Third Quarter Report
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
September 30, 1996
<PAGE>
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
Our cover icon represents the underpinnings of Gabelli. The Teton mountains in
Wyoming represent what we believe in in America -- that creativity, ingenuity,
hard work and a global uniqueness provide enduring values and returns in an
increasingly complex, interconnected and inter-dependent economic world.
INVESTMENT OBJECTIVE:
The Gabelli Convertible Securities Fund, Inc. is a closed-end, diversified
management investment company whose primary objective is to seek a high level of
total return through a combination of current income and capital appreciation by
investing in convertible securities.
<PAGE>
TO OUR SHAREHOLDERS:
After a sharp correction in July, the Dow Jones Industrial Average (DJIA)
and the Standard & Poor's 500 (S&P 500) surged in September, closing the quarter
at record levels. Broader market indices such as the Value Line Composite and
smaller cap indices like the Russell 2000 rebounded as well, but lagged the
large cap indices by considerable margins.
For the nine months ended September 30, 1996, the Gabelli Convertible
Securities Fund, Inc.'s ("Convertible Securities Fund") net asset value
increased to $11.23 after adjusting for the $0.12 per share dividend paid on
September 23, 1996. This represents an increase of 5.7% year-to-date and 0.3%
for the quarter and compares to the average returns of 10.4% and 3.1% for the
ten convertible securities funds tracked by Lipper Analytical Services, Inc.
over these respective periods.
For the twelve months ended September 30, 1996, the Convertible Securities
Fund's dividend adjusted net asset value increased 6.8% versus the 13.1%
increase of the average convertible fund according to Lipper. The three- and
five-year average annual returns were 7.2% and 9.5%, respectively. Since
inception on July 3, 1989 through September 30, 1996, the Fund achieved a 96.8%
total return which represents an average annual return of 9.8%. 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 $9.75, down 3.7% for the quarter and down 0.6% from its initial price of
$11.25 on March 31, 1995 after adjusting for the dividends of $1.51 per share
which were paid during this period.
WHAT WE DO
We do what is described as bottom up research: we read annual reports; we
visit the competition; we talk to customers; we go belly to belly with
management. We structure our portfolio by picking stocks.
In past reports, we have tried to articulate our investment philosophy and
methodology. The following graphic further illustrates the interplay among the
four components of our valuation approach.
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
<PAGE>
INVESTMENT RESULTS (a)(c)
- --------------------------------------------------------------------------------
Quarter
-----------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
1996: Net Asset Value ...... $11.28 $11.33 $11.23 __ __
Total Return ......... 3.6% 1.6% 0.3% __ __
- --------------------------------------------------------------------------------
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 - September 30, 1996 (a)
------------------------------------------------
1 Year ........................... 6.8%
5 Year ........................... 9.5%
Life of Fund (b) ................. 9.8%
--------------------------------------------------------
Dividend History
- ----------------------------------------------------------
Payment Date Rate Per Share Reinvestment Price
- ------------ -------------- ------------------
September 23, 1996 $0.120 $ 9.73
June 24, 1996 $0.120 $10.17
March 25, 1996 $0.120 $10.41
December 27, 1995 $0.750 $10.95
September 27, 1995 $0.200 $11.10
June 27, 1995 $0.200 $11.21
December 31, 1994 $0.900 $10.60
December 31, 1993 $1.425 $11.52
December 31, 1992 $0.876 $11.45
December 31, 1991 $0.865 $10.91
December 31, 1990 $0.490 $10.47
June 28, 1990 $0.100 $10.68
March 29, 1990 $0.100 $10.55
December 29, 1989 $0.115 $10.51
(a) Total return and average annual return reflect changes in net asset value
and reinvestment of dividends and are net of expenses. Of course, the returns
noted represent past performance and do not guarantee future results. Investment
returns and the principal value of an investment will fluctuate. When shares are
sold they may be worth more or less than their original cost. (b) From
commencement of operations on July 3, 1989. (c) The Fund converted to closed-end
status on March 31, 1995.
- --------------------------------------------------------------------------------
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 world-wide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
2
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Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as increased focus on productivity
enhancing goods and services.
OUR INVESTMENT OBJECTIVES
Our mandate is to preserve and enhance our shareholders' wealth through a
conservative, disciplined approach to convertible securities investing. Our goal
is to generate profitable returns in strong markets and protect principal in
weak markets by taking advantage of the unique characteristics of convertible
securities.
CONVERTIBLE SECURITIES ARE "HYBRIDS"
The convertible securities market consists of bonds, debentures, corporate
notes, preferred stocks and warrants or other similar securities which may be
converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or a different issuer within a particular period of
time at a specified price or formula. Converts are "hybrid" securities that
combine the capital appreciation potential of equities with the higher yield of
fixed income instruments.
Our strategy incorporates the purchase of convertible securities which are
trading at a premium above parity with the common stock but which generally
provide a higher yield and, over time, capital appreciation. We will also seek
out "busted" converts, where the underlying common stock has dropped
significantly and the values of both the conversion privilege and the convert
are down. Such securities will provide both high yields and long-term capital
appreciation potential.
COMMENTARY
THE ECONOMY AND THE STOCK MARKET
Robust second quarter GDP growth of 4.8%, higher energy and agricultural
commodities prices, and strong employment numbers rekindled inflationary fears
sparking a 7% market correction in July. In September, more encouraging economic
data, most notably modest increases in the Producer and Consumer Price Indices,
eased inflationary concerns. Fueled by strong cash flow into equity mutual
funds, the DJIA and S&P 500 moved back into record territory.
For the present, inflation appears to be in check. However, we don't think
it's been checkmated quite yet. The world-wide demand for agricultural and
selected industrial commodities is growing. Oil remains a wild card. Eventually,
higher prices will be passed along to the consumer. With outsourcing,
downsizing, globalization of labor, technology oriented productivity gains
decelerating, and unemployment at historically low levels, we still anticipate
upward pressure on wages. On the surface, the United Auto Workers' recent labor
contract with Ford (F - $31.25 - NYSE) looks good. With just a 3% annual wage
hike over three years, Ford appears to have avoided inflationary wage increases.
However, by agreeing to limit outsourcing and, in effect, guaranteeing UAW
workers lifetime tenure, future productivity may be diminished. We have seen the
long-term implications of such labor rigidity in Europe. We fear Ford may have
3
<PAGE>
just won a psychological victory. More importantly, if President Clinton wins in
a landslide, market observers will ask: What payback will he give to his
supporters? What will this mean for labor costs, productivity gains, inflation,
corporate earnings and the market?
Based largely on better than expected news on the inflation front, our
short-term posture toward the broad market has changed slightly from cautious to
cautiously optimistic. Corporate earnings should finish the year up around 10%.
Valuations are above the historic norm, but not yet at troublesome levels. If
inflation remains subdued (we're still not convinced it isn't peeking around the
corner), long interest rates stabilize at current levels, and mutual fund cash
inflows remain strong, 1996 equities returns may well exceed our expectations
after the Presidential Election.
Whatever the market has in store for us over the next several quarters,
there are attractive long-term opportunities in a variety of industries. World
class industrial companies will get a boost from recovering economies in Europe
and the Pacific Rim. Aerospace component suppliers will continue to benefit from
the strong world-wide demand for new aircraft. Selected telecommunications
stocks will prosper as the sweeping deregulation of the industry is implemented
in the U.S. and emerging nations invest heavily in building modern systems.
Entertainment software stocks should also do well as distribution networks here
and abroad continue to expand. And deals will be done. The record levels of
mergers and acquisitions experienced in 1995-1996 may well be exceeded. The
benefits of strategic combinations in a broad spectrum of industries will keep
investment bankers busy and value investors happy in the year ahead.
LET'S TALK CONVERTS
The following are specifics on selected holdings of our Fund's investments.
Favorable EBITDA prospects do not necessarily translate into higher prices, but
they do express a positive trend which we believe will develop over time.
AIRTOUCH COMMUNICATIONS CORP. (6.00%, CV. PFD.; 4.00%, CV. PFD.) is one of
the premier players in global wireless communications. Operating in attractive
cellular markets in the U.S. and overseas (including Germany, Japan, Portugal,
Sweden, Belgium, Italy, Spain and South Korea), the company is well-positioned
to participate in the world-wide expansion of wireless communications. There are
currently 80 million cellular customers world-wide, with half of those in the
U.S. Annual growth is 40% to 50%. To consolidate its cellular position in the
U.S., AirTouch has completed the purchase of the 60% of Cellular Communications
Inc. it didn't own for a total of $1.65 billion.
AMERICAN RE CORPORATION (ARN - $63.50 - NYSE) has signed a definitive
agreement to be acquired by Munich Re, the world's largest reinsurer, for
approximately $4 billion in cash and assumed debt. This transaction triples
Munich Re's reinsurance business in the U.S., the world's largest insurance
market. Munich Re will pay $65 a share in cash for the company, or about $3.3
billion, and will also assume about $700 million in debt.
ATLANTIC RICHFIELD COMPANY (ARCO) (CV. PFD., $2.80) is a diversified
company operating globally in all aspects of the energy business. Included are
ventures in China and Russia. Approximately 35% of ARCO's 1995 revenues of $17.3
billion were derived from oil, gas and coal resources, 40% from refining and
marketing and almost 25% from intermediate chemicals and specialty products.
ARCO's operating results last year were the highest since its record earnings in
1990. Earnings should continue to rise as world-wide demand for energy and
petrochemical products grows over the rest of the decade. The company's strong
cash flow, exceeding $3 billion, readily supports the shares' above average 4.2%
yield.
4
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CHOCK FULL O'NUTS CORPORATION (SUB. DEB. CV., 8.00%, 9/15/06; 7.00%, 4/01/12)
roasts, packages and distributes regular, instant and specialty coffees and
teas. The company also has a growing institutional distribution business that
supplies coffee and food products to restaurants and businesses. Chock Full is
developing a chain of retail coffee bars and shops selling premium and
European-style coffee for on-premises consumption. Both the 8% convertible bonds
due in 2006 and the 7% convertible bonds, due in 2012, offer investors an
attractive way to participate in Chock Full o'Nuts' future.
FIELDCREST CANNON, INC. (SUB. DEB. CV., 6%, 3/15/12) is a well-known
manufacturer of household textile products; sheets, pillow cases, towels,
bedspreads and blankets. It is also 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 stable cotton prices, higher mill
activity, lower interest expenses and an improving economic environment will
accelerate Fieldcrest's earnings recovery. Fieldcrest's 6% convertible
debentures due in 2012 provide an attractive alternative to Fieldcrest's common
stock.
GENERAL HOST CORPORATION (SUB. DEB. CV., 8%, 2/15/02), through its wholly-owned
subsidiary, Frank's Nursery & Crafts Inc., is the nation's largest specialty
retailer of lawn, garden and craft products. With 264 stores located in 16
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 fully repaid its
original $100 million mortgage financing. We believe management's 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.
HOME SHOPPING NETWORK, INC. (SUB. DEB. CV., 5.875%, 3/01/06) is a direct
marketer utilizing television, catalogs, and mail order. There are expectations
that the Home Shopping Channel will become an integral part of the "Interactive
Superhighway". The company should be a beneficiary of increased activity in
electronic retailing. Under the direction of Chairman, Barry Diller, Home
Shopping Network has agreed to merge with Silver King Communications, Inc, in a
stock swap valued at $1.3 billion.
NAVISTAR INTERNATIONAL CORPORATION ($6.00 CV. PFD., SERIES G), the leading North
American producer of heavy trucks, medium trucks and school buses, is in the
process of strengthening its balance sheet. NAV has a leading 35% share of the
medium-duty truck market and an 18% share (#3 in that market) of the heavy-duty
truck market. NAV participates in cyclical industries. When the recovery
commences, the company should generate substantial free cash flow -- which would
be tax-free due to its large tax loss carryforward.
RENAISSANCE COMMUNICATIONS CORP. (RRR - $35.25 - NYSE) owns and operates a
diversified group of six television stations in Dallas/Ft. Worth, Miami/Ft.
Lauderdale, Sacramento, Hartford/New Haven, Indianapolis and Harrisburg. Four
are affiliates of the Fox Network and the other two are affiliates of the WB
Network. The company has agreed to merge with a subsidiary of the Tribune
Company by receiving $36.00 per share in cash.
SEQUA CORPORATION (CV. PFD., $5.00) is a conglomerate with businesses ranging
from overhauling jet engines to manufacturing specialty chemicals. Its
Chromalloy division, which generates over $900 million in revenue, is the
largest factor in the repair, replacement and overhaul of gas turbine engines.
Sequa has begun a program to divest less profitable operations thereby unmasking
this crown jewel. Sequa's estimated private market value is over $100 per share.
5
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DIVIDENDS
The Fund recently distributed a dividend of $0.12 per share on September
23, 1996. For the twelve months ended September 30, 1996, the Fund distributed a
total of $1.11 per share.
INTERNET
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Mutual Funds, quarterly reports, closing prices, IRAs, 401(k)s and other
current news. You can also send us e-mail at [email protected].
IN CONCLUSION
For the time being, investors are basking in the glow of low inflation,
relatively low interest rates, and good, if not great corporate profits. We
remain concerned that inflation will once again rear its ugly head, making bonds
and stocks vulnerable at current levels.
As always, we are focusing on the individual assets in the Fund's
portfolio. By concentrating on niche industry groups and individual companies
that can do well independent of prevailing economic and broad market trends, we
believe we are well-positioned to prosper, even in a less generous market
environment. Our investment philosophy is simple and straightforward: buying
good businesses cheap will generate consistently superior returns.
Sincerely,
/s/Mario J. Gabelli
MARIO J. GABELLI
President and
Chief Investment Officer
November 1, 1996
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 -- SEPTEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
CONVERTIBLE SECURITIES - 49.18%
CONVERTIBLE CORPORATE BONDS - 33.02%
AUTOMOTIVE: PARTS AND ACCESSORIES - 1.58%
$ 400,000 Exide Corporation
Sub. Deb. Cv.
2.90%, 12/15/05 .......................... $ 246,000
1,150,000 GenCorp Inc. Sub. Deb. Cv.
8.00%, 08/01/02 .......................... 1,190,250
----------
1,436,250
----------
AVIATION: PARTS AND SERVICES - 1.63%
254,000 Kaman Corporation
Sub. Deb. Cv.
6.50%, 03/15/12 .......................... 213,360
1,350,000 UNC Incorporated
Sub. Deb. Cv.
7.50%, 03/31/06 .......................... 1,270,688
----------
1,484,048
----------
BROADCASTING - 0.13%
500,000(a) Havas Sub. Deb. Cv.
3.00%, 12/31/97 .......................... 123,116
----------
BUILDING AND CONSTRUCTION - 0.48%
10,000 Hofi International Finance Ltd.
Sub. Deb. Cv.
4.50%, 08/11/08 .......................... 13,500
400,000 Medusa Corporation
Sub. Notes Cv.
6.00%, 11/15/03 .......................... 422,000
----------
435,500
----------
BUSINESS SERVICES - 0.74%
325,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12 .......................... 279,094
381,000 Trans-Lux Corporation
Sub. Deb. Cv.
9.00%, 12/01/05 .......................... 392,430
----------
671,524
----------
CABLE - 2.69%
250,000 Comcast Corporation
Sub. Deb. Cv.
3.375%, 09/09/05 ......................... 217,500
400,000 Comcast Corporation
Sub. Deb. Cv.
1.125%, 04/15/07 ......................... 186,000
CABLE (CONTINUED)
$ 2,000,000 Home Shopping Network, Inc.
Sub. Deb. Cv.
5.875%, 03/01/06 ......................... 2,040,000
----------
2,443,500
----------
COMPUTER SOFTWARE AND SERVICES - 0.15%
40,000 Sierra On-Line, Inc.
Sub. Deb. Cv.
6.50%, 04/01/01 .......................... 137,200
----------
CONSUMER PRODUCTS - 4.13%
600,000 Borden, Inc. Sub. Deb. Cv.
Zero Cpn. 05/21/02 ....................... 436,500
2,800,000 Fieldcrest Cannon, Inc.
Sub. Deb. Cv.
6.00%, 03/15/12 .......................... 2,016,000
564,000 Masco Corporation
Sub. Deb. Cv.
5.25%, 02/15/12 .......................... 535,800
200,000 Roadmaster Industries, Inc.
Sub. Deb. Cv.
8.00%, 08/15/03 .......................... 170,000
800,000 Standard Commercial
Corporation Sub. Deb. Cv.
7.25%, 03/31/07 .......................... 596,000
----------
3,754,300
----------
ENERGY - 2.03%
1,100,000 Moran Energy Inc.
Sub. Deb. Cv.
8.75%, 01/15/08 .......................... 957,000
600,000 Pennzoil Company
Sub. Deb. Cv.
6.50%, 01/15/03 .......................... 885,000
----------
1,842,000
----------
ENTERTAINMENT - 0.92%
220,000 All American
Communications, Inc.
Sub. Deb. Cv.,
6.50%, 10/01/03 .......................... 221,100
560,000 Savoy Pictures
Entertainment, Inc.
Sub. Deb. Cv.
7.00%, 07/01/03 .......................... 417,200
450,000 Time Warner Inc. LYONS Sr.
Sub. Notes Cv.
Zero Cpn., 06/22/13 ...................... 188,437
5,000 WMS Industries Inc.
Sub. Deb. Cv.
5.75%, 11/30/02 .......................... 5,275
----------
832,012
----------
7
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THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
FINANCIAL SERVICES - 0.63%
$ 550,000 Advest Group, Inc.
Sub. Deb. Cv.
9.00%, 03/15/08 .......................... $ 572,000
----------
FOOD AND BEVERAGE - 4.08%
175,000 Boston Chicken, Inc.
Sub. Deb. Cv.
4.50%, 02/01/04 .......................... 225,422
1,050,000 Chock Full o'Nuts Corporation
Sub. Deb. Cv.
8.00%, 09/15/06 .......................... 1,002,750
1,005,000 Chock Full o'Nuts Corporation
Sub. Deb. Cv.
7.00%, 04/01/12 .......................... 861,788
1,350,000 Flagstar Companies, Inc.
Sub. Deb. Cv.
10.00%, 11/01/14 ......................... 450,563
930,000 Ingles Markets, Incorporated
Sub. Deb. Cv.
10.00% 10/15/08 .......................... 1,165,988
----------
3,706,511
----------
HOTELS/CASINOS - 0.88%
750,000 Hilton Hotels Corporation
Sub. Deb. Cv.
5.00% 05/15/06 ........................... 803,438
----------
INDUSTRIAL EQUIPMENT AND SUPPLIES - 5.76%
850,000 Builders Transport,
Incorporated Sub. Deb. Cv.
6.50%, 05/01/11 .......................... 616,250
1,050,000 Cooper Industries, Inc.
Sub. Deb. Cv.
7.05%, 01/01/15 .......................... 1,144,500
500,000 Fedders Corporation
Sub. Deb. Cv.
8.50%, 06/15/12 .......................... 465,000
450,000 General Signal Corporation
Sub. Deb. Cv.
5.75%, 06/01/02 .......................... 488,250
10,000 Greenwich Air Services, Inc.
Sub. Deb. Cv.
8.00%, 11/05/00 .......................... 45,946
625,000 Intermagnetics General
Corporation Sub. Deb. Cv.
5.75%, 09/15/03 .......................... 634,375
1,159,000 Kollmorgen Corporation
Sub. Deb. Cv.
8.75%, 05/01/09 .......................... 1,166,244
INDUSTRIAL EQUIPMENT AND SUPPLIES (continued)
$ 650,000 Pacific Scientific Company
Sub. Deb. Cv.
7.75%, 06/15/03 .......................... $ 669,500
----------
5,230,065
----------
METALS AND MINING - 0.39%
450,000 Coeur d'Alene Mines
Corporation Sub. Deb. Cv.
6.00%, 06/10/02 .......................... 354,362
----------
PAPER AND FOREST PRODUCTS - 0.23%
200,000 Riverwood International
Corporation Sub. Deb. Cv.
6.75%, 09/15/03 .......................... 211,000
----------
PUBLISHING - 2.32%
700,000 News American Holdings
Incorporated Sub. Deb. Cv.
Zero Cpn., 03/31/02 ...................... 628,250
1,600,000 Thomas Nelson Inc.
Sub. Deb. Cv.
5.75%, 11/30/99 .......................... 1,480,000
----------
2,108,250
----------
REAL ESTATE / DEVELOPMENT - 0.15%
125,000 Rockefeller Center
Properties Inc.
Sub. Deb. Cv.
Zero Cpn., 12/31/00 ...................... 75,000
50,000 Wharf Capital
International Ltd.
Sub. Deb. Cv.
5.00%, 07/15/00 .......................... 63,000
----------
138,000
----------
RETAIL - 2.41%
146,000 Farah U.S.A., Inc.
Sub. Deb. Cv.
8.50%, 02/01/04 (c) ...................... 80,300
380,000 Food Lion, Inc. Sub. Deb. Cv.
5.00%, 06/01/03 .......................... 448,400
2,000,000 General Host Corporation
Sub. Deb. Cv.
8.00%, 02/15/02 .......................... 1,540,000
50,000 Pier One Imports Inc.
Sub. Deb. Cv.
8.50%, 12/01/00 .......................... 34,500
110,000 Sports & Recreation, Inc.
Sub. Deb. Cv.
4.25%, 11/01/00 .......................... 82,500
----------
2,185,700
----------
8
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THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
Principal
Amount Market
or Shares Value
--------- ------
TELECOMMUNICATIONS - 0.87%
800,000,000(b) Softe SA Sub. Deb. Cv.
4.25%, 07/01/98 .......................... $ 792,639
----------
TRANSPORTATION - 0.58%
$ 500,000 Greyhound Lines Inc.
Sub. Deb. Cv.
8.50%, 03/31/07 .......................... 410,000
150,000 WorldCorp, Inc. Sub. Deb. Cv.
7.00%, 05/15/04 .......................... 115,500
----------
525,500
----------
WIRELESS COMMUNICATIONS - 0.24%
300,000 COMCAST Cellular
Communications Inc.
Ser. A Redeemable Notes,
Zero Cpn., 03/05/00 ...................... 213,750
----------
TOTAL CONVERTIBLE
CORPORATE BONDS .......................... 30,000,665
----------
CONVERTIBLE PREFERRED STOCKS - 16.16%
AUTOMOBILE MANUFACTURERS - 0.56%
5,000 Ford Motor Company
$4.20 Cv. Pfd. Ser. A .................... 509,375
----------
AVIATION: PARTS AND SERVICES - 0.49%
9,000 Kaman Corporation
6.50% Cv. Pfd. Ser. 2 .................... 446,625
----------
BROADCASTING - 0.37%
4,500 Granite Broadcasting
Corporation $1.938 Cv. Pfd. 339,750
----------
CONSUMER PRODUCTS - 0.69%
6,000 Cablevision Systems
Corporation
8.50% Pfd. Ser. I ........................ 147,750
1,500 Fieldcrest Cannon, Inc.
$3.00 Cv. Pfd. Ser. A .................... 59,063
28,000 Kerr Group, Inc.
Cl. B $1.70 Cv. Pfd. Ser. D .............. 346,500
----------
553,313
----------
DIVERSIFIED INDUSTRIAL - 1.69%
25,000 GATX Corporation
$3.875 Cv. Pfd. .......................... 1,425,000
1,000 GATX Corporation
$2.50 Cv. Pfd. ........................... 115,000
----------
1,540,000
----------
ENERGY - 2.27%
6,200 Atlantic Richfield Company
$2.80 Cv. Pfd. ........................... 1,891,775
6,000 McDermott
International, Inc. Pfd. A ............... 170,250
----------
2,062,025
----------
FOOD AND BEVERAGE - 0.19%
25,000 Flagstar Companies, Inc.
$2.25 Cv. Pfd. S ......................... 168,750
----------
INDUSTRIAL EQUIPMENT AND SUPPLIES - 3.63%
29,000 Navistar International
Corporation
$6.00 Cv. Pfd. Ser. G .................... 1,624,000
22,000 Sequa Corporation
$5.00 Cv. Pfd. ........................... 1,672,000
----------
3,296,000
----------
METALS AND MINING - 0.81%
24,000 Freeport-McMoRan
Copper & Gold Inc.
7.00% Cv. Pfd. ........................... 732,000
----------
PUBLISHING - 0.62%
10,000 Golden Books Family
Entertainment, Inc.
8.75% Cv. Pfd. ........................... 567,500
----------
REAL ESTATE / DEVELOPMENT - 0.56%
9,058 Catellus Development
Corporation
$3.75 Cv. Pfd. Ser. A .................... 504,984
----------
TELECOMMUNICATIONS - 4.36%
47,000 AirTouch Communications
6.00% Cv. Pfd. Cl. B ..................... 1,339,500
29,999 AirTouch Communications
4.25% Cv. Pfd. Cl. C ..................... 1,424,953
3,000 Sprint Corporation
$1.50 Cv. Pfd. Ser. 1 .................... 357,000
2,200 Sprint Corporation
$1.50 Cv. Pfd. Ser. 2 .................... 258,505
8,000 Sprint Corporation
8.25% Cv. Pfd. ........................... 280,000
4,000 TCI Communications Inc.
$2.125 Cv. Pfd. Ser. A ................... 159,500
1,500 TCI Pacific Communications Inc.
5.00% Cv. Pfd. ........................... 140,625
----------
3,960,083
----------
9
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED) --SEPTEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
Market
Shares Value
------ ------
TOTAL CONVERTIBLE
PREFERRED STOCKS ........................... $14,680,405
-----------
COMMON STOCKS - 10.28%
AVIATION: PARTS AND SERVICES - 1.64%
37,300 Hudson General Corporation ................. 1,492,000
-----------
BROADCASTING - 1.94%
50,000 Renaissance
Communications Corp. ..................... 1,762,500
-----------
CONSUMER PRODUCTS - 0.02%
1,000 Dimon Inc. ................................. 19,131
-----------
ENERGY - 0.67%
4,000 Exxon Corporation .......................... 333,000
3,000 Texaco Inc. ................................ 276,000
-----------
............................................................... 609,000
-----------
FINANCIAL SERVICES - 4.52%
45,000 American Re Corporation .................... 2,857,500
10,000 AT&T Capital Corporation ................... 448,750
1,000 Boatmen's Bancshares Inc. .................. 55,875
21,000 First Colony Corporation ................... 745,500
-----------
4,107,625
-----------
HEALTH CARE - 0.87%
15,000 Genentech, Inc.+ ........................... 793,125
-----------
INDUSTRIAL EQUIPMENT AND SUPPLIES - 0.15%
7,709 Ducommun, Incorporated ..................... 131,064
-----------
TELECOMMUNICATIONS - 0.47%
6,900 Pacific Telecom, Inc. (c) .................. 207,000
10,000 WorldCom Inc. .............................. 213,750
-----------
420,750
-----------
TOTAL COMMON STOCKS ........................ 9,335,195
-----------
Market
Shares Value
------ ------
CORPORATE BONDS - 0.45%
WIRELESS COMMUNICATIONS - 0.45%
$600,000 COMCAST Cellular
Communications Inc. Ser. B
Redeemable Notes,
Zero Cpn., 03/05/00 ...................... $ 412,500
-----------
TOTAL CORPORATE BONDS ...................... 412,500
-----------
U.S. GOVERNMENT OBLIGATIONS - 40.43%
36,850,000 U.S. Treasury Bills,
4.87% to 5.03%,
Due 10/03/96 to 11/14/96 ................. 36,732,670
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS .............................. 36,732,670
-----------
TOTAL
INVESTMENTS - 100.34%
(cost: $87,612,075) ...................... 91,161,435
LIABILITIES, IN EXCESS OF OTHER
ASSETS -- (0.34)% ........................ (306,333)
-----------
NET ASSETS - 100.00%
(8,092,945 shares outstanding) ........... $90,855,102
===========
Net Asset Value Per Share .................. $11.23
======
- -----------------
(a) - Principal amount denoted in French Francs.
(b) - Principal amount denoted in Italian Lira.
(c) - Fair valued as determined by Board of Directors.
+ - Non income producing security.
Proceeds Value
-------- -----
COMMON STOCK SOLD SHORT
4,709 Ducommun, Incorporated ............. $62,318 $80,053
======= =======
----------------------------------------------------------------------
TOP TEN HOLDINGS
SEPTEMBER 30, 1996
------------------
American Re Corporation Chock Full o'Nuts Corporation
AirTouch Communications Renaissance Communications
Fieldcrest Cannon, Inc. Sequa Corporation
Home Shopping Network, Inc. Navistar International Corporation
Atlantic Richfield Company General Host Corporation
----------------------------------------------------------------------
10
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Convertible Securities Fund, Inc.
("Convertible Securities Fund") to automatically reinvest dividends. As a
"registered" shareholder you automatically become a participant in the
Convertible Securities Fund's Automatic Dividend Reinvestment Plan (the "Plan").
The Plan authorizes the Convertible Securities Fund to issue shares to
participants upon an income dividend or a capital gains distribution regardless
of whether the shares are trading at a discount or a premium to net asset value.
All distributions to shareholders whose shares are registered in their own names
will be automatically reinvested pursuant to the Plan in additional shares of
the Convertible Securities Fund. Plan participants may send their stock
certificates to State Street Bank and Trust Company ("State Street") to be held
in their dividend reinvestment account. Registered shareholders wishing to
receive their distribution in cash must submit this request in writing to:
The Gabelli Convertible Securities Fund, Inc.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Shareholders requesting this cash election must include the
shareholder's name and address as they appear on the share certificate.
Shareholders with additional questions regarding the Plan may contact State
Street at 1 (800) 336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at State Street
Bank must do so in writing or by telephone. Please submit your request to the
above mentioned address or telephone number. Include in your request your name,
address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such transactions. The
Fund's Advisor, Gabelli Funds, has arranged (with its brokerage affiliate,
Gabelli & Company, Inc) that for two years from the date of conversion to
closed-end status, Convertible Securities Fund shares may be sold through State
Street at market value without commission.
If your shares are held in the name of a broker, bank or nominee, you
should contact such institution. If such institution is not participating in the
Plan, your account will be credited with a cash dividend. In order to
participate in the Plan through such institution, it may be necessary for you to
have your shares taken out of "street name" and re-registered in your own name.
Once registered in your own name your dividends will be automatically
reinvested. Certain brokers participate in the Plan. Shareholders holding shares
in "street name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of cash dividends is determined in the following manner. Under the
Plan, whenever the market price of the Convertible Securities Fund's Common
Stock is equal to or exceeds net asset value at the time shares are valued for
purposes of determining the number of shares equivalent to the cash dividends or
capital gains distribution, participants are issued shares of Common Stock
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Convertible Securities Fund's
Common Stock. The valuation date is the dividend or distribution payment date
or, if that date is not a New York Stock Exchange trading day, the next trading
11
<PAGE>
day. If the net asset value of the Common Stock at the time of valuation exceeds
the market price of the Common Stock, participants will receive shares from the
Convertible Securities Fund valued at market price. If the Convertible
Securities Fund should declare a dividend or capital gains distribution payable
only in cash, State Street will buy Common Stock in the open market, or on the
New York Stock Exchange or elsewhere, for the participants' accounts, except
that State Street will endeavor to terminate purchases in the open market and
cause the Convertible Securities Fund to issue shares at net asset value if,
following the commencement of such purchases, the market value of the Common
Stock exceeds the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Convertible Securities Fund reserves the right to amend or terminate
the Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the members
of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by State Street on at
least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Convertible Securities Fund. In
order to participate in the Voluntary Cash Purchase Plan, shareholders must have
their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street for investments in the Convertible
Securities Fund shares at the then current market price. Shareholders may send
an amount from $250 to $10,000. State Street will use these funds to purchase
shares in the open market on or about the 15th of each month. State Street will
charge each shareholder who participates $0.75, plus a pro rata share of the
brokerage commissions. Brokerage charges for such purchases are expected to be
less than the usual brokerage charge for such transactions. It is suggested that
any voluntary cash payments be sent to State Street Bank and Trust Company, P.O.
Box 8200, Boston, MA 02266-8200 such that State Street receives such payments
approximately 10 days before the 15th of the month. Funds not received at least
five days before the investment date shall be held for investment in the
following month. A payment may be withdrawn without charge if notice is received
by State Street at least 48 hours before such payment is to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Convertible Securities Fund.
12
<PAGE>
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
DIRECTORS
Mario J. Gabelli, CFA
President & Chief Investment Officer
E. Val Cerutti
Chief Executive Officer
Cerutti Consultants, Inc.
Felix J. Christiana
Former Senior Vice President
Dollar Dry Dock Savings Bank
Anthony J. Colavita, P.C.
Attorney-at-Law
Anthony J. Colavita, P.C.
Dugald A. Fletcher
President, Fletcher & Company, Inc.
Karl Otto Pohl
Former President, Deutsche Bundesbank
Anthony R. Pustorino
Certified Public Accountant
Professor, Pace University
Anthonie C. van Ekris
Managing Director
BALMAC International, Inc.
Salvatore J. Zizza
Chairman & Chief Executive Officer
The Lehigh Group, Inc.
OFFICERS AND PORTFOLIO MANAGERS
Mario J. Gabelli, CFA
President & Chief Investment Officer
Bruce N. Alpert
Vice President & Treasurer
A. Hartswell Woodson, III
Associate Portfolio Manager
Douglas Neviera
Assistant Vice President
James E. McKee
Secretary
INVESTMENT ADVISOR
Gabelli Funds, Inc.
One Corporate Center
Rye, New York 10580-1434
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
STOCK EXCHANGE LISTING
NYSE-Symbol: GCV
Shares Outstanding 8,092,945
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Saturday's The New York Times and
Monday's The Wall Street Journal.
It is also listed in Barron's Mutual Funds/Closed End Funds section under the
heading "Convertible Securities Funds".
The Net Asset Value may be obtained each day by calling (914) 921-5071.
- --------------------------------------------------------------------------------
For general information about the Gabelli Funds, call 1-800-GABELLI
(1-800-422-3554), fax us at 914-921-5118, visit our Internet homepage at:
http://www.gabelli.com or e-mail us at: [email protected].
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Convertible Securities Fund may from
time to time purchase shares of its capital stock in the open market when the
Convertible Securities Fund shares are trading at a discount of 10% or more from
the net asset value of the shares.
- --------------------------------------------------------------------------------
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER
RYE, NY 10580-1434
914-921-5070
http://www.gabelli.com
THIRD QUARTER REPORT
SEPTEMBER 30, 1996
09/96
