[Photo]
The
Gabelli
Convertible
Securities
Fund
ANNUAL REPORT
DECEMBER 31, 1994
<PAGE>
The Gabelli Convertible Securities Fund
One Corporate Center
Rye, New York 10580-1434
Annual Report - 1994
To Our Shareholders:
Following three consecutive years during which The Gabelli Convertible
Securities Fund earned double digit returns, our portfolio resisted much of the
effects of higher interest rates. For the twelve months ended December 31, 1994,
the Fund's net asset value fell by 0.2% compared to a 4.0% loss for the Lipper
Convertible Securities Fund index. Demonstrating its ability to outperform in a
difficult market, The Gabelli Convertible Securities Fund ranked second amongst
the 30 open-ended convertible securities funds that operated for the full year
ended December 31, 1994.
INVESTMENT RESULTS (a)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Quarter
-----------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<C> <S> <C> <C> <C> <C> <C>
1994: Net Asset Value $11.54 $11.39 $11.60 $10.60 $10.60
Total Return 0.2% (1.3)% 1.8% (0.9)% (0.2)%
- ----------------------------------------------------------------------------------------------------------
1993: Net Asset Value $12.07 $12.36 $12.75 $11.52 $11.52
Total Return 5.4% 2.4% 3.2% 1.5% 13.1%
- ----------------------------------------------------------------------------------------------------------
1992: Net Asset Value $11.29 $11.52 $11.90 $11.45 $11.45
Total Return 3.5% 2.0% 3.3% 3.6% 13.0%
- ----------------------------------------------------------------------------------------------------------
1991: Net Asset Value $11.06 $11.27 $11.57 $10.91 $10.91
Total Return 5.6% 1.9% 2.7% 1.8% 12.5%
- ----------------------------------------------------------------------------------------------------------
1990: Net Asset Value $10.56 $10.68 $10.56 $10.47 $10.47
Total Return 1.5% 2.1% (1.1)% 3.8% 6.3%
- ----------------------------------------------------------------------------------------------------------
1989: Net Asset Value --- --- $10.54 $10.51 $10.51
Total Return --- --- 5.4%(b) 0.8% 6.3%(b)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Average Annual Returns - December 31, 1994 (a)
----------------------------------------------
1 Year .............................. (0.2)%
5 Year .............................. 8.8%
Life of Fund ........................ 9.2%
(a) Total return and average annual return reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, the returns noted represent past performance and do not
guarantee future results. Investment returns and the principal value of an
investment will fluctuate. When shares are redeemed they may be worth more or
less than their original cost. (b) From commencement of operations on July 3,
1989.
Dividend History
- --------------------------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
December 31, 1994 $0.900 $10.60
December 31, 1993 $1.425 $11.52
December 31, 1992 $0.876 $11.45
December 31, 1991 $0.865 $10.91
December 31, 1990 $0.490 $10.47
June 28, 1990 $0.100 $10.68
March 29, 1990 $0.100 $10.55
December 29, 1989 $0.115 $10.51
<PAGE>
In the fourth quarter of 1994, The Gabelli Convertible Securities Fund's
dividend adjusted net asset value decreased from $11.60 on September 30, 1994 to
$11.50 on December 31, 1994 (adding back the $0.90 per share annual dividend
paid on December 30, 1994). This represents a decline of 0.9% compared to the
Lipper Analytical Services, Inc. Convertible Securities Fund Index's fall of
2.8%.
From inception on July 3, 1989 through December 31, 1994, the Fund
achieved a 61.9% total return, which reflects an average annual total return of
9.2% assuming reinvestment of all dividends and distributions. The five year
total return of the Fund ending on December 31, 1994 was 52.4%, which equates to
a 8.8% average annual total return.
The Fund demonstrated that consistent returns during declining markets
delivers outstanding performance over the long term. The Fund's five year
average annual return of 8.8% has outperformed the unmanaged S&P 500 Index. On
December 31, 1994 our shareholder base is 10,072 shareholders and total net
assets of the Fund are now $112.1 million.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GABELLI CONVERTIBLE
SECURITIES FUND, THE LIPPER ANALYTICAL SERVICES CONVERTIBLE SECURITIES INDEX AND
THE S&P 500 INDEX
[The following table is presented as a graph in the printed document]
Gabelli Convertible Lipper S&P 500
Securities Fund Convertible Index Index
--------------- ----------------- -----
7/3/89 $10,000 $10,000 $10,000
12/31/94 16,194* 16,426 17,160
* Past performance is not predictive of future performance.
What We Do
We do what is described as bottoms up research: we read annual reports; we
visit the competition; we talk to customers; we go belly to belly with
management. We structure our portfolio by picking stocks.
In past reports, we have tried to articulate our investment philosophy and
methodology. The following graphic further illustrates the interplay among the
four components of our valuation approach.
Our focus is on free cash flow; earnings before interest, taxes,
depreciation and amortization (EBITDA) minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value estimates. Finally, we
[Graphic illustrating the interplay among the
four components of our valuation approach.]
<PAGE>
look for a catalyst; something happening in the company's industry or indigenous
to the company itself that will surface value. In the case of the independent
telephone stocks, the catalyst is a regulatory change. In the agricultural
equipment business, it is the increasing worldwide demand for American food and
feed crops. In other instances, it may be a change in management, sale or
spin-off of a division, or the development of a profitable new business.
When we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as increased focus on productivity
enhancing goods and services.
Our Investment Objectives
Our mandate is to preserve and enhance our shareholders' wealth through a
conservative, disciplined approach to convertible securities investing. Our goal
is to generate consistently positive inflation adjusted returns. We do not
expect to be the top performing fund in up markets. We do expect to be a strong
relative performer in more challenging investment climates.
Convertible Securities are "Hybrids"
The convertible securities market consists of bonds, debentures, corporate
notes, preferred stocks, warrants or other similar securities which may be
converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or different issuer within a particular period of
time at a specified price or formula. Converts are "hybrid" securities that
combine the capital appreciation potential of equities with the higher yield of
fixed income instruments.
Our strategy incorporates the purchase of convertible securities which are
trading at a premium above parity with the common stock but which generally
provide a higher yield and, over time, capital appreciation. We will also seek
out "busted" converts: where the underlying common stock has dropped
significantly and the value of the conversion privilege and the value of the
convert is down. Such securities will provide high yields and long-term capital
appreciation potential as well.
Commentary - 1994 Fourth Quarter
The U.S. Federal Reserve Board continued to raise interest rates in the
fourth quarter. The November 15th increase of 0.75% was the last of six rate
hikes in 1994, which saw the federal funds rate rise from 3.0% to 5.50%. Higher
rates have finally started to bite. Excessive leverage continues to be wrung out
of the system. Losses in Orange County, California are but one example. Other
markets around the world have also been affected. Economies which tie their
currencies to the U.S. dollar have been forced to follow U.S. rates up. The Hong
Kong market, with its heavy concentration in interest rate sensitive stocks,
fell 31% in 1994. The devaluation of the peso, and subsequent collapse of the
Mexican stock and bond markets, is also a direct result of higher U.S. rates
drying up the liquidity needed to finance Mexico's growing trade deficit.
<PAGE>
In many ways, 1994 was the worst of all possible worlds for convertible
securities investors. With bond and stock prices trending lower in the face of
higher interest rates, neither the bond nor equity components of convertible
securities contributed favorably to absolute total returns. However, the
defensive characteristics of the convertibles in our portfolio were clearly
validated.
The following table is a sampling of some of the holdings in the Fund
which illustrate the advantages of convertibles. After careful stock selection,
we seek convertibles with attractive yields and low premiums. These
characteristics allow us to enjoy the downside support and income that we expect
from fixed income investments without forfeiting the potential of capital gains
from future stock price appreciation.
<TABLE>
<CAPTION>
Issuer Price Premium Current Yield Yield to Maturity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Time Warner 8.75% '15 $94 28% 9.31% 9.42%
GenCorp 8.00% '02 $95 28% 8.42% 8.92%
Boston Chicken 4.50% '04 $73 18% 6.16% 8.92%
Coeur d'Alene 6.00% '02 $84 31% 7.14% 9.05%
Cooper 7.05% '15 $98 12% 7.20% 7.24%
American Brands 7.625% '01 $99 39% 7.20% 7.83%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Let's Talk Converts
The following are specifics on selected holdings of our Fund's
investments. Favorable EBITDA prospects do not necessarily translate into higher
stock prices, but they do express a positive trend which we believe will develop
over time.
Time Warner Inc. (LYONS Sr. Sub. Notes Cv. Zero Coupon - 6/22/13 - $35.50 and
Sub. Deb. Cv. 8.75% - 1/10/15 - $94.50) is one of the largest diversified media
and publishing companies in the world with a market capitalization of over $15
billion. Warner Brothers Studios, the company's filmed entertainment subsidiary,
was ranked number one at the box office for the third consecutive year. Time
Warner is restructuring its business into copyright and creativity (notably
publishing, music and filmed entertainment) on one side and distribution (mostly
cable) on the other.
GenCorp, Inc. (Sub. Deb. Cv. 8.00% - 8/01/02 - $91.25) manufactures aerospace
and defense systems, automotive components and polymer-based products.
Management has announced its intent to sell its defense segment, Aerojet, in the
near future. In the meantime, the company continues to focus on its automotive
segment which has benefitted from the pickup in U.S. auto sales. GenCorp also
hopes to expand European sales by increasing its control of German automotive
supplier Henniges to 100%.
Coeur d'Alene Mines Corporation (Sub. Deb. Cv. 6.00% - 6/10/02 - $83.75)
explores for and produces gold and silver in Nevada, Idaho, Alaska and Chile.
The company also holds an 80% interest in the Golden Cross gold mine in New
Zealand. Coeur d'Alene's Rochester silver-gold mine in Nevada is one of the
largest and lowest cost silver mines in North America.
<PAGE>
American Brands, Inc. (Sub. Deb. Cv. 7.625% - 3/05/01 - $99.875) is an asset
rich company with many different lines of businesses including Titleist and
Pinnacle golf balls, Moen faucets, Jim Beam bourbon and Acco office products.
American Brands also owns Gallaher, the largest tobacco company in the United
Kingdom. American Brands completed the sale of The Franklin Life Insurance
company for $1.17 billion in January 1995 and sold its domestic tobacco
business, American Tobacco, to B.A.T. for $1 billion in December 1994. We
believe these sales are symbolic of management's commitment to surface
shareholder value. American Brands is a strong cash flow generator and currently
pays a healthy $2.00 dividend.
Boston Chicken Inc. (Sub. Deb. Cv. 4.50% - 2/01/04 - $73.00) operates and
franchises food service stores. The company is a pioneer in the emerging
"home-meal replacement" industry. It is best known for its moderately priced
chicken dishes, but plans to add other items to its menu including turkey, baked
ham and meatloaf. As of September 30, 1994, the company operated 437 stores in
over 25 states. Plans are to double this capacity over the next two years.
Boston Chicken has a strong balance sheet with over $30 million in cash, a low
debt to capital ratio of 35% and an annualized EBITDA of over $33 million which
covered interest expenses more than 8 times. Senior management is well
experienced, having previously been the largest franchisee of Blockbuster
Entertainment, and is committed to making the concept work since they control
close to 30% of the common stock.
Cooper Industries, Inc. ($1.60 Cv. Pfd - 01/01/15 - $20.50) manufactures
electrical, industrial and automotive products. Recently, the company announced
its intentions to spin off its Petroleum and Industrial Equipment activities,
acquire two industrial product manufacturers and exchange its preferred shares
for subordinated debt. These moves should benefit shareholders by increasing
cash flow and earnings and reducing debt.
QVC Inc. (QVCN - $42.125 - OTC) agreed to accept a sweetened $46 per share offer
by Comcast (CMCSA - $15.375 - OTC) and Tele-Communications Inc. (TCOMA - $21.75
- - OTC) for the 65% of QVCN shares that the two cable giants do not own. CMCSA
and TCOMA have notified the FTC of their intention to consummate the $46 tender
offer at any time after 5pm on February 6, 1995 provided all conditions have
been satisfied. We continue to hold a large position.
Gabelli U.S. Treasury Money Market Fund
Shareholders of any of the Gabelli Funds may invest in The Gabelli U.S.
Treasury Money Market Fund with an initial investment of $3,000 or more. The
Fund provides checkwriting and exchange privileges. The Fund's expenses capped
at .30% of average net assets, making it one of the most attractive U.S.
Treasury-only money market funds. With dividends exempt from state and local
income taxes in all states, the Fund is an excellent vehicle in which to store
idle cash. Call us at 1-800-GABELLI (1-800-422-3554) for a prospectus which
gives a more complete description of the Fund, including management fees and
expenses. Read it carefully before you invest or send money.
Proposed Conversion to Closed - End Status
The Board of Directors has scheduled a Special Meeting of Shareholders for
February 17, 1995 to consider proposals to convert the Fund to a closed-end
investment company. Shareholders of record on January 17, 1995 were mailed proxy
statements to vote on these proposals. We believe that conversion to closed-end
<PAGE>
status will provide the Fund with greater ability to invest in accordance with
its investment objectives and to reduce the relatively lower-yielding cash
balances maintained to satisfy possible redemption requests. We also requested
that certain investment restrictions of the Fund relating to investments in
illiquid securities be eliminated and the Fund's ability to borrow and issue
senior securities be expanded. We believe these proposals represent an
attractive opportunity for shareholders and we urge you to give it your careful
consideration.
What does this mean to investors in the Fund? If approved by the
shareholders, The Board of Directors would vote to determine a specific
conversion date. The conversion date would be at least 15 days from the date a
notice is sent to shareholders. Shareholders could add to or redeem their shares
up to the conversion date. After which, shareholders would buy or sell their
shares through a broker, but existing holdings could be sold by writing to State
Street Bank, our transfer agent, who would sell the shares on a securities
exchange. Additionally, Gabelli Funds has arranged for shareholders who wish to
sell shares held by State Street to do so at no commissions through 1996.
Specific details will be sent to shareholders in a separate notice.
In Conclusion
Having weathered a difficult investment environment in 1994, we look
forward to what should be a more rewarding climate in 1995. We believe the Fed
may be close to its goal of slowing the economy sufficiently to maintain modest
growth with low inflation. This would signal the peak in interest rates and set
the stage for improved stock and bond prices. This should help buoy convertible
securities as well.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's NASDAQ symbol is GACSX. Please call us during the
day for further information.
We thank you for your confidence in our investing abilities and wish you a
productive and financially rewarding 1995.
Sincerely,
/s/ A. Hartswell Woodson, III /s/ Mario J. Gabelli
A. Hartswell Woodson, III Mario J. Gabelli
Associate Portfolio Manager President and
Chief Investment Officer
February 1, 1995
- --------------------------------------------------------------------------------
Top Ten Holdings
December 31, 1994
-----------------
Time Warner, Inc. Ketema, Inc.
QVC, Inc. Chock Full o'Nuts Corp.
Fieldcrest Cannon, Inc. Caesars World, Inc.
Navistar International Corporation General Host Corporation
Park Communications Inc. ITT Corporation
- --------------------------------------------------------------------------------
<PAGE>
The Gabelli Convertible Securities Fund
Portfolio of Investments -- December 31, 1994
================================================================================
Principal Market
Amount Cost Value
-------- ---- ------
CONVERTIBLE SECURITIES - 54.52%
CONVERTIBLE CORPORATE BONDS - 41.24%
AUTOMOTIVE: PARTS & ACCESSORIES - 0.94%
$ 1,150,000 GenCorp Inc. Sub. Deb. Cv.
8.00%, 08/01/02 .............. $ 1,146,432 $ 1,049,375
------------ ------------
AVIATION: PARTS & SERVICES - 1.45%
615,000 Hudson General Corporation Sub.
Deb. Cv. 7.00%, 07/15/11 ..... 409,828 437,419
254,000 Kaman Corporation Sub. Deb. Cv.
6.00%, 03/15/12 .............. 156,691 191,770
1,300,000 UNC Incorporated Sub. Deb. Cv.
7.50%, 03/31/06 .............. 824,235 1,002,625
------------ ------------
1,390,754 1,631,814
------------ ------------
BROADCASTING - 1.65%
250,000(a)Havas SA Sub. Deb.Cv.
3.00%, 12/31/97 .............. 51,978 53,775
1,250,000 Park Communications Inc.
Sub. Deb. Cv. 6.875%,
03/15/11 ..................... 1,236,780 1,796,875
------------ ------------
1,288,758 1,850,650
------------ ------------
BUILDING & CONSTRUCTION - 0.27%
10,000 Hofi International Finance Ltd.
Sub. Deb. Cv. 4.50%, 08/11/08. 12,561 13,800
300,000 Medusa Corporation Sub.
Notes Cv. 6.00%, 11/15/03 .... 292,249 285,000
------------ ------------
304,810 298,800
------------ ------------
BUSINESS SERVICES - 0.55%
250,000 Anacomp Inc. Sub. Deb. Cv.
13.875%, 01/15/02 ............ 264,435 249,375
85,200(a)International Business Machines
Corporation France, Sub. Deb.
Cv. 5.75%, 01/01/98 .......... 17,679 20,573
359,000 Trans-Lux Corporation Sub.
Deb. Cv. 9.00%, 12/01/05 ..... 309,703 351,820
------------ ------------
591,817 621,768
------------ ------------
CABLE - 0.32%
250,000 Comcast Corporation Sub.
Deb. Cv. 3.375%, 09/09/05 .... 244,751 200,000
400,000 Comcast Corporation Sub.
Deb. Cv. 1.125%, 04/15/07 .... 176,493 161,500
------------ ------------
421,244 361,500
------------ ------------
COMPUTER SOFTWARE & SERVICES - 0.16%
140,000 Sierra On-Line, Inc. Sub. Deb. Cv.
6.50%, 04/01/01(c) ........... 137,288 178,500
------------ ------------
CONSUMER PRODUCTS - 3.68%
600,000 American Brands, Inc. Sub.
Deb. Cv. 7.625%, 03/05/01 .... 622,435 599,250
600,000 Borden, Inc. Sub. Deb. Cv.
Zero Cpn. 05/21/02 ........... 384,906 354,000
100,000 Dibrell Brothers Inc. Sub. Deb.
Cv. 7.75%, 09/30/06 .......... 96,586 109,000
2,800,000 Fieldcrest Cannon, Inc. Sub.
Deb. Cv. 6.00%, 03/15/12 ..... 1,840,319 2,100,000
564,000 Masco Corporation Sub. Deb. Cv.
5.25%, 02/15/12 .............. 377,083 441,330
250,000 Roadmaster Industries Inc.
Sub. Deb. Cv. 8.00%, 08/15/03 250,204 250,000
400,000 Standard Commercial
Corporation Sub. Deb. Cv.
7.25%, 03/31/07 .............. 320,522 266,000
------------ ------------
3,892,055 4,119,580
------------ ------------
ENERGY - 1.29%
1,100,000 Moran Energy Inc. Sub.
Deb. Cv. 8.75%, 01/15/08 ..... 757,843 772,063
600,000 Pennzoil Company Sub. Deb. Cv.
6.50%, 01/15/03 .............. 600,000 673,500
------------ ------------
1,357,843 1,445,563
------------ ------------
ENTERTAINMENT - 12.38%
700,000 Savoy Pictures Entertainment
Sub. Deb. Cv. 7.00%,
07/01/03 ..................... 669,036 500,500
400,000 Time Warner Inc. LYONS Sr.
Sub. Notes Cv. Zero Cpn.,
06/22/13 ..................... 159,119 142,000
14,000,000 Time Warner Inc. Sub. Deb. Cv.
8.75%, 01/10/15 .............. 14,632,257 13,230,000
------------ ------------
15,460,412 13,872,500
------------ ------------
FINANCIAL SERVICES - 0.93%
550,000 Advest Group, Inc. (The) Sub.
Deb. Cv. 9.00%, 03/15/08 ..... 430,952 490,875
550,000 Allegheny Corporation Sub. Deb.
Cv. 6.50%, 06/15/14 .......... 563,597 521,125
25,000 Guangdong Investment Limited
Sub. Deb. Cv. 4.50%, 10/07/98 25,000 25,375
------------ ------------
1,019,549 1,037,375
------------ ------------
FOOD AND BEVERAGE - 3.64%
550,000 Boston Chicken, Inc. Sub. Deb.
Cv. 4.50%, 02/01/04 .......... 512,099 401,500
1,050,000 Chock Full o'Nuts Corporation
Sub. Deb. Cv. 8.00%, 09/15/06 1,036,293 960,750
1,005,000 Chock Full o'Nuts Corporation
Sub. Deb. Cv. 7.00%, 04/01/12 747,065 814,050
The accompanying notes are an integral part of the financial statements.
<PAGE>
The Gabelli Convertible Securities Fund
Portfolio of Investments -- December 31, 1994 (Continued)
================================================================================
Principal Market
Amount Cost Value
-------- ---- ------
FOOD AND BEVERAGE (continued)
$ 1,300,000 Flagstar Companies, Inc. Sub.
Deb. Cv. 10.00%, 11/01/14 .... $ 1,286,622 $ 916,500
930,000 Ingles Markets Incorporated
Sub. Deb. Cv. 10.00%
10/15/08 ..................... 935,373 985,800
------------ ------------
4,517,452 4,078,600
------------ ------------
HEALTH CARE - 0.09%
100,000 Benson Eyecare Corporation Sub.
Deb. Cv. 8.00%, 05/15/01 ..... 99,721 101,625
------------ ------------
INDUSTRIAL EQUIPMENT AND SUPPLIES - 8.20%
350,000 AMSCO International Inc.
Sub. Deb. Cv. 4.50%, 10/15/02 331,887 264,250
850,000 Builders Transport Incorporated
Sub. Deb. Cv. 6.50%,
05/01/11 ..................... 341,172 626,875
500,000 Data Switch Corporation Sub.
Deb. Cv. 8.25%, 06/01/02 ..... 377,686 358,125
100,000 Ducommun Incorporated Sub.
Deb. Cv. 7.75%, 03/31/11 ..... 73,320 84,000
450,000 General Signal Corporation Sub.
Deb. Cv. 5.75%, 06/01/02 ..... 442,883 447,750
20,000 Greenwich Air Services, Inc. Sub.
Deb. Cv. 8.00%, 11/05/2000 ... 19,591 16,000
720,000 Intermagnetics General
Corporation Sub. Deb.
Cv. 5.75%, 09/15/03 .......... 720,000 723,600
1,759,000 Ketema, Inc. Sub. Deb. Cv.
8.00% 11/15/03 ............... 1,768,020 1,789,783
1,200,000 Kollmorgen Corporation
Sub. Deb. Cv. 8.75%, 05/01/09 835,397 1,029,750
1,195,000 M/A-Com, Inc. Sub. Deb. Cv.
9.25%, 05/15/06 .............. 884,866 1,108,363
880,000 Mark IV Industries Inc. Sub.
Deb. Cv. 6.25%, 02/15/07 ..... 880,000 1,168,200
700,000 Pacific Scientific Company
Sub. Deb. Cv. 7.75%, 06/15/03 635,516 770,000
240,000 Riverwood International
Corporation Sub. Deb. Cv.
6.75%, 09/15/03 .............. 239,590 253,200
450,000 Sanifill, Inc. Sub. Deb. Cv. 7.50%,
06/01/06 ..................... 447,190 429,750
120,000 Unifi, Inc. Sub. Deb. Cv.
6.00%, 03/15/02 .............. 120,000 116,850
------------ ------------
8,117,118 9,186,496
------------ ------------
METALS AND MINING - 0.34%
450,000 Coeur d'Alene Mines Corporation
Sub. Deb. Cv. 6.00%,
06/10/02 ..................... 403,006 376,875
------------ ------------
PUBLISHING - 0.43%
700,000 News American Holdings
Incorporated Sub. Deb. Cv.
Zero Cpn., 03/31/02 .......... 403,441 483,875
------------ ------------
REAL ESTATE / DEVELOPMENT - 0 53%
300,000 Continental Homes Holding Corp.
Sub. Deb. Cv. 6.875%,
03/15/02 ..................... 276,075 235,500
125,000 Rockefeller Center Properties Inc.
Sub. Deb. Cv. Zero Cpn.,
12/31/00 ..................... 60,686 53,750
300,000 Rockefeller Center Properties Inc.
Sub. Deb. Cv.
8.00%, 12/31/00 .............. 288,811 279,000
30,000 Wharf Capital International. Ltd.
Sub. Deb. Cv.
5.00%, 07/15/2000 ............ 34,106 31,800
------------ ------------
659,678 600,050
------------ ------------
RETAIL - 2.11%
100,000 American Stores Company Sub.
Deb. Cv. 7.25%, 09/15/01 ..... 104,268 119,000
100,000 Farah USA, Inc. Sub. Deb. Cv.
8.50%, 02/01/04 .............. 100,818 46,000
350,000 Food Lion, Inc. Sub. Deb. Cv.
5.00%, 06/01/03 .............. 348,662 309,750
2,200,000 General Host Corporation
Sub. Deb. Cv.
8.00%, 02/15/02 .............. 2,170,552 1,661,000
100,000 Home Depot, Inc. Sub. Deb.
Cv. 4.50%, 02/15/97 .......... 104,209 120,500
100,000 Sports & Recreation, Inc. Sub. Deb.
Cv. 4.25%, 11/01/2000 ........ 100,000 107,125
------------ ------------
2,928,509 2,363,375
------------ ------------
TRANSPORTATION - 0.42%
600,000 Greyhound Lines Inc. Sub. Deb.
Cv. 8.50%, 03/31/07 .......... 416,040 348,000
150,000 WorldCorp, Inc. Sub. Deb. Cv.
7.00%, 05/15/04 .............. 114,284 133,500
------------ ------------
530,324 481,500
------------ ------------
WIRELESS COMMUNICATIONS - 1.86%
180,000 All American Communications, Inc.
Sub. Dev. Cv., 6.50%, 10/01/03 179,234 133,200
100,000 Cellular Communications of
Puerto Rico Inc. Sub. Deb.
Cv. 8.25%, 08/01/2000 ........ 105,711 232,000
100,000 Cellular, Inc. Sub. Deb. Cv.
6.75%, 07/15/09 .............. 96,490 107,000
The accompanying notes are an integral part of the financial statements.
<PAGE>
The Gabelli Convertible Securities Fund
Portfolio of Investments -- December 31, 1994 (Continued)
================================================================================
Principal
Amount Market
or Shares Cost Value
--------- ---- ------
WIRELESS COMMUNICATIONS (continued)
$500,000 Century Telephone Enterprises
Inc. Sub. Deb. Cv. 6.00%,
02/01/07 ..................... $ 497,901 $ 591,250
300,000 COMCAST Cellular
Communications Inc. Ser. A
Redeemable Notes, Zero Cpn.,
03/05/2000 ................... 169,785 205,500
400,000 IDB Communications Group, Inc.
Sub. Deb. Cv. 5.00%,
08/15/03 ..................... 277,017 305,000
800,000,000(b)Softe SA Sub. Deb. Cv. 4.25%,
07/01/98 ..................... 490,825 514,338
------------ ------------
1,816,963 2,088,288
------------ ------------
TOTAL CONVERTIBLE
CORPORATE BONDS .............. 46,487,174 46,228,109
------------ ------------
CONVERTIBLE PREFERRED STOCK - 13.28%
AIRLINES - 1.38%
15,500 AMR Corporation $3.00 Cv. Pfd.
Ser. A ....................... 773,938 604,500
15,000 Delta Air Lines, Inc. $3.50 Cv.
Pfd. Ser. C .................. 799,240 656,250
3,400 UAL Corporation 6.25% Cv. Pfd.
Ser. A ....................... 339,400 283,900
------------ ------------
1,912,578 1,544,650
------------ ------------
AUTOMOBILE MANUFACTURERS - 0.79%
5,000 Ford Motor Company $4.20 Cv.
Pfd. Ser. A .................. 451,100 460,000
7,500 General Motors Corporation
$3.25 Cv. Pfd. Ser. C ........ 376,375 430,313
------------ ------------
827,475 890,313
------------ ------------
AVIATION: PARTS & SERVICES - 0.38%
9,000 Kaman Corp. 6.50% Cv. Pfd.
Ser. 2 ....................... 296,011 420,750
------------ ------------
CONSUMER PRODUCTS - 0.44%
25,500 Kerr Group, Inc. Cl. B $1.70 Cv.
Pfd. Ser. D .................. 464,875 497,250
------------ ------------
DIVERSIFIED INDUSTRIAL - 2.43%
20,000 GATX Corporation $3.875 Cv.
Pfd. ......................... 824,662 1,080,000
1,000 GATX Corporation $2.50 Cv. Pfd. 65,400 100,000
14,000 ITT Corporation $2.25 Cv. Pfd.
Ser. N ....................... 1,104,937 1,547,000
------------ ------------
1,994,999 2,727,000
------------ ------------
Shares
--------
ENERGY - 1.55%
6,200 Atlantic Richfield Company
$2.80 Cv. Pfd ................ 1,654,248 1,512,800
8,000 McDermott International, Inc.
Pfd. A ....................... 233,875 224,000
------------ ------------
1,888,123 1,736,800
------------ ------------
FOOD AND BEVERAGE - 0.41%
24,000 Flagstar Companies, Inc. $2.25
Cv. Pfd. Ser. A .............. 623,495 456,000
------------ ------------
INDUSTRIAL EQUIPMENT & SUPPLIES - 3.78%
35,000 Cooper Industries, Inc. $1.60
Cv. Pfd ...................... 974,959 717,500
11,500 Echo Bay Finance Corp. $1.75
Cv. Pfd. Ser. A .............. 327,825 378,062
36,000 Navistar International
Corporation $6.00 Cv. Pfd.
Ser. G ....................... 1,700,294 1,854,000
26,000 NYCOR, Inc. $1.70 Cv. Pfd. 355,850 357,500
17,000 Sequa Corporation $5.00 Cv.Pfd. 1,374,217 935,000
------------ ------------
4,733,145 4,242,062
------------ ------------
METALS AND MINING - 1.22%
24,000 Freeport-McMoRan Copper &
Gold Inc. 7.00% Cv. Pfd ...... 693,325 564,000
13,000 Magma Copper Company
5.625% Cv. Pfd. Ser. D ....... 656,075 802,750
------------ ------------
1,349,400 1,366,750
------------ ------------
REAL ESTATE / DEVELOPMENT - 0.31%
7,500 Catellus Development Corporation
$3.75 Cv. Pfd. Ser. A ........ 424,438 347,813
------------ ------------
TELECOMMUNICATIONS - 0.59%
10,000 BCE Inc. $0.65 Cv. Pfd. Ser. O 327,337 297,789
3,500 LCI International, Inc. 5.00%
Cv. Pfd. ..................... 87,500 122,938
1,400 Sprint Corporation $1.50
Cv. Pfd. Ser. 1 .............. 144,220 130,200
1,600 Sprint Corporation $1.50 Cv. Pfd.
Ser. 2 ....................... 136,905 108,000
------------ ------------
695,962 658,927
------------ ------------
TOTAL CONVERTIBLE
PREFERRED STOCKS ......... 15,210,501 14,888,315
------------ ------------
COMMON STOCKS - 6.68%
CABLE - 3.19%
85,000 QVC, Inc.................. 3,787,617 3,580,625
------------ ------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
The Gabelli Convertible Securities Fund
Portfolio of Investments -- December 31, 1994 (Continued)
================================================================================
Principal
Amount Market
or Shares Cost Value
--------- ---- ------
ENERGY - 0.38%
4,000 Exxon Corporation......... $ 237,758 $ 243,000
3,000 Texaco Inc................ 183,213 179,625
------------ ------------
420,971 422,625
------------ ------------
ENTERTAINMENT - 1.49%
25,000 Caesars World Inc......... 1,643,750 1,668,750
------------ ------------
INDUSTRIAL EQUIPMENT
AND SUPPLIES - 1.62%
3,500 Giddings & Lewis, Inc..... 38,144 51,625
15,500 Hughes Supply, Inc........ 271,592 284,811
34,938 Tenneco Inc............... 1,393,952 1,484,850
------------ ------------
1,703,688 1,821,286
------------ ------------
TOTAL COMMON STOCKS ...... 7,556,026 7,493,286
------------ ------------
CORPORATE BONDS - 0 61%
INDUSTRIAL EQUIPMENT AND
SUPPLIES - 0.24%
$300,000 Nortek Inc. Sub. Deb.
9.875%, 03/01/2004 ..... 268,862 270,000
------------ ------------
WIRELESS COMMUNICATIONS - 0.37%
600,000 COMCAST Cellular
Communications Inc. Ser. B
Redeemable Notes, Zero Cpn.,
03/05/2000.............. 386,284 411,000
------------ ------------
TOTAL CORPORATE BONDS .... 655,146 681,000
------------ ------------
Principal
Amount
--------
U.S. GOVERNMENT OBLIGATIONS - 38.24%
$43,240,000 U.S. Treasury Bills, 4.50% to
5.36%, Due 01/05/95 to
8/24/95 ................ 42,902,387 42,859,846
------------ ------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS .............. 42,902,387 42,859,846
------------ ------------
TOTAL
INVESTMENTS - 100.05% .... $112,811,234* 112,150,556
============
Liabilities, in excess of Other
Assets - (0.05)% ....... (60,192)
------------
NET ASSETS - 100.00%
(10,576,750 shares
outstanding) ....... $112,090,364
============
Net Asset Value and Redemption Price Per Share $10.60
======
- ------------
(a) - Principal amount denoted in French Francs.
(b) - Principal amount denoted in Italian Lira.
(c) - Security restricted as to resale.
*For Federal income tax purposes:
Aggregate cost................... $112,829,602
============
Gross unrealized appreciation ... $ 4,645,019
Gross unrealized depreciation ...
(5,324,065)
------------
Net unrealized depreciation. .... $ (679,046)
============
Short futures contracts outstanding at December 31, 1994:
Number of
Contracts Value
-------- -----
5 S&P 500 March '95................ $1,153,375
==========
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
1994 TAX NOTICE TO SHAREHOLDERS (unaudited)
On December 30, 1994 the Fund paid to shareholders an ordinary income
dividend (comprised of net investment income and short-term capital gains) of
$0.688 per share and a distribution of long-term capital gains of $0.212 per
share. For 1994, 17.5% of such ordinary income dividend qualifies for the
dividend received deduction available to corporations. The distribution from
long-term capital gains is designated as a "Capital Gain Dividend" and is
taxable to shareholders as a long-term capital gain.
U.S. Government Income:
The percentage of the ordinary income dividend paid by the Fund during 1994
which was derived from U.S. Treasury securities was 18.42%. Such income is
exempt from state and local income tax in most states. However, many states,
including New York and California, allow a tax exemption for a portion of the
income earned only if a mutual fund has invested at least 50% of its assets at
the end of each quarter of the Fund's fiscal year in U.S. Government securities.
The Gabelli Convertible Securities Fund did not meet this strict requirement in
1994.
- --------------------------------------------------------------------------------
<PAGE>
The Gabelli Convertible Securities Fund
Statement of Assets and Liabilities
December 31, 1994
================================================================================
Assets
Investments in securities, at value (Cost
$112,811,234) ...................................... $ 112,150,556
Cash .................................................... 14,513
Receivable for investments sold ......................... 17,789
Receivable for Fund shares sold ......................... 62,673
Accrued interest receivable ............................. 997,905
Dividends receivable .................................... 177,508
Other assets ............................................ 7,367
-------------
Total assets ....................................... 113,428,311
-------------
Liabilities:
Payable for investments purchased ....................... 285,358
Payable for dividends and distributions ................. 629,073
Payable for Fund shares redeemed ........................ 190,855
Payable to Advisor ...................................... 95,282
Other accrued expenses .................................. 137,379
-------------
Total Liabilities .................................. 1,337,947
-------------
Net assets (applicable to 10,576,750
shares outstanding) ................................ $ 112,090,364
=============
Net asset value and redemption
price per share ................................... $ 10.60
=============
Net Assets Consist of:
Capital Stock, at par value...........$ ................. 10,577
Additional paid-in-capital .............................. 112,786,545
Distribution in excess of net investment
income ............................................. (25,500)
Distributions in excess of net
realized gain on investments ....................... (26,926)
Net unrealized depreciation on investments
and foreign currency transactions .................. (654,332)
-------------
Net assets ......................................... $ 112,090,364
=============
Statement of Operations
Year Ended December 31, 1994
================================================================================
Investment Income:
Interest (Net of foreign tax of $3,702) ................. $ 5,727,516
Dividends (Net of foreign tax of $2,978) ................ 1,429,194
-------------
Total Income ....................................... 7,156,710
-------------
Expenses:
Investment advisory fee ................................. 1,177,574
Transfer and shareholder servicing agent ................ 162,866
Legal and audit fees .................................... 52,500
Directors' fees ......................................... 40,763
Custodian fees and expenses ............................. 39,034
Registration fees ....................................... 28,706
Printing and mailing .................................... 26,945
Miscellaneous ........................................... 16,264
-------------
Total expenses ..................................... 1,544,652
-------------
Investment income - net ................................. 5,612,058
-------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain on investments ........................ 3,190,539
Net change in unrealized appreciation ................... (9,121,141)
-------------
Net loss on investments ............................ (5,930,602)
-------------
Net decrease in net assets resulting from
operations ......................................... $ (318,544)
=============
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
===============================================================================================
Year Ended Year Ended
December 31, 1994 December 31, 1993
----------------- ----------------
<S> <C> <C>
Change in Net Assets:
Investment income - net .............................. $ 5,612,058 $ 4,744,672
Realized gain on investments - net ................... 3,190,539 7,283,969
Change in unrealized appreciation - net .............. (9,121,141) 464,144
------------- -------------
Net increase (decrease) in net assets resulting from
operations ....................................... (318,544) 12,492,785
------------- -------------
Distributions to shareholders from:
Net investment income .............................. (5,605,754) (4,748,241)
Net realized gain on investments ................... (3,155,909) (7,312,799)
Distributions in excess of net realized gain on
investments ...................................... (53,326) --
------------- -------------
(8,814,989) (12,061,040)
------------- -------------
Share transactions - net ............................. 12,550,035 15,700,935
------------- -------------
Net increase (decrease) in net assets .............. 3,416,502 16,132,680
Net Assets:
Beginning of period .................................. 108,673,862 92,541,182
------------- -------------
End of period (includes distribution in excess of net
investment income of $25,500.) ..................... $ 112,090,364 $ 108,673,862
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
The Gabelli Convertible Securities Fund
Notes to Financial Statements
================================================================================
1. Significant Accounting Policies. The Gabelli Convertible Securities Fund (the
"Fund") is a separately managed portfolio of The Gabelli Series Funds, Inc. (the
"Corporation"), an open-end, diversified management investment company currently
consisting of one separately managed portfolio. The Corporation was incorporated
in Maryland on December 19, 1988. The Board of Directors has approved, subject
to approval at a special meeting of shareholders to be held on February 17,
1995, the conversion of the Fund to closed-end status. The following is a
summary of significant accounting policies followed by the Fund:
Security Valuation. Readily marketable securities traded on a national
securities exchange or admitted to trading on the NASDAQ National Market List
are valued at the last reported sales price on the business day as of which such
value is determined. Securities for which no sale was reported on that date and
over-the-counter securities not included in the NASDAQ National Market List are
valued at the mean between the last bid and asked prices. United States
government obligations and other debt instruments having 60 days or fewer
remaining until maturity are stated at amortized cost (which approximates market
value). Debt instruments having a remaining maturity of more than 60 days will
be 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 by the Board of Directors. All other investment assets,
including restricted and not readily marketable securities, are valued under
procedures established by and under the direction of the Fund's Board of
Directors, designed to reflect in good faith the fair value of such securities.
Foreign Currency Transactions. The books and records of the Fund are maintained
in U.S. dollars as follows:
(i) market value of investment securities and other assets and liabilities are
recorded at the exchange rate on the valuation date.
(ii) purchases and sales of investment securities, income and expenses are
recorded at the exchange rate prevailing on the respective date of such
transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuation
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Futures Contracts. The Fund may engage in futures contracts for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Such investments will only be made
if they are, in the opinion of Fund management, economically appropriate to the
reduction of risks involved in the management of the Fund. Upon entering into a
futures contract, the Fund is required to deposit with the broker an amount of
cash or cash equivalents equal to a certain percentage of the contract amount.
This is known as the "initial margin." Subsequent payments ("variation margin")
are made or received by the Fund each day, depending on the daily fluctuation of
the value of the contract. The daily changes in the contract are recorded as
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. The net unrealized appreciation/(depreciation) is shown in
the financial statements.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
During the period ended December 31, 1994, the Fund sold short futures contracts
aggregating $22,725,471 and closed short futures contracts $21,700,658.
<PAGE>
The Gabelli Convertible Securities Fund
Notes to Financial Statements (Continued)
================================================================================
Security Transactions and Investment Income. Security transactions are accounted
for on the dates the securities are purchased or sold (the trade dates) with
realized gain or loss on investments determined by using specific identification
as the cost method. Interest income (including amortization of premium and
discount) is recorded as earned. Dividend income and dividends and distributions
to shareholders are recorded on the ex-dividend date. The ability of issuers of
debt securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry or region.
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, temporary
differences and differing characterization of distributions made by the Fund.
Permanent differences incurred during the year ended December 31, 1994 resulting
from different book and tax accounting policies for currency gains and losses
were reclassified between net investment income and net realized gains at year
end.
Federal Income Taxes. The Fund intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986 and
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required.
2. Capital Stock Transactions. The Articles of Incorporation, dated December 19,
1988, permit the Fund to issue 100,000,000 shares (par value $0.001).
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993
-------------------------- --------------------------
Shares Amount Shares Amount
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Shares sold................................. 2,593,580 $29,982,906 1,654,600 $20,356,151
Shares issued in reinvestment of dividends.. 773,933 8,203,685 986,254 11,343,029
Shares redeemed............................. (2,224,189) (25,636,556) (1,288,178) (15,998,245)
--------- ----------- --------- -----------
Net increase............................. 1,143,324 $12,550,035 1,352,676 $15,700,935
========= =========== ========= ===========
</TABLE>
3. Purchases and Sales of Securities. Purchases and sales of securities for the
year ended December 31, 1994, other than U.S. government obligations and
short-term securities, aggregated $54,506,218 and $51,982,803, respectively.
4. Investment Advisory Contract. The Fund employs Gabelli Funds, Inc. (the
"Advisor") to provide a continuous investment program for the Fund's portfolio,
provide all facilities and personnel, including officers, required for its
administrative management, and to pay the compensation of all officers and
Directors of the Fund who are its affiliates. As compensation for the services
rendered and related expenses borne by the Advisor, the Fund pays the Advisor a
fee, computed and accrued daily and payable monthly, equal to 1.00% per annum of
the Fund's average daily net assets. The Advisor is obligated to reimburse the
Fund in the event the Fund's expenses exceed certain prescribed limits. No such
reimbursement was required during 1994.
5. Organization Expenses. The organization expenses of the Fund were amortized
on a straight-line basis over a period of 60 months.
6. Transactions with Affiliates. The Fund paid brokerage commissions during the
year ended December 31, 1994 of $9,631 to Gabelli & Company, Inc. and its
affiliates. For the year ended December 31, 1994, Gabelli & Company, Inc. has
informed the Fund that it received $13,776 from investors in commissions (sales
charges and underwriting fees) on sales of Fund shares.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
============================================================================================================================
Selected data for a share of capital stock outstanding throughout each period:
July 3, 1989
(Commencement of
Year Ended December 31, Operations) through
---------------------------------------------------------------
1994 1993 1992 1991 1990 December 31, 1989
---- ---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Performance:
Net asset value, beginning of period... $ 11.52 $ 11.45 $ 10.91 $ 10.47 $ 10.51 $ 10.00
---------- ---------- -------- -------- -------- --------
Net investment income.................. 0.69 0.76 0.65 0.71 0.69 0.12
Net realized and unrealized gain (loss) on
securities.......................... (0.71) 0.74 0.76 0.60 (0.04) 0.51
---------- ---------- -------- -------- -------- --------
Total from investment operations....... (0.02) 1.50 1.41 1.31 0.65 0.63
---------- ---------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income... (0.69) (0.76) (0.65) (0.71) (0.69) (0.12)
Distributions from net realized gain on
investments......................... (0.21) (0.67) (0.22) (0.16) -- --
---------- ---------- -------- -------- -------- --------
Net asset value, end of period ........ $ 10.60 $ 11.52 $ 11.45 $ 10.91 $ 10.47 $ 10.51
========== ========== ======== ======== ======== ========
Total Return+.......................... (0.2)% 13.1% 13.0% 12.5% 6.3% 6.3%
Ratios to average net assets/
supplemental data:
Net assets, end of period (in thousands) $112,090 $108,674 $92,541 $92,565 $81,868 $52,105
Ratio of operating expenses to average net
assets.............................. 1.31% 1.38% 1.40% 1.45% 1.52% 2.50%
Ratio of net investment income to average
net assets.......................... 4.77% 4.58% 5.53% 5.50% 6.85% 5.74%
Portfolio turnover rate................ 67% 45% 32% 51% 282% 83%
</TABLE>
- ----------
* Annualized
+ Total return does not consider the effect of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than one full year are not
annualized.
- --------------------------------------------------------------------------------
Report of Independent Accountants
================================================================================
To the Board of Directors and Shareholders
of The Gabelli Series Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlight present fairly, in all
material respects, the financial position of The Gabelli Convertible Securities
Fund (the "Fund"), a separately managed portfolio of The Gabelli Series Funds,
Inc., at December 31, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended and for the period from July 3, 1989 (commencement of operations)
through December 1989, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994 by correspondence with the
custodian and brokers, and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 9, 1995
<PAGE>
The Gabelli Convertible Securities Fund
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
Board of Directors
Mario J. Gabelli, CFA
President and Chief
Investment Officer Gabelli Funds, Inc.
E. Val Cerutti
Chief Executive Officer
Cerutti Consultants, Inc.
Felix J. Christiana
Former Senior
Vice President
Dollar Dry Dock Savings Bank
Anthony J. Colavita
Attorney-at-Law
Anthony J. Colavita, P.C.
Dugald A. Fletcher
President
Fletcher & Company, Inc.
Karl Otto Pohl
Former President
Deutsche Bundesbank
Anthony R. Pustorino
Certified Public Accountant
Professor, Pace University
Anthonie C. van Ekris
Managing Director
BALMAC International, Inc.
Salvatore J. Zizza
Chairman, Chief
Executive Officer
The Lehigh Group, Inc.
Officers and Portfolio Managers
Mario J. Gabelli, CFA
President and Chief
Investment Officer
J. Hamilton Crawford, Jr.
Secretary
Bruce N. Alpert
Vice President
and Treasurer
A. Hartswell Woodson, III
Associate Portfolio
Manager
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend Agent
State Street Bank and Trust Company
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
Independent Accountants
Price Waterhouse LLP
This report is submitted for the general information of the shareholders of The
Gabelli Convertible Securities Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
