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Gabelli Capital Asset Fund
- ---------------------------------------
[Photo of Mario J. Gabelli, C.F.A. Portfolio Manager]
Q. How did the Fund perform for the year ended December 31, 1997?
A. The Fund was up 42.6% for 1997.(1) The S&P 500(2) and Russell 2000(3) rose
33.4% and 22.4%, respectively, over the same twelve-month period. Since
inception on May 1, 1995 through December 31, 1997, the Fund has a total return
of 71.5%, which equates to an average annual return of 22.4%.
Q. What factors affected the Fund's performance in 1997?
A. Year-ends are always time for reflection. We look back over the last twelve
months and assess what went right and what went wrong. To borrow from Joseph
Heller's classic novel Catch 22, we tally the "feathers in our cap" and "black
eyes." In 1997, the former vastly outnumber the latter. Heading our "feathers in
the cap" list is deals. During the year, the Fund bid a cheerful farewell to a
fair sample of portfolio holdings which found new homes under other corporate
roofs. Also prominent on our list are cable television stocks, which came into
favor over the course of the year, thanks to better than generally expected cash
flow growth and Bill Gates' decision that coaxial cable will be the most
effective digital highway into the home. Cable network stocks also soared as
investors acknowledged the escalating value of these entrenched distribution
channels.
Our positions in niche industrial companies also contributed to returns.
In the past, we have often discussed the new competitive strengths of American
industry, the prospects for improving earnings and the likelihood that smaller
niche players would be targeted by larger competitors. All three factors
combined to help boost our industrial holdings in 1997. Our "black eyes" list
was dominated by auto parts stocks despite, in our opinion, offering excellent
fundamental value.
Q. What strategies do you use to manage the Fund and what is your outlook for
1998?
A. Despite a roller coaster ride featuring some breathtaking ascents and
declines, equity investors enjoyed themselves in 1997. Will 1998 be equally
thrilling? We expect to continue to experience considerable market volatility as
investors react to economic and market developments overseas and attempt to
assess the impact on the U.S. economy and corporate earnings.
Looking ahead, many of the favorable economic factors that propelled
stocks in recent years will likely remain intact. Asian currency devaluation
will probably diminish inflationary pressure on the U.S. economy and delay, if
not eliminate, the need for a Federal Reserve interest rate hike. Long interest
rates should remain low and perhaps trend lower. Deals, restructurings and share
repurchase programs should continue to buoy stocks.
The wild cards are corporate earnings and investor psychology. In general,
we believe corporate earnings growth will be relatively strong--in the 8% to 9%
range. However, we are likely to see earnings disappointments for companies
doing significant business in Asia and for those competing against lower priced
Asian exports. With earnings expectations high across the board, we suspect we
will see more earnings disappointments in the year ahead.
- --------------------------------------------------------------------------------
1 Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
2 The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect expenses, which have been deducted from the Fund's
return.
3 The Russell 2000 Index is an unmanged index of 2,000 small cap U.S. stocks
that are generally considered to be representative of small-capitalization
issues in the U.S. stock market. The Russell 2000 Index is not available
for direct investment and its returns do not reflect the fees and expenses
that have been deducted from the Fund.
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14
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How will investors react if any or all of our concerns prove justified? We
will just have to wait and see. Investors have become conditioned to buying on
market dips. That's understandable because it's worked quite well since this
bull market began in 1982. Indeed, we saw the market rebound strongly from the
sharp correction we experienced in late October. However, if the problems in
Asia continue to escalate and we see more widespread earnings disappointments
from U.S. companies, investors may be somewhat more reluctant to view each
market dip as a buying opportunity. Bear in mind, liquidity itself does not
drive markets higher. It is liquidity combined with favorable investor
psychology that fuels a rising market. In other words, if greed turns to fear,
we could see a more substantial and prolonged market slump than we have become
accustomed to.
Our conclusion after all this conjecture is that in 1998, we believe that
the market will be up 5% to down 15%. We hope the market surprises on the
upside. However, we believe in the Boy Scout motto: "Be prepared." Although
value stocks will not likely be immune to a substantial market correction, we
believe they will perform significantly better than the more fully valued market
darlings. Consequently, we are carefully monitoring the Fund portfolio, trimming
or eliminating holdings that have become more fully priced in this market
advance and adding to positions that offer better fundamental value. We are also
being more patient in redeploying cash reserves. We doubt the Fund will be able
to duplicate its terrific 1997 returns in what should be a much more challenging
market. However, we believe we can achieve our 10% real rate of return objective
in the year ahead.
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
as of December 31, 1997 (1)
- ---------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
FOR PERIODS ENDED 12/31/97 (1)
- --------------------------------------------------------------------------------
1 Year....................................... 42.59%
Since Inception (5/1/95)..................... 22.36%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment(1)
[Line chart omitted]
To give you a comparison, the chart above shows the performance of a $10,000
investment made in the Gabelli Capital Asset Fund and in the S&P 500 Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings
1. Cablevision Systems Corporation
2. LIN Television Corporation
3. Tele-Communications Inc./Liberty Media Group
4. Viacom Inc.
5. Tejas Gas Corporation
6. TriMas Corporation
7. HSN Inc.
8. Sequa Corporation
9. BET Holdings Inc.
10. United Television Inc.
For a complete list of portfolio holdings, please see the Schedule of
Investments.
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Gabelli Capital Asset Fund
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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
------------
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Gabelli Capital Asset Fund
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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.
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Gabelli Capital
Asset Fund
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5
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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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Gabelli Capital Asset Fund
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STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
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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Gabelli Capital
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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.
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Gabelli Capital Asset Fund
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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
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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
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