SEMI-ANNUAL REPORT
[LOGO]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
JUNE 30, 1996
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[LOGO]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
Our cover icon represents the underpinnings of Gabelli. The Teton mountains in
Wyoming represent what we believe in in America -- that creativity, ingenuity,
hard work and a global uniqueness provide enduring values and returns in an
increasingly complex, interconnected and inter-dependent economic world.
INVESTMENT OBJECTIVE:
The Gabelli Convertible Securities Fund, Inc. is a closed-end, diversified
management investment company whose primary objective is to seek a high level of
total return through a combination of current income and capital appreciation by
investing in convertible securities.
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[PHOTO]
[LOGO]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
TO OUR SHAREHOLDERS:
Rebounding from the inventory contraction of the previous two quarters, the
malaise of a snowy winter and political stalemate in Washington, the economy
surged ahead. Domestic profits will likely benefit despite earnings from
continental European sources being hobbled by a weaker economic backdrop and a
stronger dollar. This stronger than expected economy re-awakened long dormant
inflationary fears and a slumping bond market sounded a cautionary note for
stocks. Still, buoyed by favorable flow of funds -- investment in equity mutual
funds remained near record levels -- the Dow Jones Industrial Average and
Standard & Poors' 500 forged ahead.
For the six months ended June 30, 1996, the Gabelli Convertible Securities
Fund, Inc.'s ("Convertible Securities Fund") net asset value increased to $11.33
after adjusting for the $0.12 per share dividend paid on June 24, 1996. This
represents an increase of 1.6% for the quarter and compares to the average
return of 2.7% for the ten convertible securities funds tracked by Lipper
Analytical Services, Inc.
For the twelve months ended June 30, 1996, the Convertible Securities
Fund's dividend adjusted net asset value increased 9.6% versus the 15.6%
increase of the average convertible fund according to Lipper. The three- and
five-year average annual returns were 8.2% and 10.0%, respectively. Since
inception on July 3, 1989 through June 30, 1996, the Fund achieved a 96.1% total
return which represents an average annual return of 10.1%. Strong bond and
equity markets in the U.S. helped to enhance the performance of convertible
securities. Such an environment enables us to maintain the Fund's long-term
profitability.
The Fund's common shares on the New York Stock Exchange ended the quarter
at $10.25, flat for the quarter and up 3.2% from its initial price of $11.25 on
March 31, 1995 after adjusting for the dividends of $1.39 per share which were
paid during this period.
WHAT WE DO
We do what is described as bottom 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.
[GRAPHIC]
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INVESTMENT RESULTS (a)(c)
<TABLE>
<CAPTION>
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QUARTER
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1ST 2ND 3RD 4TH YEAR
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1996: Net Asset Value ....................... $11.28 $11.33 -- -- --
Total Return .......................... 3.6% 1.6% -- -- --
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1995: Net Asset Value ....................... $11.14 $11.51 $11.64 $11.01 $11.01
Total Return .......................... 5.1% 5.2% 3.0% 1.1% 15.0%
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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)%
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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%
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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%
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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%
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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%
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1989: Net Asset Value ....................... __ __ $10.54 $10.51 $10.51
Total Return .......................... __ __ 5.4%(b) 0.8% 6.3%(b)
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AVERAGE ANNUAL RETURNS - JUNE 30, 1996 (A)
1 Year ...................................... 9.6%
5 Year ...................................... 10.0%
Life of Fund (b) ............................ 10.1%
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DIVIDEND HISTORY
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PAYMENT DATE RATE PER SHARE REINVESTMENT PRICE
June 24, 1996 $0.120 $10.17
March 25, 1996 $0.120 $10.41
December 27, 1995 $0.750 $10.95
September 27, 1995 $0.200 $11.10
June 27, 1995 $0.200 $11.21
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
(a) Total return and average annual return reflect changes in net asset value
and reinvestment of dividends and are net of expenses. 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
sold they may be worth more or less than their original cost. (b) From commence-
ment of operations on July 3, 1989. (c) The Fund converted to closed-end status
on March 31, 1995.
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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 (PMV) estimates.
Finally, we 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
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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.
Once 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 profitable returns in strong markets and protect principal in
weak markets by taking advantage of the unique characteristics of convertible
securities.
CONVERTIBLE SECURITIES ARE "HYBRIDS"
The convertible securities market consists of bonds, debentures, corporate
notes, preferred stocks and 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 a 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 values of both the conversion privilege and the convert
are down. Such securities will provide both high yields and long-term capital
appreciation potential.
DIVIDENDS
The Fund recently distributed a dividend of $0.12 per share on June 24,
1996. For the twelve months ended June 30, 1996, the Fund distributed a total of
$1.19 per share.
INTERNET
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Mutual Funds, quarterly reports, closing prices, IRAs, 401(k)s and other
current news. You can also send us e-mail at [email protected].
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BARRON'S 75TH SPECIAL ANNIVERSARY ISSUE
BARRON'S ASKED OUR CHIEF INVESTMENT OFFICER, MARIO J. GABELLI, TO DISCUSS HIS
INVESTMENT THEMES IN ITS 75TH SPECIAL ANNIVERSARY ISSUE. WHILE THESE COMMENTS
WERE WRITTEN IN MID-FEBRUARY, WE BELIEVE THEY ARE STILL VALID TODAY. DISCUSSION
OF INDIVIDUAL COMPANIES IS NOT NECESSARILY REFLECTIVE OF THE FUND'S ENTIRE
PORTFOLIO.
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================================= BARRON'S 75TH ================================
[LOGO]
GRAND SLAM HITTING
THE NEW INTERNATIONAL MIDDLE CLASS WILL BE TAKING
TO THE FRIENDLY SKIES, FOR BUSINESS AND PLEASURE.
BY MARIO GABELLI
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The ancient Greek dramatist Euripides said, "The best of seers is he who
guesses well." Each year since 1980, BARRON'S has given me the opportunity to
sit down with a distinguished group of good guessers at the annual Roundtable
and divine what the economy, the markets and some individual stocks would do in
the year ahead. Now, in honor of BARRON'S 75th Anniversary, I've been invited to
stick my neck out even further and discuss several investment themes that will
theoretically enrich readers over the next five years. Fair enough.
I will begin with the confession that over the past 20 years, our annual
macroeconomic and market forecasts haven't always been right. Fortunately for
our clients and BARRON'S readers, our investment methodology is not built upon
accurately predicting interest-rate trends or timing the market, but rather on
picking stocks, and many of our picks have fared quite well.
One reason is that we've had a good batting average identifying trends -- we
call them catalysts -- that have unlocked value in selected industry groups. A
catalyst can be a change in regulatory standards such as the original cable
television deregulation bill of 1984 that led us to lucrative investments in
cable stocks. It can be consolidation within an industry. The scramble for
filmed entertainment assets engendered by expanding distribution systems
throughout the 1980s and early 1990s inspired us to take substantial and
ultimately quite profitable positions in Warner Communications, MCA and
Paramount prior to their acquisitions by Time Inc., Matsushita and Viacom,
respectively.
Catalysts can also be corporate restructurings. The recent trend to help
realize shareholder value through the sale or spinoff of businesses has helped
us earn good returns from "Humpty Dumpty" companies as all the king's horses and
all the king's men help break conglomerates into pieces again. Among them have
been TENNECO, AMERICAN BRANDS, AMERICAN EXPRESS, ITT and, now, AT&T.
Over the next five years, the most powerful trend we see is the explosive
growth of the international marketplace for American goods and services. This
traces its roots to two major catalysts: the rejuvenation of American industry
spawned by a declining cost of capital and enormous productivity gains, and the
victory of global capitalism symbolized best by the crumbling of the Berlin
Wall. Good old-fashioned Yankee ingenuity has made us more than competitive with
Japan and Germany. We are now in a terrific position to conquer new
international economic frontiers.
With free-market economies evolving in China and the former Soviet bloc, and
the middle classes rapidly expanding in developing nations in Latin America and
the Pacific Rim, there will be 2.5 billion to three billion new consumers by the
turn of the century. How is this emerging international middle class going to
spend its money? If past is prologue--and we can learn something by looking back
at the economic evolution of the great American middle class -- the new
[GRAPHIC ILLUSTRATION] [GRAPHIC ILLUSTRATION]
Photograph: Merry Alpern/Jim Lukoski for BARRON'S; Illustration: Jessie Hartland
for BARRON'S
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MARIO GABELLI, A REGULAR MEMBER OF BARRON'S ROUNDTABLE SINCE 1980, IS CHAIRMAN
AND CHIEF INVESTMENT OFFICER OF GABELLI FUNDS INC.
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international middle class will upgrade their food consumption habits; if it is
made available, they will buy telephone service; they will spend money on
entertainment, and they will travel.
Investors of our persuasion -- stockpickers, if you will -- can't talk about
investment trends without naming some names. Unlike the Roundtable, where we are
constantly prodded both by BARRON'S and our colleagues to fill in the
fundamental blanks on individual stock selections, I won't be providing hard
data on the companies I mention in this article. Nor will I make predictions
about short-term earnings and cash flow. That said, consistent with our
Graham-and-Dodd-oriented value philosophy, we would like to own the businesses
named here for the long term.
Its Not Chickenfeed: Let's start in, of all places, Iowa. The American grains
farmer is the most productive in the world. Iowa is agriculturally state-of
the-art. Let me give you a hypothetical example. There are seven ounces of grain
needed to produce one ounce of meat at market. If chicken or pork consumption in
China were to increase by one ounce per capita, and Iowa were to produce all the
grain used to fatten these Chinese chickens and hogs, on a gross national
product basis, Iowa would be among the richest countries in the world. This may
be perceived as a silly example. But its purpose is to call attention to the
tremendous upside potential for American grain farmers and vendors to those
farmers. Agricultural equipment manufacturers like JOHN DEERE, companies that
move grains to shipping centers, like ARCHER-DANIELS-MIDLAND, and
irrigation-equipment makers like LINDSAY MANUFACTURING should all be long-term
beneficiaries of the increased role the American farmer will play in feeding the
world.
Dialing for Dollars: Once the new international consumer puts some more meat
on the table, what else would make his or her life better? Being able to call
friends and family on the telephone would be a big step forward. In fact, you
could argue that telecommunications is both the engine and the caboose in the
emergence of the international middle class. To compete on the global stage,
businesses in developing countries need healthy stock markets to attract global
capital. Modern telecommunications systems are a prerequisite. As efficient
telecommunications systems further enhance economic growth and expand the middle
class, the demand for more universal telephone service increases. Here, we need
to tip our hat to Craig McCaw's evolutionary theory of time and space, which
effectively jump-started the cellular telephone industry. And when it comes to
developing countries, it is wireless service that will help bring
telecommunications services at reasonable prices.
Arguably, telecommunications is the No. 1 global growth industry for the next
decade or more. Consequently, long-term investors will not have to be terribly
discriminating to earn pretty good returns in this sector. But rather than take
a scattershot approach, investors might maximize their returns by focusing on
those segments of the industry that will grow the fastest and the dominant
players therein. The big three U.S. long distance companies, AT&T, MCI AND
SPRINT, are rapidly developing the strategic alliances with national and local
carriers around the world that should allow them to dominate the international
long-distance market. Telecommunications equipment manufacturers like LUCENT,
the spinoff from AT&T, and NORTHERN TELECOM will play a big role in wiring the
world. Suppliers of advanced cable equipment like SCIENTIFIC ATLANTA also have
terrific international growth prospects. On the wireless side, cellular-phone
makers like MOTOROLA and NOKIA should thrive. A special mention should go to
AIRTOUCH, which has done a terrific job winning joint-venture cellular-telephone
franchises throughout Europe. Two other cellular investments worth considering
are 360 COMMUNICATIONS, which is the domestic cellular spinoff from Sprint, and
Britain's VODAFONE.
If you favor a more focused "special situation" approach, the Canadian
telephone giant BCE should benefit when it sells off its substantial investment
in Northern Telecom and as Canadian deregulation catches up to the rest of the
world. On a per-capita basis, the Vancouver metropolitan area has the highest
concentration of expatriate Chinese in North America. This could prove to be a
great "gateway to China."
Global Eyeballs: No American products travel better than filmed entertainment
and pre-recorded music. Several years ago, the investor relations people at TIME
WARNER were kind enough to give us a tape of Warner cartoon characters providing
a global geography lesson dubbed in a dozen foreign languages. We've used this
tape at our annual client meeting to illustrate the global reach of the American
entertainment industry. There is simply no place you can go in the world without
American film being a staple of cinematics, cable TV or broadcast entertainment.
The same goes for music. Just look at the convergence of the computer, telephone
and cable television industries in the U.S. Overseas opportunities beckon as
well. In the past five years alone, the number of satellite dishes in India has
gone from 400,000 to 10 minion. As the distribution channels expand worldwide,
the value of entertainment will continue to increase.
With the consolidation we've already experienced in the filmed entertainment
industry, there are fewer ways to participate. Time Warner is a dominant global
company in both filmed entertainment and pre-recorded music. Assuming the
marriage with TURNER BROADCASTING is consummated, Time could become an
international cable TV powerhouse as well. The stock price has been restrained
by concerns about Time's debt, the unwinding of what has become an acrimonious
relationship with US WEST, and the uncertain prospects for Time Warner's huge
cable television operations. Investors are currently blind to the forest through
the trees on this one. In the long run, however, we are confident the market
will recognize Time Warner's pre-eminent global position in entertainment
software.
Other beneficiaries of this favorable long-term trend for entertainment
software producers and packagers also include Viacom -- the world wants its MTV;
SEAGRAM, the new owner of MCA, and LIBERTY MEDIA, John Malone's combination of
TELE-COMMUNICATIONS INC.'S cable network investments.
Up Up and Away: Air traffic is tremendously sensitive to increases in
personal income. The new international middle class will be taking to the
friendly skies. They will fly for business, and they will fly for pleasure. Over
the next five years, you could probably make a lot of money investing in
international airline stocks. But it will be less complicated and perhaps just
as profitable investing in BOEING, which along with Europe's Airbus consortium
will build the foreign fleets to accommodate increasing air traffic abroad.
We are almost right at the bottom of a five-year down cycle in the aircraft
industry. Industry studies indicate that in the next 20 years, there will be
12,000 new aircraft built to satisfy incremental global demand and 4,000 to
replace aircraft that will be retired because they are too old or
fuel-inefficient or don't meet new noise-control requirements. That's 16,000 new
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airplanes to be built over the next two decades. Boeing, which is a
technological leader, will get the lion's share of orders.
Another option is to invest in vendors to Boeing. There are very few pure
plays in this arena, but companies deriving a material volume of revenues from
commercial aerospace include AMETEK, PRECISION CASTPARTS, MOOG, CRANE, SPS
TECHNOLOGIES, HONEYWELL and CURTISS WRIGHT. SEQUA Corp., whose Chromalloy
division is a leader in jet engine maintenance and repair, would be a good
"aging of the existing fleet" play.
The Deal: Another global dynamic that isn't new, but is far from finished, is
strategic merger-and-acquisition activity. At the 1995 Roundtable, I said there
would be a ton of deals done in the year ahead. It worked out to be $458 billion
in deals in the U.S. and $866 billion globally. I don't know that we will see
that kind of record volume this year, but you will see some big numbers. Why?
The world is awash in liquidity, rising equity markets make stock a more
valuable currency and, most importantly, it is still cheaper to buy businesses
on global stock markets than it is to build them from scratch.
How do you take advantage of this long-term trend? I am going to unabashedly
preach for my own church here. As Benjamin Graham and his successor at Columbia,
Roger Murray, instructed us, and as Warren Buffett has put so profitably into
practice, you approach stocks as if they were pieces of a business you want to
buy at a discount to what Graham called intrinsic value, others call economic
value, and what years ago was termed "private market value."
How do you go about quantifying value? We believe free cash flow, defined as
earnings before interest, taxes and depreciation (EBITD), or a slight variation,
EBITDA, both minus the capital expenditures necessary to grow the business, is
the best barometer of a company's value. Most corporate merger-and-acquisition
people look at the very same thing. When the informed industrialist is
evaluating a business for purchase, he or she is not going to put a lot of
weight on stated book value. That's for accountants, not for savvy buyers of
businesses. They probably don't care much about net earnings. Clever corporate
managements can be creative in booking earnings. What that informed
industrialist wants to know is: How much cash is this business throwing off
today and how much is he going to have to invest in this business to sustain or
grow this stream of cash in the future?
There are other factors in determining a stock's private market value. Cost
of capital always affects a company's values. That's why stocks tend to be
valued lower when interest rates rise. Cash flow growth rates will alter values,
too. Just as growth-stock investors will pay a higher price-to-earnings ratio
for higher earnings growth, private-market-value investors will pay a higher
multiple of cash flow for faster cash-flow growth. Finally, sophisticated
business buyers will look beyond the balance sheet for hidden assets -- valuable
land on the books at original cost or an overfunded pension plan -- as well as
hidden liabilities, like unfunded health-care responsibilities or potentially
costly environmental problems.
By doing this kind of analysis of income statements and balance sheets, and
checking out all those little footnotes attached, and keeping an eye on the
prices businesses are being bought and sold at every day out there in the real
world, you can quantify the value of a business or group of businesses. You can
usually find fundamental bargains -- stocks selling at substantial discounts to
private market value. Then you have to ask the subjective questions: Who might
want to own this company? Would management be receptive to a takeover proposal?
Are the target company's assets so unique that someone might pay well above fair
value?
If you can come up with some positive answers to questions like these, you
may well have found yourself a terrific takeover candidate.
Don't Expect Too Much: Lastly, some comments on the longer-term prospects for
equities. I'm not talking about what is going to happen to the market over the
next quarter or even the next several years. However, I do think investors
should have some perspective on what they can expect. The average annualized
return on equities over the last 15 years, as measured by the S&P 500, is 14.8%.
That's almost 50% above the historical return on stocks on an annualized basis.
When you compound this out 10 years, the differential is staggering. Will we see
the same kind of returns from stocks over the next 15 years? I wouldn't bet the
ranch on it. Sooner or later, this roaring bull market will end, either with a
substantial correction or a bear market or, preferably, an extended period of
much more modest returns.
How should today's investor prepare for this? I would start by adjusting
expectations. When making financial planning assumptions, use conservative
return figures for equities, and save and invest accordingly. In other words, if
you are putting a given amount of dollars into equities and assuming that it
will compound at 15% a year over the next 10-20 years, you will likely find your
children's college fund or your retirement nest egg more than a little short.
Secondly, you might want to look at alternative investment strategies.
Market-neutral disciplines like risk arbitrage, which is capable of delivering
low- to mid-double-digit annualized returns regardless of the direction of the
broad equities market, should be considered. This will be particularly rewarding
if what we have characterized as the third great wave of mergers continues as
long as we expect it to.
Finally, although one can play many global trends from the relative comfort
of the New York Stock Exchange, investors should internationalize their
portfolios. Twenty-five years ago, U.S. equities represented 66% of the
capitalization of the total global equities market. Today it is 38%. Twenty
years ago, only the most adventurous Americans would invest in places like Spain
or Italy. Today, there are billions of American dollars in emerging markets in
Latin America and the Pacific Rim. It has always been my inclination to
challenge the conventional wisdom. But I do think there is some legitimacy to
the idea that many foreign economies will grow faster than the U.S., and that
returns from foreign equities markets will trend higher than our own.--
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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 prices, but
they do express a positive trend which we believe will develop over time.
ATLANTIC RICHFIELD COMPANY (ARCO) (CV. PFD., $2.80) is a diversified company
operating globally in all aspects of the energy business. Included are ventures
in China and Russia. Approximately 35% of ARCO's 1995 revenues of $17.3 billion
were oil, gas and coal resources, 40% refining and marketing and almost 25%
intermediate chemicals and specialty products. ARCO's operating results last
year were the highest since its record earnings in 1990. Earnings should
continue to expand as world wide demand for energy and petrochemical products
grows over the rest of the decade. The company's strong cash flow, exceeding $3
billion, readily supports the shares' current 4.65% yield.
CHOCK FULL O'NUTS CORPORATION (SUB. DEB. CV., 8.00%, 9/15/06; 7.00%, 4/01/12) is
more than just the maker of the "Heavenly Coffee" which most consumers know.
Chock Full also has a growing institutional distribution business that supplies
coffee and food products to restaurants and businesses. Chock Full is developing
a chain of retail coffee bars and shops selling premium and European-style
coffee for on premises consumption. Both the 8% convertible bonds due in 2006
and the 7% convertible bonds, due 2012, offer investors an attractive way to
participate in Chock Full o'Nuts' future.
FIELDCREST CANNON, INC. (SUB. DEB. CV., 6.00%, 3/15/12) is a well-known
manufacturer of sheets and towels, as well as a leading producer of carpets and
area rugs under the karastan and bigelow brand names. New management has
undertaken several restructuring steps which are now resulting in significant
increases in operating margins and net income. we believe lower cotton prices,
higher mill activity, lower interest expense and an improving economy will
accelerate Fieldcrest's earnings improvement. Fieldcrest's 6% convertible
debentures due 3/15/12 provide an attractive alternative to fieldcrest's common.
HUDSON GENERAL CORPORATION (SUB. DEB. CV., 7.00%, 7/15/11) is one of the major
aviation service companies engaged in providing a broad array of services such
as de-icing, baggage loading and off-loading, passenger ticketing and aircraft
cleaning and maintenance at airports throughout the U.S. and Canada. Hudson
General is also a 50% partner in a joint venture to develop approximately 4,000
contiguous acres on the island of Hawaii.
HOME SHOPPING NETWORK, INC. (SUB. DEB.. CV., 5.875%, 3/01/06) is a direct
marketer utilizing television, catalogs, and mail order. Recent growth has been
impeded by lawsuits as well as some temporary merchandising and cost control
problems. Now that Barry Diller has arrived, the Home Shopping Channel promises
to be an integral part of the "Interactive Superhighway". The company will
benefit from increased activity in this area. The new management and improved
earnings can be expected to be reflected in a higher stock price.
NAVISTAR INTERNATIONAL CORPORATION (CV. PFD., $6.00, SERIES G) used 1995 to
bolster its balance sheet. NAV maintains a leading 35% share of the medium-duty
truck market and an 18% share (#3 share) of the heavy-duty market. As NAV
participates in the cyclical recovery, it should generate substantial free cash
flow -- all tax-free due to its large tax loss carryforward. Our speculation is
that the management in place will become more aggressive.
SEQUA CORPORATION (CV. PFD., $5.00) is a conglomerate with businesses ranging
from overhauling jet engines to manufacturing specialty chemicals. Its
Chromalloy division, which generates over $900 million in revenue, is the
largest factor in the repair, replacement and overhaul of gas turbine engines.
Sequa has begun a program to divest less profitable operations thereby unmasking
this crown jewel and recently announced the sale of its Kollsman defense
businesses for almost $50 million. Sequa's estimated private market value is
over $100 per share.
STOP & SHOP COMPANIES (SHP - $33.375 - NYSE), headquartered in Boston, operates
the largest supermarket chain in New England with 171 stores in Massachusetts,
Connecticut, Rhode Island and New York. The chain has agreed to a takeover
proposed by the Dutch international food retailer Royal Ahold NV. The
acquisition will create one of the largest supermarket chains in the nation.
Shareholders are to receive $33.50 per share in cash, which was a 25% premium to
7
<PAGE>
the pre-offer stock price. The cash tender price is increased to $34.50 if
anti-trust approvals are not obtained by July 31, 1996.
IN CONCLUSION
At the beginning of 1996, we forecast that higher than expected inflation and
rising long-term interest rates would restrain stock returns. Our economic
forecast has proved remarkably accurate. Thus far, the market has largely
ignored these economic signs and marched steadily forward. Whether it will
continue to do so in the second half is questionable.
As always, we are focusing on the individual assets in the Fund's portfolio. By
concentrating on niche industry groups and individual companies that can do well
independent of prevailing economic and broad market trends, we believe we are
well-positioned to prosper, even in a less generous market environment. Our
investment philosophy is simple and straightforward: buying good businesses
cheap will generate consistently superior returns.
Sincerely,
/s/ MARIO J. GABELLI
MARIO J. GABELLI
President and
Chief Investment Officer
August 1, 1996
- --------------------------------------------------------------------------------
TOP TEN CONVERTIBLE HOLDINGS
JUNE 30, 1996
-------------
Home Shopping Network, Inc.
Fieldcrest Cannon, Inc.
Navistar International Corporation
Chock Full o'Nuts Corporation
Atlantic Richfield Company
Hudson General Corporation
Sequa Corporation
Thomas Nelson, Inc.
General Host Corporation
GATX Corporation
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager,
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
8
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED)
================================================================================
Principal Market
Amount Cost Value
--------- ---- ------
CONVERTIBLE SECURITIES - 48.93%
CONVERTIBLE CORPORATE BONDS - 36.26%
AUTOMOTIVE: PARTS AND ACCESSORIES - 1.53%
$ 300,000 Exide Corporation
Sub. Deb. Cv.
2.90%, 12/15/05 ........................ $ 180,096 $ 165,000
1,150,000 GenCorp Inc. Sub. Deb. Cv.
8.00%, 08/01/02 ........................ 1,146,968 1,239,125
----------- -----------
1,327,064 1,404,125
----------- -----------
AVIATION: PARTS AND SERVICES - 3.28%
1,450,000 Hudson General Corporation
Sub. Deb. Cv.
7.00%, 07/15/11 ........................ 1,256,427 1,595,000
254,000 Kaman Corporation
Sub. Deb. Cv.
6.50%, 03/15/12 ........................ 159,864 208,280
1,350,000 UNC Incorporated
Sub. Deb. Cv.
7.50%, 03/31/06 ........................ 911,788 1,201,500
----------- -----------
2,328,079 3,004,780
----------- -----------
BROADCASTING - 0.13%
500,000(a) Havas Sub. Deb. Cv.
3.00%, 12/31/97 ...................... 102,592 121,529
----------- -----------
BUILDING AND CONSTRUCTION - 0.47%
10,000 Hofi International Finance Ltd.
Sub. Deb. Cv.
4.50%, 08/11/08 ...................... 12,316 13,900
400,000 Medusa Corporation
Sub. Notes Cv.
6.00%, 11/15/03 ...................... 390,146 415,000
----------- -----------
402,462 428,900
----------- -----------
BUSINESS SERVICES - 0.71%
250,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12 ........................ 251,486 235,000
381,000 Trans-Lux Corporation
Sub. Deb. Cv.
9.00%, 12/01/05 ........................ 335,736 411,956
----------- -----------
587,222 646,956
----------- -----------
CABLE - 3.02%
250,000 Comcast Corporation
Sub. Deb. Cv.
3.375%, 09/09/05 ....................... 245,319 235,938
400,000 Comcast Corporation
Sub. Deb. Cv.
1.125%, 04/15/07 ....................... 218,124 197,500
2,000,000 Home Shopping Network, Inc.
Sub. Deb. Cv.
5.875%, 03/01/06 ....................... 2,000,000 2,340,000
----------- -----------
2,463,443 2,773,438
----------- -----------
COMPUTER SOFTWARE AND SERVICES - 0.14%
40,000 Sierra On-Line, Inc.
Sub. Deb. Cv.
6.50%, 04/01/01 ........................ 37,820 127,200
----------- ------------
CONSUMER PRODUCTS - 4.25%
600,000 Borden, Inc. Sub. Deb. Cv.
Zero Cpn. 05/21/02 ..................... 421,154 408,750
2,800,000 Fieldcrest Cannon, Inc.
Sub. Deb. Cv.
6.00%, 03/15/12 ........................ 1,871,857 2,219,000
564,000 Masco Corporation
Sub. Deb. Cv.
5.25%, 02/15/12 ........................ 384,415 528,750
200,000 Roadmaster Industries, Inc.
Sub. Deb. Cv.
8.00%, 08/15/03 ........................ 200,177 134,250
800,000 Standard Commercial
Corporation Sub. Deb. Cv.
7.25%, 03/31/07 ........................ 629,951 612,000
----------- -----------
3,507,554 3,902,750
----------- -----------
ENERGY - 2.01%
1,100,000 Moran Energy Inc.
Sub. Deb. Cv.
8.75%, 01/15/08 ........................ 757,842 969,375
600,000 Pennzoil Company
Sub. Deb. Cv.
6.50%, 01/15/03 ........................ 600,000 876,000
----------- -----------
1,357,842 1,845,375
----------- -----------
ENTERTAINMENT - 0.85%
220,000 All American
Communications, Inc.
Sub. Deb. Cv.,
6.50%, 10/01/03 ........................ 214,876 196,900
500,000 Savoy Pictures
Entertainment, Inc.
Sub. Deb. Cv.
7.00%, 07/01/03 ........................ 446,396 395,000
450,000 Time Warner Inc. LYONS Sr.
Sub. Notes Cv.
Zero Cpn., 06/22/13 .................... 192,733 185,063
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- JUNE 30, 1996 (UNAUDITED)
================================================================================
Principal Market
Amount Cost Value
--------- ---- ------
ENTERTAINMENT (CONTINUED)
$ 5,000 WMS Industries Inc.
Sub. Deb. Cv.
5.75%, 11/30/02 ........................ $ 4,831 $ 4,975
----------- -----------
858,836 781,938
----------- -----------
FINANCIAL SERVICES - 0.62%
550,000 Advest Group, Inc.
Sub. Deb. Cv.
9.00%, 03/15/08 ........................ 436,601 569,250
----------- -----------
FOOD AND BEVERAGE - 4.26%
175,000 Boston Chicken, Inc.
Sub. Deb. Cv.
4.50%, 02/01/04 ........................ 159,052 206,063
1,050,000 Chock Full o'Nuts Corporation
Sub. Deb. Cv.
8.00%, 09/15/06 ........................ 1,037,416 967,313
1,005,000 Chock Full o'Nuts Corporation
Sub. Deb. Cv.
7.00%, 04/01/12 ........................ 755,300 854,250
1,400,000 Flagstar Companies, Inc.
Sub. Deb. Cv.
10.00%, 11/01/14 ....................... 1,313,106 803,250
930,000 Ingles Markets, Incorporated
Sub. Deb. Cv.
10.00% 10/15/08 ........................ 935,067 1,078,000
----------- -----------
4,199,941 3,908,876
----------- -----------
HOTELS/CASINOS - 0.86%
750,000 Hilton Hotels Corporation
Sub. Deb. Cv.
5.00% 05/15/06 ......................... 750,000 789,375
----------- -----------
INDUSTRIAL EQUIPMENT AND SUPPLIES - 5.98%
250,000 AMSCO International, Inc.
Sub. Deb. Cv.
4.50%, 10/15/02 ........................ 234,328 250,000
850,000 Builders Transport,
Incorporated
Sub. Deb. Cv.
6.50%, 05/01/11 ........................ 350,441 603,500
1,050,000 Cooper Industries, Inc.
Sub. Deb. Cv.
7.05%, 01/01/15 ........................ 991,903 1,120,875
450,000 General Signal Corporation
Sub. Deb. Cv.
5.75%, 06/01/02 ........................ 444,075 486,000
10,000 Greenwich Air Services, Inc.
Sub. Deb. Cv.
8.00%, 11/05/00 ........................ 9,677 32,400
650,000 Intermagnetics General
Corporation Sub. Deb. Cv.
5.75%, 09/15/03 ........................ 650,000 763,750
1,140,000 Kollmorgen Corporation
Sub. Deb. Cv.
8.75%, 05/01/09 ........................ 808,949 1,144,275
500,000 NYCOR, Inc. Sub. Deb. Cv.
8.50%, 06/15/12 ........................ 339,301 412,500
650,000 Pacific Scientific Company
Sub. Deb. Cv.
7.75%, 06/15/03 ........................ 603,084 676,000
----------- -----------
4,431,758 5,489,300
----------- -----------
METALS AND MINING - 0.47%
450,000 Coeur d'Alene Mines
Corporation Sub. Deb. Cv.
6.00%, 06/10/02 ........................ 410,356 426,375
----------- -----------
PAPER AND FOREST PRODUCTS - 0.25%
200,000 Riverwood International
Corporation Sub. Deb. Cv.
6.75%, 09/15/03 ........................ 199,644 230,880
----------- -----------
PUBLISHING-2.45%
700,000 News American Holdings
Incorporated Sub. Deb. Cv.
Zero Cpn., 03/31/02 . .................. 452,040 694,750
1,600,000 Thomas Nelson Inc.
Sub. Deb. Cv.
5.75%, 11/30/99 ........................ 1,637,355 1,552,000
----------- -----------
2,089,395 2,246,750
----------- -----------
REAL ESTATE/DEVELOPMENT - 0.37%
125,000 Rockefeller Center
Properties Inc. Sub. Deb. Cv.
Zero Cpn., 12/31/00 . .................. 72,695 75,175
200,000 Rockefeller Center
Properties Inc. Sub. Deb. Cv.
13.00%, 12/31/00 ....................... 191,230 208,500
50,000 Wharf Capital
International Ltd.
Sub. Deb. Cv.
5.00%, 07/15/00 ........................ 50,106 56,000
----------- -----------
314,031 339,675
----------- -----------
RETAIL - 2.29%
146,000 Farah U.S.A., Inc.
Sub. Deb. Cv.
8.50%, 02/01/04(c)...................... 131,666 80,300
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- JUNE 30, 1996 (UNAUDITED)
================================================================================
Principal
Amount Market
or Shares Cost Value
--------- ---- ------
RETAIL (CONTINUED)
$ 380,000 Food Lion, Inc. Sub. Deb. Cv.
5.00%, 06/01/03 ........................ $ 376,879 $ 420,375
1,850,000 General Host Corporation
Sub. Deb. Cv.
8.00%, 02/15/02 ........................ 1,824,872 1,480,000
50,000 Pier One Imports Inc.
Sub. Deb. Cv.
8.50%, 12/01/00 ........................ 48,488 39,000
110,000 Sports & Recreation, Inc.
Sub. Deb. Cv.
4.25%, 11/01/00 ........................ 107,056 78,925
----------- -----------
2,488,961 2,098,600
----------- -----------
TELECOMMUNICATIONS - 1.46%
800,000,000(b) Softe SA Sub. Deb. Cv.
4.25%, 07/01/98 .................... 483,023 797,002
375,000 WorldCom Inc. Sub. Deb. Cv.
5.00%, 08/15/03 .................... 273,183 540,938
----------- -----------
756,206 1,337,940
----------- -----------
TRANSPORTATION - 0.63%
500,000 Greyhound Lines Inc.
Sub. Deb. Cv.
8.50%, 03/31/07 ........................ 320,132 453,750
150,000 WorldCorp, Inc. Sub. Deb. Cv.
7.00%, 05/15/04 ........................ 117,731 127,500
----------- -----------
437,863 581,250
----------- -----------
WIRELESS COMMUNICATIONS - 0.23%
300,000 COMCAST Cellular
Communications Inc. Ser. A
Redeemable Notes,
Zero Cpn., 03/05/00 .................... 200,111 207,000
----------- -----------
TOTAL CONVERTIBLE
CORPORATE BONDS ........................ 29,687,781 33,262,262
----------- -----------
CONVERTIBLE PREFERRED STOCKS--12.67%
AUTOMOBILE MANUFACTURERS - 0.58%
5,000 Ford Motor Company
$4.20 Cv. Pfd. Ser. A .................. 451,100 530,000
----------- -----------
AVIATION: PARTS AND SERVICES - 0.50%
9,000 Kaman Corporation
6.50% Cv. Pfd. Ser. 2 .................. 296,011 462,375
----------- -----------
CONSUMER PRODUCTS - 0.61%
6,000 Cablevision Systems Corporation
8.50% Pfd. Ser. I ...................... 150,000 156,000
Shares
------
1,300 Fieldcrest Cannon, Inc.
$3.00 Cv. Pfd. Ser. A .................. 65,100 59,150
25,500 Kerr Group, Inc.
Cl. B $1.70 Cv. Pfd. Ser. D ............ 464,875 344,250
----------- -----------
679,975 559,400
----------- -----------
DIVERSIFIED INDUSTRIAL - 1.59%
23,000 GATX Corporation
$3.875 Cv. Pfd. ........................ 990,062 1,339,750
1,000 GATX Corporation
$2.50 Cv. Pfd........................... 65,400 116,812
----------- -----------
1,055,462 1,456,562
----------- -----------
ENERGY - 2.12%
6,200 Atlantic Richfield Company
$2.80 Cv. Pfd. ......................... 1,654,248 1,782,500
6,000 McDermott International, Inc.
Pfd. A ................................. 170,213 166,500
----------- -----------
1,824,461 1,949,000
----------- -----------
FOOD AND BEVERAGE - 0.41%
29,000 Flagstar Companies, Inc.
$2.25 Cv. Pfd. Ser. A .................. 641,719 371,563
----------- -----------
INDUSTRIAL EQUIPMENT AND SUPPLIES - 3.88%
35,500 Navistar International Corporation
$6.00 Cv. Pfd. Ser. G .................. 1,676,769 1,974,688
22,000 Sequa Corporation
$5.00 Cv. Pfd. ......................... 1,663,817 1,581,250
----------- -----------
3,340,586 3,555,938
----------- -----------
METALS AND MINING - 0.81%
24,000 Freeport-McMoRan Copper
& Gold Inc. 7.00% Cv. Pfd. ............. 693,325 744,000
----------- -----------
REAL ESTATE / DEVELOPMENT - 0.75%
12,500 Catellus Development Corporation
$3.75 Cv. Pfd. Ser. A .................. 676,063 690,625
----------- -----------
TELECOMMUNICATIONS - 1.42%
2,800 LCI International, Inc.
5.00% Cv. Pfd. ......................... 70,000 233,800
3,000 Sprint Corporation
$1.50 Cv. Pfd. Ser. 1 .................. 301,100 381,000
2,200 Sprint Corporation
$1.50 Cv. Pfd. Ser. 2 .................. 187,510 277,200
8,000 Sprint Corporation
8.25% Cv. Pfd. ......................... 255,000 322,000
2,000 TCI Communications Inc.
$2.125 Cv. Pfd. Ser. A ................. 96,728 88,250
----------- -----------
910,338 1,302,250
----------- -----------
TOTAL CONVERTIBLE
PREFERRED STOCKS ....................... 10,569,040 11,621,713
----------- -----------
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- JUNE 30, 1996 (UNAUDITED)
================================================================================
Market
Shares Cost Value
--------- ---- ------
COMMON STOCKS - 17.98%
BUSINESS SERVICES - 0.12%
10,134 Anacomp, Inc.............................. $ 303,909 $ 107,045
----------- -----------
CONSUMER PRODUCTS - 0.08%
4,000 Dimon Inc. ............................... 53,614 74,047
----------- -----------
ENERGY - 0.65%
4,000 Exxon Corporation ........................ 237,758 347,500
3,000 Texaco Inc. .............................. 183,213 251,625
----------- -----------
420,971 599,125
----------- -----------
HEALTH CARE - 6.50%
100,000 Community Health Systems ................. 5,183,252 5,175,000
15,000 Genentech, Inc.+ ......................... 719,240 785,625
----------- -----------
5,902,492 5,960,625
----------- -----------
INDUSTRIAL EQUIPMENT AND SUPPLIES - 3.75%
110,000 Acme-Cleveland Corporation ............... 3,285,500 3,300,000
8,710 Ducommun, Incorporated ................... 65,766 124,118
1,000 Giddings & Lewis, Inc. ................... 11,128 16,250
----------- -----------
3,362,394 3,440,368
----------- -----------
RETAIL - 6.37%
175,000 Stop & Shop Companies .................... 5,795,483 5,840,625
----------- ------------
TELECOMMUNICATIONS - 0.51%
5,000 Cellular Communications, Inc.
Cl. A .................................. 255,829 265,629
6,900 Pacific Telecom, Inc.(c) ................. 206,845 207,000
----------- -----------
462,674 472,629
----------- -----------
TOTAL COMMON STOCKS ...................... 16,301,537 16,494,464
----------- -----------
Principal
Amount
or Shares
- ----------
CORPORATE BONDS - 0.44%
WIRELESS COMMUNICATIONS - 0.44%
600,000 COMCAST Cellular
Communications Inc. Ser. B
Redeemable Notes,
Zero Cpn., 03/05/00 ................... 436,003 402,000
----------- -----------
TOTAL CORPORATE BONDS.................... 436,003 402,000
----------- -----------
WARRANTS - 0.01%
BUSINESS SERVICES - 0.01%
3,500 Anacomp, Inc. (Exp: 2001)+ .............. 52,877 12,690
----------- -----------
TOTAL WARRANTS .......................... 52,877 12,690
----------- -----------
U.S. GOVERNMENT OBLIGATIONS - 32.79%
$30,250,000 U.S. Treasury Bills,
4.80% to 4.95%,
Due 07/25/96 to 08/22/96 .............. 30,074,257 30,074,257
----------- -----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS ............................ 30,074,257 30,074,257
----------- -----------
TOTAL
INVESTMENTS - 100.15% .................. $87,121,495* 91,867,386
===========
LIABILITIES, IN EXCESS OF OTHER
ASSETS--(0.15)% ........................ (136,537)
-----------
NET ASSETS - 100.00%
(8,092,945 shares
outstanding).......................... $91,730,849
===========
NET ASSET VALUE PER SHARE $11.33
======
- ----------
(a) - Principal amount denoted in French Francs.
(b) - Principal amount denoted in Italian Lira.
(c) - Fair valued as determined by Board of Directors.
*For Federal income tax purposes:
Aggregate cost ......................................... $87,121,495
===========
Gross unrealized appreciation .......................... $ 6,850,705
Gross unrealized depreciation .......................... (2,104,814)
-----------
Net unrealized appreciation ............................ $ 4,745,891
===========
+Non income producing security.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
================================================================================
ASSETS:
Investments in securities, at value (Cost $87,121,495) ....... $91,867,386
Cash ......................................................... 55,846
Deposits with brokers for securities sold short .............. 62,318
Accrued interest receivable .................................. 560,454
Dividends receivable ......................................... 77,263
Other assets ................................................. 13,466
-----------
Total Assets .............................................. 92,636,733
-----------
LIABILITIES:
Payable to Advisor ........................................... 75,610
Securities sold short, at value (proceeds: $62,318) .......... 67,103
Dividends payable ............................................ 712,124
Other accrued expenses ....................................... 51,047
-----------
Total Liabilities ......................................... 905,884
-----------
NET ASSETS ................................................ $91,730,849
===========
NET ASSETS CONSIST OF:
Capital Stock, at par value .................................. $ 8,093
Additional paid-in-capital ................................... 85,233,814
Distributions in excess of net investment income ............. (220,709)
Accumulated net realized gain on investments ................. 1,968,377
Net unrealized appreciation on investments and
assets and liabilities denominated in foreign
currencies ................................................ 4,741,274
-----------
NET ASSETS ................................................ $91,730,849
===========
NET ASSET VALUE .............................................. $ 11.33
===========
($91,730,849 / 8,092,945 shares outstanding)
(100,000,000 shares authorized of $0.001 par value)
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
================================================================================
INCOME:
Interest ..................................................... $2,125,474
Dividends .................................................... 493,173
----------
Total Income .............................................. 2,618,647
----------
EXPENSES:
Investment advisory .......................................... 454,470
Shareholder services ......................................... 115,504
Printing and mailing ......................................... 31,126
Directors' fees and expenses ................................. 19,454
Legal and audit .............................................. 16,535
Custodian .................................................... 15,591
Registration ................................................. 7,864
Miscellaneous ................................................ 9,555
----------
Total expenses ............................................ 670,099
----------
Net Investment Income ........................................ 1,948,548
==========
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ............................. 2,032,821
Net change in unrealized appreciation ........................ 554,342
----------
2,587,163
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $4,535,711
==========
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Net investment income .............................. $ 1,948,548 $ 4,292,816
Net realized gain on investments ................... 2,032,821 4,521,369
Net change in unrealized appreciation .............. 554,342 4,841,264
----------- ------------
Net increase in net assets resulting from operations 4,535,711 13,655,449
----------- ------------
Distributions from net investment income ........... (1,942,307) (4,292,816)
Distributions from net realized gains .............. -- (4,521,369)
Distributions in excess of net investment income ... -- (174,475)
Distributions in excess of net realized gains ...... -- (318,211)
----------- ------------
(1,942,307) (9,306,871)
----------- ------------
Share transactions--net ............................ -- (27,301,497)
----------- ------------
Net increase (decrease) in net assets ........... 2,593,404 (22,952,919)
NET ASSETS:
Beginning of period ................................ 89,137,445 112,090,364
----------- ------------
End of period ...................................... $91,730,849 $ 89,137,445
=========== ============
</TABLE>
QUARTERLY RESULTS OF INVESTMENT OPERATIONS (UNAUDITED)
Shown in thousands of dollars and per common share:
================================================================================
<TABLE>
<CAPTION>
NET REALIZED
AND UNREALIZED NET
TOTAL NET GAIN/(LOSS) ON INCREASE/(DECREASE)
INVESTMENT INVESTMENT INVESTMENTS AND IN NET ASSETS
INCOME INCOME NET OTHER ASSETS FROM OPERATIONS
--------------- ------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996--QUARTER ENDED
06/30/96 ................ $1,316 $0.16 $ 934 $0.11 $ 498 $0.06 $1,432 $0.18
03/31/96 ................ 1,313 0.16 1,015 0.13 2,089 0.26 3,104 0.38
1995--QUARTER ENDED
12/31/95 ................ $1,351 $0.17 $ 807 $0.10 $ 210 $0.03 $1,017 $0.13
09/30/95 ................ 1,281 0.16 957 0.12 1,719 0.21 2,676 0.33
06/30/95 ................ 1,461 0.18 1,163 0.14 3,394 0.36 4,557 0.50
03/31/95 ................ 1,711 0.21 1,366 0.17 4,040 0.43 5,406 0.60
1994--QUARTER ENDED
12/31/94 ................ $1,854 $0.22 $1,515 $0.18 ($2,597) ($0.28) ($1,082) ($0.10)
09/30/94 ................ 1,737 0.21 1,333 0.17 893 0.05 2,226 0.22
06/30/94 ................ 1,971 0.23 1,566 0.19 (3,100) (0.34) (1,534) (0.15)
03/31/94 ................ 1,595 0.18 1,198 0.15 (1,127) (0.14) 71 0.01
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Gabelli Convertible Securities Fund, Inc. (the "Fund") is a separately
managed portfolio of The Gabelli Series Funds, Inc. (the "Corporation"), a
closed-end diversified management investment company whose objective is to seek
a high level of total return through a combination of current income and capital
appreciation by investing in convertible securities. The Corporation was
incorporated in Maryland on December 19, 1988 and commenced operations on July
3, 1989. The Board of Directors, upon approval at a special meeting of
shareholders held on February 17, 1995, voted to approve the conversion of the
Fund to closed-end status, effective March 31, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
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. The books and records of the Fund are maintained in United
States (U.S.) dollars. Foreign currencies, investments and other assets and
liabilities are translated into U.S. dollars at the exchange rates prevailing at
the end of the period, and purchases and sales of investment securities, income
and expenses are translated on the respective dates of such transactions.
Unrealized gains or losses which result from changes in the value of foreign
currencies and net other assets have been included in unrealized appreciation /
depreciation on investments. Realized gains and losses on investments include
foreign currency gains and losses between trade date and settlement date on
investment securities transactions, foreign currency transactions and the
difference between the amounts of interest and dividends recorded on the books
of the Fund and the amounts actually received.
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 on 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
16
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
SHORT-SELLING. The Fund is authorized to engage in short-selling, which
obligates the Fund to replace the security borrowed by purchasing the security
at current market value. The Fund would incur a loss if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund would realize a gain if the price
of the security declines between those dates. Until the Fund replaces the
borrowed security, the Fund will maintain daily, a segregated account with cash
and/or U.S. Government securities sufficient to cover its short position.
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 and loss on investments determined by using specific
identification as the cost method. Interest income (including amortization of
premium and accretion of discount) is recorded as earned. 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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividend income 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, temporary
differences and differing characterization of distributions made by the Fund.
Tax basis return of capital distributions have been recorded as an adjustment to
paid-in-capital.
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.
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities for the six months ended June 30, 1996,
other than U.S. government obligations and short-term securities, aggregated
$39,953,108 and $55,040,049, 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.
17
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------------------------------
JUNE 30, 1996 1995 1994 1993 1992 1991
--------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $11.01 $10.60 $11.52 $11.45 $10.91 $10.47
------ ------ ------ ------ ------ ------
Net investment income ...................... 0.24 0.53 0.69 0.76 0.65 0.71
Net realized and unrealized gain (loss)
on securities ............................ 0.32 1.03 (0.71) 0.74 0.76 0.60
------ ------ ------ ------ ------ ------
Total from investment operations ........... 0.56 1.56 (0.02) 1.50 1.41 1.31
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ....... (0.24) (0.53) (0.69) (0.76) (0.65) (0.71)
Distributions from net realized gain
on investments ........................... -- (0.56) (0.21) (0.67) (0.22) (0.16)
Distributions in excess of net
investment income -- (0.02) -- -- -- --
Distributions in excess of net realized gains -- (0.01) -- -- -- --
Distributions from paid-in capital ......... -- (0.03) -- -- -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period ............. $11.33 $11.01 $10.60 $11.52 $11.45 $10.91
====== ====== ====== ====== ====== ======
Market value, end of period ................ $10.25 $10.75 -- -- -- --
====== ====== ====== ====== ====== ======
Total Net Asset Value Return+(a) ........... 5.3% 15.0% (0.2)% 13.1% 13.0% 12.5%
Total Investment Return+(b) ................ (2.4)% 12.3% -- -- -- --
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ... $91,731 $89,137 $112,090 $108,674 $92,541 $92,565
Ratio of operating expenses to average
net assets(c) ............................ 1.47%* 1.56% 1.31% 1.38% 1.40% 1.45%
Ratio of net investment income to average
net assets ............................... 4.29%* 4.60% 4.77% 4.58% 5.53% 5.50%
Portfolio Turnover Rate .................... 66% 140% 67% 45% 32% 51%
Average Commission Rate .................... $0.0525 -- -- -- -- --
- ----------------------------
* Annualized.
+ 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
distributions.
(a)Based on net asset value per share, adjusted for reinvestment of all distributions.
(b)Based on net asset value per share through March 31, 1995, the date of
conversion of the Fund to closed-end status, and market value thereafter,
adjusted for reinvestment of all distributions.
(c)Includes, for 1995, a current period expense associated with the conversion
of the Fund to closed-end status. Without the conversion expense, this ratio
would have been 1.28% in 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Convertible Securities Fund, Inc.
("Convertible Securities Fund") to automatically reinvest dividends. As a
"registered" shareholder you automatically become a participant in the
Convertible Securities Fund's Automatic Dividend Reinvestment Plan (the "Plan").
The Plan authorizes the Convertible Securities Fund to issue shares to
participants upon an income dividend or a capital gains distribution regardless
of whether the shares are trading at a discount or a premium to net asset value.
All distributions to shareholders whose shares are registered in their own names
will be automatically reinvested pursuant to the Plan in additional shares of
the Convertible Securities Fund. Plan participants may send their stock
certificates to State Street Bank and Trust Company ("State Street") to be held
in their dividend reinvestment account. Registered shareholders wishing to
receive their distribution in cash must submit this request in writing to:
The Gabelli Convertible Securities Fund, Inc.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan may contact State Street at 1 (800)
336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at State Street Bank
must do so in writing or by telephone. Please submit your request to the above
mentioned address or telephone number. Include in your request your name,
address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such transactions. The
Fund's Advisor, Gabelli Funds, has arranged (with its brokerage affiliate,
Gabelli & Company, Inc) that for two years from the date of conversion to
closed-end status, Convertible Securities Fund shares may be sold through State
Street at market value without commission.
If your shares are held in the name of a broker, bank or nominee, you should
contact such institution. If such institution is not participating in the Plan,
your account will be credited with a cash dividend. In order to participate in
the Plan through such institution, it may be necessary for you to have your
shares taken out of "street name" and re-registered in your own name. Once
registered in your own name your dividends will be automatically reinvested.
Certain brokers participate in the Plan. Shareholders holding shares in "street
name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of Common Stock distributed to participants in the Plan
in lieu of cash dividends is determined in the following manner. Under the Plan,
whenever the market price of the Convertible Securities Fund's Common Stock is
equal to or exceeds net asset value at the time shares are valued for purposes
of determining the number of shares equivalent to the cash dividends or capital
gains distribution, participants are issued shares of Common Stock valued at the
greater of (i) the net asset value as most recently determined or (ii) 95% of
the then current market price of the Convertible Securities Fund's Common Stock.
The valuation date is the dividend or distribution payment date or, if that date
19
<PAGE>
is not a New York Stock Exchange trading day, the next trading day. If the net
asset value of the Common Stock at the time of valuation exceeds the market
price of the Common Stock, participants will receive shares from the Convertible
Securities Fund valued at market price. If the Convertible Securities Fund
should declare a dividend or capital gains distribution payable only in cash,
State Street will buy Common Stock in the open market, or on the New York Stock
Exchange or elsewhere, for the participants' accounts, except that State Street
will endeavor to terminate purchases in the open market and cause the
Convertible Securities Fund to issue shares at net asset value if, following the
commencement of such purchases, the market value of the Common Stock exceeds the
then current net asset value.
The automatic reinvestment of dividends and capital gains distributions will
not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Convertible Securities Fund reserves the right to amend or terminate the
Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the members
of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by State Street on at
least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders
to increase their investment in the Convertible Securities Fund. In order to
participate in the Voluntary Cash Purchase Plan, shareholders must have their
shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street for investments in the Convertible
Securities Fund shares at the then current market price. Shareholders may send
an amount from $250 to $10,000. State Street will use these funds to purchase
shares in the open market on or about the 15th of each month. State Street will
charge each shareholder who participates $0.75, plus a pro rata share of the
brokerage commissions. Brokerage charges for such purchases are expected to be
less than the usual brokerage charge for such transactions. It is suggested that
any voluntary cash payments be sent to State Street Bank and Trust Company, P.O.
Box 8200, Boston, MA 02266-8200 such that State Street receives such payments
approximately 10 days before the 15th of the month. Funds not received at least
five days before the investment date shall be held for investment in the
following month. A payment may be withdrawn without charge if notice is received
by State Street at least 48 hours before such payment is to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Convertible Securities Fund.
20
<PAGE>
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
DIRECTORS
Mario J. Gabelli, CFA
PRESIDENT AND CHIEF INVESTMENT OFFICER
E. Val Cerutti
CHIEF EXECUTIVE OFFICER
CERUTTI CONSULTANTS, INC.
Felix J. Christiana
FORMER SENIOR VICE PRESIDENT
DOLLAR DRY DOCK SAVINGS BANK
Anthony J. Colavita, P.C.
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 & CHIEF INVESTMENT OFFICER
Bruce N. Alpert
VICE PRESIDENT & TREASURER
A. Hartswell Woodson, III
ASSOCIATE PORTFOLIO MANAGER
Douglas Neviera
ASSISTANT VICE PRESIDENT
James E. McKee
SECRETARY
INVESTMENT ADVISOR
Gabelli Funds, Inc.
One Corporate Center
Rye, New York 10580-1434
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
STOCK EXCHANGE LISTING
NYSE-Symbol: GCV
Shares Outstanding 8,092,945
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Saturday's The New York Times and
Monday's in The Wall Street Journal.
It is also listed in Barron's Mutual Funds/Closed End Funds section under the
heading "Convertible Securities Funds".
The Net Asset Value may be obtained each day by calling (914) 921-5071.
- --------------------------------------------------------------------------------
For general information about the Gabelli Funds,
call 1-800-GABELLI (1-800-422-3554), fax us at 914-921-5118, visit our Internet
homepage at: http://www.gabelli.com, or
e-mail us at: [email protected]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Convertible Securities Fund may from
time to time purchase shares of its capital stock in the open market when the
Convertible Securities Fund shares are trading at a discount of 10% or more from
the net asset value of the shares.
- --------------------------------------------------------------------------------
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
One Corporate Center
Rye, NY 10580-1434
914-921-5070
http://www.gabelli.com
SEMI-ANNUAL REPORT
JUNE 30, 1996
06/96
