ANNUAL REPORT
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
DECEMBER 31, 1995
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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.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
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THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
TO OUR SHAREHOLDERS:
The bull market stumbled at year-end 1995 as the Administration and
Congress fought over a balanced budget agreement. However, an early Christmas
gift from the Federal Reserve in the form of a 25 basis point drop in the
federal funds rate helped stocks regain some momentum to end the year at
near-record levels. Investors continued to migrate from technology stocks to
consumer non-durables, seeking safety in the form of more predictable earnings
in 1996. Cyclical stocks staged a comeback with the recognition that the economy
still had some "legs".
In the fourth quarter of 1995, the Gabelli Convertible Securities Fund,
Inc.'s ("Convertible Securities Fund") net asset value increased to $11.01 on
December 31, 1995 after adjusting for the $0.75 per share dividend paid on
December 27, 1995. This represents an increase of 1.1% for the quarter and
compares to the average return of 2.5% for the 40 convertible securities funds
tracked by Lipper Analytical Services, Inc.
INVESTMENT RESULTS (a)(c)
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<CAPTION>
<S> <C> <C> <C> <C> <C>
QUARTER
---------------------------------------------
1ST 2ND 3RD 4TH YEAR
--- --- --- ---
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 -DECEMBER 31, 1995 (A)
---------------------------------------------
1 Year ............................... 15.0%
5 Year ............................... 10.5%
Life of Fund ......................... 10.0%
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DIVIDEND HISTORY
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PAYMENT DATE RATE PER SHARE REINVESTMENT PRICE
- ------------ -------------- ------------------
December 27, 1995 $0.75 $10.95
September 27, 1995 $0.20 $11.10
June 27, 1995 $0.20 $11.21
December 31, 1994 $0.90 $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 share price 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
commencement of operations on July 3, 1989. (c) The Fund converted to closed-end
status on March 31, 1995.
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For the twelve months ended December 31, 1995, the Convertible Securities
Fund's dividend adjusted net asset value increased 15.0% versus the 20.8%
increase of the average convertible fund according to Lipper. The three- and
five-year average annual returns were 9.1% and 10.5%, respectively. Since
inception on July 3, 1989 through December 31, 1995, the Fund achieved an 86.2%
total return which represents an average annual return of 10.0%. 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 $10.75, up 5.6% for the quarter and up 5.8% from its initial price of $11.25
on March 31, 1995 after adjusting for the dividends of $1.15 per share which
were paid during the year. While the common shares are still trading at a
discount, we believe that this is a temporary phenomenon. Gabelli Funds, Inc.
and its affiliates maintain their intention to acquire up to one million shares
of the Fund in the open market.
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 graphic on the inside of the front cover 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 (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
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, a sale or spin-off of a division, or the development of a profitable
new business.
Once we have identified 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 the globalization of the market in filmed entertainment and
telecommunications, and micro trends such as an 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.
2
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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.
COMMENTARY
THE GREAT BULL MARKET OF 1995 - A HARD ACT TO FOLLOW
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MODEST STRONG LOW DECLINING RISING
ECONOMIC GROWTH + CORPORATE PROFITS + INFLATION + INTEREST RATES = STOCK PRICES
This simple equation drove equity prices to record levels in 1995. Will
the same factors add up to another good year for stocks in 1996? Let's take a
fresh look at all the components of this winning formula.
We are estimating growth in Gross Domestic Product (GDP) of 2.5% to 3%
this year. With lower interest rates in Great Britain, Germany and France as a
stimulant, we see European economies growing at about 2%. As a free market
system continues to evolve in China and the expansion of the middle classes in
more developed Asian countries translates into economic activity, Pacific Rim
economies should regain momentum. In short, we anticipate reasonably good
worldwide economic growth in the year ahead.
On the inflation front, we see little pressure coming from wage increases.
In fact, we are encouraged by the strong stands governments here and abroad are
taking against inflationary wage demands. Even the French, who have
traditionally been at the mercy of public worker unions, are holding the line.
Rising food and fuel prices could, however, result in more inflation than most
investors expect. Lower grain production in the U.S. last year, strong demand
from the Chinese, and crop failures in the former Soviet Union will push food
prices higher. Regarding energy, we are producing less and consuming more. This
will ultimately lead to higher pricing. The potential of political unrest in
Saudi Arabia may be a short-term catalyst for higher fuel prices. We are
estimating that inflation could run as high as 3.5% in the second half of 1996.
If this inflation forecast proves accurate, long-term interest will not
stay at the current 6% level. Herein lies the primary threat to the stock
market. The consensus is that, with a soft economy, low inflation, lower
interest rates in Europe, a balanced budget agreement, and a Federal Reserve
Chairman who is up for reappointment in an election year, interest rates are
bound to come down. At current levels, stock and bond valuations reflect this
consensus. With a soft economy coupled with a flat yield curve, we could see
short-term rates come down without long-term rates following. Be reminded that
price/earnings multiples are a function of earnings growth and longer term
interest rates. If earnings growth slows as we anticipate and long rates remain
flat or possibly trend modestly higher, stock multiples are likely to contract.
3
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Flow of funds into the U.S. stock market should continue to be favorable.
Equity mutual funds still enjoy strong cash inflows. If deal activity matches
that of 1995 ($458 billion in the U.S. and $866 billion worldwide), investors
will end up with a pile of cash. In addition, corporate stock buybacks and
rising dividends will buttress stock prices. Some of that money finds its way
into initial public offerings. More will go into non-U.S. investments,
particularly markets which languished in 1995. But much more will be recycled
into a shrinking supply of stock.
Our conclusion from all this conjecture is a somewhat different formula
for the 1996 stock market:
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MODEST DECENT LOW SLIGHTLY HIGHER A DECENT, BUT MUCH LESS
ECONOMIC GROWTH + CORPORATE PROFITS + INFLATION + INTEREST RATES = INSPIRING STOCK MARKET
</TABLE>
LET'S MAKE A DEAL
We were among the first on Wall Street to proclaim the beginning of the
third great wave of takeovers since World War II. Record setting merger and
acquisition activity, highlighted by a big jump in hostile deals this year
further validated our thesis. In 1995, it was the three Bs - banks, broadcasters
and brokers. In 1996, we believe deal activity will spread to bell operating
companies, telephone companies generally, cable television networks and small
and mid-sized industrial franchises. If we get a lower capital gains rate,
smaller companies in which management has significant ownership will have more
incentive to put out the "For Sale" sign. With our portfolio well stocked with
small to mid-sized companies trading at deep discounts to private market value,
we would expect to benefit.
THE WAITING GAME
As little as ten years ago, America had the best telecommunications system
in the world by far. Today, we are already behind Great Britain and France, and
in danger of losing ground to other industrialized countries. It is not as a
result of telecommunications technology, in which we remain a world leader.
Rather, it is our antiquated regulatory system which has restrained competition
and productivity in the industry.
As of this writing, the comprehensive telecommunications bill promised to
us by the Clinton Administration and Congress three years ago remains stalled in
committee. Most of the difficult issues seem to be resolved. Presently, the bill
is being held captive to political posturing over whether broadcasters should be
made to pay for high definition television spectrum or simply be given this
spectrum as the FCC had originally planned. Once this issue is resolved, one
fears another will emerge to further delay this essential legislation. The devil
may be in the details here, however, as Washington must eliminate the artificial
barriers preventing the public from getting what they want: better service and
lower prices -- and telecommunications companies from getting what they need: a
set of rules that will allow them to implement competitive strategies for the
upcoming free market free-for-all.
With this cloud of uncertainty still hanging over the telephone/cable
television/broadcast industries, investors are not fully valuing the bright
future of well-managed, financially strong companies in all of these sectors.
LET'S TALK CONVERTS
The following are stock 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.
4
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CHOCK FULL O'NUTS CORPORATION (SUB. DEB. CV., 8.00%, 9/15/06; 7.00% 4/1/12) 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. In 1994, Chock Full
began 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.
GENERAL HOST CORPORATION (SUB. DEB. CV., 8.00%, 2/15/02) General Host's
operating unit, Frank's Nursery and Crafts, is the largest specialty retailer of
lawn, garden and craft products in the U.S. With about 300 stores located in 17
states east of the Mississippi, we believe General Host is well-positioned to
benefit from the growing crafts market as well as the attractive lawn and garden
market. Management has revised its cost structure and has repaid $72.5 million
of the company's long-term debt. We believe the new focus on cost reduction will
help the company to maximize cash flow. General Host's 8% Convertible
Subordinated Notes, maturing February 15, 2002 are convertible into common stock
at a conversion price of $10.375.
TIME WARNER INC. (SUB. DEB. CV. ZERO COUPON 6/23/13; 8.75% 1/10/15), in a bold
and brilliant tactic, is acquiring Turner Broadcasting System Inc. for $7.5
billion. The acquisition will make TWX the largest diversified media and
publishing company in the world and will add a wealth of programming to a
company already rich in entertainment content. Time Warner is restructuring into
two general areas: copyright and creativity, which includes publishing, music
and filmed entertainment, and distribution, which is mostly cable. Under the
aegis of Gerald M. Levin, investors can expect significant returns over the rest
of the decade.
Time Warner's zero coupon convertible bonds, selling at $41.00, provide an
example of how a zero coupon convertible bond benefits investors. With a yield
to its $47.674 put price in June of 1998 of 5.5% (compared to a 0.83% yield on
the common stock) and call protection of at least three years, this bond will
pay the investor to wait for capital appreciation in a BBB-rated bond. On
September 17, 1995, $5.9 million of the Time Warner 8.75% convertible bonds were
called at a price of $104.365. This reduced our position in the Time Warner
convertibles by almost half, bringing our total position in Time Warner down to
9.6% of the portfolio.
SPRINT CORPORATION (CV. PFD. 8.25%, $1.50 SERIES 1 & 2) is the third largest
long-distance carrier and the second largest independent local telephone company
in the U.S. The company has announced a spin-off of its cellular unit, which
should take place in the first quarter of 1996. The estimated trading value of
the spin-off is $9 to $10 per FON share. After the spin-off, the remaining long
distance/local telco shares should trade close to FON's current market price,
indicating shareholders are getting the cellular spin-off for "free". Sprint has
positioned itself on a global basis through a joint venture with France
Telecom/Deutsche Telekom, which will purchase a 20% stake in Sprint (excluding
the cellular unit) for $3.5 billion. Our interest in Sprint stems from its
promising national cable/telephony and PCS/wireless joint venture with three
major cable operators: Tele-Communications, Inc.; Comcast Corporation and Cox
Communications, Inc. We consider FON an interesting value with the risks
associated with new entrants in the long distance business offset by the
cable/telephony venture.
5
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The Sprint 8.25% Preferreds or DECS (Dividend Enhanced Convertible Stock)
are exchangeable into 0.867 common shares of Southern New England
Telecommunications (SNET) which is currently trading at $35.375. This bond
currently yields 2.5% over SNET's common shares. The DECS structure offers
investors a higher coupon than traditional convertible bonds. In return for the
high coupon, DECS investors are exposed to a downside similar to that of the
common stock. However, the high income provided by the DECS allows the security
to outperform the underlying common stock in a flat to down market while
essentially matching the stock's return in an up market.
MAGMA COPPER COMPANY (CV. PFD. 5.625% SERIES D; 6.00% SERIES E) is one of the
biggest primary copper producers in the United States. Magma produces
high-quality copper cathodes and rods for sale to customers worldwide. Its
smelting operations represent 25% of the United States' smelting capacity. On
December 1, Broken Hill Proprietary Co., Australia's largest resources company,
agreed to buy the shares of Magma at $28 per share, almost 30% above its market
price. MCU is a great example of our value style investment philosophy. Over the
last four years, Magma had increased its cash from operations by 115% on average
annual sales growth of approximately 8%. With news of the takeover, the
convertible preferred debt leaped from $73.75 to over $100 dollars.
DIVIDENDS
The Fund recently distributed a dividend of $0.75 per share on December
27, 1995. For the entire year ending December 31, 1995, the Fund distributed a
total of $1.15 per share.
CONCLUSION
Continued strength in bond and equity prices should reward convertible
securities portfolios. The Gabelli Convertible Securities Fund, Inc. has
demonstrated its ability to deliver superior risk-adjusted returns through the
hybrid qualities of convertible securities. We thank you for your confidence in
our ability to select investments to meet our shared investment goals. We
believe that the patient investor will be rewarded over the long term.
Sincerely,
/S/ Mario J. Gabelli
MARIO J. GABELLI
President and
Chief Investment Officer
January 31, 1996
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TOP TEN HOLDINGS
DECEMBER 31, 1995
Magma Copper Company Chock Full o'Nuts Corp.
Time Warner Inc. Atlantic Richfield Co.
GEICO Corp. Thomas Nelson Inc.
Fieldcrest Cannon, Inc. Hudson General Corp.
Navistar International Corp. General Host Corp.
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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.
6
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THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1995
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PRINCIPAL
AMOUNT COST VALUE
--------- ---- -----
CONVERTIBLE SECURITIES -- 73. 70%
CONVERTIBLE CORPORATE BONDS -- 44.80%
AIRLINES: PARTS AND ACCESSORIES -- 0.43%
$ 340,000 UAL Corporation
Sub. Deb. Cv.
6.375%, 02/01/25..... $ 308,784 $ 382,500
--------- ---------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.31%
1,150,000 GenCorp Inc. Sub. Deb. Cv.
8.00%, 08/01/02...... 1,146,782 1,170,125
--------- ---------
AVIATION: PARTS AND SERVICES -- 3.15%
1,450,000 Hudson General Corporation
Sub. Deb. Cv.
7.00%, 07/15/11...... 1,254,167 1,522,500
254,000 Kaman Corporation
Sub. Deb. Cv.
6.00%, 03/15/12...... 158,753 213,360
8,000 Moog, Inc. Sub. Deb. Cv.
9.875%, 01/15/06..... 8,209 8,400
1,200,000 UNC Incorporated
Sub. Deb. Cv.
7.50%, 03/31/06...... 762,217 1,068,000
--------- ---------
2,183,346 2,812,260
--------- ---------
BROADCASTING -- 0.14%
500,000(a) Havas Sub. Deb. Cv.
3.00%, 12/31/97...... 107,288 125,458
--------- ---------
BUILDING AND CONSTRUCTION -- 0.47%
10,000 Hofi International Finance Ltd.
Sub. Deb. Cv.
4.50%, 08/11/08...... 12,399 13,900
400,000 Medusa Corporation
Sub. Notes Cv.
6.00%, 11/15/03...... 389,637 404,500
--------- ---------
402,036 418,400
--------- ---------
BUSINESS SERVICES -- 0.88%
400,000 Anacomp, Inc. Sub. Deb. Cv.
13.875%, 01/15/02(d). 348,036 39,000
250,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12...... 253,680 344,688
381,000 Trans-Lux Corporation
Sub. Deb. Cv.
9.00%, 12/01/05...... 334,488 401,955
--------- ---------
936,204 785,643
--------- ---------
CABLE -- 0.49%
250,000 Comcast Corporation
Sub. Deb. Cv.
3.375%, 09/09/05..... 245,067 234,688
400,000 Comcast Corporation
Sub. Deb. Cv.
1.125%, 04/15/07..... 203,142 202,000
--------- ---------
448,209 436,688
--------- ---------
COMPUTER SOFTWARE AND SERVICES -- 0.20%
40,000 Sierra On-Line, Inc.
Sub. Deb. Cv.
6.50%, 04/01/01...... 37,636 82,600
125,000 SoftKey International, Inc.
Sub. Deb. Cv.
5.50%, 11/01/00...... 103,072 93,750
--------- ---------
140,708 176,350
--------- ---------
CONSUMER PRODUCTS -- 5.02%
700,000 American Brands, Inc.
Sub. Deb. Cv.
7.625%, 03/05/01..... 718,715 735,000
600,000 Borden, Inc. Sub. Deb. Cv.
Zero Cpn. 05/21/02... 408,722 411,000
100,000 Dibrell Brothers, Incorporated
Sub. Deb. Cv.
7.75%, 09/30/06...... 96,767 129,000
2,800,000 Fieldcrest Cannon, Inc.
Sub. Deb. Cv.
6.00%, 03/15/12...... 1,860,826 1,918,000
564,000 Masco Corporation
Sub. Deb. Cv.
5.25%, 02/15/12...... 381,865 541,440
200,000 Roadmaster Industries, Inc.
Sub. Deb. Cv.
8.00%, 08/15/03...... 200,188 168,000
800,000 Standard Commercial
Corporation
Sub. Deb. Cv.
7.25%, 03/31/07...... 625,841 568,000
--------- ---------
4,292,924 4,470,440
--------- ---------
ENERGY -- 1.89%
1,100,000 Moran Energy Inc.
Sub. Deb. Cv.
8.75%, 01/15/08...... 757,843 924,000
600,000 Pennzoil Company
Sub. Deb. Cv.
6.50%, 01/15/03...... 600,000 759,000
--------- ---------
1,357,843 1,683,000
--------- ---------
ENTERTAINMENT -- 10.33%
220,000 All American
Communications, Inc.
Sub. Deb. Cv.,
6.50%, 10/01/03...... 214,625 193,600
500,000 Savoy Pictures
Entertainment, Inc.
Sub. Deb. Cv.
7.00%, 07/01/03...... 448,496 425,000
400,000 Time Warner Inc.
LYONS Sr. Sub. Notes Cv.
Zero Cpn., 06/22/13.. 167,348 164,000
8,128,050 Time Warner Inc.
Sub. Deb. Cv.
8.75%, 01/10/15...... 8,479,877 8,422,692
The accompanying notes are an integral part of the financial statements.
7
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THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1995 (CONTINUED)
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PRINCIPAL
AMOUNT COST VALUE
--------- ---- -----
$ 5,000 WMS Industries Inc.
Sub. Deb. Cv.
5.75%, 11/30/02...... $ 4,820 $ 4,375
--------- ---------
9,315,166 9,209,667
--------- ---------
FINANCIAL SERVICES -- 0.65%
550,000 Advest Group, Inc.
Sub. Deb. Cv.
9.00%, 03/15/08...... 434,604 552,750
25,000 Guangdong Investment Limited
Sub. Deb. Cv.
4.50%, 10/07/98...... 25,000 30,563
--------- ---------
459,604 583,313
--------- ---------
FOOD AND BEVERAGE -- 4.42%
250,000 Boston Chicken, Inc.
Sub. Deb. Cv.
4.50%, 02/01/04...... 229,226 298,125
1,050,000 Chock Full o'Nuts Corporation
Sub. Deb. Cv.
8.00%, 09/15/06...... 1,037,027 987,000
1,005,000 Chock Full o'Nuts Corporation
Sub. Deb. Cv.
7.00%, 04/01/12...... 752,414 864,300
1,400,000 Flagstar Companies, Inc.
Sub. Deb. Cv.
10.00%, 11/01/14..... 1,312,696 763,000
930,000 Ingles Markets, Incorporated
Sub. Deb. Cv.
10.00% 10/15/08...... 935,173 1,023,000
--------- ---------
4,266,536 3,935,425
--------- ---------
HEALTH CARE -- 0.12%
100,000 Benson Eyecare Corporation
Sub. Deb. Cv.
8.00%, 05/15/01...... 99,755 111,125
--------- ---------
INDUSTRIAL EQUIPMENT AND SUPPLIES -- 7.36%
300,000 AMSCO International, Inc.
Sub. Deb. Cv.
6.50%, 10/15/02...... 283,431 288,000
850,000 Builders Transport, Incorporated
Sub. Deb. Cv.
6.50%, 05/01/11...... 347,091 626,875
1,000,000 Cooper Industries, Inc.
Sub. Deb. Cv.
7.05%, 01/01/15...... 939,860 1,035,000
400,000 Data Switch Corporation
Sub. Deb. Cv.
8.25%, 06/01/02...... 303,712 402,000
100,000 Ducommun, Incorporated
Sub. Deb. Cv.
7.75%, 03/31/11...... 73,938 107,000
450,000 General Signal Corporation
Sub. Deb. Cv.
5.75% 06/01/02....... 443,667 468,000
$ 10,000 Greenwich Air Services, Inc.
Sub. Deb. Cv.
8.00%, 11/05/00...... $ 9,648 $ 19,500
650,000 Intermagnetics General
Corporation Sub. Deb. Cv.
5.75%, 09/15/03...... 650,000 910,000
1,198,000 KolImorgen Corporation
Sub. Deb. Cv.
8.75%, 05/01/09...... 843,060 1,195,005
650,000 Pacific Scientific Company
Sub. Deb. Cv.
7.75% 06/15/03....... 601,021 854,750
450,000 Sanifill, Inc. Sub. Deb. Cv.
7.50%, 06/01/06...... 447,346 533,250
120,000 Unifi, Inc. Sub. Deb. Cv.
6.00%, 03/15/02...... 120,000 120,900
--------- ---------
5,062,774 6,560,280
--------- ---------
METALS AND MINING -- 0.45%
450,000 Coeur d'Alene Mines
Corporation Sub. Deb. Cv.
6.00%, 06/10/02...... 407,814 398,250
--------- ---------
PAPER AND FOREST PRODUCTS -- 0.25%
200,000 Riverwood International
Corporation
Sub. Deb. Cv.
6.75%, 09/15/03...... 199,625 224,750
--------- ---------
PUBLISHING -- 2.49%
700,000 News American Holdings Incorporated
Sub. Deb. Cv.
Zero Cpn., 03/31/02.. 435,268 655,375
1,600,000 Thomas Nelson Inc.
Sub. Deb. Cv.
5.75%, 11/30/99...... 1,642,422 1,560,000
--------- ---------
2,077,690 2,215,375
--------- ---------
REAL ESTATE/DEVELOPMENT -- 0.39%
125,000 Rockefeller Center
Properties Inc.
Sub. Deb. Cv.
Zero Cpn., 12/31/00.. 68,448 71,875
200,000 Rockefeller Center
Properties Inc.
Sub. Deb. Cv.
13.00%, 12/31/00..... 191,230 224,500
50,000 Wharf Capital International Ltd.
Sub. Deb. Cv.
5.00%, 07/15/00...... 51,410 53,500
--------- ---------
311,088 349,875
--------- ---------
RETAIL -- 2.26%
146,000 Farah U.S.A., Inc.
Sub. Deb. Cv.
8.50%, 02/01/04(c)... 131,200 45,508
380,000 Food Lion, Inc. Sub. Deb. Cv.
5.00%, 06/01/03...... 376,705 372,400
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COST VALUE
--------- ---- -----
1,850,000 General Host Corporation
Sub. Deb. Cv.
8.00%, 02/15/02...... $ 1,823,349 $ 1,480,000
50,000 Pier One Imports Inc.
Sub. Deb. Cv.
8.50%, 12/01/00...... 48,355 41,000
110,000 Sports & Recreation, Inc.
Sub. Deb. Cv.
4.25%, 11/01/00...... 106,813 75,625
--------- ---------
2,486,422 2,014,533
--------- ---------
TELECOMMUNICATIONS -- 1.10%
800,000,000(b)Softe SA Sub. Deb. Cv.
4.25%, 07/30/98...... 485,690 554,331
400,000 WorldCom Inc. Sub. Deb. Cv.
5.00%, 08/15/03...... 286,364 422,000
--------- ---------
772,054 976,331
--------- ---------
TRANSPORTATION -- 0.74%
550,000 Greyhound Lines Inc.
Sub. Deb. Cv.
8.50%, 03/31/07...... 368,782 510,125
150,000 WorldCorp, Inc. Sub. Deb. Cv.
7.00%, 05/15/04...... 116,517 151,500
--------- ---------
485,299 661,625
--------- ---------
WIRELESS COMMUNICATIONS -- 0.26%
300,000 COMCAST Cellular
Communications Inc.
Ser. A Redeemable Notes,
Zero Cpn., 03/05/00.. 189,480 231,750
--------- ---------
TOTAL CONVERTIBLE
CORPORATE BONDS ..... 37,457,431 39,933,163
---------- ----------
CONVERTIBLE PREFERRED STOCKS -- 28.90%
AIRLINES -- 2.14%
19,500 AMR Corporation
$3.00 Cv. Pfd. Ser. A 984,000 1,014,000
15,000 Delta Air Lines, Inc.
$3.50 Cv. Pfd. Ser. C 799,240 890,625
--------- ---------
1,783,240 1,904,625
--------- ---------
AUTOMOBILE MANUFACTURERS -- 1.15%
5,000 Ford Motor Company
$4.20 Cv. Pfd. Ser. A 451,100 473,750
7,500 General Motors Corporation
$3.25 Cv. Pfd. Ser. . 376,375 549,372
--------- ---------
827,475 1,023,122
--------- ---------
AVIATION: PARTS AND SERVICES -- 0.48%
9,000 Kaman Corporation
6.50% Cv. Pfd. Ser. 2 296,011 433,125
--------- ---------
CONSUMER PRODUCTS -- 1.19%
20,000 Cablevision Systems Corporation
8.50% Pfd. Ser. 1.... $ 500,000 $ 545,000
1,000 Fieldcrest Cannon, Inc. $3.00 Cv.
Pfd. Ser. A.......... 51,750 44,500
25,500 Kerr Group Inc.
Cl. B $1.70 Cv. Pfd.
Ser. D 464,875 471,750
--------- ---------
1,016,625 1,061,250
--------- ---------
DIVERSIFIED INDUSTRIAL -- 1.49%
21,000 GATX Corporation
$3.875 Cv. Pfd....... 878,462 1,207,500
1,000 GATX Corporation
$2.50 Cv. Pfd........ 65,400 125,000
--------- ---------
943,862 1,332,500
--------- ---------
ENERGY -- 2.03%
6,200 Atlantic Richfield Company
$2.80 Cv. Pfd........ 1,654,248 1,639,900
6,000 McDermott International, Inc.
Pfd. A............... 170,213 170,250
--------- ---------
1,824,461 1,810,150
--------- ---------
FOOD AND BEVERAGE -- 0.35%
30,000 Flagstar Companies, Inc.
$2.25 Cv. Pfd. Ser. A 684,656 311,250
--------- ---------
INDUSTRIAL EQUIPMENT AND SUPPLIES -- 4.07%
36,000 Navistar International Corporation
$6.00 Cv. Pfd. Ser. G 1,700,294 1,953,000
25,000 NYCOR, Inc.
$1.70 Cv. Pfd........ 338,600 425,000
21,500 Sequa Corporation
$5.00 Cv. Pfd........ 1,633,792 1,247,000
--------- ---------
3,672,686 3,625,000
--------- ---------
METALS AND MINING -- 14.21%
24,000 Freeport-McMoRan
Copper & Gold Inc.
7.00% Cv. Pfd........ 693,325 690,000
108,400 Magma Copper Company
5.625% Cv. Pfd. Ser. D 9,790,621 10,419,950
15,500 Magma Copper Company
6.00% Cv. Pfd. Ser. E 1,546,900 1,555,813
---------- ----------
12,030,846 12,665,763
---------- ----------
REAL ESTATE/DEVELOPMENT -- 0.54%
10,000 Catellus Development Corporation
$3.75 Cv. Pfd. Ser. A 544,813 480,000
--------- ---------
TELECOMMUNICATIONS -- 1.25%
3,000 LCI International, Inc.
5.00% Cv. Pfd........ 75,000 160,500
3,000 Sprint Corporation
$1.50 Cv. Pfd. Ser. 1 301,100 352,500
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COST VALUE
--------- ---- -----
2,200 Sprint Corporation
$1.50 Cv. Pfd. Ser. 2 $ 187,510 $ 225,500
10,000 Sprint Corporation
8.25% Cv. Pfd........ 318,750 380,000
--------- ---------
882,360 1,118,500
--------- ---------
TOTAL CONVERTIBLE
PREFERRED STOCKS .... 24,507,035 25,765,285
--------- ---------
COMMON STOCKS -- 10.34%
BUILDING AND CONSTRUCTION -- 1.11%
30,000 CBI Industries, Inc. 983,081 986,250
--------- ---------
BUSINESS SERVICES -- 0.03%
258 International Business
Machines Corporation. 16,826 23,672
--------- ---------
COMPUTER SOFTWARE AND SERVICES-- 0.00%
193 Wang Laboratories, Inc.+ 0 3,209
--------- ---------
ENERGY -- 0.62%
4,000 Exxon Corporation...... 237,758 320,500
3,000 Texaco Inc............. 183,213 235,500
--------- ---------
420,971 556,000
--------- ---------
FINANCIAL SERVICES -- 5.26%
67,100 GEICO Corp............. 4,599,205 4,688,613
--------- ---------
HEALTH CARE -- 1.49%
25,000 Genentech, Inc.+....... 1,195,989 1,325,000
--------- ---------
INDUSTRIAL EQUIPMENT AND SUPPLIES -- 0.04%
2,000 Giddings & Lewis, Inc.. 21,381 33,000
--------- ---------
METALS AND MINING -- 0.19%
16,413 Echo Bay Mines Ltd..... 165,176 170,289
--------- ---------
PUBLISHING -- 1.30%
21,000 Commerce Clearing
House, Inc. Cl. A.... $ 1,148,172 $ 1,160,250
--------- ---------
TELECOMMUNICATIONS -- 0.30%
1,340 GTE Corporation........ 46,940 58,960
6,900 Pacific Telecom, Inc.(c) 206,845 207,000
--------- ---------
253,785 265,960
--------- ---------
TOTAL COMMON STOCKS ... 8,804,586 9,212,243
--------- ---------
CORPORATE BONDS -- 0.52%
WIRELESS COMMUNICATIONS -- 0.52%
$600,000 COMCAST Cellular
Communications Inc.
Ser. B Redeemable Notes,
Zero Cpn., 03/05/00.. 418,568 463,500
--------- ---------
TOTAL CORPORATE BONDS . 418,568 463,500
--------- ---------
U.S. GOVERNMENT OBLIGATIONS -- 19.68%
17,610,000 U.S. Treasury Bills,
4.66% to 5.27%,
Due 01/11/96 to
02/15/96 17,542,450 17,542,450
---------- ----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS ......... 17,542,450 17,542,450
---------- ----------
TOTAL INVESTMENTS --
104.24% ............. $88,730,070* 92,916,641
===========
LIABILITIES, IN EXCESS OF
OTHER ASSETS-- (4.24%) (3,779,1)
NET ASSETS 100.00% .... $89,137,445
===========
(8,092,945 SHARES
OUTSTANDING)
NET ASSET VALUE PER SHARE $11.01
======
- -----------------
(a) - Principal amount denoted in French Francs.
(b) - Principal amount denoted in Italian Lira.
(c) - Fair valued as determined by Board of Directors.
(d) - Issuer in default as to interest payments.
*For Federal income tax purposes:
Aggregate cost ...................... $88,794,514
===========
Gross unrealized appreciation ....... $ 6,660,864
Gross unrealized depreciation ....... (2,538,737)
-----------
Net unrealized appreciation ......... $ 4,122,127
===========
+Non income producing security.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value (Cost $88,730,070) ......... $92,916,641
Cash ........................................................... 946,862
Receivable for investments sold ................................ 164,456
Accrued interest receivable .................................... 810,884
Dividends receivable ........................................... 101,324
Other assets ................................................... 7,438
-----------
Total Assets ................................................. 94,947,605
-----------
Payable to Advisor ............................................. 79,353
Payable for investments purchased .............................. 1,335,097
Dividends payable .............................................. 4,350,792
Other accrued expenses ......................................... 44,918
-----------
Total Liabilities ............................................ 5,810,160
-----------
NET ASSETS for 8,092,945 shares outstanding .................. $89,137,445
===========
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 ............... (226,950)
Distributions in excess of net realized gains .................. (64,444)
Net unrealized appreciation on investments and assets
and liabilities denominated in foreign currencies ........... 4,186,932
-----------
NET ASSETS ................................................... $89,137,445
===========
NET ASSET VALUE ................................................ $11.01
===========
($89,137,445 / 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.
11
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
INCOME:
Interest $ 4,691,290
Dividends (net of foreign withholding taxes of $830) 1,112,549
-----------
Total Income 5,803,839
-----------
EXPENSES:
Investment advisory 969,629
Reorganization expenses 267,436
Shareholder services 130,063
Printing and mailing 20,435
Directors' fees and expenses 40,000
Custodian 39,766
Legal and audit 36,000
Registration 5,470
Miscellaneous 2,224
-----------
Total expenses 1,511,023
-----------
Net Investment Income 4,292,816
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 4,571,863
Net realized loss on futures (50,494)
Net change in unrealized appreciation 4,841,264
-----------
9,362,633
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,655,449
===========
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
Net investment income ......................................... $ 4,292,816 $ 5,612,058
Net realized gain on investments ............................... 4,571,863 3,190,539
Net realized loss on futures.................................... (50,494) --
Net change in unrealized appreciation (depreciation) ........... 4,841,264 (9,121,141)
---------- ------------
Net increase (decrease) in net assets resulting from operations 13,655,449 (318,544)
----------- ------------
Distributions from net investment income......................... (4,292,816) (5,605,754)
Distributions from net realized gains............................ (4,521,369) (3,155,909)
Distributions in excess of net investment income................. (174,475) --
Distributions in excess of net realized gains.................... (65,122) (53,326)
Distributions from paid-in-capital.............................. (253,089) --
----------- ------------
(9,306,871) (8,814,989)
---------- ------------
Share transactions-- net........................................ (27,301,497) 12,550,035
----------- ------------
Net increase (decrease) in net assets.......................... (22,952,919) 3,416,502
NET ASSETS:
Beginning of period............................................. 112,090,364 108,673,862
----------- ------------
End of period .................................................. $89,137,445 $112,090,364
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<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 fluctuation 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
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.
14
<PAGE>
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,
including reorganization expenses described in Note 6 below. 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. CAPITAL STOCK TRANSACTIONS
The Articles of Incorporation, dated December 19, 1988, permit the Fund to
issue 100,000,000 (par value $0.001). Transactions in shares of common stock
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 229,155 $ 2,489,821 2,593,580 $29,982,906
Shares issued upon reinvestment of dividends -- -- 773,933 8,203,685
Shares redeemed (2,712,960) (29,791,318) (2,224,189) (25,636,556)
---------- ----------- ---------- -----------
Net increase (decrease) (2,483,805) ($27,301,497) 1,143,324 $12,550,035
========== =========== ========== ===========
</TABLE>
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities for the year ended December 31, 1995, other
than U.S. government obligations and short-term securities, aggregated
$106,127,585 and $109,708,784, respectively.
5. 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 the year ended December 31, 1995.
6. REORGANIZATION EXPENSES
The costs associated with the conversion of the Fund to closed-end status,
effective March 31, 1995, totaling $267,436, have been recorded as an expense
for accounting purposes.
7. TRANSACTIONS WITH AFFILIATES
The Fund paid brokerage commissions during the year ended December 31, 1995
of $18,125 to Gabelli & Company, Inc. and its affiliates.
15
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.60 $ 11.52 $ 11.45 $ 10.91 $ 10.47
------- -------- ------- ------- -------
Net investment income 0.53 0.69 0.76 0.65 0.71
Net realized and unrealized gain (loss) on securities 1.03 (0.71) 0.74 0.76 0.60
------- -------- ------- ------- -------
Total from investment operations 1.56 (0.02) 1.50 1.41 1.31
------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income (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 $ 11.01 $ 10.60 $ 11.52 $ 11.45 $ 10.91
======= ======== ======= ======= =======
Market value, end of period $ 10.75 -- -- -- --
======= ======== ======= ======= =======
Total Net Asset Value Return+(a) 15.0% (0.2)% 13.1% 13.0% 12.5%
Total Investment Return+(b) 12.3% -- -- -- --
RATIOS TO AVERAGE NET ASSETS / SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $89,137 $112,090 $108,674 $92,541 $92,565
Ratio of operating expenses to average net assets (c) 1.56% 1.31% 1.38% 1.40% 1.45%
Ratio of net investment income to average net assets 4.60% 4.77% 4.58% 5.53% 5.50%
Portfolio Turnover Rate 140% 67% 45% 32% 51%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
+ 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.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
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
--------------- -------------- ----------------- -----------------
1995--QUARTER ENDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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>
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 highlights present fairly, in all
material respects, the financial position of The Gabelli Convertible Securities
Fund, Inc. (the "Fund"), a separately managed portfolio of The Gabelli Series
Funds, Inc., at December 31, 1995, 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, 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, 1995 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 21, 1996
17
<PAGE>
THE GABELLI COVERTIBLE SECURITIES FUND, INC.
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
CALENDAR YEAR 1995
CASH DIVIDENDS AND DISTRIBUTIONS
<TABLE>
<CAPTION>
TOTAL AMOUNT ORDINARY RETURN LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT OF CAPITAL REINVESTMENT
DATE DATE PER SHARE INCOME CAPITAL GAINS PRICE
-------- -------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
06/27/95 06/09/95 $0.2000 $0.1926 $0.0074 $0.0000 $11.2101
09/21/95 09/15/95 0.2000 0.1926 0.0074 0.0000 11.1021
12/27/95 12/22/95 0.7500 0.3763 0.0142 0.3595 10.9489
------- ------- ------- -------
$1.1500 $0.7615 $0.0290 $0.3595
</TABLE>
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 1995 tax returns. Ordinary income distributions include net investment
income and realized net short-term capital gains.
RETURN OF CAPITAL
The amount received as a non-taxable (return of capital) distribution should
be applied to reduce the tax cost of shares. This amount will be reflected on
Form 1099-DIV. If the amount of the non-taxable portion exceeds your tax basis,
the excess will be taxable as a capital gain.
CORPORATE DIVIDENDS RECEIVED DEDUCTION AND U.S. TREASURY SECURITIES INCOME
The Fund paid to shareholders net investment income dividends of $0.1410 per
share on June 27, 1995, $0.1410 per share on September 21, 1995 and $0.2754 per
share on December 27, 1995. The percentage of such dividends that qualifies for
the dividends received deduction available to corporations is 19.47% for all
such dividends paid in 1995. The percentage of the ordinary income dividends
paid by the Fund during 1995 derived from U.S. Treasury Securities was 19.54%.
HISTORICAL DISTRIBUTION SUMMARY
<TABLE>
<CAPTION>
SHORT- LONG-
TERM TERM ADJUSTMENT
ANNUAL INVESTMENT CAPITAL CAPITAL RETURN OF TOTAL TO
SUMMARY INCOME(A) GAIN(A) GAINS CAPITAL (B) DISTRIBUTIONS COST BASIS
<C> <C> <C> <C> <C> <C> <C>
- ----------------- ------- ------- ------- ------- ------- --------
1995 $0.5574 $0.2041 $0.3595 $0.0290 $1.1500 $0.0290-
1994 0.5730 0.1150 0.2120 -- 0.9000 --
1993 0.5610 0.2000 0.6640 -- 1.4250 --
1992 0.6540 0.0900 0.1320 -- 0.8760 --
1991 0.7060 0.1120 0.0470 -- 0.8650 --
1990 0.6900 -- -- -- 0.6900 --
1989 0.1150 -- -- -- 0.1150 --
</TABLE>
- ------------
(a) Taxable as ordinary income for Federal tax purposes.
(b) Non-taxable.
- - Decrease in cost basis.
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 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 Bank and Trust
Company at 1 (800) 336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at State Street
Bank and Trust Company 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.
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 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.
19
<PAGE>
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 and participate in the Dividend
Reinvestment Plan.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street Bank and Trust Company 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 Bank and
Trust Company will use these funds to purchase shares in the open market on or
about 15th of each month beginning in April 1996. State Street Bank and Trust
Company 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 Bank and Trust Company 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.
- --------------------------------------------------------------------------------
The Annual Meeting of the Convertible Securities Fund Stockholders will be held
at 12:30 P.M. on Monday, May 13, 1996, at the Cole Auditorium, Greenwich Public
Library in Greenwich, Connecticut.
- --------------------------------------------------------------------------------
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
James E. McKee
SECRETARY
Bruce N. Alpert
VICE PRESIDENT & TREASURER
A. Hartswell Woodson, III
ASSOCIATE PORTFOLIO MANAGER
Douglas Neviera
ASSISTANT VICE PRESIDENT
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
- --------------------------------------------------------------------------------
21
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
PHONE: 1-800-GABELLI (1-800-422-3554)
FAX: 1-914-921-5118 INTERNET: http://www.gabelli.com
E-MAIL: [email protected]
