- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- ------------------------------
[Photo with caption "Mario J. Gabelli, C.F.A. Portfolio Manager"]
Q. How did the Fund perform during the first six months of 1996 and what do you
identify as the Fund's competitive strengths or advantages?
A. In the first half of 1996, the performance of the Fund and the broad equities
market exceeded our expectations. The Fund's net asset value increased 11.3%(1)
over this time period and compares favorably to the 10.1% increase in the S&P
500 Index.(2) For the balance of the year, we expect equities to struggle
against the headwinds of renewed inflationary concern and higher long-term
interest rates.
We believe our value orientation and the Fund's focus on niche industries and
companies that can do well irrespective of the prevailing economic and market
trends will help us preserve and enhance assets in a less hospitable broad
market environment.
Q. What are your thoughts on the economy and the stock market?
A. There is an old saying that, "If you laid all the world's economists end to
end, they wouldn't reach a conclusion." To that, we would add, "...and if they
did, it would most likely be the wrong one." To wit, let's take a short trip
down memory lane to the beginning of this year. Following a sluggish fourth
quarter 1995 (0.5% GDP growth), the consensus expected only a modest pickup in
economic activity in the first half of 1996. Inflation was declared dead and it
would be just a matter of time before the Federal Reserve would jump-start the
economy by dropping short-term interest rates. Long rates would follow and we
would see a vibrant bond market that would help sustain the bull market in
stocks. Some well-known mutual fund managers, and one particularly visible, now
former, mutual fund manager, placed big bets on this economic scenario.
What actually happened? The economy started the year strong with 2.3% GDP
growth in the first quarter and gained momentum--the second quarter is projected
to come in at a 3.5 to 4.0% growth rate. Employment surged with a series of not
so good Fridays for the stock market (employment statistics are released on the
first Friday of every month). Grain prices soared with "beans in the teens" as
the rallying cry in the commodities pits. Higher oil and gasoline prices made
head lines before backing off in early summer. Lo and behold, inflation was not
dead! Bonds dropped and the Fed started hinting that its next move was more
likely up than down. Buoyed by strong cash inflow into equity mutual funds, the
stock market posted good gains. However, an increasingly choppy market indicated
that investors were finally looking down as well as up.
Q. What have you learned from this?
A. Despite being more right than wrong in our own economic/market projections
(we did forecast inflationary pressure and higher long-term interest rates, but
we also expressed very limited expectations for what has proved to be a fairly
vibrant stock market), we were once again reminded that our long-held and
articulated belief that focusing on the fundamental value of individual stocks
is, over the long term, a safer and vastly more reliable way to generate
consistent returns.
This is not to say that we don't have opinions on the economy and financial
markets. We do and will continue to share them with you. For example, we have
long opined that President Clinton was not likely to make the same mistake in an
election year that the then incumbent President Bush made in 1992. He'll want a
strong economy through the election. While domestic GDP growth is likely to ebb
in the second half from the unsustainable pace of the second quarter as higher
interest rates begin impacting economic activity and the somewhat overextended
American consumer tightens the purse strings, economic growth should be good
through the rest of the year. Corporate earnings will be decent--up around 10%
for the year. It is inflation, interest rates and the flow of funds that will
call the tune for the stock and bond markets over the next several quarters.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends
and distributions, and the deduction of Fund expenses. The actual total returns
for owners of the variable annuity contracts or variable life insurance policies
which provide for investment in the Fund will be lower to reflect separate
account and contract/policy charges. Past performance is not a guarantee of
future results. Investment return and principal value will fluctuate so that the
value of your investment, when redeemed, may be worth more or less than the
original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that is
generally considered to be representative of U.S. stock market activity. The S&P
500 Index is not available for direct investment and its returns do not reflect
the fees and expenses that have been deducted from the Fund.
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10
<PAGE>
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On the inflation front, we echo our comments from our year-end 1995 letter to
you. Inflation is peeking out of the coffin to which it was consigned by the
majority of Wall Street economists. What are the inflationary gremlins? Oil is
a wild card. The bombing of an American military base in Saudi Arabia may
represent an escalation of terrorism in the Mid-East. Political instability in
the region, along with increasing worldwide demand for oil, could translate into
higher prices. Whole sale food inflation is another wild card. With corn at
$5.50 per bushel, soybeans at around $8.50, and wheat above $5.00, it is just a
matter of time before we see higher prices at the supermarket. Retail food
inflation has been moderated in the first half as declining meat prices have
partially compensated for higher grain prices--cattle and hog farmers slaughter
herds rather than continue to fatten them up with more expensive grain. We will
see higher beef and pork prices next year. Finally and most importantly, we may
see some upward pressure on wages as outsourcing, downsizing, globalization of
labor and technology inputs run their course. Strong employment and a potential
showdown between General Motors and the United Auto Workers may prove
disquieting. The recent confirmation of Federal Reserve Chairman Greenspan to
another term should pave the way for these stirrings of inflation prior to the
election. Long rates are up more than 100 basis points this year. Long bonds are
already down 3% on a total return basis and nearly double that in price alone.
In addition, we expect both candidates to talk about tax cuts--which could spark
more jitters for the long bond. If, as we anticipate, inflation does hit the
3.5% level in the second half, equity investors may have cause to pause. In
other words, if bonds keep sneezing, sooner or later stocks will catch a cold.
Market observers may respond to this note of caution by saying investors no
longer care about the economy, inflation, interest rates or valuations. Flow of
funds is the only thing that matters. The stock market will move relentlessly
higher until all the baby boomers who are pouring money into equity funds reach
retirement age. Other observers point out that the aging of populations around
the world and the explosive growth in private pension plans in industrial
countries such as Japan, Germany, France, Italy and England point to strong
demand for global equities and, ultimately, for U.S. equities. We do not
discount the favorable influence these demographics have on the flow of funds
and on the equities market. We do think valuations matter and competition to
stocks in the form of higher bond yields could easily disrupt this comfortable
scenario.
Q. Do you have any pearls of wisdom?
A. Food retailers are dull. Who in their right mind would want to invest in a
business with such modest revenue growth and paper thin margins? Right now, we
do. There are several positive dynamics unfolding in the retail food industry,
which, for the value investor, make supermarket stocks more exciting than in
the past.
The first is wholesale food inflation. Grain prices are rising. Meat and
poultry prices will follow. Your friendly neighborhood grocer is going to pass
these higher costs on to you and tack on a little extra in the bargain. Yes,
supermarket margins generally rise during periods of wholesale food inflation.
Secondly, like most American industries, supermarkets are successfully reducing
costs through automation. More importantly, expansion has been curtailed.
Finally, just like the American banking industry, food retailing is ripe for
consolidation. Stronger supermarket chains are buying weaker chains, and this
is occurring as international food giants move into the U.S. (most recently,
Royal Ahold buying Stop & Shop) and are either operating them more
cost-efficiently or simply closing the doors to eliminate unprofitable locations
and increase margins.
The end result is that the skinny margins in the industry are becoming a
little fatter. With current net after-tax margins averaging around 2% of
revenues, even modest margin improvement produces enormous earnings gains. To
wit, a 0.5% expansion in margins translates into a 25% earnings gain. That's why
smart people like Kohlberg, Kravis, and Roberts bought Bruno's, Inc. and why
Royal Ahold NV of the Netherlands is buying Stop & Shop Companies, Inc. That's
why your Fund owns Giant Food, Inc. Margins and earnings for this company should
improve and, if current management can't make substantial progress in this
favorable environment, a stronger operator will step in.
----------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
----------------------------------------------------
1 Year................................... 18.2%
Since Inception (5/1/95)................. 17.4%
----------------------------------------------------
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11
<PAGE>
- ------------------
Gabelli Capital
Asset Fund 5
- ------------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- ------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1996 (Unaudited)
- -------------------------
COMMON STOCKS -- 97.2%
- -------------------------
Shares Value
- --------------------------------------------------------------------------------
Aerospace -- 1.6%
8,000 Boeing Co. $ 697,000
------------
Automotive -- 0.3%
3,000 General Motors Corporation 157,125
------------
Automotive: Parts and Accessories -- 3.4%
30,000 GenCorp Inc. 453,750
25,000 Handy & Harman 425,000
8,000 Quaker State Corporation 120,000
18,250 Wynn's International, Inc. 515,563
------------
1,514,313
------------
Aviation: Parts and Services -- 4.6%
18,000 AAR Corp. 366,750
10,000 Coltec Industries Inc.+ 142,500
2,000 Curtiss-Wright Corporation 108,000
7,500 Hi-Shear Industries Inc.+ 45,937
15,000 Hudson General Corporation 530,625
10,000 Moog, Inc., Class A+ 245,000
12,000 Precision Castparts Corp. 516,000
6,000 Rohr Inc.+ 125,250
------------
2,080,062
------------
Broadcasting -- 10.6%
28,000 Ackerley Communications Inc. 763,000
4,500 BHC Communications, Inc., Class A 439,875
17,905 Chris-Craft Industries, Inc. 787,820
13,000 Grupo Televisa S.A., GDR+ 399,750
10,000 Liberty Corporation 317,500
10,000 LIN Television Corporation+ 360,000
10,000 Multi-Market Radio Inc., Class A+ 109,375
13,000 United Television, Inc. 1,274,000
17,000 Westinghouse Electric Corp. 318,750
------------
4,770,070
------------
Cable -- 10.7%
10,000 BET Holdings, Inc., Class A+ 263,750
27,000 Cablevision Systems Corporation,
Class A+ 1,248,750
50,000 International Family Entertainment, Inc.,
Class B+ 925,000
20,000 Media General, Inc., Class A 745,000
4,000 Tele-Communications, Inc., Class A+ 72,500
40,000 Tele-Communications, Inc./Liberty
Media Group, Class A+ 1,060,000
18,000 Tele-Communications International, Inc.,
Class A+ 317,250
12,000 United International Holdings, Inc.,
Class A+ 165,000
------------
4,797,250
------------
Consumer Products -- 6.3%
20,000 American Brands, Inc. 907,500
12,000 Culbro Corporation+ 715,500
2,000 Eastman Kodak Company 155,500
21,000 General Housewares Corp. 259,875
10,000 Kerr Group, Inc.+ 43,750
6,500 National Presto Industries Inc. 247,000
8,000 Ralston Purina Group 513,000
------------
2,842,125
------------
Consumer Services -- 1.8%
35,000 Rollins, Inc. 822,500
------------
Diversified Industrial -- 4.6%
15,000 GATX Corporation 723,750
5,000 ITT Industries Inc. 125,625
35,000 Katy Industries, Inc. 525,000
10,000 Thomas Industries Inc. 191,250
15,000 Trinity Industries, Inc. 510,000
------------
2,075,625
------------
Electrical Equipment and Supplies -- 2.7%
27,000 General Instrument Corporation+ 779,625
8,000 Honeywell Inc. 436,000
------------
1,215,625
------------
Energy -- 1.2%
160,000 Kaneb Services, Inc.+ 520,000
------------
Entertainment -- 5.1%
21,000 Gaylord Entertainment Company, Class A 593,250
12,000 GC Companies, Inc.+ 447,000
10,000 Jackpot Enterprises Inc. 127,500
22,000 Time Warner Inc. 863,500
7,000 Viacom Inc., Class A+ 266,875
------------
2,298,125
------------
See notes to financial statements.
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52
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------------------
Gabelli Capital
5 Asset Fund
------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Financial Services -- 2.1%
8,000 American Express Company $ 357,000
3,000 H&R Block Inc. 97,875
12,000 Midland Company 504,000
------------
958,875
------------
Food and Beverage -- 6.6%
25,942 Bruno's, Inc.+ 359,945
8,000 Celestial Seasonings, Inc.+ 164,000
33,000 PepsiCo, Inc. 1,167,375
22,500 Quaker Oats Company 767,813
8,000 Seagram Company Ltd. 269,000
4,560 Tootsie Roll Industries, Inc. 162,450
2,000 Wrigley, (Wm.) Jr. Company 101,000
------------
2,991,583
------------
Health Care -- 5.4%
40,000 Community Health Systems+ 2,070,000
7,000 Genentech Inc.+ 366,625
------------
2,436,625
------------
Hotels/Casinos -- 2.2%
12,000 Aztar Corporation+ 138,000
5,000 Hilton Hotels Corporation 562,500
3,000 ITT Corporation, New+ 198,750
2,000 Mirage Resorts, Incorporated+ 108,000
------------
1,007,250
------------
Industrial Equipment and Supplies -- 8.4%
20,000 AMETEK, Inc. 435,000
3,000 Ampco-Pittsburgh Corporation 35,250
5,000 Crane Co. 205,000
8,000 CTS Corporation 376,000
2,000 Dynamics Corporation of America 53,250
12,500 Franklin Electric Company 437,500
20,000 Goulds Pumps, Incorporated+ 512,500
8,000 Ingersoll Rand Co. 350,000
30,000 Navistar International Corporation+ 296,250
7,500 Pittway Corporation 330,000
16,000 Sequa Corporation, Class A+ 690,000
12,000 TransPro Inc. 82,500
------------
3,803,250
------------
Oil and Gas Equipment/Services -- 0.1%
4,500 RPC Inc.+ 51,750
------------
Publishing -- 6.0%
20,000 Golden Books Family
Entertainment, Inc.+ 240,000
16,000 Houghton Mifflin Company 798,000
10,000 Lee Enterprises, Incorporated 236,250
10,000 Meredith Corporation 417,500
5,000 Providence Journal Company, Class A+ 76,875
12,000 Pulitzer Publishing Company 711,000
15,000 Thomas Nelson Inc. 200,625
------------
2,680,250
------------
Retail -- 6.1%
16,200 Giant Food Inc., Class A 581,175
30,000 Neiman Marcus Group, Inc.+ 810,000
40,000 Stop & Shop Companies, Inc.+ 1,335,000
------------
2,726,175
------------
Specialty Chemical -- 0.8%
14,000 Ferro Corporation 371,000
------------
Telecommunications -- 0.9%
13,100 Pacific Telecom, Inc. (a) 393,000
------------
Wireless Communications -- 5.7%
10,000 Cellular Communications, Inc., Class A+ 531,250
20,000 Centennial Cellular Corp., Class A+ 337,500
15,000 COMSAT Corporation, Series 1 390,000
25,000 Loral Space & Communications Ltd.+ 340,625
14,000 Rogers Cantel Mobile
Communications, Inc., Class B+ 327,250
14,000 Telephone and Data Systems, Inc. 630,000
------------
2,556,625
------------
TOTAL COMMON STOCKS
(Cost $40,096,630) 43,766,203
------------
- --------------------------
PREFERRED STOCK -- 0.1%
- --------------------------
Industrial Equipment and Supplies -- 0.1%
1,000 Sequa Corporation, $5.00, Conv. Pfd. 71,875
------------
TOTAL PREFERRED STOCK
(Cost $63,175) 71,875
------------
See notes to financial statements.
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53
<PAGE>
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Gabelli Capital
Asset Fund 5
- ------------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- ------------------------------
SCHEDULE OF INVESTMENTS (continued)
June 30, 1996 (Unaudited)
- ------------------------------
U.S. TREASURY BILLS - 3.5%
- ------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$1,570,000 4.94% to 5.04%++ due
07/05/1996 - 08/22/1996 $ 1,563,434
------------
TOTAL U.S. TREASURY BILLS
(Cost $1,563,434) 1,563,434
------------
TOTAL INVESTMENTS -- 100.8%
(Cost $41,723,239) (b) 45,401,512
------------
OTHER ASSETS AND LIABILITIES
(Net) - (0.8)% (377,099)
------------
NET ASSETS -- 100.0% $ 45,024,413
============
- ---------------------------------------------
Top Ten Holdings
June 30, 1996
-------------
1. Community Health Systems, Inc.
2. Stop & Shop Companies, Inc.
3. United Television, Inc.
4. Cablevision Systems Corporation
5. PepsiCo, Inc.
6. TCI/Liberty Media Group
7. International Family Entertainment, Inc.
8. American Brands, Inc.
9. Time Warner Inc.
10. Rollins, Inc.
- ---------------------------------------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Aggregate cost for Federal tax purposes was $41,739,294. Net unrealized
appreciation for Federal tax purposes was $3,662,218 (gross unrealized
appreciation was $4,395,267 and gross unrealized depreciation was
$733,049).
+ Non-income producing security
++ Represents annualized yield at date of purchase.
GDR- Global Depositary Receipt
See notes to financial statements.
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54
<PAGE>
------------------
Gabelli Capital
5 Asset Fund
------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1996 (Unaudited)
Assets:
Investments, at value
(Cost $41,723,239) $45,401,512
Cash 64,629
Unamortized organization costs 76,631
Dividends receivable 24,881
------------
Total Assets 45,567,653
------------
Liabilities:
Payable for investments purchased 367,513
Organization costs payable 99,905
Management fee payable 36,365
Accrued Directors' fees 6,250
Accrued expenses and other payables 33,207
------------
Total Liabilities 543,240
------------
Net assets applicable to 3,781,009 shares of
common stock outstanding $45,024,413
============
NET ASSETS consist of:
Shares of common stock at par value $ 3,781
Additional paid-in capital 40,613,215
Accumulated net realized
gain on investments 672,948
Undistributed net investment income 56,196
Net unrealized appreciation of investments 3,678,273
------------
Total Net Assets $45,024,413
============
Net Asset Value, offering and redemption
price per share ($45,024,413 4 3,781,009
shares outstanding; 500,000,000 shares
authorized of $0.001 par value) $ 11.91
============
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996
(Unaudited)
Investment Income:
Dividend income (net of foreign
withholding taxes of $180) $ 166,024
Interest income 126,772
------------
Total Investment Income 292,796
------------
Expenses:
Management fee 179,044
Directors' fees 15,533
Custodian fees 11,280
Legal and audit fees 11,204
Amortization of organization costs 9,945
Shareholder services fees 6,192
Other 3,913
------------
Total expenses 237,111
------------
Net Investment Income 55,685
------------
Net Realized and Unrealized Gain on
Investments:
Net realized gain on investments sold 689,003
Change in net unrealized appreciation of
investments during the period 2,827,119
------------
Net realized and unrealized gain on investments 3,516,122
------------
Net increase in net assets resulting from
operations $ 3,571,807
============
See notes to financial statements.
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55
<PAGE>
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Gabelli Capital
Asset Fund 5
- ------------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- -------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Six Months
Ended Period
6/30/96 Ended
(Unaudited) 12/31/95*
----------- -----------
Net investment income $ 55,685 $ 77,973
Net realized gain on investments 689,003 234,480
Net change in unrealized appreciation of investments 2,827,119 851,154
----------- -----------
Net increase in net assets resulting from operations 3,571,807 1,163,607
Distribution to shareholders from:
Net investment income -- (77,462)
Net realized gain on investments -- (234,480)
Distributions in excess of net realized gain
on investments -- (16,055)
Net increase in net assets from Fund share
transactions 15,088,664 25,428,332
----------- -----------
Net increase in net assets 18,660,471 26,263,942
NET ASSETS:
Beginning of period 26,363,942 100,000
----------- -----------
End of period (including undistributed net
investment income of $56,196 and $511,
respectively) $45,024,413 $26,363,942
=========== ===========
- ----------
*The Fund commenced operations on May 1, 1995.
See notes to financial statements.
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56
<PAGE>
------------------
Gabelli Capital
5 Asset Fund
------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Per share amounts for a Fund share outstanding throughout each period.
Six Months
Ended Period
6/30/96 Ended
(Unaudited) 12/31/95*
----------- -----------
Operating performance:
Net asset value, beginning of period $10.70 $10.00
--------- ---------
Net investment income (a) 0.01 0.03
Net realized and unrealized gain on investments 1.20 0.80
--------- ---------
Total from investment operations 1.21 0.83
--------- ---------
Distributions to shareholders from:
Net investment income -- (0.03)
Net realized gains -- (0.09)
Distributions in excess of net realized gains -- (0.01)
--------- ---------
Total Distributions -- (0.13)
--------- ---------
Net asset value, end of period $11.91 $10.70
========= =========
Total return** 11.3% 8.4%
========= =========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $45,024 $26,364
Ratio of net investment income to average
net assets 0.31%+ 0.75%+
Ratio of operating expenses to average
net assets (b) 1.32%+ 1.78%+
Portfolio turnover rate 34.9% 81.4%
Average commission rate (per share of security) $0.0494 N/A
- ------------
* The Fund commenced operations on May 1, 1995.
** Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends. Total return for the period of less
than one year is not annualized.
+ Annualized.
(a) Net investment income before expenses assumed by the Manager and Adviser
for the period ended December 31, 1995 was $0.03.
(b) Operating expense ratio before expenses assumed by the Manager and Adviser
for the period ended December 31, 1995 was 1.92%.
See notes to financial statements.
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57
<PAGE>
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Gabelli Capital Asset Fund
- ------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- -----------------------------------------
1. -- Significant Accounting Policies
- -----------------------------------------
Gabelli Capital Asset Fund (the "Fund"), a series of Gabelli Capital Series
Funds, Inc. (the "Company"), was organized on April 8, 1993 as a Maryland
corporation. The Company is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), whose primary objective is growth of capital. Shares of the Fund
are available to the public only through the purchase of certain variable
annuity and variable life insurance contracts issued by The Guardian Insurance &
Annuity Company, Inc. The Fund commenced operations on May 1, 1995. On April 26,
1995, the Fund sold a total of 10,000 shares of common stock to Guardian
Insurance & Annuity Company, Inc. and proceeds to the Fund amounted to $100,000.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements.
Security Valuation.
Portfolio securities which are traded only on a nationally recognized
securities exchange or are quoted on NASDAQ are valued at the last sale price as
of the close of business on the day the securities are being valued or, lacking
any sales, at the mean between closing bid and asked prices. 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. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market, as
determined by Gabelli Funds, Inc. (the "Adviser"). Securities and assets for
which market quotations are not readily available are valued at fair value, as
determined in good faith by or under the direction of the Board of Directors of
the Company. Short-term investments that mature in more than 60 days are valued
at the highest bid price obtained from a dealer maintaining an active market in
that security. Short-term investments that mature in 60 days or less are valued
at amortized cost, unless the Board of Directors determines that such valuation
does not constitute fair value.
Repurchase Agreements.
The Fund may engage in repurchase agreement transactions. Under the terms of
a typical repurchase agreement, the Fund takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Fund's holding
period. The value of the collateral is at least equal at all times to the total
amount of the repurchase obligations, including interest. In the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred. There is potential loss to the Fund in the event the Fund is
delayed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights. The Adviser, acting under the supervision of the Board of Directors,
reviews the value of the collateral and the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate
potential risks.
Securities Transactions and Investment Income.
Securities transactions are accounted for on the trade date with realized
gain or loss on investments determined using specific identification as the cost
method. Interest income (including amortization of
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58
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Gabelli Capital
5 Asset Fund
------------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- ------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited) (continued)
premium and accretion of discount) is recorded as earned.
Dividends and Distributions to Shareholders.
Dividend income and dividends and distributions to shareholders are recorded
on the ex-dividend date. Income dividends and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
Provision for Income Taxes.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As a result, a Federal income tax provision is not required.
Deferred Organization Expenses.
A total of $100,000 was incurred in connection with the organization of the
Fund. These costs were advanced by the Guardian Insurance & Annuity Company Inc.
and will be reimbursed by the Fund after the sooner of one year or when the Fund
reaches $50 million. These costs were deferred and are being amortized on a
straight-line basis over a period of 60 months from the date the Fund commenced
investment operations.
- ---------------------------------------------
2. -- Agreements with Affiliated Parties
- ---------------------------------------------
Pursuant to a management agreement (the "Management Agreement"), the Fund
will pay Guardian Investor Services Corporation (the "Manager") a fee, computed
daily and paid monthly, at the annual rate of 1.00 percent of the value of the
Fund's average daily net assets. Pursuant to an Investment Advisory Agreement
among the Fund, the Manager and the Adviser, the Adviser, under the supervision
of the Company's Board of Directors and the Manager, manages the Fund's assets
in accordance with the Fund's investment objectives and policies, makes
investment decisions for the Fund, places purchase and sale orders on behalf of
the Fund, provides investment research and provides facilities and personnel
required for the Fund's administrative needs. The Adviser may delegate its
administrative role and currently has done so to First Data Investor Services
Group, Inc., the Fund's sub-administrator (the "Sub-Administrator"). The Adviser
will supervise the performance of administrative and professional services
provided by others and pays the compensation of the Sub-Administrator and all
officers and directors of the 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 paid monthly, at the annual rate of 0.75
percent of the value of the Fund's average daily net assets.
- -------------------------------
3. -- Portfolio Securities
- -------------------------------
Cost of purchases and proceeds from sales of investment securities for the
six months ended June 30, 1996, excluding U.S. government and short-term
investments, aggregated $31,061,978 and $11,054,530, respectively.
- --------------------------------------
4. -- Transactions with Affiliates
- --------------------------------------
During the six months ended June 30, 1996, the Fund paid brokerage
commissions of $31,075 to Gabelli & Company, Inc. and its affiliates.
- --------------------------------------------------------------------------------
59
<PAGE>
- ------------------
Gabelli Capital
Asset Fund 5
- ------------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- ------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited) (continued)
- --------------------------------
5. -- Shares of Common Stock
- --------------------------------
Common stock transactions were as follows:
Six Months Ended Period Ended
6/30/96 12/31/95*
----------- -----------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
Shares sold 1,724,314 $ 19,637,713 2,907,580 $ 30,237,331
Shares issued upon re-
investment of dividends -- -- 30,769 327,997
Shares redeemed (406,643) (4,549,049) (485,011) (5,136,996)
---------- ------------ ---------- ------------
Net increase 1,317,671 $ 15,088,664 2,453,338 $ 25,428,332
========== ============ ========== ============
* The Fund commenced operations on May 1, 1995.
See notes to financial statements.
- --------------------------------------------------------------------------------
60
