Annual Report
December 31, 1996
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COST VALUE
------ ---- -----
CONVERTIBLE SECURITIES -- 48.28%
CONVERTIBLE CORPORATE BONDS--32.72%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.73%
$ 400,000 Exide Corporation
Sub. Deb. Cv.
2.90%, 12/15/05(e)... $ 246,315 $ 242,000
1,150,000 GenCorp Inc. Sub. Deb. Cv.
8.00%, 08/01/02...... 1,147,163 1,311,000
---------- ----------
1,393,478 1,553,000
---------- ----------
AVIATION: PARTS AND SERVICES -- 1.68%
254,000 Kaman Corporation
Sub. Deb. Cv.
6.00%, 03/15/12...... 161,057 215,900
1,350,000 UNC Incorporated
Sub. Deb. Cv.
7.50%, 03/31/06...... 922,807 1,289,250
---------- ----------
1,083,864 1,505,150
---------- ----------
BUILDING AND CONSTRUCTION -- 0.01%
10,000 Hofi International Finance Ltd.
Sub. Deb. Cv.
4.50%, 08/11/08...... 12,233 13,000
---------- ----------
BUSINESS SERVICES -- 0.86%
325,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12...... 317,183 318,500
850,000 Builders Transport,
Incorporated
Sub. Deb. Cv.
6.50%, 05/01/11...... 354,123 456,875
---------- ----------
671,306 775,375
---------- ----------
CABLE DISTRIBUTION -- 0.49%
250,000 Comcast Corporation
Sub. Deb. Cv.
3.375%, 09/09/05..... 245,522 235,315
400,000 Comcast Corporation
Sub. Deb. Cv.
1.125%, 04/15/07..... 234,603 202,500
---------- ----------
480,125 437,815
---------- ----------
COMPUTER SOFTWARE AND SERVICES -- 0.14%
40,000 Sierra On-Line, Inc.
Sub. Deb. Cv.
6.50%, 04/01/01(e)... 38,015 124,800
---------- ----------
CONSUMER PRODUCTS -- 4.48%
600,000 Borden, Inc. Sub. Deb. Cv.
Zero Cpn. 05/21/02(e) 434,044 444,000
2,800,000 Fieldcrest Cannon, Inc.
Sub. Deb. Cv.
6.00%, 03/15/12...... 1,883,670 2,121,000
564,000 Masco Corporation
Sub. Deb. Cv.
5.25%, 02/15/12...... 387,096 572,460
200,000 Roadmaster Industries, Inc.
Sub. Deb. Cv.
8.00%, 08/15/03...... 200,169 148,500
800,000 Standard Commercial
Corporation
Sub. Deb. Cv.
7.25%, 03/31/07...... 634,345 730,000
---------- ----------
3,539,324 4,015,960
---------- ----------
CONSUMER SERVICES -- 2.32%
2,000,000 HSN, Inc. Sub. Deb. Cv.
5.875%, 03/01/06(e).. 2,000,000 2,080,000
---------- ----------
ELECTRONIC EQUIPMENT -- 1.62%
650,000 Pacific Scientific Company
Sub. Deb. Cv.
7.75%, 06/15/03...... 605,303 663,000
381,000 Trans-Lux Corporation
Sub. Deb. Cv.
9.00%, 12/01/05...... 337,078 388,620
400,000 Trans-Lux Corporation
Sub. Deb. Cv.
7.50%, 12/01/06...... 400,000 399,000
---------- ----------
1,342,381 1,450,620
---------- ----------
ENERGY -- 2.14%
1,100,000 Moran Energy Inc.
Sub. Deb. Cv.
8.75%, 01/15/08...... 757,843 973,500
600,000 Pennzoil Company
Sub. Deb. Cv.
6.50%, 01/15/03...... 600,000 948,000
---------- ----------
1,357,843 1,921,500
---------- ----------
ENTERTAINMENT -- 0.87%
500,000(a)Havas Sub. Deb. Cv.
3.00%, 12/31/97...... 99,482 124,393
560,000 Savoy Pictures
Entertainment, Inc.
Sub. Deb. Cv.
7.00%, 07/01/03...... 493,387 459,200
450,000 Time Warner Inc.
LYONS Sr. Sub. Notes Cv.
Zero Cpn., 06/22/13.. 197,688 193,500
5,000 WMS Industries Inc.
Sub. Deb. Cv.
5.75%, 11/30/02...... 4,841 4,680
---------- ----------
795,398 781,773
---------- ----------
EQUIPMENT AND SUPPLIES -- 4.27%
1,050,000 Cooper Industries, Inc.
Sub. Deb. Cv.
7.05%, 01/01/15...... 991,503 1,107,750
500,000 Fedders Corporation
Sub. Deb. Cv.
8.50%, 06/15/12...... 340,580 490,000
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COST VALUE
------ ---- -----
CONVERTIBLE CORPORATE BONDS (CONTINUED)
$ 450,000 General Signal Corporation
Sub. Deb. Cv.
5.75%, 06/01/02...... $ 444,500 $ 478,125
625,000 Intermagnetics General
Corporation Sub. Deb. Cv.
5.75%, 09/15/03(e)... 625,000 596,875
1,159,000 Kollmorgen Corporation
Sub. Deb. Cv.
8.75%, 05/01/09...... 832,939 1,156,105
---------- ----------
3,234,522 3,828,855
---------- ----------
FINANCIAL SERVICES -- 0.62%
550,000 Advest Group, Inc.
Sub. Deb. Cv.
9.00%, 03/15/08...... 438,763 558,250
---------- ----------
FOOD AND BEVERAGE -- 2.26%
150,000 Boston Chicken, Inc.
Sub. Deb. Cv.
4.50%, 02/01/04...... 136,294 189,939
1,050,000 Chock Full o' Nuts Corporation
Sub. Deb. Cv.
8.00%, 09/15/06...... 1,037,826 992,250
1,005,000 Chock Full o' Nuts Corporation
Sub. Deb. Cv.
7.00%, 04/01/12...... 758,387 844,200
---------- ----------
1,932,507 2,026,389
---------- ----------
HOTELS/GAMING -- 0.81%
700,000 Hilton Hotels Corporation
Sub. Deb. Cv.
5.00% 05/15/06....... 700,000 724,500
---------- ----------
METALS AND MINING -- 0.40%
450,000 Coeur d'Alene Mines
Corporation
Sub. Deb. Cv.
6.00%, 06/10/02...... 413,035 357,525
---------- ----------
PAPER AND FOREST PRODUCTS -- 0.26%
200,000 Riverwood International
Corporation
Sub. Deb. Cv.
6.75%, 09/15/03...... 199,664 230,890
---------- ----------
PUBLISHING -- 2.52%
700,000 News American Holdings
Incorporated Sub. Deb. Cv.
Zero Cpn., 03/31/02.. 469,705 640,500
1,600,000 Thomas Nelson Inc.
Sub. Deb. Cv.
5.75%, 11/30/99(e)... 1,632,168 1,616,000
---------- ----------
2,101,873 2,256,500
---------- ----------
REAL ESTATE / DEVELOPMENT -- 0.09%
125,000 Rockefeller Center
Properties Inc.
Sub. Deb. Cv.
Zero Cpn., 12/31/00.. 77,207 75,785
---------- ----------
RETAIL -- 3.31%
146,000 Farah U.S.A., Inc.
Sub. Deb. Cv.
8.50%, 02/01/04 ..... 132,173 102,200
380,000 Food Lion, Inc.
Sub. Deb. Cv.
5.00%, 06/01/03(e)... 377,060 467,400
2,000,000 General Host Corporation
Sub. Deb. Cv.
8.00%, 02/15/02...... 1,944,230 1,548,750
600,000 Ingles Markets, Incorporated
Sub. Deb. Cv.
10.00% 10/15/08...... 601,605 765,000
110,000 Sports & Recreation, Inc.
Sub. Deb. Cv.
4.25%, 11/01/00...... 107,320 81,950
---------- ----------
3,162,388 2,965,300
---------- ----------
TELECOMMUNICATIONS -- 0.99%
8,000,000(b)Softe SA Sub. Deb. Cv.
4.25%, 07/01/98...... 480,253 886,695
---------- ----------
TRANSPORTATION -- 0.61%
500,000 Greyhound Lines Inc.
Sub. Deb. Cv.
8.50%, 03/31/07...... 321,670 446,250
150,000 WorldCorp, Inc. Sub. Deb. Cv.
7.00%, 05/15/04...... 119,027 102,750
---------- ----------
440,697 549,000
---------- ----------
WIRELESS COMMUNICATIONS -- 0.24%
300,000 COMCAST Cellular Communications
Inc. Ser. A Redeemable Notes,
Zero Cpn., 03/05/00.. 211,543 217,125
---------- ----------
TOTAL CONVERTIBLE
CORPORATE BONDS ...... 26,106,419 29,335,807
---------- ----------
CONVERTIBLE PREFERRED STOCKS -- 15.56%
AUTOMOBILE MANUFACTURERS -- 0.58%
5,000 Ford Motor Company
$4.20 Cv. Pfd. Ser. A 451,100 518,750
---------- ----------
AVIATION: PARTS AND SERVICES -- 0.55%
9,000 Kaman Corporation 6.50%
Cv. Pfd. Ser. 2...... 296,013 492,750
----------- ----------
BROADCASTING -- 0.63%
10,000 Granite Broadcasting
Corporation
$1.938 Cv. Pfd. ..... 668,100 565,000
----------- ----------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
SHARES COST VALUE
------ ---- -----
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
CABLE DISTRIBUTION -- 0.15%
6,500 Cablevision Systems
Corporation
8.50% Pfd. Ser. I.... $ 159,964 $ 133,250
---------- ----------
CONSUMER PRODUCTS -- 0.43%
4,500 Fieldcrest Cannon, Inc.
$3.00 Cv. Pfd.
Ser. A .............. 188,810 176,625
28,000 Kerr Group, Inc. CI. B
$1.70 Cv. Pfd.
Ser. D .............. 495,938 213,500
---------- ----------
684,748 390,125
---------- ----------
DIVERSIFIED INDUSTRIAL -- 1.76%
25,000 GATX Corporation
$3.875 Cv. Pfd....... 1,104,163 1,459,375
1,000 GATX Corporation
$2.50 Cv. Pfd........ 65,400 122,000
---------- ----------
1,169,563 1,581,375
---------- ----------
ENERGY -- 2.34%
6,000 Atlantic Richfield Company
$2.80 Cv. Pfd........ 1,600,963 1,980,000
2,500 McDermott International, Inc.
Pfd. A............... 70,287 67,500
2,000 Santa Fe Energy Resources,
Inc.
7.00% Ser............ 48,600 46,250
---------- ----------
1,719,850 2,093,750
---------- ----------
EQUIPMENT AND SUPPLIES -- 3.55%
29,000 Navistar International
Corporation
$6.00 Cv. Pfd.
Ser. G .............. 1,441,945 1,638,500
22,000 Sequa Corporation
$5.00 Cv. Pfd........ 1,663,818 1,540,000
---------- ----------
3,105,763 3,178,500
---------- ----------
PUBLISHING -- 0.63%
10,000 Golden Books Family
Entertainment, Inc.
8.75% Cv. Pfd(e)..... 500,000 567,500
---------- ----------
REAL ESTATE / DEVELOPMENT -- 0.64%
9,058 Catellus Development
Corporation
$3.75 Cv. Pfd.
Ser. A .............. 476,074 575,185
---------- ----------
TELECOMMUNICATIONS -- 1.36%
3,000 Sprint Corporation
$1.50 Cv. Pfd.
Ser. 1 .............. 301,100 369,000
2,200 Sprint Corporation
$1.50 Cv. Pfd.
Ser. 2 .............. 187,510 270,600
8,000 Sprint Corporation
8.25% Cv. Pfd........ 255,000 287,000
4,000 TCI Communications Inc.
4.25% Cv. Pfd.
Ser. A .............. 177,465 155,500
1,500 TCI Pacific Communications
Inc. 5.00% Cv. Pfd... 134,838 137,065
---------- ----------
1,055,913 1,219,165
---------- ----------
WIRELESS COMMUNICATIONS -- 2.94%
47,000 AirTouch Communications
6.00% Cv. Pfd.
Cl. B. .............. 1,344,098 1,280,750
29,999 AirTouch Communications
4.25% Cv. Pfd.
Cl. C. .............. 1,396,180 1,357,455
---------- ----------
2,740,278 2,638,205
---------- ----------
TOTAL CONVERTIBLE
PREFERRED STOCKS ..... 13,027,366 13,953,555
---------- ----------
COMMON STOCKS -- 15.95%
AVIATION: PARTS AND SERVICES -- 1.07%
25,700 Hudson General
Corporation ......... 851,581 957,325
---------- ----------
BROADCASTING -- 2.33%
10,000 The Providence Journal
Company+............. 295,500 306,250
50,000 Renaissance Communications
Corp.+............... 1,752,500 1,787,500
---------- ----------
2,048,000 2,093,750
---------- ----------
ENERGY -- 0.44%
4,000 Exxon Corporation...... 237,758 392,000
---------- ----------
FINANCIAL SERVICES -- 1.22%
63,000 Alexander & Alexander
Services, Inc........ 1,082,025 1,094,625
---------- ----------
FOOD-RETAIL -- 0.41%
29,729 Ingles Markets, Inc. Cl A(d) 333,560 371,613
---------- ----------
HEALTH CARE -- 0.90%
15,000 Genentech, Inc.+....... 719,240 804,375
---------- ----------
METALS & MINING -- 0.77%
24,499 Freeport-McMoran Copper
& Gold, Inc.......... 693,325 689,077
---------- ----------
REAL ESTATE/DEVELOPMENT -- 0.09%
15,581 Wharf Capital
International Ltd. .. 57,177 77,765
---------- ----------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT OR
SHARES COST VALUE
------ ---- -----
COMMON STOCKS (CONTINUED)
SPECIALITY-CHEMICALS -- 8.49%
125,000 Loctite Corp. $ 7,606,875 $ 7,609,375
---------- ----------
TELECOMMUNICATIONS -- 0.23%
6,900 Pacific Telecom, Inc. (c) 206,845 207,000
---------- ----------
TOTAL COMMON STOCKS ... 13,836,386 14,296,905
---------- ----------
CORPORATE BONDS -- 0.48%
WIRELESS COMMUNICATIONS -- 0.48%
600,000 COMCAST Cellular
Communications Inc.
Ser. B Redeemable Notes,
Zero Cpn., 03/05/00.. 454,755 435,000
---------- ----------
TOTAL CORPORATE BONDS.. 454,755 435,000
---------- ----------
U.S. GOVERNMENT OBLIGATIONS -- 37.42%
33,700,000 U.S. Treasury Bills,
4.80% to 5.00%,
Due 01/09/97 to 02/13/97 33,550,836 33,550,836
---------- ----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS .......... 33,550,836 33,550,836
---------- ----------
TOTAL INVESTMENTS --
102.13% .............. 86,975,762* 91,572,103
==========
SECURITIES SOLD SHORT -- (0.41)%
PROCEEDS
--------
29,729 Ingles Markets, Inc. Cl A 499,623 (371,613)
LIABILITIES, IN EXCESS OF
OTHER ASSETS-- (1.72)% (1,541,199)
----------
NET ASSETS-- 100.00% ... $89,659,291
(8,092,945 SHARES ===========
OUTSTANDING)
NET ASSET VALUE PER SHARE $11.08
======
- ----------------
(a) - Principal amount denoted in French Francs.
(b) - Principal amount denoted in Italian Lira.
(c) - Fair valued as determined by Board of Directors.
(d) - Segregated as collateral for securities sold short.
(e) - Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1996, Rule 144A securities amounted to $6,138,575 or 6.8% of net assets.
* For Federal income tax purposes:
Aggregate cost .................. $86,975,762
==========
Gross unrealized appreciation ... $ 6,049,505
Gross unrealized depreciation ... (1,453,164)
----------
Net unrealized appreciation ..... $ 4,596,341
==========
+ Non-income producing security.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value
(Cost $86,975,762) .................. $91,572,103
Cash .................................. 466,644
Receivable for investments sold ....... 480,081
Deposits with brokers for securities
sold short .......................... 499,623
Accrued interest receivable ........... 515,175
Dividends receivable .................. 142,160
-----------
Total Assets ........................ 93,675,786
-----------
LIABILITIES:
Payable to Advisor .................... 77,053
Payable for investments purchased ..... 1,578,380
Securities sold short, at value
(proceeds: $499,623) ................ 371,613
Dividends payable ..................... 1,917,853
Other accrued expenses ................ 71,596
-----------
Total Liabilities ................... 4,016,495
-----------
NET ASSETS for 8,092,945 shares
outstanding ..................... 89,659,291
===========
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 ................... (241,821)
Distributions in excess of net realized
gains ............................... (64,030)
Net unrealized appreciation
on investments and assets and liabilities
denominated in foreign currencies ... 4,723,235
-----------
NET ASSETS ........................ $89,659,291
===========
NET ASSET VALUE ......................... $ 11.08
===========
(100,000,000 shares authorized of $0.001 par value)
($89,659,291 / 8,092,945 shares outstanding)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
INCOME:
Interest .............................. $4,267,896
Dividends (net of foreign taxes
of $4,840) .......................... 1,006,328
----------
Total Income ........................ 5,274,224
----------
EXPENSES:
Investment advisory fee ............... 912,913
Transfer and shareholder
servicing agent .................... 125,587
Printing and mailing .................. 124,525
Directors' fees and expenses .......... 39,985
Legal and audit fees .................. 38,827
Custodian fees and expenses ........... 32,125
Miscellaneous ......................... 49,590
----------
Total expenses ...................... 1,323,552
----------
Net Investment Income ................. 3,950,672
----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments ...... 1,925,851
Net realized gain on futures .......... 57,335
Net change in unrealized appreciation . 536,303
----------
Net gain on investments ............... 2,519,489
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................... $6,470,161
==========
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Net investment income .......................................... $ 3,950,672 $ 4,292,816
Net realized gain on investments ............................... 1,925,851 4,571,863
Net realized gain (loss) on futures............................. 57,335 (50,494)
Net change in unrealized appreciation .......................... 536,303 4,841,264
----------- -----------
Net increase (decrease) in net assets resulting from operations. 6,470,161 13,655,449
----------- -----------
Distributions from net investment income........................ (3,950,672) (4,292,816)
Distributions from net realized gains........................... (1,982,772) (4,521,369)
Distributions in excess of net investment income................ (14,871) (174,475)
Distributions in excess of net realized gains................... -- (65,122)
Distributions from paid-in capital.............................. -- (253,089)
----------- -----------
(5,948,315) (9,306,871)
----------- -----------
Share transactions-- net........................................ -- (27,301,497)
----------- -----------
Net increase (decrease) in net assets......................... 521,846 (22,952,919)
NET ASSETS:
Beginning of year............................................... 89,137,445 112,090,364
----------- -----------
End of year..................................................... $89,659,291 $ 89,137,445
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Gabelli Convertible Securities Fund, Inc. (the "Fund") is 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 as an open-end diversified
management investment company 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, dividends, and expenses originally
recorded on the books of the Fund and the amounts actually received or paid.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuation
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss on investments.
FUTURES CONTRACTS. The Fund may engage in futures contracts for the purpose
of hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Such investments will only be made
if they are, in the opinion of Fund management, economically appropriate to the
reduction of risks involved in the management of the Fund. Upon entering into a
futures contract, the Fund is required to deposit with the broker an amount of
cash or cash equivalents equal to a certain percentage of the contract amount.
This is known as the "initial margin." Subsequent payments ("variation margin")
are made or received by the Fund each day, depending on the daily fluctuation of
the value of the contract. The daily changes in the contract are recorded as
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
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.
11
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SHORT SALES. The Fund may make short sales both to obtain capital gains from
anticipated declines in securities and as a form of hedging to offset potential
declines in positions in the same or similar securities. A short sale is a
transaction in which the Fund sells securities it may or may not own in
anticipation of a decline in the market price of the securities. To complete a
short sale on securities that it may or may not own, the Fund must arrange
through a broker to borrow the securities to be delivered to the buyer. The
proceeds received by the Fund from the short sale are retained by the broker
until the Fund replaces the borrowed securities. In borrowing the securities to
be delivered to the buyer, the Fund becomes obligated to replace the securities
borrowed at their market price at the time of replacement, whatever that price
may be. The Fund must pay any dividends or interest payable on securities while
those securities are in a short position.
Possible losses from short sales differ from losses that could be incurred
from a purchase of a security, because losses from short sales may be unlimited
and therefore exceed the liability reflected in the financial statements,
whereas losses from purchases can equal only the total amount invested.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions are
accounted for on the dates the securities are purchased or sold (the trade
dates) with realized gain and loss on investments determined by using specific
identification as the cost method. Interest income (including amortization of
premium and accretion of discount) is recorded as earned. The ability of issuers
of debt securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry or region.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Fund, temporary
differences and differing characterization of distributions made by the Fund.
Tax basis return of capital distributions have been recorded as an adjustment to
paid-in capital.
FEDERAL INCOME TAXES. The Fund intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986 and
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required.
3. CAPITAL STOCK TRANSACTIONS
The Articles of Incorporation, dated December 19, 1988, permit the Fund to
issue 100,000,000 shares (par value $0.001). Transactions in shares of common
stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Shares sold................................... -- $-- 229,155 $2,489,821
Shares redeemed............................... -- -- (2,712,960) (29,791,318)
--------- ---------- --------- ----------
Net decrease................................ 0 0 (2,483,805) (27,301,497)
========= ========== ========= ==========
</TABLE>
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities for the year ended December 31, 1996, other
than U.S. government obligations and short-term securities, aggregated
$65,384,730 and $85,189,622, 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 such 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.
6. TRANSACTIONS WITH AFFILIATES
The Fund paid brokerage commissions during the year ended December 31, 1996
of $7,212 to Gabelli & Company, Inc. and its affiliates.
12
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period .................... $ 11.01 $ 10.60 $ 11.52 $ 11.45 $ 10.91
------- ------- ------- ------- -------
Net investment income ................................... 0.49 0.53 0.69 0.76 0.65
Net realized and unrealized gain (loss) on securities ... 0.31 1.03 (0.71) 0.74 0.76
------- ------- ------- ------- -------
Total from investment operations ........................ 0.80 1.56 (0.02) 1.50 1.41
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .................... (0.49) (0.53) (0.69) (0.76) (0.65)
Distributions from net realized gain on investments ..... (0.24) (0.56) (0.21) (0.67) (0.22)
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 .......................... $ 11.08 $ 11.01 $ 10.60 $ 11.52 $ 11.45
======= ======= ======= ======= =======
Market value, end of period ............................. $ 9.25 $ 10.75 -- -- --
======= ======= ======= ======= =======
Total Net Asset Value Return+(a) ........................ 8.4% 15.0% (0.2)% 13.1% 13.0%
Total Investment Return+(b) ............................. (7.3)% 12.3% -- -- --
RATIOS TO AVERAGE NET ASSETS / SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ................ $89,659 $89,137 $112,090 $108,674 $92,541
Ratio of operating expenses to average net assets (c) ... 1.45% 1.56% 1.31% 1.38% 1.40%
Ratio of net investment income to average net assets .... 4.33% 4.60% 4.77% 4.58% 5.53%
Portfolio Turnover Rate ................................. 114% 140% 67% 45% 32%
Average Commission Rate(d) .............................. $0.0423 -- -- -- --
- --------------------------------------------------------------------------------
+ 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.
(d)For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate paid per share for purchases and
sales of investment securities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE GABELLI CONVERTIBLE SECURITIES FUND, 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") at December 31, 1996, 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, 1996 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 27, 1997
13
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
CALENDAR YEAR 1996
CASH DIVIDENDS AND DISTRIBUTIONS
<TABLE>
<CAPTION>
TOTAL AMOUNT ORDINARY LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT CAPITAL REINVESTMENT
DATE DATE PER SHARE INCOME GAINS PRICE
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
03/25/96 03/11/96 $0.1200 $0.1200 $0.0000 $10.4050
06/24/96 06/17/96 0.1200 0.1200 0.0000 10.1689
09/23/96 09/16/96 0.1200 0.1200 0.0000 9.7321
12/27/96 12/19/96 0.3750 0.2716 0.1034 9.5050
-------- ------- -------
$0.7350 $0.6316 $0.1034
</TABLE>
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 1996 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 $0.0931
per share on March 25, 1996, $0.0931 per share on June 24, 1996, $0.0931 per
share on September 23, 1996 and $0.2107 per share on December 27, 1996. The
percentage of such dividends that qualifies for the dividends received deduction
available to corporations is 19.83% for all such dividends paid in 1996. The
percentage of the ordinary income dividends paid by the Fund during 1996 derived
from U.S. Treasury Securities was 27.59%.
HISTORICAL DISTRIBUTION SUMMARY
<TABLE>
<CAPTION>
SHORT- LONG-
TERM TERM ADJUSTMENT
ANNUAL INVESTMENT CAPITAL CAPITAL RETURN OF TOTAL TO
SUMMARY INCOME(A) GAIN(A) GAINS CAPITAL (B) DISTRIBUTIONS COST BASIS
------------ ------------ ------------ ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C> <C>
1996 ......... $0.4900 $0.1416 $0.1034 -- $0.7350 --
1995 ......... 0.5574 0.2041 0.3595 $0.0290 1.1500 $0.0290-
1994 ......... 0.5730 0.1150 0.2120 -- 0.9000 --
1993 ......... 0.5610 0.2000 0.6640 -- 1.4250 --
1992 ......... 0.6540 0.0900 0.1320 -- 0.8760 --
1991 ......... 0.7060 0.1120 0.0470 -- 0.8650 --
1990 ......... 0.6900 -- -- -- 0.6900 --
1989 ......... 0.1150 -- -- -- 0.1150 --
- ------------
</TABLE>
(a)Taxable as ordinary income for Federal tax purposes.
(b)Non-taxable.
- - Decrease in cost basis.
14
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Convertible Securities Fund, Inc. ("Convertible
Securities Fund") to automatically reinvest dividends. As a "registered"
shareholder you automatically become a participant in the Convertible Securities
Fund's Automatic Dividend Reinvestment Plan (the "Plan"). The Plan authorizes
the Convertible Securities Fund to issue shares to participants upon an income
dividend or a capital gains distribution regardless of whether the shares are
trading at a discount or a premium to net asset value. All distributions to
shareholders whose shares are registered in their own names will be
automatically reinvested pursuant to the Plan in additional shares of the
Convertible Securities Fund. Plan participants may send their stock certificates
to State Street Bank and Trust Company to be held in their dividend reinvestment
account. Registered shareholders wishing to receive their distribution in cash
must submit this request in writing to:
The Gabelli Convertible Securities Fund, Inc.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan may contact State Street Bank and Trust
Company at 1 (800) 336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at State Street
Bank and Trust Company must do so in writing or by telephone. Please submit your
request to the above mentioned address or telephone number. Include in your
request your name, address and account number. The cost to liquidate shares is
$2.50 per transaction as well as the brokerage commission incurred. Brokerage
charges are expected to be less than the usual brokerage charge for such
transactions.
If your shares are held in the name of a broker, bank or nominee, you
should contact such institution. If such institution is not participating in the
Plan, your account will be credited with a cash dividend. In order to
participate in the Plan through such institution, it may be necessary for you to
have your shares taken out of "street name" and re-registered in your own name.
Once registered in your own name your dividends will be automatically
reinvested. Certain brokers participate in the Plan. Shareholders holding shares
in "street name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of cash dividends is determined in the following manner. Under the
Plan, whenever the market price of the Convertible Securities Fund's Common
Stock is equal to or exceeds net asset value at the time shares are valued for
purposes of determining the number of shares equivalent to the cash dividends or
capital gains distribution, participants are issued shares of Common Stock
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Convertible Securities Fund's
Common Stock. The valuation date is the dividend or distribution payment date
or, if that date is not a New York Stock Exchange trading day, the next trading
day. If the net asset value of the Common Stock at the time of valuation exceeds
the market price of the Common Stock, participants will receive shares from the
Convertible Securities Fund valued at market price. If the Convertible
Securities Fund should declare a dividend or capital gains distribution payable
only in cash, State Street will buy Common Stock in the open market, or on the
New York Stock Exchange or elsewhere, for the participants' accounts, except
that State Street will endeavor to terminate purchases in the open market and
cause the Convertible Securities Fund to issue shares at net asset value if,
following the commencement of such purchases, the market value of the Common
Stock exceeds the then current net asset value.
15
<PAGE>
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Convertible Securities Fund reserves the right to amend or terminate
the Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the members
of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by State Street on at
least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Convertible Securities Fund. In
order to participate in the Voluntary Cash Purchase Plan, shareholders must have
their shares registered in their own name and participate in the Dividend
Reinvestment Plan.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street Bank and Trust Company for investments
in the Convertible Securities Fund shares at the then current market price.
Shareholders may send an amount from $250 to $10,000. State Street Bank and
Trust Company will use these funds to purchase shares in the open market on or
about 15th of each month beginning in April 1996. State Street Bank and Trust
Company will charge each shareholder who participates $0.75, plus a pro rata
share of the brokerage commissions. Brokerage charges for such purchases are
expected to be less than the usual brokerage charges 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.
- --------------------------------------------------------------------------------
For the one year period through March 31, 1998, Gabelli Funds, Inc. has arranged
for registered shareholders to have the opportunity to purchase shares of the
Convertible Securities Fund through our Voluntary Cash Purchase Plan at no
commission.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Annual Meeting of the Convertible Securities Fund Stockholders will be held
at 12:00 P.M. on Monday, May 12, 1997, at the Cole Auditorium, Greenwich Public
Library in Greenwich, Connecticut.
- --------------------------------------------------------------------------------
16
<PAGE>
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
DIRECTORS
Mario J. Gabelli, CFA
PRESIDENT AND CHIEF INVESTMENT OFFICER
E. Val Cerutti
CHIEF EXECUTIVE OFFICER
CERUTTI CONSULTANTS, INC.
Felix J. Christiana
FORMER SENIOR VICE PRESIDENT
DOLLAR DRY DOCK SAVINGS BANK
Anthony J. Colavita, P.C.
ATTORNEY-AT-LAW
ANTHONY J. COLAVITA, P.C.
Dugald A. Fletcher
PRESIDENT, FLETCHER & COMPANY, INC.
Karl Otto Pohl
FORMER PRESIDENT, DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT
PROFESSOR, PACE UNIVERSITY
Anthony 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
A. Hartswell Woodson, III
ASSOCIATE PORTFOLIO MANAGER
Bruce N. Alpert
VICE PRESIDENT & TREASURER
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 in
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
PHONE: 1-800-GABELLI (1-800-422-3554)
Fax: 1-914-921-5118 Internet: http://www.gabelli.com
e-mail: [email protected]
