GABELLI CAPITAL SERIES FUNDS INC, 485BPOS, 1998-04-30

GABELLI CAPITAL SERIES FUNDS INC
485BPOS, 1998-04-30

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Registration Nos. 33-61254 and 811-7644

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.
Post-Effective Amendment No. 4
X

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6
X

GABELLI CAPITAL SERIES FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
One Corporate Center, Rye, New York 10580-1434
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-422-3554
Bruce N. Alpert
Gabelli Funds, Inc.
One Corporate Center
Rye, New York 10580-1434
(Name and Address of Agent for Service)
Copies to:
James E. McKee, Esq. Daniel Schloendorn, Esq.
Gabelli Capital Series Funds, Inc. Willkie Farr & Gallagher
One Corporate Center One Citicorp Center
Rye, New York 10580-1434 153 East 53rd Street
New York, New York 10022

It is proposed that this filing will become effective:

__ immediately upon filing pursuant to paragraph (b)
X on May 1, 1998 pursuant to paragraph (b)
__ 60 days after filing pursuant to paragraph (a)(1)
__ on __________ pursuant to paragraph (a)(1)
__ 75 days after filing pursuant to paragraph (a)(2)
__ on __________ pursuant to paragraph (a)(2) of Rule 485
__ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

The Registrant filed a Rule 24f-2 Notice for its fiscal year ended
December 31, 1997 on March 31, 1998.

<PAGE>

GABELLI CAPITAL SERIES FUNDS, INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
<S> <C> <C>

Part A
Item No. Prospectus Caption

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information Financial Highlights

4. General Description of Registrant Cover Page; Investment Objectives and Policies; Special
Investment Methods; General Information

5. Management of the Fund Management of the Fund; Investment Objectives and Policies;
General Information

5A. Management's Discussion of Fund Performance Not Applicable

6. Capital Stock and Other Securities Dividends, Distributions and Taxes; General Information

7. Purchase of Securities Being Offered Cover Page; Purchase and Redemption of Shares

8. Redemption or Repurchase Purchase and Redemption of Shares

9. Pending Legal Proceedings Not Applicable

</TABLE>

Part B Statement of Additional
Item No. Information Caption

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Not Applicable

13. Investment Objectives and Policies Investment Policies; Special Investment Methods; Investment
Restrictions

14. Management of the Fund Directors and Officers; The Manager; The Adviser; see
Prospectus -- "Management of the Fund"

15. Control Persons and Principal Holders of Securities Directors and Officers; ; see Prospectus -- "Purchase
and Redemption of Shares"; "General Information"

16. Investment Advisory and Other Services The Manager; The Adviser; The Distributor; Directors and
Officers; see Prospectus -- "Management of the Fund";
<R

17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage

18. Capital Stock and Other Securities Dividends, Distributions and Taxes; ; see Prospectus --
"Dividends, Distributions and Taxes"; "General Information"

19. Purchase, Redemption and Pricing Purchase and Redemption of Shares;
of Securities Being Offered Determination of Net Asset Value

20. Tax Status Dividends, Distributions and Taxes; see Prospectus --
"Dividends, Distributions and Taxes"

21. Underwriters The Distributor; see Prospectus -- "Purchase and Redemption of
Shares; "Management of the Fund"

22. Calculation of Performance Data Investment Performance Information

23. Financial Statements Financial Statements

</TABLE>

<PAGE>

GABELLI CAPITAL SERIES FUNDS, INC.

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

PART A

PROSPECTUS

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

<PAGE>

The Guardian(R)

Prospectus for:

Gabelli
Capital
Asset
Fund

May 1, 1998

Available through variable insurance products issued by:
The Guardian Insurance & Annuity Company, Inc.
Variable Products Administration
P.O. Box 26210
Lehigh Valley, PA 18002-6210

and distributed by:
Guardian Investor Services Corporation(R)
201 Park Avenue South
New York, NY 10003

<PAGE>

2
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Prospectus May 1, 1998

GABELLI CAPITAL ASSET FUND
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com

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, 1998
(the "Additional Statement")containing additional information about
the Fund has been filed with the Securities and Exchange Commission (the
"SEC") and is available for reference, along with other materials,
on the SEC Internet Web Site (http://www.sec.gov). The Additional
Statement 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
Financial Highlights..........................................................2
Investment Objectives and Policies............................................3
Special Investment Methods....................................................5
Management of the Fund........................................................7
Purchase and Redemption of Shares............................................11
Dividends, Distributions and Taxes...........................................12
General Information..........................................................13

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

<PAGE>

45
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FINANCIAL HIGHLIGHTS

The per share data and ratios in the table below have been audited by
Ernst & Young LLP, independent auditors, whose unqualified report on this
information appears in the Additional Statement. This table should be read in
conjunction with the financial statements and related notes that are included in
the Additional Statement.

Per share amounts for a Fund share outstanding throughout each
period/year.
<TABLE>
<CAPTION>
<S> <C> <C> <C>

Year Year Period
Ended Ended Ended
12/31/97 12/31/96 12/31/95*
Operating performance:
Net asset value, beginning of period.......................... $11.55 $10.70 $10.00
------ ------ ------
Net investment income......................................... 0.02 0.02 0.03 (a)
Net realized and unrealized gain on investments..... 4.88 1.16 0.80
------------ ---- -----
Total from investment operations.............................. 4.90 1.18 0.83
---- ---- -----
Distributions to shareholders from:
Net investment income.................................... (0.02) (0.02) (0.03)
Net realized gains....................................... (1.12) (0.31) (0.09)
Distributions in excess of net realized gains............ (0.00) (c) --- (0.01)
----- ----------- -------
Total Distributions........................................... (1.14) (0.33) (0.13)
------ ------ -------
Net asset value, end of period................................ $15.31 $11.55 $10.70
====== ====== ======
Total return**......................................... 42.6% 11.0% 8.4%
============ ======== =====
Ratios to average net assets/
supplemental data:
Net assets, end of period (in 000's).......................... $105,350 $51,462 $26,364
-------- ------- -------
Ratio of net investment income to
average net assets................................... 0.17% 0.21% 0.75%+
Ratio of operating expenses to
average net assets................................... 1.17% 1.31% 1.78% (b)+
Portfolio turnover rate....................................... 65.5% 53.2% 81.4 %
Average commission rate (per share)(d)........................ $0.0447 $0.0496 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 was
$0.03. (b) Operating expense ratio before expenses assumed by the Manager and
Adviser was 1.92%.
(c) Amount represents less than $0.01 per share.
(d) Average commission rate (per share) as required by amended SEC disclosure
requirements effective for fiscal years beginning after September 1,
1995.

</TABLE>

<PAGE>

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 in less than one year) money market instruments, including
commercial paper rated A-1 or better by Standard & Poor's Ratings Service, a
division of McGraw-Hill Companies, Inc. ("S&P"), or P-1 or better by Moody's
Investors Service, Inc. ("Moody's").

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.

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 in
small, less well known companies which have operated less than three years
(including predecessors). 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.

Warrants and Rights. The Fund may invest 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.

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 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 SEC 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.

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 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 First Data Investor Services Group, Inc., the
sub-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. 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 supervises 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, Chief Executive Officer 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 management discussion and analysis of the Fund's performance for
the fiscal year ended December 31, 1997 is included in the Fund's Annual Report
to Shareholders dated December 31, 1997. The Fund's Annual Report may be
obtained upon request without charge by writing or calling the Fund at the
address or telephone number listed on page one of this Prospectus.

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 April 1, 1998 serves as investment adviser to ten
funds with aggregate assets of over $7.8 billion. 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.

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, 1998 acts as
investment adviser to mutual funds with aggregate assets of approximately $6.6
billion. Its majority owned affiliates, Gabelli Advisers, Inc. and Gabelli Fixed
Income LLC, manage mutual funds with assets aggregating in excess of $349
million and $562 million, respectively.

Net Assets
3/31/98
Open-end funds: (in millions)

Gabelli Asset Fund $1,559
Gabelli Growth Fund............................................. 1,401
Gabelli Value Fund Inc.......................................... 763
Gabelli Small Cap Growth Fund................................... 348
Gabelli Equity Income Fund...................................... 88
Gabelli U.S. Treasury Money Market Fund.......................... 308
Gabelli ABC Fund................................................. 62
Gabelli Global Telecommunications Fund........................... 1507
Gabelli Global Interactive Couch Potato (R) Fund................. 96
Gabelli Global Convertible Securities Fund....................... 9
Gabelli Gold Fund, Inc........................................... 12
Gabelli Capital Asset Fund....................................... 138
Gabelli International Growth Fund, Inc........................... 29
Gabelli Westwood Funds: Equity..................... 197
Intermediate Bond.......... 6
Balanced.................... 130
Small Cap Fund............... 13
Realty....................... 2
The Treasurer's Fund, Inc.: Domestic Prime............. 285
Tax Exempt.................. 175
U.S. Treasury............... 102
Closed-end funds:

Gabelli Equity Trust Inc..........................................1,319
Gabelli Global Multimedia Trust Inc.............................. 159
Gabelli Convertible Securities Fund, Inc......................... 125

The Distributor is an indirect majority-owned subsidiary of the Adviser.
GAMCO Investors, Inc. ("GAMCO"), a wholly-owned subsidiary of the Adviser, acts
as investment adviser for individuals, pension trusts, profit sharing trusts and
endowments. As of March 31, 1998, GAMCO had aggregate assets in excess of $ 7.2
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. Although such
activities may limit to some extent the ability of the Fund to make such
investments, the Adviser does not believe that any such limitations 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 Adviser may on occasion
give advice or take action with respect to other clients that differs from the
actions taken with respect to the Fund. The Fund may invest in the securities of
companies which are investment management clients of GAMCO, a subsidiary of the
Adviser. In addition, portfolio companies or their officers or directors may be
minority shareholders of the Adviser or its affiliates.

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 of the Adviser; (2) pay
commissions to brokers other than the Distributor which are higher than what
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
("State Street") (the Fund's Custodian, Transfer Agent and Dividend
Paying Agent) and any persons hired by the Fund, SEC 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 SEC
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 Corporation , 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

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,
Pennsylvania 18002 by first class mail or 3900 Burgess Place, Bethlehem,
Pennsylvania 18017 by overnight or express mail.

The net asset value per share of the Fund is calculated on each day,
Monday through Friday, except days on which The New York Stock Exchange, Inc.
("NYSE") is closed. The NYSE is currently scheduled to be closed on New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day
and on the preceding Friday or subsequent Monday when a holiday falls on a
Saturday or Sunday, respectively.

The Fund's net asset value is determined as of the close of regular
trading on the NYSE, normally 4:00 p.m. New York time, 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.

In the calculation of the Fund's net asset value: (1) a portfolio
security listed or traded on the NYSE or the American Stock Exchange ("AMEX") 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 mean of the closing
bid and asked prices; if there were no asked prices quoted on that day, the
security is valued at the closing bid price); (2) all other portfolio securities
for which over-the-counter market quotations are readily available are valued at
the mean of the current bid and asked prices (if there were no asked prices
quoted on that day, the security is valued at the closing bid 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 Company's
Directors.

Portfolio securities traded on more than one national securities
exchange or market are valued according to the broadest and most representative
market as determined by the Adviser. Securities traded primarily on foreign
exchanges are valued at the closing price on such foreign exchange immediately
prior to the close of the NYSE.

U.S. Government obligations and other debt instruments having 60 days
or less remaining until maturity are stated at amortized cost. Debt instruments
having more than 60 days remaining until maturity are valued at the highest bid
price obtained from a dealer maintaining an active market in that security or on
the basis of prices obtained from a pricing service approved as reliable by the
Board of Directors. All other investment assets, including restricted and not
readily marketable securities, are valued by the Fund under procedures
established by and under the general supervision and responsibility of the
Company's Board of Directors designed to reflect in good faith the fair
value of such securities.

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. 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 has qualified and intends to continue 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. 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,
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 SEC 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 Contractowners' 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.

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.
More information about the Fund's performance is contained in the Additional
Statement.

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

Year 2000 Update. As the year 2000 approaches, an issue has emerged
regarding how existing application software programs and operating systems can
accommodate this data value. Failure to adequately address this issue could have
potentially serious repercussions. The Manager and the Adviser are in the
process of working with the Fund's service providers to prepare for the year
2000. Based on information currently available, the Manager and the Adviser do
not expect that the Fund will incur significant operating expenses or be
required to incur material costs to be year 2000 compliant. Although the Manager
and the Adviser do not anticipate that the year 2000 issue will have a material
impact on the Fund's ability to provide service at current levels, there can be
no assurance that steps taken in preparation for the year 2000 will be
sufficient to avoid any adverse impact on the Fund.

<PAGE>

GABELLI CAPITAL SERIES FUNDS, INC.

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

PART B

STATEMENT OF ADDITIONAL INFORMATION

--------------
Gabelli Capital Asset Fund

One Corporate Center
Rye, New York 10580-1434
Telephone 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1998

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, 1998, 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. Also,
this Additional Statement is available for reference, along with other
materials, on the Securities and Exchange Commission ("SEC") Internet Web Site
(http://www.sec.gov).

Please retain this document for future reference.

TABLE OF CONTENTS

Page
Investment Policies............................................. 2
Special Investment Methods......................... ............... 2
Investment Restrictions............................................ 8
The Manager........................................................ 10
The Adviser........................................................ 11
The Distributor.................................................... 12
Directors and Officers............................................. 12
Portfolio Transactions and Brokerage............................... 17
Purchase and Redemption of Shares.......... ....................... 19
Determination of Net Asset Value.................................. 19
Dividends, Distributions and Taxes................................. 20
Investment Performance Information................................. 22
Counsel and Independent Auditors................................... 23
Financial Statements............................................... 24
Appendix A - Bond and Preferred Stock Ratings..................... A-1

<PAGE>

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 S&P Ratings Service, a division of McGraw Hill
Companies ("S&P") or, if unrated, judged by the Adviser to be of comparable
quality. Securities rated less than "A" by S&P 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, an S&P rating of CCC or lower.
Unrated convertible securities which, in the judgment 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.

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.

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 unrecognized but
forgoes 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. 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 judgment 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 price 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 or securities to be received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offer or as well as the dynamics of the business
climate when the offer or proposal is in progress.

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. 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.

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
securities with the Fund's Custodian in an aggregate amount at least equal to
the amount of its outstanding forward commitments.

<PAGE>

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.

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 or liquid
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 "1940 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 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 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 SEC, 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 U.S.
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 purchases
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 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.

There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in the market value of an investment, in the net
or total assets of the Fund, in the securities rating of the investment, or any
other later change.

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 First Data Investor Services Group, Inc., the
sub-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 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 1940 Act, of the outstanding shares
of the Fund. The Management Agreement will automatically terminate in the event
of its assignment, as defined in the 1940 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
1940 Act ("Disinterested Directors") cast in person at a meeting called
specifically for the purpose of voting on the continuance.

During the years ended December 31, 1997 and 1996 and the period
ended December 31, 1995, the Manager received fees totaling $700,568, $433,279
and $104,276, respectively, of which the Manager paid $525,426, $329,959 and
$78,207 to the Adviser, respectively, for the same periods. During the period
ended December 31, 1995, the Manager and the Adviser assumed certain expenses of
the Fund in the amount of $14,377.

<PAGE>

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
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 Additional Statement, including the printing of such
documents for the purpose of filings with the SEC; (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 Company's Board of Directors and minutes of such
meetings in all matters required by the 1940 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 an annual fee calculated at the following rates based
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. 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 1940 Act, of the
outstanding shares of the Fund. The Investment Advisory Agreement will
automatically terminate in the event of its assignment, as defined in the 1940
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 DISTRIBUTOR

The Fund has entered into a Distribution Agreement with Gabelli &
Company, Inc. (the "Distributor"), a New York corporation which is a majority
owned 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
Guardian Insurance & Annuity Company, Inc.
("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 Company 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 1940
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 Company'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 Directors and principal 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. Unless
otherwise specified, the address of each such person is One Corporate Center,
Rye, New York, 10580-1434. Directors deemed to be "interested persons" of the
Fund for purposes of the 1940 Act are indicated by an asterisk.

<PAGE>

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

Mario J. Gabelli, CFA, * 55 Chairman of the Board, Chief Executive Officer and Chief
Chairman of the Board, Investment Officer of Gabelli Funds, Inc. and of GAMCO
President and Chief Investment Officer Investors, Inc.; Chairman of the Board and President of The
Gabelli Equity Trust Inc.
and The Gabelli Global
Multimedia Trust Inc.;
Chairman of the Board,
President and Chief
Investment Officer of The
Gabelli Value Fund Inc.;
President, Director and
Chief Investment Officer
of Gabelli Global Series
Funds, Inc., Gabelli
Investor Funds, Inc.,
Gabelli Equity Series
Funds, Inc., and The
Gabelli Convertible
Securities Fund, Inc.;
Trustee of The Gabelli
Asset Fund and The
Gabelli Growth Fund;
President and Trustee of
The Gabelli Money Market
Funds; Chairman of the
Board of Gabelli Gold
Fund, Inc.; Gabelli
International Growth
Fund, Inc. and The
Treasurer's Fund, Inc.;
Chairman and Chief
Executive Officer of
Lynch Corporation
(diversified
manufacturing and
communications services
company); Director of
East/West Communications,
Inc.; Governor of the
American Stock Exchange.

Anthony J. Colavita, 63 President and Attorney at Law in the law firm of Anthony J.
Director Colavita, P.C. since 1961. Director of Gabelli Equity
Series Funds, Inc.,
Gabelli Global Series
Funds, Inc., Gabelli
Investor Funds, Inc., The
Gabelli Convertible
Securities Fund, Inc.,
The Gabelli Value Fund
Inc. and Gabelli Gold
Fund, Inc.; Trustee of
The Gabelli Asset Fund,
The Gabelli Growth Fund,
The Gabelli Money Market
Funds, The Treasurer's
Fund, Inc. and the
Gabelli Westwood Funds
since 1989.

<PAGE>

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

Arthur V. Ferrara, * 68 Director of The Guardian Life Insurance Company of America;
Director formerly, Chairman of the Board and Chief Executive Officer
from January 1993 to
December 1995; President,
Chief Executive Officer
and a Director prior
thereto; Director of
GIAC, the Manager, and
five mutual funds within
the Guardian Fund
Complex.

Karl Otto Pohl, *+ 67 Partner of Sal. Oppenheim Jr. & Cie. (private investment
Director bank) since 1991; Board Member of IBM World Trade
Europe/Middle East/Africa
Corp., Bertelsmann AG;
Zurich
Versicherungs-Gesellschaft
(insurance); the
International Council for
JP Morgan & Co.; Member
of Supervisory Board of
Royal Dutch (petroleum
company) ROBECo/o Group;
Advisory Director of
Unilever N.V. and
Unilever Deutschland;
former President of the
Deutsche Bundesbank and
Chairman of its Central
Bank Council from 1980
through 1991. Director or
Trustee of all funds
advised by Gabelli Funds,
Inc. and its affiliates.

Anthony R. Pustorino, CPA, 72 Certified Public Accountant; Professor of Accounting, Pace
Director University; Trustee of The Gabelli Asset Fund and The
Gabelli Growth Fund;
Director of The Gabelli
Value Fund Inc., The
Gabelli Convertible
Securities Fund, Inc.,
Gabelli Equity Series
Funds, Inc., The Gabelli
Equity Trust Inc., The
Gabelli Global Multimedia
Trust Inc. and The
Treasurer's Fund, Inc.

Werner J. Roeder, M.D., 57 Director of Surgery, Lawrence Hospital and practicing
Director private physician; Director of Gabelli Investor Funds,
Inc., Gabelli Global Series Funds, Inc., Gabelli
International Growth Fund, Inc., Gabelli Gold Fund, Inc.
and The Treasurer's Fund, Inc.; and Trustee of the Gabelli
Westwood Funds.

<PAGE>

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

Anthonie C. van Ekris, 64 Managing Director of Balmac International; Director of
Director Stahal Hardmayer A.G.; Trustee of The Gabelli Asset Fund,
The Gabelli Growth Fund
and The Gabelli Money
Market Funds; and
Director of The Gabelli
Convertible Securities
Fund, Inc., Gabelli
Equity Series Funds,
Inc., The Gabelli Global
Series Funds, Inc.,
Gabelli Gold Fund, Inc.,
Gabelli International
Growth Fund, Inc. and The
Treasurer's Fund, Inc.

Bruce N. Alpert, 46 Vice President, Treasurer and Chief Operating Officer of
Vice President and Treasurer the investment advisory division of the Adviser; Director
of Gabelli Advisers, Inc. and an officer of all funds
advised by Gabelli Funds, Inc. and its affiliates.

James E. McKee, 34 Vice President and General Counsel of GAMCO Investors, Inc.
Secretary since 1993 and of Gabelli Funds, Inc. since August 1995;
Secretary of all Funds advised by Gabelli Funds, Inc. and
Gabelli Advisers, Inc. since August 1995; Branch Chief with
the U.S. Securities and Exchange Commission in New York
(1992 through 1993).

Thomas R. Hickey, Jr., 45 Vice President, Equity Operations of The Guardian Life
Vice President Insurance Company of America; Vice President, 201 Park Avenue
South Administration of GIAC. Senior Vice President, Operations New York, New
York 10003 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 it. 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.

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.

</TABLE>

<PAGE>

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. For the fiscal
year ended December 31, 1997, such fees totaled $24,288. 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. No Executive Officer or person
affiliated with the Company received compensation from the Company for the
calendar year ended December 31, 1997 in excess of $60,000.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Compensation Table

Total Compensation
Aggregate From the Fund
Name of Person Compensation and Fund Complex
Position From the Fund Paid to Directors*
Mario J. Gabelli
Chairman of the Board $ 0 $ 0

Anthony J. Colavita
Director $5,000 $79,190 (14)

Arthur V. Ferrara
Director $ 0 $ 0

Karl Otto Pohl
Director $4,500 $85,690 (15)

Anthony R. Pustorino
Director $5,000 $95,500 (10)

Werner Roeder, M.D.
Director $5,000 $19,691 (7)

Anthonie C. van Ekris
Director $5,000 $55,190 (11)

* Represents the total compensation paid to such persons during the calendar
year ended December 31, 1997. 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 common or affiliated
investment advisers.

</TABLE>

<PAGE>

Control Person and Principal Holder of Securities

The separate accounts of GIAC hold the majority of the shares of the
Fund and therefore are considered to be control persons of the Fund.

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.

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 is deemed 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 affiliate 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 1940 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 their 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, Inc. ("NYSE"), the Distributor controls and monitors the execution of
such transactions on the floor of the NYSE through independent "floor brokers or
through the Designated Order Turnaround System of the NYSE. 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 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 NYSE.

The following table sets forth certain information regarding the Fund's
payment of brokerage commissions including commissions paid to the Distributor:

<PAGE>

Fiscal Year Ended
December 31, Commissions Paid

Total Brokerage Commissions 1995 $ 24,828
1996 $ 98,352
1997 $128,605

Commissions paid to Gabelli & Company 1995 $ 4,045
1996 $66,310
1997 $99,105

% of Total Brokerage Commissions paid to Gabelli & Company 1997 77.1%

% of Total Transactions involving Commissions paid to
Gabelli & Company 1997 72.8%

</TABLE>

The Fund's portfolio turnover rates for the fiscal years ended
December 31, 1997 and 1996 were 65.5% and 53.2%, respectively.

PURCHASE AND REDEMPTION OF SHARES

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 calculated on each day,
Monday through Friday, except days on which the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day and on the preceding Friday or
subsequent Monday when a holiday falls on a Saturday or Sunday, respectively.

The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE, normally 4:00 p.m. New York time, 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.

In the calculation of the Fund's net asset value: (1) a portfolio
security listed or traded on the NYSE 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 mean of the closing bid
and asked prices; if there were no asked prices quoted on that day, the security
is valued at the closing bid price); (2) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at the
mean of the current bid and asked prices (if there were no asked prices quoted
on that day, the security is valued at the closing bid 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 Company's Directors.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The Fund is treated as a separate entity for federal income tax
purposes. The Fund has qualified and intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("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. 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.

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 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.

<PAGE>

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.

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.

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 may vary from time to time depending on market conditions,
the compositions of the Fund's portfolio and operating expenses. Total return
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 may be higher or lower than past total
returns and there can be no assurance that any historical return will continue.

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

P(1+T)n =ERV

(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.

The Fund's average annual total returns for the one year period
ended December 31, 1997 and the period from inception on May 1, 1995 through the
fiscal year ended December 31, 1997 were 42.6% and 22.4%, respectively.

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, ha
been appointed independent auditors for the Fund.

<PAGE>

FINANCIAL STATEMENTS
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------

- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------

SCHEDULE OF INVESTMENTS
December 31, 1997

- ----------------------
COMMON STOCKS -- 86.9%
- ----------------------

Shares Value
- -------------------------------------------------------------------

Aerospace -- 1.5%
65,000 Fairchild Corp., Class A $ 1,616,875
-----------
Agriculture -- 0.6%
16,000 Monsanto Co. 672,000
-----------
Automotive: Parts and Accessories -- 5.2%
15,000 Echlin Inc. 542,812
40,000 GenCorp Inc. 1,000,000
30,000 Handy & Harman 1,035,000
40,000 Modine Manufacturing Co. 1,365,000
7,100 Ragan (Brad) Inc. 259,150
15,000 TransPro Inc. 135,000
37,000 Wynn's International Inc. 1,179,375
-----------
5,516,337
-----------
Aviation: Parts and Services -- 3.3%
11,000 AAR Corp. 426,250
35,000 Coltec Industries Inc. + 811,563
10,000 Curtiss-Wright Corp. 363,125
7,500 Hi-Shear Industries Inc. 15,469
31,000 Hudson General Corp. 1,488,000
10,000 Moog Inc., Class A + 349,375
-----------
3,453,782
-----------
Broadcasting -- 8.8%
68,000 Ackerley Communications Inc. 1,151,750
26,442 Chris-Craft Industries Inc. 1,383,247
4,000 Gray Communications Systems Inc. 105,000
50,000 Gray Communications
Systems Inc., Class B 1,287,500
24,000 Grupo Televisa SA, GDR + 928,500
50,000 LIN Television Corp.+ 2,725,000
16,000 United Television Inc. 1,662,000
-----------
9,242,997
-----------
Cable -- 9.4%
35,000 BET Holdings Inc., Class A + 1,911,875
45,000 Cablevision Systems Corp.,
Class A + 4,308,750
60,000 Tele-Communications Inc./
Liberty Media Group, Class A + 2,175,000
27,000 Tele-Communications
International Inc., Class A + 486,000
15,000 United International Holdings
Inc., Class A + 172,500
30,000 US WEST Media Group + 866,250
-----------
9,920,375
-----------
Consumer Products -- 3.2%
75,000 Carter-Wallace Inc. 1,265,625
5,000 Fortune Brands Inc. 185,313
20,000 Gallaher Group plc + 427,500
18,000 General Cigar Holdings Inc.,
Class B 389,250
35,000 General Housewares Corp. 367,500
18,000 National Presto Industries Inc. 712,125
-----------
3,347,313
-----------

Consumer Services -- 2.9%
40,000 HSN Inc.+ 2,060,000
50,000 Rollins Inc. 1,015,625
-----------
3,075,625
-----------

Diversified Industrial -- 6.3%
7,500 Crane Co. 325,312
16,000 GATX Corp. 1,161,000
18,000 Honeywell Inc. 1,233,000
10,000 ITT Industries Inc. 313,750
49,000 Katy Industries Inc. 998,375
15,000 Thomas Industries Inc. 296,250
60,000 TriMas Corp. 2,062,500
50,000 Tyler Corp.+ 275,000
-----------
6,665,187
-----------

Energy -- 5.3%
10,000 Eastern Enterprises 450,000
90,000 Kaneb Services Inc. + 466,875
20,000 Pennzoil Co. 1,336,250
35,000 Tejas Gas Corp. 2,143,750
60,000 USX-Delhi Group 1,230,000
-----------
5,626,875
-----------

Entertainment -- 6.9%
79,664 Ascent Entertainment Group Inc. + 826,514
42,000 Gaylord Entertainment Co., Class A 1,341,375
30,000 GC Companies Inc. + 1,421,250
25,000 Time Warner Inc. 1,550,000
53,000 Viacom Inc., Class A + 2,166,375
-----------
7,305,514
-----------

See notes to financial statements.

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

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

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

Shares Value
- -------------------------------------------------------------------
Equipment and Supplies -- 8.2%
11,000 Aeroquip-Vickers Inc. $ 539,688
25,000 AMETEK Inc. 675,000
22,000 Ampco-Pittsburgh Corp. 430,375
6,000 CLARCOR Inc. 177,750
15,000 CTS Corp. 479,063
12,500 Franklin Electric Co. Inc. 803,125
35,000 Fedders Corp. 218,750
4,000 Ingersoll-Rand Co. 162,000
25,000 Navistar International Corp. + 620,312
14,200 Pittway Corp. 978,913
17,300 Portec Inc. 250,850
30,000 Sequa Corp., Class A + 1,951,875
24,000 SPS Technologies Inc. + 1,047,000
15,000 Sterling Electronics Corp. 313,125
------------
8,647,826
------------
Financial Services -- 1.9%
2,000 Block (H&R) Inc. 89,625
2,000 Mellon Bank Corp. 121,250
22,000 Midland Co. 1,386,000
15,000 Pioneer Group Inc. 421,875
------------
2,018,750
------------
Food and Beverage -- 6.3%
50,000 Celestial Seasonings Inc. + 1,575,000
2,000 CPC International Inc. 215,500
14,000 General Mills Inc. 1,002,750
5,000 Heinz (H.J.) Co. 254,062
22,000 Quaker Oats Co. 1,160,500
45,000 Seagram Co. Ltd. 1,454,063
10,786 Tootsie Roll Industries Inc. 674,125
10,000 Twinlab Corp. 247,500
------------
6,583,500
------------
Health Care -- 0.5%
75,000 IVAX Corp. + 506,250
------------
Hotels and Gaming -- 3.0%
45,000 Aztar Corp. + 281,250
11,000 Hilton Hotels Corp. 327,250
15,000 ITT Corp, New + 1,243,125
90,000 Jackpot Enterprises Inc. 1,018,125
38,000 Trump Hotels & Casino Resorts Inc.+ 254,125
------------
3,123,875
------------
Publishing -- 5.8%
5,000 Dow Jones & Co. Inc. 268,438
20,000 Golden Books Family Entertainment
Inc. + 206,250
15,000 Harcourt General Inc. 822,187
15,000 Lee Enterprises Inc. 443,438
10,000 McClatchy Newspapers Inc., Class A 271,875
35,000 Media General Inc., Class A 1,463,436
28,000 Meredith Corp. 999,250
10,000 Pulitzer Publishing Co. 628,125
15,000 Reader's Digest Association Inc.,
Class B 365,625
55,000 Thomas Nelson Inc. 635,937
------------
6,104,561
------------
Real Estate -- 1.0%
30,000 Griffin Land & Nurseries Inc. 465,000
30,000 Catellus Development Corp. 600,000
------------
1,065,000
------------
Retail -- 2.6%
70,000 Bruno's Inc., New + 144,375
35,000 Giant Food Inc., Class A 1,179,063
45,000 Neiman Marcus Group Inc. + 1,361,250
2,000 Scheib (Earl) Inc. 16,000
------------
2,700,688
------------
Specialty Chemical -- 0.4%
18,000 Ferro Corp. 437,625
------------
Telecommunications -- 1.8%
50,000 Citizens Utilities Co., Class B 481,250
28,000 Southern New England
Telecommunications Corp. 1,408,750
------------
1,890,000
------------

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

71
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Asset Fund
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5
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Gabelli Capital Asset Fund
- --------------------------

SCHEDULE OF INVESTMENTS (continued)
December 31, 1997

Shares Value
- -------------------------------------------------------------------

Wireless Communications -- 2.0%
20,000 Centennial Cellular Corp., Class A + $ 410,000
32,000 COMSAT Corp. 776,000
20,000 Rogers Cantel Mobile
Communications Inc., Class B + 185,000
15,000 Telephone and Data Systems Inc. 698,437
------------
2,069,437
------------

TOTAL COMMON STOCKS
(Cost $70,799,877) $ 91,590,392
------------

- ----------------------------
U.S. TREASURY BILLS -- 13.0%
- ----------------------------

Principal
Amount Value
- -------------------------------------------------------------------

$ 13,716,000 5.010% to 5.278%++ due 01/08/98 --
02/26/98 $ 13,676,179
------------
TOTAL U.S. TREASURY BILLS
(Cost $13,676,179) 13,676,179
------------
TOTAL INVESTMENTS -- 99.9%
(Cost $84,476,056)(a) 105,266,571
------------

OTHER ASSETS AND LIABILITIES
(Net) -- 0.1% 83,694
------------

NET ASSETS -- 100.0% $105,350,265
============

(a) Aggregate cost for Federal tax purposes was $84,535,164. Net unrealized
appreciation for Federal tax purposes was $20,731,407 (gross unrealized
appreciation was $22,308,942 and gross unrealized depreciation was
$1,577,535).
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
GDR -- Global Depositary Receipt

See notes to financial statements.

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

72
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Gabelli Capital
Asset Fund
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5
---------------

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

STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1997

Assets:
Investments, at value (cost $84,476,056) $ 105,266,571
Deferred organizational expenses 46,576
Dividends receivable 63,289
Receivable for investments sold 99,496
Receivable for Fund shares sold 1,060,546
-------------
Total Assets 106,536,478
-------------

Liabilities:
Payable for investments purchased 915,104
Payable for Fund shares redeemed 117,384
Payable for management fees 82,860
Accrued Directors' fees 6,600
Other accrued expenses 64,265
-------------
Total Liabilities 1,186,213
-------------
Net assets applicable to 6,881,175 shares
outstanding $ 105,350,265
=============
Net Asset Value, offering and redemption
price per share $ 15.31
=============

Net Assets consist of:
Shares of common stock at par value $ 6,881
Additional paid-in capital 84,603,284
Distribution in excess of net realized
gain on investments (50,415)
Net unrealized appreciation on investments 20,790,515
-------------
Total Net Assets $ 105,350,265
=============

STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997

Investment Income:
Dividends $ 594,615
Interest 343,370
-------------
Total Investment Income 937,985
-------------

Expenses:
Management fees 700,568
Legal and audit fees 32,144
Custodian fees 25,813
Directors' fees 24,288
Amortization of organizational expenses 20,000
Shareholder services fees 9,521
Miscellaneous 7,365
-------------
Total Expenses 819,699
-------------
Net Investment Income 118,286
-------------

Net Realized and Unrealized Gain on
Investments:
Net realized gain on investments 7,046,284
Net change in unrealized appreciation
on investments 17,681,316
-------------
Net realized and unrealized gain on investments 24,727,600
-------------
Net increase in net assets resulting from
operations $ 24,845,886
=============

See notes to financial statements.

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Asset Fund
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5
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Gabelli Capital Asset Fund
- --------------------------

STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1997

1997 1996
------------- ------------
<S> <C> <C>
Operations:
Net investment income $ 118,286 $ 92,133
Net realized gain on investments 7,046,284 1,411,324
Net change in unrealized appreciation on investments 17,681,316 2,258,045
------------- ------------
Net increase in net assets resulting from operations 24,845,886 3,761,502
Distributions to shareholders:
From net investment income (118,286) (95,723)
From excess of net investment income (8,067) --
From net realized gain on investments (7,046,284) (1,416,212)
In excess of net realized gain on investments (29,472) --
Share Transactions:
Net increase in net assets from fund share transactions 36,244,957 22,848,022
------------- ------------
Net increase in net assets 53,888,734 25,097,589
Net Assets:
Beginning of year 51,461,531 26,363,942
------------- ------------

End of year $ 105,350,265 $ 51,461,531
============= ============
</TABLE>

See notes to financial statements.

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74
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Asset Fund
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5
---------------

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

NOTES TO FINANCIAL STATEMENTS
December 31, 1997

- -------------------------------------
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 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 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 Corporation's 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.

Provisions 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.

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

75
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Gabelli Capital
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5
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Gabelli Capital Asset Fund
- --------------------------

NOTES TO FINANCIAL STATEMENTS
December 31, 1997

Organizational 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. 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.

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

Purchases and sales of securities for the year ended December 31, 1997,
other than U.S. government obligations and short term securities, aggregated
$56,210,307 and $42,191,156, respectively.

- ----------------------------------
4. -- Transactions with Affiliates
- ----------------------------------

During the year ended December 31, 1997, the Fund paid brokerage
commissions of $99,105 to Gabelli & Company, Inc. and its affiliates.

- ----------------------------
5. -- Shares of Common Stock
- ----------------------------

Transactions in shares of common stock were as follows:

Year Ended Year Ended
12/31/97 12/31/96
--------- --------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 3,454,754 $ 50,227,654 2,913,475 $ 33,336,923
Shares issued upon re-
investment of dividends 478,228 7,202,109 131,244 1,511,935
Shares redeemed (1,507,694) (21,184,806) (1,052,170) (12,000,836)
---------- ------------ ---------- ------------
Net increase 2,425,288 $ 36,244,957 1,992,549 $ 22,848,022
========== ============ ========== ============

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FINANCIAL HIGHLIGHTS

Per share amounts for a Fund share outstanding throughout each period.

<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------------
1997 1996 1995*
-------- ------- -------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.55 $ 10.70 $ 10.00
-------- ------- -------
Net investment income 0.02 0.02 0.03(a)
Net realized and unrealized gain on investments 4.88 1.16 0.80
-------- ------- -------
Total from investment operations 4.90 1.18 0.83
-------- ------- -------
Distributions to shareholders:
From net investment income (0.02) (0.02) (0.03)
From net realized gains (1.12) (0.31) (0.09)
In excess of net realized gain on investments (0.00)(c) -- (0.01)
Total distributions (1.14) (0.33) (0.13)
-------- ------- -------
Net asset value, end of period $ 15.31 $ 11.55 $ 10.70
======== ======= =======
Total return** 42.6% 11.0% 8.4%
======== ======= =======

Ratios to average net assets and supplemental data:
Net assets, end of period (in 000's) $105,350 $51,462 $26,364
Ratio of net investment income to average
net assets 0.17% 0.21% 0.75%+
Ratio of operating expenses to average
net assets 1.17% 1.31% 1.78%+(b)
Portfolio turnover rate 65.5% 53.2% 81.4%
Average commission rate per share (d) $ 0.0447 $0.0496 N/A
</TABLE>

- ------------
* 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. The performance of the fund does not
reflect expenses and charges of the applicable separate accounts and
variable products, all of which vary to a considerable extent and are
described in your product's prospectus.
+ Annualized.
(a) Net investment income before expenses assumed by the Manager and Adviser was
$0.03.
(b) Ratio of operating expenses to average net assets before expenses assumed by
the Manager and Adviser was 1.92%.
(c) Amount represents less than $0.01 per share.
(d) For fiscal years beginning after September 1, 1995, the SEC requires a fund
to disclose the average commission rate paid per share.

See notes to financial statements.
- --------------------------------------------------------------------------------

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Gabelli Capital Asset Fund
- --------------------------

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Shareholders and Board of Directors
Gabelli Capital Asset Fund
(a series of Gabelli Capital Series Funds, Inc.)

We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Gabelli Capital Asset Fund (the Fund)
(a series of Gabelli Capital Series Funds, Inc.) as of December 31, 1997, and
the related statement of operations for the year then ended, and the statement
of changes in net assets for the two years in the period then ended and the
financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of mate-rial misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997 by correspondence with the custodian
and broker. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Gabelli Capital Asset Fund at December 31, 1997, and the results of its
operations for the year then ended, and the changes in its net assets for the
two years in the period then ended and the financial highlights for the periods
indicated therein, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

New York, New York
February 4, 1998

<PAGE>

63
g:\shared\clients\gabcapas\peas\1998\peano.4\partc\0598.doc
APPENDIX A

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

Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately based, in which case the rating is not published in
Moody's Investors Service, Inc.'s publications.

Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.

Description of S&P's 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.

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 but 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.

BB, 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 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>

GABELLI CAPITAL SERIES FUNDS, INC.

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

PART C

FINANCIAL STATEMENTS AND EXHIBITS

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

<PAGE>

GABELLI CAPITAL SERIES FUNDS, INC.
PART C
OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements:

Included in Part A:

Financial Highlights for Gabelli Capital Asset Fund.

Included in Part B:

Audited Financial Statements for Gabelli
Capital Asset Fund for the year ended
December 31, 1997 are included in the Statement of
Additional Information:

Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Report of Ernst & Young LLP, Independent
Auditors

Included in Part C : Consent of Independent Accountants

(b) Exhibits

All references are to the Registrant's registration
statement on Form N-1A as filed with the
Securities and Exchange Commission ("SEC") on
November 18, 1994, File Nos. 33-61254 and
811-7644 (the "Registration Statement").

(1) Articles of Amendment and Restatement dated
April 21, 1995 are incorporated by reference
to Pre-Effective Amendment No. 2 as filed
with the SEC on April 28, 1995 (Accession
No. 0000899140-95-000063) ("Pre-Effective
Amendment No. 2").

(2) Amended and Restated By-Laws dated
April 21, 1995 are incorporated by
reference to Pre-Effective Amendment No. 2.

(3) Not Applicable.

(4) Specimen copy of certificates for shares of
Gabelli Capital Asset Fund is incorporated
by reference to Pre-Effective Amendment No.
2.

(5)(a) Form of Management Agreement with Guardian
Investor Services Corporation is
incorporated by reference to Pre-Effective
Amendment No. 2.

(5)(b) Form of Investment Advisory Agreement with
Gabelli Funds, Inc. is incorporated
by reference to Pre-Effective Amendment
No. 2.

(6) Form of Distribution Agreement with
Gabelli & Company, Inc. is incorporated by
reference to Pre-Effective Amendment No. 2.

(7) Not Applicable.

(8) Form of Custodian Contract with State
Street Bank and Trust Company is
incorporated by reference to Pre-Effective
Amendment No. 2.

(9)(a) Form of Transfer Agency and Service
Agreement with State Street Bank and Trust
Company is incorporated by reference to
Pre-Effective Amendment No. 2.

(9)(b) Form of Participation Agreement among the
Registrant, Gabelli Funds, Inc.,
Gabelli & Company, Inc., The Guardian
Insurance & Annuity Company, Inc. and
Guardian Investor Services Corporation
is incorporated by reference to
Pre-Effective Amendment No. 2.

(9)(c) Sub-Administration Agreement with The
Shareholder Services Group, Inc. (now
known as First Data Investor Services
Group, Inc.) dated May 1, 1995 is
incorporated by reference to
Post-Effective Amendment No. 3 as filed with the SEC on April 30, 1997
(Accession No. 0000927405-97-000147) ("Post-Effective
Amendment No. 3").

(10) Not Applicable.

(11)(a) Consent of Independent Auditors is filed
herewith.

(11)(b) Consent of Counsel is filed herewith.

(11)(c) Powers of Attorney for Mario J. Gabelli,
Anthony J. Colavita, Arthur V.
Ferrara, Karl Otto Pohl, Anthony R.
Pustorino, Werner J. Roeder and Anthonie
C. van Ekris are incorporated by
reference to Post-Effective Amendment No.
3 .

(11)(d) Certified Resolution of Board
authorizing signature on behalf of
Registrant pursuant to Power of Attorney is
filed herewith .

(12) Not Applicable.

(13) Purchase Agreement dated April 26, 1995 with
The Guardian Insurance & Annuity Company,
Inc. is incorporated by reference to
Pre-Effective Amendment No. 2.

(14) Not Applicable.

(15) Not Applicable.

(16) Sample Total Return Computation
is incorporated by reference to
Post-Effective Amendment No. 2 as filed
with the SEC on April 29, 1996
(Accession No. 0000927405-96-0001932).

(17) Financial Data Schedule is filed herewith.

(18) Not Applicable.

Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None

Item 26. NUMBER OF HOLDERS OF SECURITIES

Gabelli Capital Asset Fund

(1) (2)
Number of Record Holders as of
Title of Class April 20, 1998

Common Stock
par value $.001 per share 24

Item 27. INDEMNIFICATION

The response to this Item 27 is incorporated by reference to
Pre-Effective Amendment No. 2.

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Guardian Investor Services Corporation is the manager of the
Registrant (the "Manager"). The list required by this Item 28 of directors,
officers or partners of the Manager, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by the Manager or such directors, officers or partners during the past two
fiscal years, is incorporated by reference to Form ADV filed by the Manager
under the Investment Advisers Act of 1940 (SEC File No. 801-9654 ).

Gabelli Funds, Inc. is the investment adviser of the
Registrant (the "Adviser"). The list required by this Item 28 of directors,
officers or partners of the Adviser, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by the Adviser or such directors, officers or partners during the past two
fiscal years, is incorporated by reference to Form ADV filed by the Adviser
under the Investment Advisers Act of 1940 (SEC File No. 801-37706).

Item 29. PRINCIPAL UNDERWRITERS

(a) Gabelli & Company Inc. currently acts as distributor for The
Gabelli Asset Fund, The Gabelli Growth Fund, The Gabelli Global Convertible
Securities Fund, The Gabelli Equity Trust Inc., The Gabelli Global Multimedia
Trust Inc., The Gabelli Convertible Securities Fund, Inc., The Gabelli Small Cap
Growth Fund, The Gabelli Equity Income Fund, The Gabelli Gold Fund, The Gabelli
U.S. Treasury Money Market Fund, The Gabelli ABC Fund, The Gabelli Value Fund
Inc., The Gabelli Global Interactive Couch Potato(R) Fund, The Gabelli Global
Telecommunications Fund, The Gabelli International Growth Fund, Inc., Gabelli
Capital Asset Fund, The Treasurer's Fund, Inc. and the Gabelli Westwood Funds.

The information required by this Item 29 with respect to each
director, officer or partner of Gabelli & Company, Inc. is incorporated by
reference to Schedule A of Form BD filed by Gabelli & Company, Inc. pursuant to
the Securities Exchange Act of 1934, as amended (SEC File No. 8-21373).

(b) The list required by this Item 29 with respect to each
director, officer or partner of Gabelli & Company, Inc., is incorporated by
reference to Schedule A of Form BD filed by Gabelli & Company, Inc.
under the Securities Exchange Act of 1934, as amended (SEC File No. 8-21373).

Item 30. LOCATION OF ACCOUNTS AND RECORDS

All such accounts, books and other documents required by
Section 31(a) of the 1940 Act and Rules 31a-1 through 31a-3 thereunder are
maintained at the offices of: Gabelli Funds, Inc., One Corporate Center, Rye,
New York 10580-1434; State Street Bank and Trust Company, 1776 Heritage Drive,
North Quincy, Massachusetts 02171; and First Data Investor Services Group, Inc.,
One Exchange Place, Boston, Massachusetts 02109.

Item 31. MANAGEMENT SERVICES

Not Applicable.

Item 32. UNDERTAKINGS

(a) Not Applicable.

(b) Not Applicable.

(c) The Registrant hereby undertakes to furnish to each
person to whom a Prospectus of the Registrant is
delivered a copy of the Registrant's latest annual
report, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant, GABELLI CAPITAL
SERIES FUNDS, INC., certifies that it meets the requirements for effectiveness
of this Post-Effective Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, as amended, and the Registrant has duly
caused this Post-Effective Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Rye and State of New York, on the 27th day of April, 1998

GABELLI CAPITAL SERIES
FUNDS, INC.

By: Mario J. Gabelli*
Mario J. Gabelli
Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.

Signature Title Date

Mario J. Gabelli* Chairman of the Board, April 27, 1998
- -----------------
Mario J. Gabelli President and Chief Investment Officer

/s/ Bruce N. Alpert Vice President and Treasurer April 27, 1998
Bruce N. Alpert (Principal Financial and Accounting Officer)

Anthony J. Colavita* Director April 27, 1998
Anthony J. Colavita

Arthur V. Ferrara* Director April 27, 1998
Arthur V. Ferrara

Karl Otto Pohl* Director April 27, 1998
Karl Otto Pohl

Anthony R. Pustorino* Director April 27, 1998
Anthony R. Pustorino

Werner J. Roeder* Director April 27, 1998
Werner J. Roeder

Anthonie C. van Ekris* Director April 27, 1998
- ----------------------
Anthonie C. van Ekris

*By: /s/ Bruce N. Alpert
Bruce N. Alpert
Attorney-in-fact

<PAGE>

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION OF EXHIBIT

(11)(a) Consent of Independent Auditors

(11)(b) Consent of Counsel

(11)(d) Certified Resolution of Board

(17) Financial Data Schedule

EXHIBIT 11(a)

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" and "Counsel and Independent Auditors" and to the use of our
report dated February 4, 1998 on the financial statements of Gabelli Capital
Asset Fund in this Registration Statement (Form N-1A No. 33-61254) of The
Gabelli Capital Series Funds, Inc.

/s/ Ernst & Young LLP
ERNST & YOUNG LLP

New York, New York
April 27, 1998

<PAGE>

EXHIBIT 11(b)

CONSENT OF COUNSEL

Gabelli Capital Asset Fund

We hereby consent to being named in the Statement of
Additional Information included in Post-Effective Amendment No. 4 (the
"Amendment") to the Registration Statement on Form N-1A (Securities Act File No.
33-61254, Investment Company Act File No. 811-7644) of Gabelli Capital Asset
Fund (the "Fund") under the caption "Counsel and Independent Auditors" and to
the Fund's filing a copy of this Consent as an exhibit to the Amendment.

/s/ Willkie Farr & Gallagher
Willkie Farr & Gallagher

April 27, 1998
New York, New York

<PAGE>

EXHIBIT 11(d)

ASSISTANT SECRETARY'S CERTIFICATE

I, Julie A. Tedesco, Assistant Secretary of Gabelli Capital Series
Funds, Inc. (the "Fund"), hereby certify that the following resolution
authorizing Bruce N. Alpert to sign the Fund's Registration Statements on behalf
of Mario J. Gabelli, Chairman of the Board, President and Chief Investment
Officer of the Fund, has been adopted, at a meeting of the Board of Directors
duly called and held on February 26, 1997 at which a quorum was present and
acting throughout:

RESOLVED, That the Board of Directors hereby authorizes Bruce
N. Alpert to execute and sign on behalf of Mario J.
Gabelli, Chairman of the Board, President and Chief
Investment Officer of the Fund, all amendments and
supplements to the Fund's Registration Statement on
Form N-1A pursuant to a power of attorney from
Mario J. Gabelli.

IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 29th
day of April 1998.

/s/ Julie A. Tedesco
Julie A. Tedesco
Assistant Secretary

<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> GABELLI CAPITAL ASSET FUND

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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 84,476,056
<INVESTMENTS-AT-VALUE> 105,266,571
<RECEIVABLES> 1,223,331
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<OTHER-ITEMS-ASSETS> 46,576
<TOTAL-ASSETS> 106,536,478
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</TABLE>