-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WPIPK4T48FgFhNBMHxiP/EgMYA3jWQq4A4nN/lF/POq0eLQV6zInUQCg41w/rDH7 efBzfOvNLn3mRmkDsNkUog== 0000930413-96-000225.txt : 19960716 0000930413-96-000225.hdr.sgml : 19960716 ACCESSION NUMBER: 0000930413-96-000225 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960715 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GABELLI SERIES FUNDS INC CENTRAL INDEX KEY: 0000845611 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05715 FILM NUMBER: 96595069 BUSINESS ADDRESS: STREET 1: ONE CORPORATE CENTER CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 2123098408 MAIL ADDRESS: STREET 1: ONE CORPORATE CENTER CITY: RYE YORK STATE: NY ZIP: 10580 N-30D 1 ANNUAL REPORT ANNUAL REPORT THE GABELLI CONVERTIBLE SECURITIES FUND, INC. DECEMBER 31, 1995 [logo] 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. [PHOTO] 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) - --------------------------------------------------------------------------------
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% - --------------------------------------------------------------------------------------------------------------------- 1994: Net Asset Value $11.54 $11.39 $11.60 $10.60 $10.60 Total Return 0.2% (1.3)% 1.8% (0.9)% (0.2)% - --------------------------------------------------------------------------------------------------------------------- 1993: Net Asset Value $12.07 $12.36 $12.75 $11.52 $11.52 Total Return 5.4% 2.4% 3.2% 1.5% 13.1% - --------------------------------------------------------------------------------------------------------------------- 1992: Net Asset Value $11.29 $11.52 $11.90 $11.45 $11.45 Total Return 3.5% 2.0% 3.3% 3.6% 13.0% - --------------------------------------------------------------------------------------------------------------------- 1991: Net Asset Value $11.06 $11.27 $11.57 $10.91 $10.91 Total Return 5.6% 1.9% 2.7% 1.8% 12.5% - --------------------------------------------------------------------------------------------------------------------- 1990: NET ASSET VALUE $10.56 $10.68 $10.56 $10.47 $10.47 Total Return 1.5% 2.1% (1.1)% 3.8% 6.3% - --------------------------------------------------------------------------------------------------------------------- 1989: Net Asset Value --- --- $10.54 $10.51 $10.51 Total Return --- --- 5.4%(b) 0.8% 6.3%(b) - ---------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS -DECEMBER 31, 1995 (A) --------------------------------------------- 1 Year ............................... 15.0% 5 Year ............................... 10.5% Life of Fund ......................... 10.0% - -------------------------------------------------------------------------------- DIVIDEND HISTORY - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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 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 - ---------------------------------------------------- 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 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:
MODEST DECENT LOW SLIGHTLY HIGHER A DECENT, BUT MUCH LESS ECONOMIC GROWTH + CORPORATE PROFITS + INFLATION + INTEREST RATES = INSPIRING STOCK MARKET
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 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 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 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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 THE GABELLI CONVERTIBLE SECURITIES FUND, INC. PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1995 - -------------------------------------------------------------------------------- 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 THE GABELLI CONVERTIBLE SECURITIES FUND, INC. PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1995 (CONTINUED) - -------------------------------------------------------------------------------- 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 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 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 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 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 THE GABELLI CONVERTIBLE SECURITIES FUND, INC. STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1994 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: 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 =========== ============
The accompanying notes are an integral part of the financial statements. 13 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 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:
YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1994 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- 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 ========== =========== ========== ===========
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 THE GABELLI CONVERTIBLE SECURITIES FUND, INC. FINANCIAL HIGHLIGHTS Selected data for a share of capital stock outstanding throughout each period:
YEAR ENDED DECEMBER 31, -------------------------------------------------- 1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- OPERATING PERFORMANCE: 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% - ---------------------------------------------------------------------------------------------------------------------
+ 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 THE GABELLI CONVERTIBLE SECURITIES FUND, INC. QUARTERLY RESULTS OF INVESTMENT OPERATIONS (UNAUDITED) Shown in thousands of dollars and per common share:
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 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
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 THE GABELLI COVERTIBLE SECURITIES FUND, INC. FEDERAL INCOME TAX INFORMATION (UNAUDITED) CALENDAR YEAR 1995 CASH DIVIDENDS AND DISTRIBUTIONS
TOTAL AMOUNT ORDINARY RETURN LONG-TERM DIVIDEND PAYABLE RECORD PAID INVESTMENT OF CAPITAL REINVESTMENT DATE DATE PER SHARE INCOME CAPITAL GAINS PRICE -------- -------- ------- ------- ------- ------- -------- 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
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
SHORT- LONG- TERM TERM ADJUSTMENT ANNUAL INVESTMENT CAPITAL CAPITAL RETURN OF TOTAL TO SUMMARY INCOME(A) GAIN(A) GAINS CAPITAL (B) DISTRIBUTIONS COST BASIS - ----------------- ------- ------- ------- ------- ------- -------- 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 --
- ------------ (a) Taxable as ordinary income for Federal tax purposes. (b) Non-taxable. - - Decrease in cost basis. 18 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 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 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: info@gabelli.com - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 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: info@gabelli.com -----END PRIVACY-ENHANCED MESSAGE-----