- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund 14 68
- --------------------------------------
Objective: Growth of capital. Current
income is a secondary
objective
- --------------------------------------------------------------------------------
Portfolio: Primarily common and
preferred stocks and other
securities representing the
right to acquire common stocks
- --------------------------------------------------------------------------------
Inception: May 1, 1995
- --------------------------------------------------------------------------------
Net Assets at June 30, 1998: $155,062,893
- --------------------------------------------------------------------------------
"We buy high quality, dominant market share companies in a wide variety of
industries. We believe that over the long term these companies will succeed
irrespective of shorter term macroeconomic trends and that we will be rewarded
for our investment patience."
-- Mario J. Gabelli, C.F.A.
Portfolio Manager
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- -----------------------------------
[Photo of Mario J. Gabelli, C.F.A. Portfolio Manager]
Q. How did the Fund perform for the first six months of 1998?
A. For the six months ended June 30, 1998, the Fund's total return was 13.7%.(1)
The Standard & Poor's ("S&P") 500(2) and Russell 2000 Index(3) had returns of
17.7% and 4.9%, respectively, over the same period. Each index is an unmanaged
indicator of stock market performance. The Fund was up 33.6% over the trailing
twelve-month period. The S&P 500 and Russell 2000 rose 30.2% and 16.5%,
respectively, over the same twelve-month period. For the three year period ended
June 30, 1998, the Fund's return averaged 24.1% annually, versus average annual
returns of 30.2% and 18.9% for the S&P 500 and Russell 2000, respectively. Since
inception on May 1, 1995 through June 30, 1998, the Fund has had a cumulative
total return of 94.9%, which equates to an average annual total return of 23.4%.
In the second quarter of 1998, there was a continuation of the best of
times for large stocks and the worst of times for small cap stocks. During the
quarter, the large cap market, as measured by the S&P 500 Index, rose 3.3% while
small cap stocks, as measured by the Russell 2000 Index, declined by 4.7%. U.S.
Government Bonds rallied in a classic global "flight to quality," with the yield
on the 30-year U.S. Treasury Bond falling to 5.57% in mid-June.
Q. What factors affected the Fund's performance?
A. In reviewing our successes during the first half of the year, retail, media
and telecommunications holdings proved largely resistant to the Asian Flu. With
the domestic economy still rolling along and consumer confidence at record
levels, selected retailers posted solid earnings gains. Media stocks
(broadcasters, cable television operators and entertainment software producers)
also benefited from positive earnings reports and further consolidation in their
industries. Telephone companies advanced as investors focused on the
opportunities being presented by global deregulation. We believe these groups
will continue to perform well in the months ahead.
Our disappointments were largely in industry groups that were, or were
likely to be impacted by Asian economic woes. Agricultural equipment
manufacturers suffered as Asian economic weakness foreshadowed reduced
agricultural exports and restrained cash flows for American farmers. Aircraft
suppliers nose-dived as Southeast Asian airlines began scaling back expansion
plans. Energy stocks contracted as weakening demand from Asia combined with
weather-related factors and overproduction from OPEC nations to drop oil prices
to a twelve year low. Finally, manufacturing companies going head to head with
Asian competitors fell along with the yen and other Asian currencies.
Q. What strategies do you use to manage the Fund?
A. We buy high quality, dominant market share companies in a wide variety of
industries. We believe that over the long term these companies will succeed
irrespective of shorter term macroeconomic trends and that we will be rewarded
for our investment patience.
While investors worry about a substantial correction
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all 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 deducted from the Fund.
(3) The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The Russell 2000 is
not available for direct investment, and its returns do not reflect the
fees and expenses deducted from the Fund.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
or even a bear market for the Dow Jones Industrial Average and S&P 500, small
cap stocks are already experiencing one. Although as of the end of second
quarter 1998, the Russell 2000 is up modestly, approximately 60% of all
Nasdaq-listed stocks are off 20% or more from their 52-week highs. What is wrong
with small cap stocks? In our opinion, nothing. In fact, we believe that small
companies operating primarily in the domestic market are far less vulnerable to
Asian economic problems than the large multinationals. This has not prevented
investors from abandoning small cap stocks to chase large cap stock returns. Is
this likely to change in the foreseeable future? We do not know, and in a sense,
do not care. We are patient value investors who count on Mr. Market's mood
swings to allow us to buy quality companies at discount prices. The fact that
Mr. Market, perhaps fueled by the migration of assets into S&P index funds, is
mindlessly lavishing attention on large companies and ignoring more
fundamentally attractive smaller ones makes it easier for us to pick up small
cap stock bargains.
As always, there are plenty of things for pessimists to worry about and
for optimists to cheer. As investment realists, we do a little of both. We take
the threat posed by the Asian Flu seriously. However, we believe the U.S.
economy and stock market will be relatively resistant, though not immune, to
this latest global financial virus. Our opinions on the economy and the market
duly stated, let us remind you we spend most of our time and energy researching
individual companies that we believe will do well over the longer term
irrespective of shorter term economic and market trends.
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
as of June 30, 1998
- -------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
for Periods Ended 6/30/98(1)
================================================================================
1 Year ................................... 33.60%
3 Years .................................. 24.10%
Since Inception (5/1/95) ................. 23.44%
- --------------------------------------------------------------------------------
Q. What is your outlook for the remainder of the year?
A. Is it time to quarantine your investment portfolio by significantly reducing
your exposure to equities? Let's diagnose the problem and venture an opinion on
just how vulnerable the U.S. economy and stock market may be. We do not expect a
painless solution (for them or us) to Japan and Southeast Asia's economic
problems. Japan appears committed to exporting its way out of recession rather
than undertaking any serious domestic economic reforms. Without massive currency
intervention, which is disruptive in its own right, we will probably continue to
see a weak yen against the dollar. Despite International Monetary Fund (IMF)
bailouts, most Asian currencies are likely to remain anemic. This is not good
news for any American company going head to head with Japan or its Asian
neighbors in the domestic and international markets. The same holds true for
European manufacturers, particularly if the new euro rivals the dollar in
strength.
Additionally, the Asian Flu has some positive side effects. Lower
commodity prices, low cost Asian imports and continued domestic pricing
restraint should keep inflation in check and perhaps allow interest rates to
trend down even further. This should help sustain the robust service sector of
the economy--now 55% of U.S. Gross Domestic Product and growing. Despite
Asian-induced jitters and slowing corporate profit growth, there is still a lot
of money coming into equity mutual funds. The question of the day becomes how
investors will react if the market waters become even choppier. Will they head
to shore or simply not venture farther out to sea? With so much liquidity and
the current low returns from equity alternatives, we think the latter is more
likely.
We believe it is still too early to accurately assess the impact of Asian
economic distress on the U.S. economy and corporate earnings. However, Asia's
problems may prolong investment uncertainty and restrain stock prices, perhaps
for the balance of the year. Looking farther ahead, we believe equities will
still provide investors with superior risk adjusted returns relative to other
asset classes and that our value discipline will continue to reward
shareholders.
- --------------------------------------------------------------------------------
15
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- ----------------------
COMMON STOCKS -- 94.1%
- ----------------------
Shares Value
- ----------------------------------------------------------------------
Aerospace -- 1.1%
5,000 Boeing Co. $ 222,813
70,000 Fairchild Corp., Cl. A 1,413,125
-------------
1,635,938
Agriculture -- 1.5%
15,000 Archer-Daniels-Midland Co. 290,625
18,000 DeKalb Genetics Corp., Cl. B 1,703,250
5,000 Monsanto Co. 279,375
-------------
2,273,250
-------------
Automotive: Parts and Accessories -- 3.2%
12,000 Echlin Inc. 588,750
50,000 GenCorp Inc. 1,312,500
45,000 Modine Manufacturing Co. 1,558,125
8,000 Ragan (Brad) Inc. 314,000
20,000 TransPro Inc. 148,750
55,500 Wynn's International Inc. 1,068,375
-------------
4,990,500
-------------
Aviation: Parts and Services -- 2.7%
16,500 AAR Corp. 487,781
24,000 Barnes Group Inc. 649,500
25,000 Coltec Industries Inc.+ 496,875
16,000 Curtiss-Wright Corp. 627,000
7,500 Hi-Shear Industries Inc. 20,156
31,000 Hudson General Corp. 1,569,375
10,000 Moog Inc., Cl. A+ 381,875
-------------
4,232,562
-------------
Broadcasting -- 5.5%
67,000 Ackerley Communications Inc. 1,407,000
27,235 Chris-Craft Industries Inc. 1,489,414
12,000 Gray Communications
Systems Inc. 388,500
50,000 Gray Communications
Systems Inc., Cl. B 1,543,750
18,000 Grupo Televisa SA, GDR+ 677,250
23,000 Liberty Corp. 1,157,188
16,500 United Television Inc. 1,889,241
-------------
8,552,343
-------------
Building and Construction -- 0.4%
20,000 Nortek Inc. 615,000
-------------
Business Services -- 0.4%
20,000 EnviroSource Inc.+ 350,000
10,000 Republic Industries Inc.+ 250,000
-------------
600,000
-------------
Cable -- 8.7%
43,300 BET Holdings Inc., Cl. A+ 2,725,194
85,000 Cablevision Systems Corp., Cl. A+ 7,097,500
50,000 MediaOne Group Inc. 2,196,875
17,000 Tele-Communications Inc., Cl. A+ 653,438
27,000 Tele-Communications International
Inc., Cl. A + 542,531
20,000 United International
Holdings Inc., Cl. A+ 320,000
-------------
13,535,538
-------------
Consumer Products -- 2.4%
100,000 Carter-Wallace Inc. 1,806,250
18,000 Gallaher Group plc+ 393,750
20,000 General Cigar Holdings Inc. 197,500
18,000 General Cigar Holdings Inc.,
Cl. B (a) 177,750
35,000 General Housewares Corp. 352,188
21,000 National Presto Industries Inc. 817,688
-------------
3,745,126
-------------
Consumer Services -- 1.9%
39,000 Loewen Group Inc. 1,053,000
95,000 Rollins Inc. 1,947,500
-------------
3,000,500
-------------
Diversified Industrial -- 5.0%
6,000 Crane Co. 291,375
46,000 GATX Corp. 2,018,250
20,000 Honeywell Inc. 1,671,250
45,000 ITT Industries Inc. 1,681,875
50,000 Katy Industries Inc. 912,500
20,000 Thomas Industries Inc. 488,750
45,000 Tyler Corp.+ 464,063
10,000 WHX Corp. 128,750
-------------
7,656,813
-------------
See notes to financial statements.
- --------------------------------------------------------------------------------
68
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------
Energy -- 2.0%
12,000 Eastern Enterprises $ 514,500
90,000 Kaneb Services Inc.+ 489,375
40,000 Pennzoil Co. 2,025,000
-------------
3,028,875
-------------
Entertainment -- 10.1%
84,664 Ascent Entertainment Group Inc.+ 941,887
3,500 Fisher Companies Inc. 250,250
45,000 Gaylord Entertainment Co., Cl. A 1,451,250
40,000 GC Companies Inc.+ 2,075,000
92,000 Tele-Communications Inc./Liberty
Media Group, Cl. A+ 3,570,750
23,000 Time Warner Inc. 1,965,063
80,000 USA Networks Inc.+ 2,010,000
58,000 Viacom Inc., Cl. A+ 3,393,000
-------------
15,657,200
-------------
Equipment and Supplies -- 9.4%
26,000 Aeroquip-Vickers Inc. 1,517,750
26,000 AMETEK Inc. 762,125
40,000 Ampco-Pittsburgh Corp. 615,000
30,000 CLARCOR Inc. 630,000
15,000 CTS Corp. 447,188
7,000 Daniel Industries Inc. 133,000
100,000 Fedders Corp. 668,750
30,000 Flowserve Corp. 731,250
12,500 Franklin Electric Co. Inc. 850,000
100,000 Hussmann International Inc. 1,875,000
22,000 IDEX Corp. 759,000
28,000 Navistar International Corp.+ 808,500
14,000 Pittway Corp. 1,067,500
30,000 Sequa Corp., Cl A 2,002,500
30,000 SPS Technologies Inc.+ 1,755,000
-------------
14,622,563
-------------
Financial Services -- 5.1%
19,500 Allied Group Inc. 912,844
58,000 American Bankers Insurance
Group Inc. 3,487,250
30,000 Argonaut Group Inc. 948,750
5,000 Mellon Bank Corp. 348,125
63,000 Midland Co. 1,441,125
30,300 Pioneer Group Inc. 797,269
-------------
7,935,363
-------------
Food and Beverage -- 8.5%
4,000 Bestfoods Inc. 232,250
44,000 Celestial Seasonings Inc.+ 2,178,000
31,200 Corn Products International Inc.+ 1,064,700
15,000 General Mills Inc. 1,025,625
12,000 Heinz (H.J.) Co. 673,500
3,000 Keebler Foods Co. 82,500
25,000 Kellogg Co. 939,063
38,000 PepsiCo Inc. 1,565,125
20,000 Quaker Oats Co. 1,098,750
35,000 Seagram Co. Ltd. 1,432,813
11,000 Tootsie Roll Industries Inc. 844,250
7,000 Twinlab Corp. 305,813
78,000 Whitman Corp. 1,794,000
-------------
13,236,389
-------------
Health Care -- 0.7%
120,000 IVAX Corp.+ 1,110,000
-------------
Hotels and Gaming -- 2.1%
102,000 Aztar Corp.+ 694,875
30,000 Hilton Hotels Corp. 855,000
100,000 Jackpot Enterprises Inc. 1,256,250
50,000 Trump Hotels & Casino
Resorts Inc.+ 353,125
-------------
3,159,250
-------------
Home Furnishings -- 0.2%
5,000 Triangle Pacific Corp. 275,000
-------------
Paper and Forest Products -- 0.3%
12,000 Sealed Air Corp. 441,000
-------------
Publishing -- 7.8%
22,000 Dow Jones & Co. Inc. 1,226,500
22,000 Golden Books Family
Entertainment Inc.+ 84,563
15,000 Harcourt General Inc. 892,500
24,000 Lee Enterprises Inc. 735,000
20,500 McClatchy Newspapers Inc., Cl. A 709,813
8,000 McGraw-Hill Companies Inc. 652,500
67,000 Media General Inc., Cl. A 3,299,750
22,000 Meredith Corp. 1,032,625
15,000 Pulitzer Publishing Co. 1,338,750
40,000 Reader's Digest Association Inc., Cl. B 1,085,000
See notes to financial statements.
- --------------------------------------------------------------------------------
69
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Shares Value
- ----------------------------------------------------------------------
Publishing -- 7.8% (continued)
56,000 Thomas Nelson Inc. $ 749,000
5,000 Times Mirror Co., Cl. A 314,375
-------------
12,120,376
-------------
Real Estate -- 1.2%
32,000 Griffin Land & Nurseries Inc. 560,000
75,000 Catellus Development Corp. 1,326,563
-------------
1,886,563
-------------
Retail -- 5.5%
10,000 Aaron Rents Inc. 100,000
5,000 Aaron Rents Inc., Cl. A 181,250
80,000 American Stores Co. 1,935,000
50,000 Bruno's Inc., New+ 52,500
65,000 Giant Food Inc., Cl. A 2,799,063
15,000 Lillian Vernon Corp. 249,375
10,000 Mercantile Stores Co. 789,375
53,000 Neiman Marcus Group Inc.+ 2,302,188
18,500 Scheib (Earl) Inc. 143,375
-------------
8,552,126
-------------
Specialty Chemical -- 1.1%
11,000 Arco Chemical Co. 630,438
18,000 Ferro Corp. 455,625
20,000 Sybron Chemicals Inc. 640,000
-------------
1,726,063
-------------
Telecommunications -- 3.6%
200,750 Citizens Utilities Co., Cl. B 1,932,219
40,000 Frontier Corp. 1,260,000
20,000 GST Telecommunications Inc.+ 288,750
49,500 Rogers Communications Inc., Cl. B+ 445,500
25,000 Southern New England
Telecommunications Corp. 1,637,500
1,366 US West Inc. 64,179
-------------
5,628,148
-------------
Wireless Communications -- 3.7%
25,000 360(degrees)Communications Co.+ 800,000
20,000 Centennial Cellular Corp., Cl. A+ 746,250
45,000 COMSAT Corp. 1,274,063
55,000 Rogers Cantel Mobile
Communications Inc., Cl. B+ 687,500
55,000 Telephone and Data Systems Inc. 2,165,625
-------------
5,673,438
-------------
TOTAL COMMON STOCKS
(Cost $112,702,237) 145,889,924
-------------
- ---------------------------
U.S. TREASURY BILLS -- 7.8%
- ---------------------------
Principal
Amount Value
- ----------------------------------------------------------------------
$ 12,173,000 4.87% to 5.16%++
due 08/06/98 -- 09/17/98 12,076,617
-------------
TOTAL U.S. TREASURY BILLS
(Cost $12,076,617) 12,076,617
-------------
TOTAL INVESTMENTS -- 101.9%
(Cost $124,778,854) 157,966,541
-------------
OTHER ASSETS AND
LIABILITIES (Net) -(1.9)% (2,903,648)
-------------
NET ASSETS -- 100.0% $ 155,062,893
=============
For Federal tax purposes:
Aggregate cost $124,778,854
============
Gross unrealized appreciation $ 36,382,276
Gross unrealized depreciation (3,194,589)
------------
Net unrealized appreciation $ 33,187,687
============
(a) Security fair valued as determined by the Board of Directors.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
GDR -- Global Depositary Receipt
See notes to financial statements.
- --------------------------------------------------------------------------------
70
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
Assets:
Investments, at value (cost $124,778,854) $157,966,541
Cash 535
Dividends and interest receivable 87,032
Receivable for investments sold 195,552
Receivable for capital shares sold 212,700
Deferred organizational expenses 38,243
------------
Total Assets 158,500,603
------------
Liabilities:
Payable for investments purchased 2,757,345
Payable for capital shares redeemed 445,744
Payable for investment advisory fees 122,686
Accrued Directors' fees 6,750
Other accrued expenses 105,185
------------
Total Liabilities 3,437,710
------------
Net Assets applicable to 8,911,147 shares
outstanding $155,062,893
============
Net Assets consist of:
Capital stock, at par value $ 8,911
Additional paid-in capital 118,194,672
Undistribution investment income 205,643
Accumulated net realized gain on investments 3,465,980
Net unrealized appreciation on investments 33,187,687
------------
Total Net Assets $155,062,893
============
Net Asset Value, offering and redemption
price per share (155,062,893 / 8,911,147
shares outstanding; 500,000,000 shares
authorized of $0.001 par value) $ 17.40
============
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
Investment Income:
Dividends $ 394,894
Interest 593,361
------------
Total Investment Income 988,255
------------
Expenses:
Investment advisory fees 653,358
Legal and audit fees 22,000
Custodian fees 20,463
Directors' fees 13,100
Organizational expenses 10,658
Shareholder services fees 5,556
Miscellaneous 57,477
------------
Total Expenses 782,612
------------
Net Investment Income 205,643
------------
Net Realized and Unrealized Gain on
Investments:
Net realized gain on investments 3,516,395
Net change in unrealized appreciation
on investments 12,397,172
------------
Net realized and unrealized gain on
investments 15,913,567
------------
Net increase in net assets resulting from
operations $ 16,119,210
============
See notes to financial statements.
- --------------------------------------------------------------------------------
71
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31,
(Unaudited) 1997
------------- ------------
<S> <C> <C>
Operations:
Net investment income $ 205,643 $ 118,286
Net realized gain on investments 3,516,395 7,046,284
Net change in unrealized appreciation on investments 12,397,172 17,681,316
------------- -------------
Net increase in net assets resulting from operations 16,119,210 24,845,886
Distributions to shareholders:
Net investment income -- (118,286)
In excess of net investment income -- (8,067)
Net realized gain on investments -- (7,046,284)
In excess of net realized gain on investments -- (29,472)
------------- -------------
Total distributions to shareholders -- (7,202,109)
Capital share transactions:
Net increase in net assets from capital share transactions 33,593,418 36,244,957
------------- -------------
Net increase in net assets 49,712,628 53,888,734
Net Assets:
Beginning of period 105,350,265 51,461,531
------------- -------------
End of period $ 155,062,893 $ 105,350,265
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
72
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- ----------------
1 -- Description
- ----------------
The Gabelli Capital Asset Fund (the "Fund"), a series of Gabelli Capital
Series Funds, Inc. (the "Company"), was organized on April 8, 1993 as a
Maryland corporation. The Company is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), whose primary objective is growth of capital. The Fund
commenced operations on May 1, 1995. Shares of the Fund are available to the
public only through the purchase of certain variable annuity and variable life
insurance contracts issued by The Guardian Insurance & Annuity Company, Inc.
- ------------------------------------
2 -- Significant Accounting Policies
- ------------------------------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of its financial statements.
Security Valuation
Portfolio securities listed or traded on a nationally recognized
securities exchange, quoted by the National Association of Securities Dealers
Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange (if there were no sales that
day, the security is valued at the average of the closing bid and asked prices).
All other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest average of the bid and asked prices.
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 Board of Directors.
Short term debt securities with remaining maturities of 60 days or less are
valued at amortized cost, unless the Directors determine such does not reflect
the securities' fair value, in which case these securities will be valued at
their fair value as determined by the Directors. Options are valued at the last
sale price on the exchange on which they are listed. If no sales of such options
have taken place that day, they will be valued at the mean between their closing
bid and asked prices.
Securities Transactions and Investment Income
Securities transactions are accounted for on the trade date, with realized
gain or loss on the sale of investments determined by using the identified cost
method. Interest income (including amortization of premium and accretion of
discount) is recorded as earned. Dividend income is recorded on the
ex-dividend date.
Dividends and Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
Provision for Income Taxes
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
- --------------------------------------------------------------------------------
73
<PAGE>
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Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 (Unaudited)
amended. As a result, a Federal income tax provision is not required.
Organizational Expenses
A total of $100,000 in expenses 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. These organizational
costs were deferred and are being amortized on a straight-line basis over a
period of 60 months from the date the Fund commenced investment operations.
- --------------------------------------
3 -- Agreements with Affiliated Partie
- --------------------------------------
Pursuant to a management agreement (the "Management Agreement"), the
Fund will pay Guardian Investor Services Corporation (the "Manager") a fee,
computed daily and paid monthly, at the annual rate of 1.00% of the value of the
Fund's average daily net assets. Pursuant to an Investment Advisory Agreement
among the Fund, the Manager and Gabelli Funds, Inc. (the "Adviser"), the
Adviser, under the supervision of the Company's Board of Directors and the
Manager, manages the Fund's assets in accordance with the Fund's investment
objectives and policies, makes investment decisions for the Fund, places
purchase and sale orders on behalf of the Fund, provides investment research and
provides facilities and personnel required for the Fund's administrative needs.
The Adviser may delegate its administrative role and currently has done so to
First Data Investor Services Group, Inc., the Fund's Sub-Administrator (the
"Sub-Administrator"). The Adviser will supervise the performance of
administrative and professional services provided by others and pays the
compensation of the Sub-Administrator and all Officers and Directors of the
Company who are its affiliates. As compensation for its services and the
related expenses borne by the Adviser, the Manager pays the Adviser a fee,
computed daily and paid monthly, at the annual rate of 0.75% of the value of the
Fund's average daily net assets.
- -------------------------
4 -- Portfolio Securities
- -------------------------
Purchases and sales of securities for the six months ended June 30, 1998,
other than short term securities, aggregated $63,882,218 and $25,496,124,
respectively.
- ---------------------------------
5 -- Transactions with Affiliates
- ---------------------------------
During the six months ended June 30, 1998, the Fund paid brokerage
commissions of $88,420 to Gabelli & Company, Inc. and its affiliates.
- -------------------------------
6 -- Capital Stock Transactions
- -------------------------------
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
6/30/98 12/31/97
----------- -----------
Shares Amount Shares Amount
------- -------- ------- -------
<S> <C> <C> <C> <C>
Shares sold 2,765,511 $ 45,755,568 3,454,754 $ 50,227,654
Shares issued upon re-
investment of dividends -- -- 478,228 7,202,109
Shares redeemed (735,539) (12,162,150) (1,507,694) (21,184,806)
------------ ------------ ------------ ------------
Net increase 2,029,972 $ 33,593,418 2,425,288 $ 36,244,957
============ ============ ============ ============
</TABLE>
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74
<PAGE>
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Gabelli Capital
Asset Fund
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5
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FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period.
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1998 --------------------------------------------
(Unaudited) 1997 1996 1995+
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period ............ $ 15.31 $ 11.55 $ 10.70 $ 10.00
----------- ----------- ----------- -----------
Net investment income ........................... 0.02 0.02 0.02 0.03(a)
Net realized and unrealized gain on investments . 2.07 4.88 1.16 0.80
----------- ----------- ----------- -----------
Total from investment operations ................ 2.09 4.90 1.18 0.83
----------- ----------- ----------- -----------
Distributions to shareholders:
From net investment income ...................... -- (0.02) (0.02) (0.03)
From net realized gain on investments ........... -- (1.12) (0.31) (0.09)
In excess of net realized gain on investments ... -- (0.00)(b) -- (0.01)
----------- ----------- ----------- -----------
Total distributions ............................. -- (1.14) (0.33) (0.13)
----------- ----------- ----------- -----------
Net asset value, end of period ...................... $ 17.40 $ 15.31 $ 11.55 $ 10.70
=========== =========== =========== ===========
Total return++ .................................. 13.7% 42.6% 11.0% 8.4%
=========== =========== =========== ===========
Ratios to average net assets and supplemental data:
Net assets, end of period (in 000's) ................ $ 155,063 $ 105,350 $ 51,462 $ 26,364
Ratio of net investment income to average
net assets ........................................ 0.31%(c) 0.17% 0.21% 0.75%(c)
Ratio of operating expenses to average
net assets (d) .................................... 1.19%(c) 1.17% 1.31% 1.78%(c)
Portfolio turnover rate ............................. 21% 65% 53% 81%
</TABLE>
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+ From commencement of operations on May 1, 1995.
++ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends. Total return for the period of
less than one year is not annualized.
(a) Net investment income before expenses assumed by the Manager and Adviser
was $0.03.
(b) Amount represents less than $0.005 per share.
(c) Annualized.
(d) The ratio of operating expenses to average net assets before reimbursement
of expenses assumed by the Manager and Adviser would have been 1.92% for
the year ended December 31, 1995.
See notes to financial statements.
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75
