hi-Bred International Inc. 745,656 778,750
------------ ------------
2,305,187 2,145,741
------------ ------------
Automotive: Parts and Accessories -- 4.6%
25,000 Dana Corp. 973,523 1,151,562
60,000 GenCorp Inc. 1,000,144 1,515,000
65,000 Modine Manufacturing Co. 2,227,786 2,116,562
58,600 Standard Motor Products Inc. 1,292,143 1,435,700
20,000 Superior Industries International Inc. 509,781 546,250
22,000 TransPro Inc. 182,531 115,500
60,000 Wynn's International Inc. 719,079 1,106,250
------------ ------------
6,904,987 7,986,824
------------ ------------
Aviation: Parts and Services -- 2.2%
18,000 AAR Corp. 250,688 408,375
5,000 Aviall Inc. 75,250 94,063
38,000 Barnes Group Inc. 962,421 826,500
16,000 Curtiss-Wright Corp. 470,869 622,000
75,000 Fairchild Corp., Cl. A 1,499,850 956,250
7,500 Hi-Shear Industries Inc. 21,717 19,336
22,000 Kaman Corp., Cl. A 315,843 345,125
15,000 Moog Inc., Cl. A + 404,750 515,625
------------ ------------
4,001,388 3,787,274
------------ ------------
Broadcasting -- 5.5%
70,000 Ackerley Communications Inc. 598,717 1,273,125
50,482 Chris-Craft Industries Inc. 2,107,887 2,378,964
18,000 Gray Communications Systems Inc. 326,825 360,000
80,000 Gray Communications Systems Inc., Cl. B 1,015,412 1,130,000
15,000 Hearst-Argyle Television Inc.+ 285,505 360,000
41,000 Liberty Corp. 2,035,802 2,234,500
17,500 United Television Inc. 1,496,314 1,835,312
------------ ------------
7,866,462 9,571,901
------------ ------------
Building and Construction -- 0.6%
35,500 Nortek Inc. 1,035,180 1,111,594
------------ ------------
Business Services -- 1.5%
35,000 Cendant Corp. + 498,400 717,500
37,000 Nashua Corp. + 526,796 365,375
50,000 Rental Service Corp. + 1,430,625 1,431,250
------------ ------------
2,455,821 2,514,125
------------ ------------
Cable -- 6.9%
102,000 Cablevision Systems Corp., Cl. A + 954,257 7,140,000
60,000 MediaOne Group Inc. 1,847,623 4,462,500
5,000 United International Holdings Inc., Cl. A+ 72,961 338,125
------------ ------------
2,874,841 11,940,625
------------ ------------
Computer Software and Services -- 0.1%
20,000 Tyler Technologies Inc. 43,700 137,500
------------ ------------
Consumer Products -- 3.1%
103,000 Carter-Wallace Inc. 1,656,703 1,873,313
40,000 Gallaher Group plc 831,545 977,500
93,000 General Cigar Holdings Inc. + 908,460 726,563
18,000 General Cigar
Holdings Inc., Cl. B (a) 164,173 140,625
35,000 General Housewares Corp. 365,088 680,313
25,000 National Presto Industries Inc. 964,266 956,250
------------ ------------
4,890,235 5,354,564
------------ ------------
Consumer Services -- 1.8%
200,000 Rollins Inc. 3,862,912 3,187,500
------------ ------------
Diversified Industrial -- 2.3%
40,000 Ampco-Pittsburgh Corp. 639,125 512,500
7,000 Crane Co. 108,711 220,063
40,000 GATX Corp. 1,147,578 1,522,500
58,000 Katy Industries Inc. 848,600 754,000
26,000 Tenneco Inc. 781,403 620,750
60,000 WHX Corp. 704,419 393,750
------------ ------------
4,229,836 4,023,563
------------ ------------
Energy and Utilities -- 3.9%
4,000 Cilcorp Inc. 241,950 250,000
200,000 Citizens Utilities Co., Cl. B 1,985,251 2,225,000
30,000 Eastern Enterprises 1,123,188 1,192,500
20,000 El Paso Electric Co. + 167,375 178,750
7,400 Florida Public Utilities Co. 118,270 139,675
90,000 Kaneb Services Inc. + 274,500 382,500
7,000 New England Electric System 337,864 350,875
65,000 PennzEnergy Co. + 1,140,013 1,084,688
20,000 Southwest Gas Corp. 522,646 572,500
3,000 TNP Enterprises Inc. 114,206 108,750
12,000 Wicor Inc. 337,425 335,250
------------ ------------
6,362,688 6,820,488
------------ ------------
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
74
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Cost Value
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Entertainment -- 12.8%
80,000 Ascent Entertainment Group Inc.+ $ 887,965 $ 1,130,000
25,000 Fisher Companies Inc. 1,691,606 1,575,000
20,000 Florida Panthers Holdings Inc. + 186,626 213,750
40,000 GC Companies Inc. + 1,588,242 1,430,000
200,000 Liberty Media Group, Cl. A + 1,309,226 7,350,000
38,000 Time Warner Inc. 773,919 2,793,000
75,000 USA Networks Inc. + 1,063,546 3,009,375
108,000 Viacom Inc., Cl. A + 1,786,631 4,765,500
------------ ------------
9,287,761 22,266,625
------------ ------------
Environmental Services -- 0.1%
51,000 EnviroSource Inc. + 353,095 108,375
------------ ------------
Equipment and Supplies -- 9.7%
35,000 AMETEK Inc. 633,686 805,000
21,000 Belden Inc. 400,562 502,687
5,000 Case Corp. 244,646 240,625
38,000 CLARCOR Inc. 723,141 729,125
4,000 CTS Corp. 59,850 280,000
12,000 Cuno Inc. + 206,114 229,500
4,500 Eastern Co. 74,750 80,437
115,500 Fedders Corp. 682,345 772,406
70,000 Flowserve Corp. 1,557,111 1,325,625
12,500 Franklin Electric Co. Inc. 409,386 812,500
20,000 Holophane Corp. 761,000 762,500
80,000 Hussmann International Inc. 1,092,125 1,325,000
42,000 IDEX Corp. 1,246,488 1,380,750
100,000 International Comfort Products Corp. 1,148,750 1,137,500
11,000 Kollmorgen Corp. 184,732 165,000
25,000 Mark IV Industries Inc. 363,787 528,125
21,000 Navistar International Corp. + 419,350 1,050,000
28,000 Pittway Corp. 527,107 932,750
30,000 Sequa Corp., Cl. A + 1,048,824 2,100,000
43,000 SPS Technologies Inc. + 1,898,851 1,612,500
------------ ------------
13,682,605 16,772,030
------------ ------------
Financial Services -- 5.9%
62,000 American Bankers Insurance Group Inc. 3,696,363 3,375,125
60,000 Argonaut Group Inc. 1,837,601 1,440,000
30,000 Block (H & R) Inc. 1,331,293 1,500,000
8,000 Citigroup Inc. 374,819 380,000
24,000 Mellon Bank Corp. 758,895 873,000
47,000 Midland Co. 706,479 1,192,625
55,000 Pioneer Group Inc. 1,307,463 948,750
7,000 Republic New York Corp. 475,975 477,313
------------ ------------
10,488,888 10,186,813
------------ ------------
Food and Beverage -- 7.9%
4,000 Bestfoods Inc. 193,171 198,000
90,000 Celestial Seasonings Inc. + 1,049,441 1,935,000
45,000 Corn Products International Inc. 1,411,372 1,369,687
22,000 General Mills Inc. 1,522,319 1,768,250
18,000 Heinz (H.J.) Co. 965,487 902,250
48,000 Kellogg Co. 1,810,789 1,584,000
50,000 PepsiCo Inc. 1,898,984 1,934,375
30,000 Seagram Co. 1,022,973 1,511,250
22,660 Tootsie Roll Industries Inc. 400,141 875,242
28,000 Twinlab Corp. 328,301 240,625
80,000 Whitman Corp. 1,266,773 1,440,000
------------ ------------
11,869,751 13,758,679
------------ ------------
Health Care -- 1.0%
120,000 IVAX Corp. + 1,171,880 1,695,000
------------ ------------
Hotels and Gaming -- 3.9%
150,000 Aztar Corp. + 1,088,984 1,378,125
100,000 Gaylord Entertainment Co., Cl. A 2,735,008 3,000,000
100,000 Hilton Hotels Corp. 1,668,074 1,418,750
100,000 Jackpot Enterprises Inc. 1,095,401 850,000
45,000 Trump Hotels & Casino Resorts Inc. + 365,938 205,313
------------ ------------
6,953,405 6,852,188
------------ ------------
Publishing -- 6.7%
17,000 Harcourt General Inc. 803,413 876,563
24,000 Lee Enterprises Inc. 591,706 732,000
20,500 McClatchy News-papers Inc., Cl. A 559,269 679,062
70,000 Media General Inc., Cl. A 2,869,296 3,570,000
13,000 Meredith Corp. 267,779 450,125
31,500 Penton Media Inc. 435,535 763,875
18,000 Pulitzer Publishing Co. 501,751 874,125
50,000 Reader's Digest Association Inc., Cl. B 1,230,094 1,875,000
82,000 Thomas Nelson Inc. 987,793 912,250
10,000 Times Mirror Co., Cl. A 587,563 592,500
3,000 Tribune Co. 164,400 261,375
------------ ------------
8,998,599 11,586,875
------------ ------------
Real Estate -- 1.3%
115,000 Catellus Development Corp. 1,897,776 1,782,500
35,000 Griffin Land & Nurseries Inc. 493,263 415,625
------------ ------------
2,391,039 2,198,125
------------ ------------
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
75
<PAGE>
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund
--------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
<TABLE>
<CAPTION>
Market
Shares Cost Value
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail -- 1.5%
5,000 Aaron Rents Inc. $ 100,625 $ 111,250
10,000 Aaron Rents Inc., Cl. A 199,750 180,000
10,000 AutoNation Inc. + 161,313 178,125
40,000 Lillian Vernon Corp. 631,288 520,000
53,000 Neiman Marcus Group Inc. + 1,230,033 1,361,438
37,000 Scheib (Earl) Inc. 268,037 175,750
------------ ------------
2,591,046 2,526,563
------------ ------------
Satellite -- 0.8%
43,000 COMSAT Corp. 944,715 1,397,500
------------ ------------
Shipbuilding -- 0.3%
15,000 Avondale Industries Inc. + 572,813 585,000
------------ ------------
Specialty Chemicals -- 1.9%
18,500 Bush Boake Allen Inc. + 545,292 541,125
5,000 Dexter Corp. 161,500 204,062
28,000 Ferro Corp. 513,913 770,000
15,000 Nalco Chemical Co. 773,250 778,125
52,000 Sybron Chemicals Inc. 1,378,505 923,000
------------ ------------
3,372,460 3,216,312
------------ ------------
Telecommunications -- 0.6%
10,000 GST Telecommunications Inc. + 126,012 131,875
60,000 Rogers Communications Inc., Cl. B + 383,044 971,250
------------ ------------
509,056 1,103,125
------------ ------------
Wireless Communications -- 5.0%
65,000 Rogers Cantel Mobile
Communications Inc., Cl. B + 665,179 1,068,437
105,000 Telephone & Data Systems Inc. 4,492,674 7,671,563
------------ ------------
5,157,853 8,740,000
------------ ------------
TOTAL COMMON STOCKS 125,178,203 161,574,909
------------ ------------
<CAPTION>
Principal Market
Amount Cost Value
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 7.7%
$13,592,000 U.S. Treasury Bills,
4.35% to 4.78% ++,
due 07/01/99
to 10/07/99 $ 13,464,189 $ 13,462,221
------------ ------------
TOTAL
INVESTMENTS -- 100.8% $138,642,392* 175,037,130
============
OTHER ASSETS AND
LIABILITIES (Net) -- (0.8)% (1,456,893)
------------
NET ASSETS -- 100.0% $173,580,237
============
*For Federal tax purposes:
Aggregate cost $138,642,392
============
Gross unrealized appreciation $ 43,431,353
Gross unrealized depreciation (7,036,615)
-----------
Net unrealized appreciation $ 36,394,738
============
</TABLE>
(a) Security fair valued as determined by the Board of Directors.
+ Non-income producing security.
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
76
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
Assets:
Investments, at value (Cost $138,642,392) $175,037,130
Cash 1,173
Dividends and interest receivable 74,227
Receivable for investments sold 1,185,000
Deferred organizational expenses 16,659
------------
Total Assets 176,314,189
------------
Liabilities:
Payable for investments purchased 2,541,300
Payable for investment advisory fees 139,231
Other accrued expenses 53,421
------------
Total Liabilities 2,733,952
------------
Net Assets applicable to 9,417,427 shares
outstanding $173,580,237
============
Net Assets consist of:
Capital stock, at par value $ 9,417
Additional paid-in capital 127,155,690
Accumulated net investment income 90,510
Accumulated net realized gain
on investments 9,929,882
Net unrealized appreciation on investments 36,394,738
------------
Total Net Assets $173,580,237
============
Net Asset Value, offering and redemption
price per share ($173,580,237 / 9,417,427
shares outstanding, 500,000,000 shares
authorized of $0.001 par value) $ 18.43
============
STATEMENT OF OPERATIONS
For the Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 813,587
Interest 149,744
------------
Total Investment Income 963,331
------------
Expenses:
Management fees 794,082
Custodian fees 21,792
Legal and audit fees 19,083
Directors' fees 11,723
Organizational expenses 9,917
Shareholder services fees 5,317
Miscellaneous expenses 10,853
------------
Total Expenses 872,821
------------
Net Investment Income 90,510
------------
Net Realized and Unrealized Gain on
Investments:
Net realized gain on investments 10,615,855
Net change in unrealized appreciation
on investments 10,076,076
------------
Net realized and unrealized gain
on investments 20,691,931
------------
Net increase in net assets resulting
from operations $ 20,782,441
============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
77
<PAGE>
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
------------- -------------
<S> <C> <C>
Operations:
Net investment income $ 90,510 $ 257,776
Net realized gain on investments 10,615,855 7,189,741
Net change in unrealized appreciation on investments 10,076,076 5,528,146
------------- -------------
Net increase in net assets resulting from operations 20,782,441 12,975,663
------------- -------------
Distributions to shareholders:
Net investment income -- (257,776)
Net realized gain on investments -- (7,198,434)
In excess of net realized gain on investments -- (626,865)
------------- -------------
Total distributions to shareholders -- (8,083,075)
------------- -------------
Capital share transactions:
Net increase/(decrease) in net assets from capital
share transactions (2,563,171) 45,118,114
------------- -------------
Net increase in net assets 18,219,270 50,010,702
Net Assets:
Beginning of period 155,360,967 105,350,265
------------- -------------
End of period $ 173,580,237 $ 155,360,967
============= =============
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
78
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
---------------
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 successor to Gabelli Funds, Inc. as investment adviser) (the "Adviser").
Securities and assets for which market quotations are not readily available are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board of Directors.
Short term debt securities with remaining maturities of 60 days or less are
valued at amortized cost, unless the Directors determine such does not reflect
the securities' fair value, in which case these securities will be valued at
their fair value as determined by the Directors. Short term debt instruments
having a greater maturity are valued at the highest bid price obtained from a
dealer maintaining an active market in those securities. Options are valued at
the last sale price on the exchange on which they are listed. If no sales of
such options have taken place that day, they will be valued at the mean between
their closing bid and asked prices.
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 has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As a result, a Federal income tax provision is not required.
--------------------------------------------------------------------------------
79
<PAGE>
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund
---------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (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 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 proceeds from the sales of securities for the six months
ended June 30, 1999, other than short term securities, aggregated $39,607,071
and $54,178,606, respectively.
-------------------------------
5. Transactions with Affiliates
-------------------------------
During the six months ended June 30, 1999, the Fund paid brokerage
commissions of $84,921 to Gabelli & Company, Inc. and its affiliates.
-----------------------------
6. Capital Stock Transactions
-----------------------------
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
---------------- -----------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold 1,252,187 $ 21,640,008 4,460,537 $ 73,364,220
Shares issued upon re-
investment of dividends -- -- 512,885 8,083,075
Shares redeemed (1,426,904) (24,203,179) (2,262,453) (36,329,181)
------------ ------------ ------------ ------------
Net increase/(descrease) (174,717) $ (2,563,171) 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>
Six Months Ended Year Ended December 31,
June 30, 1999 --------------------------------------------------------
(Unaudited) 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 ......................... 0.01 0.03 0.02 0.02 0.03(a)
Net realized and unrealized gain on investments 2.22 1.74 4.88 1.16 0.80
--------- --------- --------- --------- ---------
Total from investment operations .............. 2.23 1.77 4.90 1.18 0.83
--------- --------- --------- --------- ---------
Distributions to shareholders:
Net investment income ......................... -- (0.03) (0.02) (0.02) (0.03)
Net realized gain on investments .............. -- (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 ........................... -- (0.88) (1.14) (0.33) (0.13)
--------- --------- --------- --------- ---------
Net asset value, end of period ................ $ 18.43 $ 16.20 $ 15.31 $ 11.55 $ 10.70
--------- --------- --------- --------- ---------
Total return++ ................................ 13.8% 11.7% 42.6% 11.0% 8.4%
--------- --------- --------- --------- ---------
Ratios to average net assets and supplemental data:
Net assets, end of period (in 000's) .............. $ 173,580 $ 155,361 $ 105,350 $ 51,462 $ 26,364
Ratio of net investment income to average
net assets ...................................... 0.11%(c) 0.19% 0.17% 0.21% 0.75%(c)
Ratio of operating expenses to average
net assets (d) .................................. 1.10%(c) 1.12% 1.17% 1.31% 1.78%(c)
Portfolio turnover rate ........................... 26% 43% 65% 53% 81%
</TABLE>
----------
+ From commencement of 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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