WCC CAPITAL GROWTH FUND INC, 497, 1995-05-03

WCC CAPITAL GROWTH FUND INC
497, 1995-05-03

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Prospectus May 1, 1995

GABELLI CAPITAL ASSET FUND

One Corporate Center

Rye, New York 10580-1434

Telephone: 1-800-GABELLI (1-800-422-3554)

Gabelli Capital Asset Fund (the "Fund") is a series of Gabelli Capital
Series Funds, Inc. (the "Company"), an open- end, diversified management
investment company. The primary investment objective of the Fund is growth of
capital, with current income as a secondary objective. See "Investment
Objectives and Policies."

Shares of the Fund are available to the public only through the purchase of
certain variable annuity and variable life insurance contracts ("Contract(s)")
issued by The Guardian Insurance & Annuity Company, Inc. ("GIAC").

This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
dated May 1, 1995 (the "Additional Statement") containing additional information
about the Fund has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. For a free copy, call or write
the Fund at the telephone number or address set forth above.

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

This Prospectus should be retained

by investors for future reference.

Contents

Section Page
- ------- ----
Investment Objectives and Policies ........................................ 2

Special Investment Methods ................................................ 4

Management of the Fund .................................................... 6

Purchase and Redemption of Shares ......................................... 8

Dividends, Distributions and Taxes ........................................ 9

General Information ....................................................... 10

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of the Fund is growth of capital and
investments will be made based on management's perception of their potential for
capital appreciation. Current income is a secondary objective. There is no
assurance that the Fund will achieve its investment objectives. The investment
objectives of the Fund are fundamental and may not be changed without
shareholder approval. The other investment policies described below may be
changed by the Board of Directors without shareholder approval.

The Fund expects that its assets will be invested primarily in a
diversified portfolio of readily marketable equity securities (including common
stock, preferred stock, securities representing the right to acquire common
stock and securities that are convertible into or exchangeable for common
stock). Gabelli Funds, Inc., the investment adviser to the Fund (the "Adviser"),
will invest in companies that are selling in the public market at a significant
discount to their private market value ("PMV"), that is, that value the Adviser
believes an informed industrialist would be willing to pay to acquire companies
with similar characteristics. Factors considered by the Adviser include price,
earnings expectations, earnings and price histories, balance sheet
characteristics and perceived management skills. Also considered are changes in
economic and political outlooks as well as individual corporate developments.
Fund investments which lose their perceived value relative to other investment
alternatives are sold.

When deemed appropriate by the Adviser, the Fund may without limit invest
temporarily in defensive securities such as high grade debt securities,
obligations of the U.S. Government, its agencies or instrumentalities, or in
short-term (maturing less than one year) money market instruments, including
commercial paper rated A-1 or better by Standard & Poor's Ratings Group ("S&P")
or P-1 or better by Moody's Investors Services ("Moody's").

It is the Adviser's expectation that most Fund investments will be long
term in nature and that the annual turnover of the Fund's portfolio should not
exceed 100%. A portfolio turnover rate of 100% would occur if all the stocks in
the portfolio were replaced in a one-year period. High turnover involves
correspondingly greater commission expenses and transaction costs.

Convertible Securities. 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.

The Fund may invest in convertible securities when it appears to the
Adviser that it may not be prudent to be fully invested in common stocks. In
evaluating a convertible security, the Adviser places primary emphasis on the
attractiveness of the underlying common stock and the potential for capital
appreciation through conversion. See "Convertible Securities" in the Additional
Statement.

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Debt Securities. The Fund will normally purchase only investment grade debt
securities having a rating of, or equivalent to, at least an S&P rating of BBB
(which rating may have speculative characteristics) 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 provided, that, as
described in the following paragraph, no more than 5% of the Fund's assets may
be invested in corporate debt securities with a rating of, or equivalent to, a
S&P rating of CCC or lower. 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. Although lower rated debt securities generally
have higher yields, they are also 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. A description of corporate debt
ratings is contained in the Additional Statement.

The Fund may invest up to 5% of its assets in low rated and unrated
corporate debt securities (often referred to in the financial press as "junk
bonds") which are perceived by the Adviser to present an opportunity for
significant capital appreciation, if, in the judgment of the Adviser, the
ability of the issuer to repay principal and interest when due is underestimated
by the market. For purposes of the foregoing limitation, corporate debt
securities are "low rated" if they have a rating of, or equivalent to, an S&P
rating of CCC or lower. See "Debt Securities" in the Additional Statement.

Investments in Small, Unseasoned Companies. The Fund may invest up to 5% of
its net assets in small, less well known companies which (including
predecessors) have operated less than three years. The securities of such
companies may have limited liquidity.

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.

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
foregoes 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.

Warrants and Rights. The Fund may invest up to 5% of its total assets in
warrants or 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 a specific period of time but will do so only if such equity
securities are deemed appropriate by the Adviser for inclusion in the Fund's
portfolio. The Fund will not invest more than 2% of its total assets in warrants
or rights which are not listed on the New York or American Stock Exchanges.

Foreign Securities. The Fund may invest up to 25% of its total assets in
the securities of non-U.S. issuers. These investments involve certain risks not
ordinarily associated with investments in securities of domestic issuers. These
risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability or diplomatic developments which could
adversely affect investments in those countries.

There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Non-U.S. securities
markets, while growing in volume, have, for the most

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part, substantially less volume than U.S. markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable U.S. companies. Transaction costs of investing in non-U.S.
securities markets are generally higher than in the U.S. There is generally less
government supervision and regulation of exchanges, brokers and issuers than
there is in the U.S. The Fund might have greater difficulty taking appropriate
legal action in non-U.S. courts. Non-U.S. markets also have different clearance
and settlement procedures which in some markets have at times failed to keep
pace with the volume of transactions, thereby creating substantial delays and
settlement failures that could adversely affect the Fund's performance.

Dividend and interest income from non-U.S. securities will generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by the Fund or the investor.

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 the 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 the securities of
other investment companies, shareholders in the Fund may be subject to
duplicative advisory and administrative fees.

SPECIAL INVESTMENT METHODS

The Fund will not in the aggregate invest 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 under
special rules adopted by the Securities and Exchange Commission 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. Further information on the investment methods and
policies of the Fund are set forth in the Additional Statement. The Fund may
purchase and sell securities on a "when, as and if issued basis" under which the
issuance of the security depends upon the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. For
further information, see "When Issued, Delayed Delivery Securities and Forward
Commitments" in the Additional Statement.

Corporate Reorganizations. Subject to the diversification requirements of
its investment restrictions, the Fund may invest not more than 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 if, in the
judgment of the Adviser, there is a reasonable prospect of capital appreciation
significantly greater than the added portfolio turnover expenses inherent in the
short-term nature of such transactions. 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. The principal risk is that such offers or proposals may not be
consummated within the time and under the terms contemplated at the time of the
investment in which case, unless replaced by an equivalent or increased offer or
proposal which is consummated, the Fund may sustain a loss. For further
information on such investments, see "Corporate Reorganizations" in the
Additional Statement.

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Repurchase Agreements. The Fund may enter into repurchase agreements with
"primary dealers" in U.S. Government securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market price
to the amount of their repurchase obligation. In a repurchase agreement, an
investor (e.g., 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 (ordinarily a week or less). 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 principal risk is that, if the
seller defaults, the Fund might suffer a loss to the extent that the proceeds
from the sale of the underlying securities and other collateral held by the Fund
are less than the repurchase price. Except for repurchase agreements with a
duration of seven days or less, not more than 5% of the Fund's total assets may
be so invested.

Borrowing. The Fund may not borrow money except for (i) short-term credits
from banks as may be necessary for the clearance of portfolio transactions, and
(ii) 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 for any purpose, including
redemptions, may not, in the aggregate, exceed 15%, and borrowing for purposes
other than meeting redemptions may not exceed 5%, of the value of the Fund's
total assets at the time a borrowing is made. The Fund will not make any
additional purchases of portfolio securities at any time its borrowings exceed
5% of its assets. The Fund will not mortgage, pledge or hypothecate any of its
assets except that, in connection with the foregoing, not more than 20% of the
assets of the Fund may be used as collateral.

Short Sales. The Fund may make short sales of securities. A short sale is a
transaction in which a 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.

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. Although the Fund's gain is limited to the price at which it sold the
security short, its potential loss is theoretically unlimited.

Forward Currency Exchange Contracts. The Fund may enter into forward
currency exchange contracts to protect against the effects of fluctuating rates
of currency exchange and exchange control regulations. Forward currency exchange
contracts provide for the purchase or sale of an amount of a specified currency
at a future date. Purposes for which such currency transactions may be used
include protecting against a decline in a foreign currency against the U.S.
dollar between the trade date and settlement date when the Fund purchases or
sells non-U.S. dollar-denominated securities, locking in the U.S. dollar value
of dividends and interest on securities held by the Fund and generally
protecting the U.S. dollar value of securities held by the Fund against exchange
rate fluctuation. While such forward contracts may limit losses to the Fund as a
result of exchange rate fluctuation, they will also limit any gains that may
otherwise have been realized. Currency transactions include the risk 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.

Derivative Transactions. As described above, the Fund may invest in options
and warrants, forward foreign currency exchange contracts, futures contracts,
options on futures and other transactions using derivative instruments.
Derivative transactions have certain risks, including imperfect market
correlations, dependence on the credit of the

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counterparty, possible inability to enter into offsetting transactions and
market fluctuations, that can result in the Fund being in a worse position than
if the transaction had not occurred. The loss from the Fund's investing in
futures and other derivative transactions is potentially unlimited.

MANAGEMENT OF THE FUND

The Company's Board of Directors (the members of which, together with the
Company's officers, are described in the Additional Statement) has overall
responsibility for the management of the Fund. The Board of Directors decides
upon matters of general policy and reviews the actions of Guardian Investor
Services Corporation, the manager of the Fund (the "Manager"), the Adviser and
Gabelli & Company, Inc., the distributor of the Fund's shares (the
"Distributor").

Pursuant to a Management Agreement with the Fund, the Manager, under the
supervision of the Board of Directors, supervises the performance of
administrative and professional services provided to the Fund by others
including the Adviser and The Shareholder Services Group, Inc., the
administrator of the Fund (the "Sub-Administrator"), and pays the fees of the
Adviser. As compensation for its services and the related expenses borne by the
Manager, the Fund pays the Manager a fee, computed daily and payable monthly,
equal, on an annual basis, to 1.00% of the Fund's average daily net assets. The
management fee paid by the Fund is higher than that paid by most mutual funds.
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 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 Fund 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 payable monthly, equal, on an annual basis, to .75% of the
Fund's average daily net assets.

Mario J. Gabelli, CFA has been designated by the Adviser to be primarily
responsible for the day-to-day management of the Fund. Mr. Gabelli has been
Chairman and Chief Investment Officer of the Adviser since its inception in
1980. 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.

The Company, the Manager, GIAC, the Adviser and the Distributor have
entered into a Participation Agreement regarding the marketing of the Fund's
shares as an investment option for variable annuity and variable life contracts
issued by GIAC.

The Manager. The Manager is located at 201 Park Avenue South, New York, New
York 10003 and as of March 31, 1995 serves as investment adviser to eight funds
with aggregate assets of over $2.7 billion and as co-adviser of a separate
account of GIAC. The Manager is also the underwriter and distributor of all
mutual funds sponsored by The Guardian Life Insurance Company of America
("Guardian Life") and of the variable annuity and variable life insurance
contracts issued by GIAC. The Manager is a wholly owned subsidiary of GIAC,
which is, in turn, a wholly owned subsidiary of Guardian Life, a mutual life
insurance company organized in the State of New York in 1860.

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The Adviser. The Adviser, which is located at One Corporate Center, Rye,
New York 10580-1435, was formed in 1980 and as of March 31, 1995 acts as
investment adviser to the following funds with aggregate assets of approximately
$3.7 billion:

Net Assets
Open-end funds: 3/31/95
(in millions)

The Gabelli Asset Fund ............................................ $1,048

The Gabelli Growth Fund ........................................... 478

The Gabelli Value Fund ............................................ 463

The Gabelli Small Cap Growth Fund ................................. 212

The Gabelli Equity Income Fund .................................... 51

The Gabelli U.S. Treasury Money Market Fund ....................... 264

The Gabelli ABC Fund .............................................. 23

The Gabelli Global Telecommunications Fund ........................ 132

The Gabelli Global Interactive Couch PotatoTM(C) Fund ............. 27

The Gabelli Global Convertible Securities Fund .................... 17

Gabelli Gold Fund, Inc ............................................ 16

Closed-end funds:

The Gabelli Equity Trust Inc ...................................... 856

The Gabelli Global Multimedia Trust Inc ........................... 66

The Gabelli Convertible Securities Fund, Inc ...................... 90

The Distributor is an indirect majority-owned subsidiary of the Adviser.
GAMCO Investors, Inc. ("GAMCO"), a majority-owned subsidiary of the Adviser,
acts as investment adviser for individuals, pension trusts, profit sharing
trusts and endowments. As of March 31, 1995, GAMCO had aggregate assets in
excess of $4.5 billion under its management. Mr. Mario J. Gabelli may be deemed
a "controlling person" of the Adviser and the Distributor on the basis of his
ownership of stock of the Adviser.

Affiliates of the Adviser may, in the ordinary course of their business,
acquire for their own accounts 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 may be available to
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 programs 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 substantial pecuniary interests.

The Investment Advisory Agreement contains provisions relating to the
selection of securities brokers to effect the portfolio transactions of the
Fund. Under those provisions, subject to applicable law and procedures adopted
by the Directors, the Adviser may (1) direct Fund portfolio brokerage to the
Distributor or any other broker-dealer affiliates

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of the Adviser; (2) pay commissions to brokers other than the Distributor which
are higher than 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 of itself
and any investment adviser affiliated with it; and (3) 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.

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 State Street Bank and Trust Company (the Fund's custodian,
transfer agent and dividend paying agent) and any persons hired by the Fund,
Securities and Exchange Commission 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 Securities and
Exchange Commission and qualifying the Fund for sale in various jurisdictions
and maintaining such qualification, litigation and other extraordinary or
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 GIAC.

Sub-Administrator. The Adviser has entered into a Sub-Administration
Agreement with the Sub-Administrator covering the Fund and certain other funds
advised by the Adviser. Under the Sub-Administration Agreement, the Sub-
Administrator provides certain administrative services necessary for the Fund's
operations, including the preparation and distribution of materials for meetings
of the Company's Board of Directors relating to the Fund, compliance testing of
Fund activities and assistance in the preparation of proxy statements, reports
to Contractowners and other documentation. The Sub-Administrator, which is a
subsidiary of First Data Corp., has its principal office at One Exchange Place,
Boston, Massachusetts 02109. The Adviser will pay the compensation of the
Sub-Administrator from the fees which are paid to the Adviser by the Manager. No
additional amount will be paid by the Fund for services by the
Sub-Administrator.

Distributor. The Distributor, located at One Corporate Center, Rye, New
York 10580-1435, serves as distributor of the Fund's shares to separate accounts
of GIAC, for which it receives no separate fee from the Fund.

PURCHASE AND REDEMPTION OF SHARES

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surplus) by the number of shares outstanding at the time the determination is
made. Portfolio securities for which market quotations are readily available are
valued at market value as determined by the last quoted sale price prior to the
valuation time in the case of securities traded on securities exchanges or other
markets for which such information is available. Other readily marketable
securities are valued at the average of the latest bid and asked quotations for
such securities prior to the valuation time. Debt securities with remaining
maturities of 60 days or less are valued at amortized cost. All other assets are
valued at fair value as determined by or under the supervision of the Board of
Directors of the Fund. See "Determination of Net Asset Value" in the Additional
Statement. Until June 7, 1995 payments for redeemed shares will ordinarily be
made within seven (7) days after the Fund receives a redemption order from GIAC.
Thereafter payment will ordinarily be made within three (3) business days. The
redemption price will be the net asset value per share next determined after
GIAC receives the Contractowner's request in proper form.

The Fund may suspend the right of redemption or postpone the date of
payment during any period when trading on the New York Stock Exchange is
restricted, or such Exchange is closed for other than weekends and holidays;
when an emergency makes it not reasonably practicable for the Fund to dispose of
assets or calculate its net asset value; or as permitted by the Securities and
Exchange Commission.

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.

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 and in amounts that will avoid the
imposition on the Fund of a 4% non-deductible excise tax measured with respect
to certain undistributed amounts of net investment income and capital gains.
Contractowners who own units in a separate account which correspond 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 intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (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 GIAC's separate accounts. To
qualify, the Fund must meet certain relatively complex income and
diversification tests, including the requirement that less than 30% of its gross
income (exclusive of losses) may be derived from the sale or other disposition
of securities held for less than three months. The loss of such status would
result in the Fund being subject to federal income tax on its taxable income and
gains.

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 Contractowners.

The foregoing 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,

<PAGE>

transferring or withdrawing monies held under a GIAC variable contract to or
from this Fund should consult a qualified tax adviser.

GENERAL INFORMATION

Descriptions of Shares and Voting Rights. The Fund is currently the only
series of the Company, which was incorporated in Maryland on April 8, 1993 and
is registered with the Securities and Exchange Commission as an open- end,
diversified investment company. 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 Investment Company Act of 1940, as amended, 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 Contactowners' 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.

The Fund is only available to owners of variable annuities or variable life
insurance policies issued by GIAC through its separate accounts. The Fund does
not currently foresee any disadvantages to Contractowners arising from offering
its shares to variable annuity and variable life insurance policy separate
accounts simultaneously, and the 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 disadvantageous 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.

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.

<PAGE>

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. Also,
the Fund may quote information from securities indices or financial and industry
or general interest publications in its promotional materials. Additionally, the
Fund's promotional materials may contain references to types and characteristics
of certain securities; features of its portfolio; financial markets; or
historical, current or prospective economic trends. Topics of general interest,
such as personal financial planning, may also be discussed. More information
about the Fund's performance is contained in the Additional Statement.

Custodian, Transfer Agent and Dividend Disbursing Agent. State Street Bank
and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts 02171, 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 Bank and Trust Company's Global
Custody Network, or foreign depositories used by such members. State Street Bank
and Trust Company is the Transfer Agent for the Fund's shares as well. Boston
Financial Data Services, Inc., an affiliate of State Street Bank and Trust
Company, performs the shareholder services on behalf of State Street and is
located at The BFDS Building, Two Heritage Drive, Quincy, Massachusetts 02171.

No dealer, salesman or other person has been authorized to
give any information or to make any representation other
than those contained in this Prospectus, the Additional
Statement or the Fund's official sales literature in
connection with the offering of the Fund's shares, and if
given or made, such information or representation may not be
relied upon as being authorized by the Fund, the Manager,
the Adviser, the Sub-Administrator, the Distributor or any
affiliate thereof. This Prospectus does not constitute an
offer to sell or a solicitation of any offer to buy in any
state to any person to whom it is unlawful to make such
offer in such state.

<PAGE>

[Back Cover of Prospectus]

[The Guardian logo] The Guardian

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

Prospectus for:

GABELLI

CAPITAL

ASSET

FUND

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

May 1, 1995

[GRAPHIC OMITTED - TRIANGULAR DRAWING CONTAINING
ACRONYMS "EPS" AND "PMV" ON SIDES OF DRAWING
AND THE WORDS "MANAGEMENT", "CASH FLOW" AND
"RESEARCH" AT THE BASE OF DRAWING]

[The Guardian logo] The Guardian [R]

Issued By:
The Guardian Insurance & Annuity Company
Variable Products Administration
P.O. Box 26210
Lehigh Valley, PA 18002-6210

Distributed By:
Guardian Investor Services [R]
201 Park Avenue South
New York, NY 10003

<PAGE>1

Gabelli Capital Asset Fund
One Corporate Center
Rye, New York 10580-1434
Telephone 1-800-GABELLI (1-800-422-3554)

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1995

This Statement of Additional Information ("Additional Statement") relates to
Gabelli Capital Asset Fund (the "Fund"), a series of Gabelli Capital Series
Funds, Inc., a Maryland corporation (the "Company"). The Additional Statement
is not a prospectus and is only authorized for distribution when preceded or
accompanied by the Fund's prospectus dated May 1, 1995, as supplemented from
time to time (the "Prospectus"). This Additional Statement contains
additional and more detailed information than that set forth in the Prospectus
and should be read in conjunction with the Prospectus. Additional copies of
the Prospectus and Additional Statement may be obtained without charge by
writing or telephoning the Fund at the address and telephone number set forth
above.

Please retain this document for future reference.

TABLE OF CONTENTS

Page

Investment Policies . . . . . . . . . . . . B - 2

Special Investment Methods . . . . . . . . . B - 2

Investment Restrictions . . . . . . . . . . B - 8

The Manager . . . . . . . . . . . . . . . . B - 9

The Adviser . . . . . . . . . . . . . . . . B - 10

The Distributor . . . . . . . . . . . . . . B - 12

Directors and Officers . . . . . . . . . . . B - 12

Portfolio Transactions and Brokerage . . . . B - 16

Purchase and Redemption of Shares . . . . . B - 18

Determination of Net Asset Value . . . . . . B - 19

Dividends, Distributions and Taxes . . . . . B - 19

Investment Performance Information . . . . . B - 21

Counsel and Independent Auditors . . . . . . B - 22

Financial Statements . . . . . . . . . . . . B - 22

Bond and Preferred Stock Ratings . . . . . . B - 23

<PAGE>2

INVESTMENT POLICIES

The Fund expects that, for most periods, a substantial portion, if
not all, of its assets will be invested in a diversified portfolio of common
stocks judged by Gabelli Funds, Inc., the investment adviser to the Fund (the
"Adviser"), to have favorable value to price characteristics. The Fund may
also invest in U.S. Government or Government Agency obligations, investment
grade corporate bonds, preferred stocks, convertible securities, foreign
securities, debt securities and/or short term money market instruments when
deemed appropriate by the Adviser.

SPECIAL INVESTMENT METHODS

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 Standard & Poor's Ratings Group
("Standard & Poor's) or, if unrated, judged by the Adviser to be of comparable
quality. Securities rated less than "A" by Standard & Poor's 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, a Standard &
Poor's rating of CCC or lower. Unrated convertible securities which, in the
judgement of 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.

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 to 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 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.

<PAGE>3

Debt Securities

Corporate debt securities which are either unrated or have a
predominantly speculative rating (often referred to in the financial press as
"junk bonds") 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.

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.

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.

<PAGE>4

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. 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 Fund is limited to investments
not in excess of 5% of its total assets.

Investments in Warrants and Rights

Warrants basically are options to purchase equity securities at a
specified price valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights
are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants
have no voting rights, receive no dividends and have no rights with respect to
the assets of the issuer.

Investment in Small, Unseasoned Companies

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 receive lower
prices than might otherwise be obtained.

Corporate Reorganizations

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 securities
of companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced if, in the judgement of the Adviser, there is
reasonable prospect of capital appreciation significantly greater than the
brokerage and other transaction expenses involved. 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. The primary risk of such investments is that
if the contemplated transaction is abandoned, revised, delayed or becomes
subject to unanticipated uncertainties, the market price of the securities may
decline below the purchase price paid by the Fund.

In general, securities which are the subject of such an offer or
proposal sell at a premium to their historic market place immediately prior to
the announcement of the offer or 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

<PAGE>5

or securities to be received as a result of the contemplated transaction, but
also the financial resources and business motivation of the offerer as well as
the dynamic of the business climate when the offer or proposal is in process.

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 turnover ratio of the Fund thereby increasing its brokerage and
other transaction expenses as well as make it more difficult for the Fund to
meet the test for favorable tax treatment as a "Regulated Investment Company"
specified by the Internal Revenue Code (see the Prospectus, "Dividends,
Distributions and Taxes"). 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 as well as monitor the effect
of such investments on the tax qualification tests of the Internal Revenue
Code.

When Issued, Delayed Delivery Securities and Forward Commitments

The Fund is authorized to buy and sell when issued securities as an
additional investment strategy in furtherance of its investment objectives.

In utilizing this strategy, 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 fluctuation and no interest (or dividends) accrues to the Fund prior to
the settlement date. The Fund will segregate with its custodian cash or
liquid high-grade debt securities with the Fund's custodian in an aggregate
amount at least equal to the amount of its outstanding forward commitments.

Short Sales

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 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.

<PAGE>6

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 debt 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 over of any payments 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.

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. 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.

Repurchase Agreements

The Fund may engage in repurchase agreements as set forth in the
Prospectus. A repurchase agreement is an instrument under which the purchaser
(i.e., the Fund) acquires a debt security and the seller agrees, at the time
of the sale, to repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding period.
This results in a fixed rate of return insulated from market fluctuations
during such period. The underlying securities are ordinarily U.S. Treasury or
other government obligations or high quality money market instruments. The
Fund will require that the value of such underlying securities, together with
any other collateral held by the Fund, always equals or exceeds the amount of
the repurchase obligations of the vendor. While the maturities of the
underlying securities in repurchase agreement transactions may be more than
one year, the term of each repurchase agreement will always be less than one
year. 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 "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

<PAGE>7

other securities for which there are no readily available quotations, more
than 15% of its total assets would be so invested.

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 to buy or sell that 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

<PAGE>8

the currency of the relevant portfolio security based on historic and expected
exchange rate patterns.

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, and 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 high grade liquid debt obligations 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 Securities and
Exchange Commission (the "Commission"), the Fund will treat swap transactions
as illiquid for purposes of the Fund's policy regarding illiquid securities.

INVESTMENT RESTRICTIONS

The Fund has adopted the following investment restrictions which may
not be changed without the approval of the Fund's shareholders. 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;

3. Purchase securities on margin, but it may obtain such short term credits
from banks as may be necessary for the clearance of purchase 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
prospectus under "Borrowing";

6. Mortgage, pledge or hypothecate any of its assets except (a) that, in
connection with permissible borrowings mentioned in paragraph 5 above,
not more than 20% of the assets of the Fund (not including amounts
borrowed) may be used as collateral and (b) in

<PAGE>9

connection with 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.

THE MANAGER

Guardian Investor Services Corporation, the manager of the Fund (the
"Manager"), has its principal offices at 201 Park Avenue South, New York, New
York 10003.

Pursuant to a Management Agreement with the Company, 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 The Shareholder Services Group, Inc., the
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 Guardian Insurance & Annuity Company, Inc.
("GIAC"), the parent of the Manager, has agreed to advance all costs in
connection with the organization of the Fund including legal and auditing
fees, Commission registration fees and the cost of printing the registration
statement filed with Commission. The Fund has agreed to reimburse GIAC for
such costs when the Fund's total assets exceed $50 million or when the Fund
has completed one year of operations, whichever is sooner.

<PAGE>10

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 Act, of the
outstanding shares of the Fund. The Management Agreement will automatically
terminate in the event of its assignment, as defined in the 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
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 Act ("Disinterested Directors") cast in person at a
meeting called specifically for the purpose of voting on the continuance.

The Management Agreement also provides that the Manager is obligated
to reimburse to the Fund any amount up to the amount of its management fee, by
which its aggregate expenses including management fees payable to the Manager
(but excluding interest, taxes, brokerage commissions, extraordinary expenses
and any other expenses not subject to the applicable expense limitation),
during the portion of any fiscal year in which the Agreement is in effect,
exceed the most restrictive expense limitation imposed by the securities law
of any jurisdiction in which the Fund's shares are offered for sale. Such
limitation is currently believed to be 2.5% of the first $30 million of
average net assets, 2.0% of the next $70 million of average net assets and
1.5% of average net assets in excess of $100 million. For purposes of this
expense limitation, Fund expenses are accrued monthly and the monthly fee
otherwise payable to the Manager is postponed to the extent that the
includable Fund expenses exceed the proportionate amount of such limitation to
date.

THE ADVISER

The Adviser is a New York corporation with principal offices located
at One Corporate Center, Rye, New York 10580-1434.

Pursuant to an Investment Advisory Agreement 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 for 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.

Under the Investment Advisory Agreement, the Adviser also provides,
or arranges for others to provide at the Adviser's cost, the following
administrative services: (1) providing 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

<PAGE>11

maintaining certain books and records and overseeing the activities of the
Fund's Custodian and Transfer Agent; (2) overseeing the performance of
administrative and professional services provided to the Fund by others,
including the Fund's Custodian, Transfer Agent and Dividend Disbursing Agent,
as well as legal, accounting, auditing and other services performed for the
Fund; (3) providing the Fund, if requested, with adequate office space and
facilities; (4) preparing, but not paying for, periodic updating of the Fund's
registration statement, Prospectus and Statement of Additional Information,
including the printing of such documents for the purpose of filings with the
Commission; (5) supervising the calculation of the net asset value of shares
of the Fund; (6) preparing, but not paying for, any filings under state law;
and (7) preparing notices and agendas for meetings of the Fund's Board of
Directors and minutes of such meetings in all matters required by the Act to
be acted upon by the Board.

The Adviser has delegated its administrative duties to the Sub-
Administrator pursuant to a Sub-Administration Agreement between the Adviser
and the Sub-Administrator relating to the Fund and certain other funds advised
by the Adviser. Under the Sub-Administration Agreement, the Sub-
Administrator, subject to the supervision of the Adviser, provides certain
administrative services necessary for the Fund's operations. The Adviser and
not the Fund pays the fees of the Sub-Administrator. For its services to the
Fund, the Sub-Administrator receives a fee calculated at the following rates
on the aggregate daily net assets of all funds that are advised by the Adviser
and administered by the Sub-Administrator: .10% for aggregate assets up to $1
billion, .08% for aggregate assets over $1 billion to $1.5 billion, .03% for
aggregate assets over $1.5 billion to $3 billion and .02% thereafter.

The Investment Advisory Agreement provides that absent Disabling
Conduct, the Adviser will not be liable for any error of judgment or mistake
of law or for losses sustained respectively by the Fund or the Manager.
However, the Investment Advisory Agreement provides that the Fund is not
waiving any rights it may have which cannot be waived. The Investment
Advisory Agreement also provides indemnification for the Adviser and its
directors, officers, employees and controlling persons for any conduct that
does not constitute Disabling Conduct. The Investment Advisory Agreement
permits the Adviser to act as investment adviser to others, provided that
whenever the Fund and one or more other portfolios of or investment companies
advised by the Adviser have available funds for investment, investments
suitable and appropriate for each will be allocated in a manner believed to be
equitable to each entity. In some cases, this procedure may adversely affect
the size of the position obtainable for the Fund.

The Investment Advisory Agreement is terminable without penalty 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 Act, of the
outstanding shares of the Fund, by the Fund. The Investment Advisory
Agreement will automatically terminate in the event of its assignment, as
defined in the Act, and rules thereunder. 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 a vote by a majority of the outstanding
shares of the Fund and in either case, by a majority vote of the Disinterested
Directors cast in person at a meeting called specifically for the purpose of
voting on the continuance.

The Investment Advisory Agreement also provides that the Adviser is
obligated to reimburse the Manager 75 percent of any amount the Manager is
obligated to reimburse the Fund

<PAGE>12

by reason of any state expense limitation described above under "The Manager;"
provided, however, that Adviser is in no event obligated to pay more than the
amount of its advisory fee.

THE DISTRIBUTOR

The Fund has entered into a Distribution Agreement with Gabelli &
Company, Inc. (the "Distributor"), a New York corporation which is a
subsidiary of Gabelli Funds, Inc., having principal offices located at One
Corporate Center, Rye, New York 10580-1434. 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 Fund 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 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 Fund'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.

DIRECTORS AND OFFICERS

The Director and Executive Officers of the Company, their principal
business occupations during the last five years and their affiliations, if
any, with the Manager, the Adviser or the Sub-Administrator, are shown below.
Directors deemed to be "interested persons" of the Fund for purposes of the
Act are indicated by an asterisk.

<PAGE>13

Principal Occupations During
Last Five Years; Affiliations
Name, Position with Company, with the Manager, Adviser
Address and Age or Sub-Administrator
---------------------------- -----------------------------

Mario J. Gabelli * Chairman, President, Chief
Chairman of the Board, Executive Officer and a
President and Director of the Adviser and
Chief Investment Chairman, Chief, Executive
Officer Officer, Chief Investment
One Corporate Center Officer and Director of GAMCO
Rye, New York 10580 Investors, Inc.; President and
Age: 52 Chairman of The Gabelli Equity
Trust Inc. and The Gabelli
Global Multimedia Trust Inc.,
President, Chief Investment
Officer and Director of
Gabelli Investor Funds, Inc.,
Gabelli Equity Series Funds,
Inc., Gabelli Global Series
Funds, Inc., The Gabelli Value
Fund Inc. and The Gabelli
Series Funds, Inc., Chairman
of Gabelli Gold Fund, Inc. and
President and Trustee of The
Gabelli Asset Fund, The
Gabelli Growth Fund and The
Gabelli Money Market Funds;
Chairman and Director of Lynch
Corporation; Director and
Adviser of Gabelli
International Ltd.; Director
of the Morgan Group, Inc.

Anthony J. Colavita President and Attorney at Law
Director in the law firm of Anthony J.
575 White Plains Road Colavita, P.C.; Director of
Eastchester, New York 10709 Gabelli Equity Series Funds,
Age: 59 Inc., Gabelli Global Series
Funds, Inc., Gabelli Investor
Funds, Inc, The Gabelli Value
Fund Inc., The Gabelli Series
Funds, Inc. and Gabelli Gold
Fund, Inc.; Trustee of The
Gabelli Asset Fund, The
Gabelli Growth Fund and the
Westwood Funds.

<PAGE>14

Arthur V. Ferrara* Chairman of the Board and
Director Chief Executive Officer of The
201 Park Avenue South Guardian Life Insurance
New York, New York 10003 Company of America since
Age: 64 January 1993; President, Chief
Executive Officer and a
Director prior thereto.
Chairman of the Board of GIAC,
the Manager, Guardian Asset
Management Corporation,
Guardian Baillie Gifford
Limited and five mutual funds
within the Guardian Fund
Complex.

Karl Otto Pohl* ** Partner of Sal Oppenheim Jr. &
Director Cie. (private investment
One Corporate Center bank); Former President of the
Rye, New York 10580 Deutsche Bundesbank (Germany's
Age: 64 Central Bank) and Chairman of
its Central Bank Council
(1980-1991); Currently board
member of IBM World Trade
Europe/Middle East/Africa
Corp., Bertlesmann AG, Zurich
Versicherungs-Gesellshaft
(insurance), the International
Advisory Board of General
Electric Company; the
International Council for JP
Morgan & Co., the Board of
Supervisory Directors of
ROBECo/o Group, and the
Supervisory Board of Royal
Dutch (petroleum company);
Advisory Director of Unilever
N.V. and Unilever
Deutschland; German Governor,
International Monetary Fund
(1980-1991); Board Member,
Bank for International
Settlements (1980-1991);
Chairman, European Economic
Community Central Bank
Governors (1990-1991);
Director of Gabelli Investor
Funds, Inc., Gabelli Equity
Series Funds, Inc., Gabelli
Global Series Funds, Inc., The
Gabelli Series Funds, Inc.,
The Gabelli Value Fund Inc.,
The Gabelli Global Multimedia
Trust, Inc., The Gabelli
Equity Trust Inc. and Gabelli
Gold Fund, Inc; Trustee of The
Gabelli Asset Fund, The
Gabelli Growth Fund and The
Gabelli Money Market Funds.
<PAGE>15

Anthony R. Pustorino Certified Public Accountant.
Director Professor of Accounting, Pace
121 Arleigh Road University, since 1965.
Douglaston, New York 11363 Director, President and
Age: 69 shareholder of Pustorino,
Puglisi & Co., P.C., certified
public accountants, from 1961
to 1990; Trustee of The
Gabelli Asset Fund and The
Gabelli Growth Fund; Director
of The Gabelli Value Fund
Inc., The Gabelli Series
Funds, Inc., Gabelli Equity
Series Funds, Inc., The
Gabelli Equity Trust Inc. and
The Gabelli Global Multimedia
Trust Inc.

Werner J. Roeder, M.D. Director of Surgery, Lawrence
Director Hospital and practicing
One Corporate Center private physician. Director,
Rye, New York 10580 Gabelli Investor Funds, Inc.,
Age: 54 Gabelli Global Series Funds,
Inc. and Gabelli Gold Fund,
Inc.; Trustee of the Westwood
Funds.

Anthonie C. van Ekris Managing Director of Balmac
Director International. Formerly
Le Columbia Chairman and Chief Executive
11 Blvd. Princess Grace Officer of Balfour MacLaine
Monaco, MC98000 Corporation and Kay
Age: 60 Corporation (through 1990).
Director of Stahal Hardmayer
A.Z. (through present).
Director of Gabelli Equity
Series Funds, Inc., Gabelli
Global Series Funds, Inc. and
Gabelli Gold Fund, Inc.
<PAGE>16

Bruce N. Alpert* Vice President, Treasurer and
Vice President and Treasurer Chief Financial and
One Corporate Center Administrative Officer of the
Rye, New York 10580 investment advisory division
Age: 43 of the Adviser; President and
Treasurer of The Gabelli Asset
Fund, The Gabelli Growth Fund
and Gabelli International
Growth Fund, Inc.; Vice
President and Treasurer of
Gabelli Equity Series Funds,
Inc., The Gabelli Equity Trust
Inc., The Gabelli Global
Multimedia Trust, Inc., The
Gabelli Money Market Funds,
The Gabelli Value Fund Inc.,
Gabelli Investor Funds, Inc.,
Gabelli Global Series Funds,
Inc., The Gabelli Series
Funds, Inc. and Vice President
of the Westwood Funds and
Manager of Teton Advisers LLC.

J. Hamilton Crawford, Jr.* Senior Vice President and
Secretary General Counsel of the
One Corporate Center investment advisory division
Rye, New York 10580 of the Adviser; Secretary of
Age: 65 all funds managed by the
Adviser; Secretary of the
Westwood Funds and Teton
Advisers LLC; Attorney in
private practice, 1990-1992;
Executive Vice President and
General Counsel of Prudential
Mutual Fund Management, Inc.
from 1988-1990.

Thomas R. Hickey, Jr.* Vice President, Equity
Vice President Operations, The Guardian Life
201 Park Avenue South Insurance Company of America,
New York, New York 10003 from March 1992 to the
Age: 42 present; Second Vice President
and Equity Counsel from July
1989 to February 1992; and
Counsel prior thereto. Vice
President, Administration, of
GIAC. Vice President of the
Manager and five Guardian-
sponsored mutual funds.
- ---------------------------

** - Mr. Pohl receives fees from the Adviser but has no obligation to
provide any service to the Adviser. Although this relationship does not
appear to require designation of Mr. Pohl as an interested person, the Fund is
currently making such designation in order to avoid the possibility that Mr.
Pohl's independence would be questioned.

<PAGE>17

The Company has agreed that 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 pays each Director who is not an employee of the
Manager, the Adviser or an affiliated company an annual fee of $3,000 and $500
for each meeting of the Board of Directors attended by the Director, and
reimburses Directors for certain travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. If the net
assets of the Fund exceed $500 million, a non-interested Director will receive
an annual fee of $500 for serving as the chair of a committee of the Board of
the Directors and a $250 fee for each committee meeting attended. Directors
and officers of the Company who are employed by the Manager, the Adviser or an
affiliated company receive no compensation or expense reimbursement from the
Company.

The following table sets forth certain information regarding the
compensation of the Company's directors and officers. Except as disclosed
below, the Company does not anticipate that any executive officer or person
affiliated with the Company will receive compensation from the Company for the
calendar year ending December 31, 1995 in excess of $60,000.

<PAGE>18

COMPENSATION TABLE
<TABLE>
<CAPTION>
Total Compensation
From the Fund
Aggregate Pension or Retirement Estimated Annual and Fund Complex
Name of Person Compensation Benefits Accrued As Benefits Upon Paid to Directors**
Position From the Fund* Part of Fund Expenses* Retirement
-------------- -------------- ------------------------ ---------------- ----------------------
<S> <C> <C> <C> <C>
Mario J. Gabelli
Chairman of the Board $ 0 $ 0 N/A $ 0

Anthony J. Colavita
Director 5,000 0 N/A 64,500(11)

Arthur V. Ferrara
Director 0 0 N/A 0

Karl Otto Pohl
Director 5,000 0 N/A 69,750(15)

Anthony R. Pustorino
Director 5,000 0 N/A 64,000(10)

Werner Roeder, M.D.
Director 5,000 0 N/A 11,000(4)

Anthonie C. van Ekris
Director 5,000 0 N/A 46,500(9)

</TABLE>

- -----------------------------
* The Fund has not been in operation for a full fiscal year and therefore,
the amounts shown represent those estimated to be paid during a full
fiscal year.
** Represents the total compensation paid to such persons during the
calendar year ended December 31, 1994 (and, with respect to the Fund,
estimated to be paid during a full calendar year). The parenthetical
number represents the number of investment companies (including the Fund)
from which such person receives compensation that are considered part of
the same fund complex as the Fund, because, among other things, they have
a common investment adviser.

PORTFOLIO TRANSACTIONS AND BROKERAGE

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. 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.

<PAGE>19
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 deems 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.

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. In doing so, the Fund may also pay higher
commission rates than the lowest available when the Adviser believes it is
reasonable to do so in light of the value of the brokerage and research
services provided by the broker effecting the transaction. 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 affiliated 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 Act, the Board of Directors has
adopted "Procedures" which provide that the 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
Disinterested Directors, conduct periodic compliance reviews of such brokerage
allocations and review the Procedures at least annually for its continuing
compliance with the foregoing standard. 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 trades on the New York
Stock Exchange ("Exchange"), the Distributor controls and monitors the
execution of such transactions on the floor of the Exchange through
independent "floor brokers" or through the Designated Order Turnaround ("DOT")
System of the Exchange. 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

<PAGE>20

house member firm which remits the commission less its clearing 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 access rules similar to those of the
Exchange.

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. Contractowners can send such instructions and requests to
GIAC at P.O. Box 26210, Lehigh Valley, PA 18002 by first class mail or 3900
Burgess Place, Bethlehem, PA 18017 by overnight or express mail. The net
asset value per share of the Fund is determined as of the close of the regular
session of the Exchange, which is currently 4:00 p.m., New York City time, on
each day that trading is conducted on the Exchange 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 number of shares outstanding at the time the
determination is made. Portfolio securities for which market quotations are
readily available are valued at market value as determined by the last quoted
sale price prior to the valuation time in the case of securities traded on
securities exchanges or other markets for which such information is available.
Other readily marketable securities are valued at the average of the latest
bid and asked quotations for such securities prior to the valuation time.
Debt securities with remaining maturities of 60 days or less are valued at
amortized cost. All other assets are valued at fair value as determined by or
under the supervision of the Board of Directors of the Fund. Until June 7,
1995 payments for redeemed shares will ordinarily be made within seven (7)
days after the Fund receives a redemption order from GIAC. Thereafter payment
will ordinarily be made within three (3) business days. The redemption price
will be the net asset value per share next determined after GIAC receives the
Contractowner's request in proper form.

The Fund may suspend the right of redemption or postpone the date of
payment during any period when trading on the Exchange is restricted, or the
Exchange is closed for other than weekends and holidays; when an emergency
makes it not reasonably practicable for the Fund to dispose of assets or
calculate its net asset value; or as permitted by the Commission.

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

The net asset value per share of the Fund is determined once daily
as of the close of business of the regular trading session of the Exchange,
normally 4:00 p.m. New York time, on each day that the Exchange is open and
each other day in which there is a sufficient degree of trading in the Fund's
investments to affect the net asset value, except that the net asset value may

<PAGE>21

not be computed on a day on which no orders to purchase, or tenders to sell or
redeem, Fund shares have been received, by taking the value of all assets of
the Fund, subtracting its liabilities, dividing by the number of shares
outstanding and adjusting to the nearest cent. The Exchange currently
observes the following holidays: New Year's Day; President's Day; Good
Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and
Christmas Day.

In the calculation of the Fund's net asset value: (1) a portfolio
security listed or traded on the Exchange 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 average of the
bid and asked price); (2) 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 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 Fund's Directors.

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. Contract owners who
own units in a separate account which correspond 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 intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (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 GIAC's separate accounts.
To qualify, the Fund must meet certain relatively complex tests, including the
requirement that less than 30% of its gross income (exclusive of losses) may
be derived from the sale or other disposition of securities held for less than
three months. 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

<PAGE>22

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) 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 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.

The 30% limitation and the diversification requirements applicable
to the Fund's assets may limit the extent to which the Fund will be able to
engage in transactions in options, futures contracts and options on futures
contracts and in certain other permitted investments.

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
conventions 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 can vary.

Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to Federal, state or local taxes.

<PAGE>23

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. Also, the Fund may quote information from securities indices or
financial and industry or general interest publications in its promotional
materials. Additionally, the Fund's promotional materials may contain
references to types and characteristics of certain securities; features of its
portfolio; financial markets; or historical, current or prospective economic
trends. Topics of general interest, such as personal financial planning, may
also be discussed.

Quotations of yield will be based on the investment income per share
earned during a particular 30 day period, less expenses accrued during the
period ("net investment income") and will be computed by dividing net
investment income by the maximum offering price per share on the last day of
the period, according to the following formula:

YIELD = 2[(A-B + 1)[*GRAPHIC OMITTED-SEE FOOTNOTE]- 1]
CD

where A = dividends and interest earned during the period, B = expenses
accrued for the period (net of any reimbursements), C = the average daily
number of shares outstanding during the period that were entitled to receive
dividends, and D = the maximum offering price per share on the last day of the
period.

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 and current yield may vary from time to time depending
on market conditions, the compositions of the Fund's portfolio and operating
expenses. These factors and possible differences in the methods used in
calculating yield should be considered when comparing the Fund's current yield
to yields published for other investment companies and other investment
vehicles. Total return and yield 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 and yield may be higher or lower than past total returns and yields
and there can be no assurance that any historical return or yield will
continue.
- ------------------------------------
* - The expression (A-B + 1) is being raised to the sixth power.

<PAGE>24

In connection with communicating its yield or 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 (up to the life of the Fund), and are calculated
pursuant to the following formula:

T = n [*GRAPHIC OMITTED-SEE FOOTNOTE] ERV/P - 1

(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 may also state
the total return figures without a sales charge along with such figures.

COUNSEL AND INDEPENDENT AUDITORS

Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York
10022, serves as counsel for the Fund.

Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has
been appointed independent auditors for the Fund.

FINANCIAL STATEMENTS

The Company's audited Statement of Assets and Liabilities as of
April 26, 1995 follow the Report of Independent Auditors.

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
- -----------------------------------
* - In this equation n is being multiplied by the square root of ERV/P.

<PAGE>25

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 mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.

Description of Standard & Poor's Ratings Group ("S&P") 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.

<PAGE>26

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. 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 buy 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. BBB, 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

<PAGE>27

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. 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>28

Report of Ernst & Young LLP, Independent Auditors

Shareholder and Board of Directors
Gabelli Capital Asset Fund

We have audited the accompanying statement of assets and liabilities
of Gabelli Capital Asset Fund, a series of Gabelli Capital Series Funds, Inc.,
as of April 26, 1995. This statement of assets and liabilities is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this statement of assets and liabilities based on our audit.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether this statement of assets
and liabilities is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall statement of assets and liabilities
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the statement of assets and liabilities referred to
above presents fairly, in all material respects, the financial position of
Gabelli Capital Asset Fund at April 26, 1995, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
April 27, 1995

<PAGE>29

GABELLI CAPITAL SERIES FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES

April 26, 1995

Gabelli
Capital Asset
Fund
-------------
Assets
- ------
Cash $100,000
Deferred organization costs 100,000
-------
200,000
Liabilities

Organization costs payable 100,000

Net Asset (applicable to 10,000 shares of
common stock issued and outstanding, $.001
par value, 500 million shares authorized) $100,000

Net Asset value, offering price and redemption
price per share $10.00

Note 1. Organization

The Gabelli Capital Asset Fund (the "Fund") is the initial series of Gabelli
Capital Series Funds, Inc. (the "Company"), which was incorporated in Maryland
on April 8, 1993. The Fund is an open-end, diversified management investment
company and has had not operations other than the sale to The Guardian
Insurance & Annuity Company, Inc. ("Guardian") of 10,000 shares of common
stock for $100,000 on April 26, 1995 ("Initial Shares"). Costs incurred and
to be incurred in connection with its organization and registration will be
deferred and amortized by the Fund over the period of benefit not to exceed 60
months from the date the Fund commences operations. Guardian has agreed that
if any of the Initial Shares are redeemed by any holder thereof prior to
amortization of the organization costs, the proceeds of such redemption will
be reduced by any unamortized organizational costs in the same proportion as
the number of initial shares being redeemed bears to the number of Initial
Shares outstanding at the time of redemption.

Shares of the Fund are available to the public only through the purchase of
certain variable annuity and variable life insurance contracts issued by
Guardian.

<PAGE>30

Note 2. Management, Investment Advisory and Distribution Agreements

The Company will enter into a Management Agreement with Guardian Investors
Services Corporation (the "Manager"). The basic fee payable to the Manager
under the Management Agreement is computed daily and paid monthly, at an
annual rate of 1.00% applied to the average daily net assets of the Fund. The
Manager has agreed to reimburse the Fund, up to its management fee, any amount
by which its aggregate expenses (including the management fee but excluding
interest, taxes, brokerage commissions, extraordinary expenses and any other
expenses not subject to the applicable expense limitation) exceed the most
restrictive expense limitation imposed by the securities law of any
jurisdiction in which the Fund's shares are offered for sale. The most
restrictive applicable limitation is presently believed to be 2-1/2% of the
first $30 million of average net assets, 2% of the next $70 million of average
net assets and 1-1/2% of the average net assets in excess of $100 million.

Pursuant to an Investment Advisory Agreement into which the Company and the
Manager will enter, Gabelli Funds, Inc. (the "Adviser") is responsible for the
management of the Fund's portfolio. The Adviser also is obligated to perform
certain administrative and management services for the Fund and will provide
all of the facilities, equipment and personnel and, if requested, office
space, necessary to perform its duties under the Investment Advisory
Agreement. 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 an annual rate of 0.75% applied to the average daily net assets of
the Fund.

The Fund will enter into a Distribution Agreement under which the Fund's
shares will be continuously offered by Gabelli & Company, Inc., an affiliate
of the Adviser.