Semi-Annual Report
[LOGO]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
June 30, 1997
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[LOGO]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
Our cover icon represents the
underpinnings of Gabelli. The Teton
mountains in Wyoming represent what we
believe in in America -- that
creativity, ingenuity, hard work and a
global uniqueness provide enduring
values and returns in an increasingly
complex, interconnected and
inter-dependent economic
world.
Investment Objective:
The Gabelli Convertible Securities Fund,
Inc. is a closed-end, diversified
management investment company whose
primary objective is to seek a high
level of total return through a
combination of current income and
capital appreciation by investing in
convertible securities.
This report is printed on recycled paper.
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To Our Shareholders:
In the second quarter of 1997, equities
investors concluded that inflation was just a bad
dream after all and that "Captain Greenspan" was
bringing the economy in for another soft landing.
Blue chip stocks remained in the limelight, but [PHOTOGRAPH OMITTED]
smaller stocks participated in the surge. The Dow
Jones Industrial Average (DJIA) gained 17.1%. [LOGO]
THE GABELLI
For the quarter ended June 30, 1997, The CONVERTIBLE
Gabelli Convertible Securities Fund, Inc.'s SECURITIES
("Convertible Securities Fund") net asset value FUND, INC.
increased 3.5% to $11.38 after adjusting for the
$0.12 per share dividend paid on June 27, 1997.
This represents an increase of 5.2% for the past
six months and 8.3% for the twelve months and
compares to the average returns of 10.1% and 17.7%
for the Lipper Analytical Services, Inc.
Convertible Securities Fund Index over these
respective periods.
The three- and five-year average annual returns of the Convertible
Securities Fund were 9.8% and 9.6%, respectively. Since inception on July 3,
1989 through June 30, 1997, the Convertible Securities Fund achieved a 112.4%
total return which represents an average annual return of 9.9%. 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 $9.875, up 6.6% for the quarter, up 3.9% for the past twelve months and up
7.2% from its initial price of $11.25 on March 31, 1995 after adjusting for the
dividends of $2.125 per share which were paid during this period.
Our Fund is managed with the goal of achieving a 600-800 basis point spread
above long-term treasury yields. We hope to generate these returns over the long
term. This is the type of performance that our Fund has been known for and we
anticipate will continue in the future. Of course, there are no guarantees.
Over the past few months the Fund's shares have traded at an average
discount of approximately 15% to the net asset value. At these price levels, the
Fund is an ideal opportunity for investors to add to their positions. Our
monthly cash purchase program provides an easy way for registered Shareholders
to acquire additional shares at the current market price at no commission. In
addition, to underscore that "we eat our own cooking", the Advisor and its
affiliates have announced their intention to buy up to one million common shares
in the open market (567,264 of which have been acquired to date).
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INVESTMENT RESULTS (a)(c)
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Quarter
---------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
1997: Net Asset Value ..... $11.13 $11.38 __ __ __
Total Return ........ 1.7% 3.5% __ __ __
- --------------------------------------------------------------------------------
1996: Net Asset Value ..... $11.28 $11.33 $11.23 $11.08 $11.08
Total Return ........ 3.6% 1.6% 0.3% 2.6% 8.4%
- --------------------------------------------------------------------------------
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%
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1991: Net Asset Value ..... $11.06 $11.27 $11.57 $10.91 $10.91
Total Return ........ 5.6% 1.9% 2.7% 1.8% 12.5%
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
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Average Annual Returns - June 30, 1997 (a)
------------------------------------------
1 Year ...................................... 8.3%
5 Year ...................................... 9.6%
Life of Fund (b) ............................ 9.9%
- --------------------------------------------------------------------------------
(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.
Dividend History
- --------------------------------------------------------------------------------
Payment Date Rate Per Share Reinvestment Price
- ------------ -------------- ------------------
June 27, 1997 $0.120 $ 9.96
March 27, 1997 $0.120 $ 9.63
December 27, 1996 $0.375 $ 9.51
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
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What We Do E P
P M
We do what is described as bottom up S V
research: we read annual reports; we visit the
competition; we talk to customers; we go belly to MANAGEMENT
belly with management. In past reports, we have ------------
tried to articulate our investment philosophy and CASH FLOW
methodology. The following graphic further ------------
illustrates the interplay among the four RESEARCH
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 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.
Once we identify securities 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. securities 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.
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.
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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: Having Your Cake and Eating It Too
From 1995 through the second quarter of 1997, equities investors have
enjoyed their just desserts. Modest economic growth, low inflation, and strong
corporate earnings have translated into spectacular equities returns. The "What
Me Worry" market cheerleaders are now projecting these favorable conditions
forward indefinitely in order to justify high equities valuations and to support
their fantastic predictions for the Dow and S&P. We look at the same picture and
wonder whether all the economic components that have combined to propel this
historic market advance are sustainable.
If it is truly different this time around, the stock market tree can grow
to the sky. Stocks probably deserve to trade at 20 times earnings or higher if
the following scenario holds: the Federal Reserve and corporate managements have
really tamed the business cycle; inflation is truly dead rather than dormant;
further cost cutting and productivity gains allow American corporations to
continue to grow earnings at three to four times top line revenues; and there
are no major political or financial accidents here or abroad. In other words,
everything has to remain right for the fundamentals to raise the safety net --
we just do not have a "margin of safety".
Let's look at what's been going so right and what could go wrong. We have
to applaud Alan Greenspan's Federal Reserve and corporate managements for
reducing economic volatility. More modest but sustainable economic growth is
vastly preferable to the boom/bust business cycles of the past. The business
cycle has not disappeared, but the 31/2 billion new consumers in the global
market place have added extra secular growth to the global economy, perhaps
diluting the cyclical effects of economic policy most of us have lived through.
We do not believe inflation is dead, but it is certainly subdued.
Can net earnings continue to outpace top line revenue growth? Corporate
America has been on "Slim Fast" for almost a decade. Management has restructured
and technology has contributed to enormous productivity gains. How much more
efficiently can we run our businesses? Rebounding from 1994's inventory bubble,
S&P 500 earnings grew approximately 18% in 1995. These earnings rose nearly 10%
in 1996, and are projected to advance another 9% to 11% in 1997. These are
impressive numbers considering the economy has chugged along at a modest 3% to
4% annual growth rate over this same time period. Will we retreat to a more
normal relationship between top line revenue and earnings growth? Return on
equity has exceeded the expectation of even the most optimistic.
This year, equities investors have been so concerned about inflation and
the potential for higher interest rates while praying so fervently for a slower
economy, they seem to have lost sight of the fact that one of the consequences
may be corporate earnings growth below "enhanced expectations." With Europe and
the Far East
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gaining economic momentum, second half earnings for U.S. Internationals should
be okay, with an obvious yellow flag associated with "currency" adjustments.
But, we are likely to see disappointments domestically. Investors' recent
reaction to warnings of earnings shortfalls from a string of leading technology
companies may be duplicated in other industry groups in the next six months.
The final piece of the puzzle is always the most difficult to predict--some
form of political or financial accident that could spread like a California
brush fire in the increasingly interconnected global economy and capital
markets. That is the "G Factor" - only God knows.
What do we conclude from all this conjecture? If we continue to be blessed
with this highly favorable economic backdrop for equities, the stock market can
continue to advance, albeit at a much less torrid pace than we have enjoyed over
the last 21/2 years. Equities investors can continue to have their cake and eat
it too, but it will be served in significantly smaller portions. If there proves
to be one or more flies in the ointment, we could see a substantial correction
that lasts for more than just a few weeks. We also believe we are entering what
could be an extended phase of a market of stocks rather than a stock market.
Investors have been broadening their horizons as evidenced by the much stronger
relative performance of broader market indices. This would indicate that
individual stock fundamentals are becoming as important as sheer market momentum
in the decision making process.
Cable Television: One Man's Junk is Bill Gates' Treasure
We have been analyzing the cable television (CATV) stocks for many years.
We've experienced the thrill of victory--the pricing deregulation and rampant
consolidation of the industry in the mid-eighties--and over the last few years,
the agony of defeat--re-regulation and the threat of competition from telcos and
satellite broadcasters. Through it all, we have viewed cable TV as a good
long-term investment. The business has most of the economic and financial
characteristics we favor: an identifiable franchise, high operating margins, and
strong cash flow. We are aware of the negatives: lousy service by new entrants,
high debt, the need for a second round of substantial capital investment to
technologically upgrade systems, and the prospect for increased competition.
However, we remain confident that the value of all those connections to American
homes will ultimately be recognized.
Cablevision, Inc. (CVC - $53.50 - ASE) best illustrates the recent trials
and tribulations of cable television operators and investors. A great growth
company in the 1980s, Cablevision built a terrific franchise in the New York
metropolitan area. They were also early to recognize the potential of cable
networks and programming by investing in American Movie Classics, Bravo, eight
regional sports networks, and 50% of MSG (Madison Square Garden, the NY Knicks
and the NY Rangers). In the process, they leveraged the company to the hilt and
were as vulnerable as anyone to potential competition from News Corporation
Limited (NWS - $19.25 - NYSE) Chairman Rupert Murdoch's plan for a national
satellite broadcast system--labeled by Wall Street as the "Death Star" for the
CATV industry. In the last year, Cablevision stock fell from the mid $50's to a
low of $25 per share.
Then, things got interesting. Murdoch's Death Star was grounded.
Recognizing cable television lines were likely to continue to be the speediest
data transmission highway into the home, Microsoft Corporation's (MSFT -
$126.375 - NASDAQ) Bill Gates invested $1 billion in Comcast Corporation (CMCSA
- - $20.9375 - NASDAQ), instantly ratcheting up the value of every cable
television link in the country. Cablevision moved quickly to further consolidate
its system by swapping 33% of its stock to Tele-Communications, Inc. (TCOMA -
$14.875 -
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NASDAQ) in return for an additional 820,000 subscribers in the New York
metropolitan area. It then closed on the remaining 50% of MSG from its partner
ITT Corporation (ITT - $61.0625 - NYSE). Finally, in a particularly deft move,
Cablevision sold 40% of its Rainbow cable network and programming unit to News
Corp's Fox unit for $850 million, bolstering both its network/programming assets
through a planned national sports network with its new partners and its debt
heavy balance sheet. Cablevision's stock went from deep in Wall Street's
doghouse to the penthouse almost overnight. We expect a lot more from
Cablevision.
Although a much more diversified media company, Time Warner Inc. (TWX -
$48.25 - NYSE) stock has been stuck in the mud due to its substantial cable
television operations. Chairman Gerald Levin has been pressured by Wall Street
and several large institutional and corporate shareholders to reduce the
company's exposure to the business by off-loading cable systems to US West Media
Group (UMG - $20.25 - NYSE) in return for its minority stake in Time Warner
Entertainment. Believing Levin would be forced to throw in the towel on cable,
US West Media Group held out for a higher price (more cable subscribers) than
Levin was willing to part with. Perhaps US West Media has outfoxed itself. With
the escalating value of its assets, Time Warner is now in the driver's seat in
negotiating a deal. We believe Time Warner will eventually reduce its exposure
to cable and focus more on its programming and publishing assets. When they pull
the trigger on cable, they will get a much better price.
Let's Make a Deal
News Corp/International Family Entertainment
In the long running game show Let's Make a Deal, host Monty Hall would urge
his contestants to deal for the fabulous prizes hidden behind door number one,
two, or three. This quarter, we've had portfolio prizes hidden behind all three
doors. Seeking a national distribution channel for its children's programming
and shut out by a Supreme Court ruling upholding "must carry" requirements, News
Corp. wooed and won International Family Entertainment, Inc. (FAM - $34.375 -
NYSE).
We believe the current "Let's Make a Deal" market may run as long as the
popular game show. There is tremendous liquidity in the financial system. With
modest top line revenue growth, minimal pricing flexibility, and limits to
further margin expansion through cost cutting and productivity gains, the
ability of many companies to grow earnings from existing operations is
restrained. The answer for many will be to grow via acquisitions. This will not
take the form of the re-conglomeratization of American business. Instead, we
will see larger companies buying smaller niche companies to complement their
existing businesses. This feeds nicely into our focus on smaller niche
franchises and we expect to be bidding a fond farewell to additional portfolio
holdings in the years ahead. We identified the "urge to consolidate" in previous
reports to you. We have announced and heralded this Third Wave of Mergers in all
of our letters to you since General Electric attempted a hostile takeover of
Kemper in February 1994. A reduction in long-term capital gains rates will
provide another accelerant to an already raging fire.
The Last Shall Be First
Our investment thesis is that if you buy good businesses at the right
price, and hold them long term, you will eventually earn a satisfactory return.
Often, it takes quite awhile for the corporate values we identify to be
recognized by other investors. Generally, our patience is rewarded. This
quarter, many of our sleepers have come
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to life. Cablevision (CVC - $53.50 - ASE) and GenCorp Inc. (GY - $23.125 - NYSE)
were among our top performers, posting large percentage gains after somewhat
extended naps. If you factor in our holding periods, there are not many grand
slam home runs. These are singles and doubles, and in some cases, the count is
just now even. But, they are helping to produce the kind of consistent
investment progress our value discipline is designed to produce. In this age of
instant gratification, most investors are simply not willing to wait on stocks
that aren't moving. They dump and run, chasing momentum not value. This may work
well during roaring bull markets. But, over the long term and through the market
cycles, it has not proven to be a particularly effective way to generate
superior returns.
Preferred Stock -- An Investment For The Future
In the first quarter the Board of Directors of The Gabelli Convertible
Securities Fund authorized management to consider an offering of preferred
stock. On May 16th the Fund successfully completed its offering of cumulative
preferred stock which was rated 'AAA' by Standard and Poor's. Shareholder
response has been positive and we appreciate the efforts of Smith Barney and
Gabelli & Company, Inc., the underwriters, and wish to thank and welcome all
those investors who participated.
The Fund issued 1,200,000 Preferred Shares at $25 with an annual dividend
rate of $2.00 per share paying quarterly starting in September 1997. The
Preferred Shares are trading on the New York Stock Exchange under the symbol GCV
Pr. We thought we would answer some questions about preferred stock.
Q: What is Preferred Stock?
Preferred stock is a form of equity investment which has certain rights
that differ from those of common stock. In our case, the preferred stock was
issued at $25 per share with a fixed dividend rate of $2.00. The Fund is
obligated to pay this dividend to the Preferred Shareholders before any
dividends are paid to the holders of common shares. Thereafter, any return
earned in excess of this dividend rate would work to benefit the Common
Shareholders.
Q: How would Preferred Shares benefit Common Shareholders?
Through June 30, 1997, the Convertible Securities Fund has earned a 9.9%
average annual return. The only obligation that the Fund has to the Preferred
Shareholders is to pay the stated dividend rate. Given the current market
environment, we considered this to be an ideal opportunity to take advantage of
relatively low long-term interest rates and to earn an excess return for our
Common Shareholders consistent with our conservative investment approach. Any
return earned in excess of the stated dividend rate, which is less than the
Fund's average annual return, would directly benefit Common Shareholders;
however, any shortfall from the stated rate would impact the Common Shareholders
in the opposite fashion. Therefore, by taking advantage of the current
relatively low interest rate environment and achieving our investment
objectives, the Preferred Share issuance offers what we believe is a
conservative method of adding wealth for our Common Shareholders.
As an additional benefit, since the Preferred Offering increases the Fund's
overall capital base, fixed costs of the Fund are spread over more assets. Thus,
a lower expense ratio will work to benefit Common Shareholders.
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Furthermore, Common Shareholders stand to receive certain tax benefits as a
result of the Preferred Stock offering. Since taxable income is allocated to the
Preferred Shareholders before Common Shareholders, taxable distributions to
Common Shareholders are not required to the extent they would be if the
Preferred Shares were not outstanding. Common Shareholders thus avoid having to
pay taxes on that portion of taxable income that previously would have been
distributed to them. By deferring these taxable distributions and taxes
associated therewith, the net asset value of the common shares are likely to
grow at a faster rate.
Q: Why did the Fund consider Preferred Shares?
Right now, long-term interest rates are at relatively low levels. The
dividend rate that the Fund is required to pay on the Preferred Shares is
related to long-term rates. In this environment, we have a great opportunity to
create value by earning a return in excess of the Preferred's dividend rate over
the long term. Therefore, we believe this represents an opportunistic time for
the Fund to take advantage of these low rates.
Q: Will Gabelli Funds, Inc. be paid a management fee on the Preferred Capital?
With the completion of the preferred offering, the Advisor has agreed to
waive the management fee on the incremental assets if the return on the Fund
does not exceed the stated dividend rate on the Preferred Shares.
Q: What were the offering costs involved with the Preferred Shares?
Consistent with our conservative approach, the Fund issued the Preferred
Shares in a cost efficient manner at less than $0.18 per share. Although this
offering crimped our results for the quarter -- 3.5% versus 5.1% had the
Preferred Shares not been issued -- this modest investment provides the
underpinnings for successful returns in the future.
Let's Talk Converts
The following are specifics on selected holdings of our Fund. 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, Inc. (ATI.B - $28.50 - NYSE; ATI.C - $48.00 - NYSE) 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. Roughly half of the company's current 8.5 million world-wide
cellular customers are located in the U.S. Annual growth is estimated at 30% to
40%. AirTouch is in the process of strengthening its cellular position in the
U.S. with the acquisition of US West Media Group's domestic cellular operations
and its stake in PrimeCo Personal Communications in a transaction valued at $5
billion. The companies expect to close the transaction no later than early next
year.
Chock Full o'Nuts Corporation (Sub. Deb. Cv., 8.00%, 09/15/06; 7.00%, 04/01/12)
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
o'Nuts is developing a chain of retail drive-through coffee outlets called
Quikava. Both the 8% convertible bonds, due in 2006, and the 7% convertible
bonds, due in 2012, offer investors an attractive way to participate in the
future of Chock Full o'Nuts.
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Fieldcrest Cannon, Inc. (Sub. Deb. Cv., 6.00%, 03/15/12) is a well-known
manufacturer of household textile products; sheets, pillow cases, towels,
bedspreads and blankets. Management has undertaken several restructuring steps
which are anticipated to result 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
March 2012, provide an attractive alternative to Fieldcrest's common stock.
HSN, Inc. (Sub. Deb. Cv., 5.875%, 03/01/06) is the new name for the surviving
company comprised of Silver King Communications, Home Shopping Network and Savoy
Pictures Entertainment. The combined companies are guided by a new board,
chaired by Barry Diller. In May, HSN, Inc. announced plans to acquire the 47.5%
interest in Ticketmaster Group Inc. (TKTM - $16.625 - NASDAQ) held by Paul Allen
(a co-founder of Microsoft Corporation) in a stock-to-stock transaction. Allen
would thereby receive shares representing about 11% of HSN's equity.
International Family Entertainment, Inc. (FAM - $34.375 - NYSE) is a
Virginia-based entertainment company with production and distribution operations
around the world. With such key assets as The Family Channel, MTM and Cable
Health Club, FAM is a leading provider of cable programming oriented toward
families. The Family Channel is performing exceptionally well, and MTM has been
re-energized. FAM has created an exceptional franchise which attracted News
Corporation Limited (NWS - $19.25 - NYSE), whose Fox Kids Worldwide Inc. unit
agreed to buy FAM for $35 a share cash in a transaction valued at $1.9 billion.
Mafco Consolidated Group, Inc. (MFO - $33.50 - NYSE) completed its merger with
Mafco Holdings Inc., which acquired the remaining 15 percent of Mafco
Consolidated's publicly-held common shares for $33.50 a share, or $150.8 million
in cash. Mafco Consolidated is a holding company, owning about 36% of M&F
Worldwide Corp. (MFW - $8.75 - NYSE), a producer of licorice extract, and about
64% of Consolidated Cigar Holdings Inc. (CIG - $27.75 - NYSE).
Rhone-Poulenc Rorer, Inc. (RPR - $90.875 - NYSE) announced that its majority
shareholder Rhone-Poulenc SA, was considering a $4.3 billion ($92-per-share) bid
to acquire the 31.7% stake of Rhone-Poulenc Rorer that it does not already own.
Rhone-Poulenc also said it will combine its chemicals and fibers and polymers
activities into an independent company that will be floated on the stock market
in 1998, whether or not it goes through with the Rhone-Poulenc Rorer buyout. The
plan is the latest in a series of restructurings that have transformed the
global chemical and pharmaceutical industries during the last decade. Driven by
a desire to break up conglomerates, most large groups that once had both
chemicals and pharmaceutical businesses have opted for one activity or the
other. Rorer's independent directors are expected to form a special committee to
evaluate the offer.
Sequa Corporation (SQA.A - $56.375 - NYSE; SQA.B - $62.25 - NYSE) is an
aerospace, chemical, can machinery and automotive product company. 1996 sales
were $1.4 billion. Its diversified businesses range from overhauling jet engines
to manufacturing specialty chemicals. The Chromalloy division, which generates
over $900 million in revenue, is the leader in the repair, replacement and
overhaul of gas turbine engines. Sequa launched a program to
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divest less profitable operations, thereby unmasking this crown jewel. Sequa's
estimated private market value is over $100 per share.
Tambrands Inc. (TMB - $49.875 - NYSE) agreed to be acquired by Procter & Gamble
Company for $2 billion in cash and assumed debt. P&G will pay $50 a share in
cash, or $1.85 billion, and assume $150 million in debt for Tambrands. The
purchase would make P&G the largest producer of feminine hygiene products. P&G
will give Tambrands the financial resources, marketing experience and
distribution network to expand sales outside the U.S. While Tambrands has half
of the U.S. tampon market, valued at $800 million, sales are much lower in
foreign markets. P&G hopes to distribute Tampax in Latin America and Asia, which
have more than half of the world's population yet account for less than 5
percent of Tampax's volume sales. The transaction is expected to be completed
during the third quarter of 1997.
Thomas Nelson Inc. (Sub. Deb. Cv., 5.75%, 11/30/99) publishes Bibles and
inspirational books and produces specialty gift items, all designed to appeal to
the growing Christian and family-oriented lifestyle segments of our nation's
population.
Shareholder Meeting - May 12, 1997
The Annual Meeting of shareholders was held on May 12, 1997 at the
Greenwich Library in Greenwich, Connecticut. At that meeting, shareholders
elected Dugald A. Fletcher, Anthony R. Pustorino and E. Val Cerutti as Directors
of the Convertible Securities Fund. A total of 4,887,660 votes, 4,868,821 votes
and 4,884,983 votes were cast in favor of each Director and 227,264 votes,
246,103 votes and 229,942 votes were withheld for each Director, respectively.
In addition, the shareholders elected Price Waterhouse LLP as the
independent accountants for the Convertible Securities Fund for the year ending
December 31, 1997. 4,934,918 votes were cast in favor of the approval of this
proposal, 146,066 votes were cast against the proposal and 33,940 votes
abstained.
We thank you for your participation and appreciate your continued support.
Dividends
The Fund recently distributed a dividend of $0.12 per share on June 27,
1997. For the twelve months ended June 30, 1997, the Fund distributed a total of
$0.855 per share.
No Commission Purchases
When the Convertible Securities Fund converted to closed-end status on
March 31, 1995, we offered shareholders the opportunity to sell their shares at
no commission for up to two years. On March 31, 1997, this ability to sell your
convertible shares at no commission expired. However, we would like to offer
shareholders the opportunity to buy shares at no commission for the next year
through our Voluntary Cash Purchase Plan which is available every month. Please
see the details of this Plan at the end of this report.
10
<PAGE>
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, IRAs, 401(k)s, quarterly reports, closing prices and other
current news. You can send us e-mail at [email protected].
In Conclusion
As always, we are focusing on the individual assets in the Fund's
portfolio. By concentrating on niche industry groups and individual companies
that can do well independent of prevailing economic and broad market trends, we
believe we are well-positioned to prosper, even in a less generous market
environment. Our investment philosophy is simple and straightforward: buying
good businesses cheap will generate consistently superior returns.
Sincerely,
/s/Mario J. Gabelli
Mario J. Gabelli
President and
Chief Investment Officer
August 1, 1997
- --------------------------------------------------------------------------------
Top Ten Convertible Holdings
June 30, 1997
Tambrands, Inc. HSN, Inc.
Mafco Consolidated Group, Inc. AirTouch Communications, Inc.
International Family Entertainment, Inc. Thomas Nelson Inc.
Rhone-Poulenc Rorer, Inc. Chock Full o'Nuts Corporation
Fieldcrest Cannon, Inc. Sequa Corporation
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager,
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
considerations.
11
<PAGE>
The Gabelli Convertible Securities Fund, Inc.
Portfolio of Investments -- June 30, 1997 (Unaudited)
================================================================================
Principal Market
Amount Value
--------- -----
CONVERTIBLE CORPORATE BONDS - 21.28%
AUTOMOTIVE: PARTS AND ACCESSORIES - 0.20%
$ 400,000 Exide Corporation
Sub. Deb. Cv. 2.90% 12/15/05(b) .............. $ 248,500
-------------
AVIATION: PARTS AND SERVICES - 1.27%
242,000 Kaman Corporation
Sub. Deb. Cv. 6.00%, 03/15/12 . .............. 226,270
1,334,000 UNC, Inc.
Sub. Deb. Cv. 7.50%, 03/31/06.. .............. 1,320,660
-------------
1,546,930
-------------
BUILDING AND CONSTRUCTION - 0.01%
10,000 Holderbank Financiere Glarus AG
4.50%, 08/11/08 .............................. 15,800
-------------
BUSINESS SERVICES - 0.94%
850,000 BBN Corporation
Sub. Deb. Cv. 6.00%, 04/01/12 ................ 821,313
850,000 Builders Transport, Inc.
Sub. Deb. Cv. 6.50%, 05/01/11 ................ 331,500
-------------
1,152,813
-------------
CABLE DISTRIBUTION - 0.40%
400,000 Comcast Corporation
Sub. Deb. Cv. 1.125%, 04/15/07 ............... 228,000
250,000 Comcast Corporation
Sub. Deb. Cv. 3.375%, 09/09/05 ............... 262,500
-------------
490,500
-------------
COMPUTER SOFTWARE & SERVICES - 0.11%
40,000 Sierra On-Line, Inc.
Sub. Deb. Cv. 6.50%, 04/05/02 (b) ............ 135,550
-------------
CONSUMER PRODUCTS - 3.32%
600,000 Borden, Inc.
Sub. Deb. Cv. Zero Cpn, 05/21/02 (b) ......... 411,000
2,800,000 Fieldcrest Cannon, Inc.
Sub. Deb. Cv. 6.00%, 03/15/12 ................ 2,225,999
564,000 Masco Corporation
Sub. Deb. Cv. 5.25%, 02/15/12 ................ 590,085
100,000 Outboard Marine Corp.
7.00%, 07/01/02 .............................. 100,000
800,000 Standard Commercial Corporation
Sub. Deb. Cv. 7.25%, 03/31/07 ................ 724,000
-------------
4,051,084
-------------
CONSUMER SERVICES - 1.92%
$1,850,000 HSN, Inc. Sub. Deb. Cv.
5.875%, 03/01/06 (b) ......................... $ 2,349,500
-------------
ELECTRONIC EQUIPMENT - 0.90%
650,000 Pacific Scientific Company
Sub. Deb. Cv. 7.75%, 06/15/03 ................ 664,625
400,000 Trans-Lux Corporation
Sub. Deb. Cv. 7.50%, 12/01/06 ................ 437,500
-------------
1,102,125
-------------
ENERGY - 1.71%
1,100,000 Moran Energy, Inc.
Sub. Deb. Cv. 8.75%, 01/15/08 ................ 1,017,500
600,000 Pennzoil Company
Sub. Deb. Cv. 6.50%, 01/15/03 ................ 1,065,720
-------------
2,083,220
-------------
ENTERTAINMENT - 0.70%
500,000(a)Havas
Sub. Deb. Cv. 3.00%, 12/31/97 ................ 109,713
560,000 Savoy Pictures Entertainment, Inc.
Sub. Deb. Cv. 7.00%, 07/01/03 ................ 481,600
550,000 Time Warner, Inc. LYONS Sr.
Sub. Notes Cv. Zero Cpn., 06/22/13 ........... 253,000
5,000 WMS Industries, Inc.
Sub. Deb. Cv. 5.75%, 11/30/02 ................ 5,675
-------------
849,988
-------------
EQUIPMENT AND SUPPLIES - 1.95%
100,000 Aeroquip-Vickers Inc.
Sub. Deb. Cv. 6.00%, 10/15/02 ................ 103,750
474,980 Fedders Corporation
8.50%, 06/15/12 .............................. 470,230
625,000 Intermagnetics General Corporation
Sub. Deb. Cv. 5.75%, 09/15/03 (b) ............ 546,875
1,250,000 Kollmorgen Corporation
Sub. Deb. Cv. 8.75%, 05/01/09 ............... 1,262,500
-------------
2,383,355
-------------
FOOD AND BEVERAGE - 1.84%
100,000 Boston Chicken, Inc.
Sub. Deb. Cv. 4.50%, 02/01/04 ................ 76,000
50,000 Chiquita Brands International Inc.
Sub. Deb. Cv. 7.00%, 03/28/01 ............... 47,063
1,005,000 Chock Full o' Nuts Corporation
Sub. Deb. Cv. 7.00%, 04/01/12 ................ 1,011,281
1,050,000 Chock Full o' Nuts Corporation
Sub. Deb. Cv. 8.00%, 09/15/06 ................ 1,107,750
-------------
2,242,094
-------------
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
The Gabelli Convertible Securities Fund, Inc.
Portfolio of Investments (Continued) -- June 30, 1997 (Unaudited)
================================================================================
Principal Market
Amount Value
--------- -----
HEALTH CARE - 0.22%
$ 300,000 Ivax Corp.
Deb. Cv. 6.50%, 11/15/01 ..................... $ 273,000
-------------
HOTELS/GAMING - 0.61%
700,000 Hilton Hotels Corporation
Sub. Deb. Cv. 5.00%, 05/15/06 ................ 749,000
-------------
METALS AND MINING - 0.32%
450,000 Coeur d'Alene Mines Corporation
Sub. Deb. Cv. 6.00%, 06/10/02 ................ 387,000
-------------
PAPER AND FOREST PRODUCTS - 0.19%
200,000 Riverwood International Corporation
Sub. Deb. Cv. 6.75%, 09/15/03 ................ 230,890
-------------
PUBLISHING - 2.19%
700,000 News America Holdings Inc.
Sub. Deb. Cv. Zero Cpn., 03/31/02 ............ 526,750
2,100,000 Thomas Nelson, Inc.
Sub. Deb. Cv. 5.75%, 11/30/99 (b) ............ 2,141,999
-------------
2,668,749
-------------
REAL ESTATE/DEVELOPMENT - 0.07%
125,000 Rockefeller Center Properties, Inc.
Sub. Deb. Cv. Zero Cpn., 12/31/00 ............ 85,313
-------------
RETAIL - 1.95%
146,000 Farah U.S.A., Inc.
Sub. Deb. Cv. 8.50%, 02/01/04 ................ 116,800
380,000 Food Lion, Inc.
Sub. Deb. Cv. 5.00% 06/01/03 (b) ............. 400,900
2,000,000 General Host Corporation
Sub. Deb. Cv. 8.00%, 02/15/02 ................ 1,630,000
110,000 JumboSports, Inc.
Sub. Deb. Cv. 4.25%, 11/01/00 ................ 76,175
200,000 RDM Sports Group, Inc.
8.00%, 08/15/13 .............................. 154,500
-------------
2,378,375
-------------
TRANSPORTATION - 0.46%
465,000 Greyhound Lines, Inc. Sub. Deb. Cv.
8.50%, 03/31/07 .............................. 462,675
150,000 WorldCorp, Inc.
Sub. Deb. Cv. 7.00%, 05/15/04 ................ 94,500
-------------
557,175
-------------
TOTAL CONVERTIBLE
CORPORATE BONDS ................................ 25,980,961
-------------
Market
Shares Value
--------- -----
CONVERTIBLE PREFERRED STOCKS - 11.17%
AUTOMOBILE MANUFACTURERS - 0.52%
5,000 Ford Motor Company
$4.20 Cv. Pfd. Ser. A ........................ $ 635,000
-------------
AVIATION: PARTS AND SERVICES - 0.45%
9,000 Kaman Corporation 6.50% Cv. Pfd. Ser. 2 ........ 551,250
-------------
BROADCASTING - 0.49%
11,500 Granite Broadcasting Corporation Pfd. .......... 592,250
-------------
CABLE - 0.57%
6,000 Cablevision Systems Corporation
8.50% Pfd. Ser. I ............................ 162,750
10,500 US West Inc.
Cv. Pfd. Ser. D .............................. 528,281
-------------
691,031
-------------
CONSUMER PRODUCTS - 0.65%
7,500 Fieldcrest Cannon, Inc.
$3.00 Cv. Pfd. Ser. A ........................ 345,000
36,000 Kerr Group, Inc.
Cl. B $1.70 Cv. Pfd. Ser. D .................. 450,000
-------------
795,000
-------------
DIVERSIFIED INDUSTRIAL - 0.11%
1,000 GATX Corporation
$2.50 Cv. Pfd. .............................. 140,000
-------------
ENERGY - 1.73%
6,000 Atlantic Richfield Company
$2.80 Cv. Pfd. ............................... 2,070,000
1,500 Mcdermott International, Inc.
Pfd. A ....................................... 47,438
-------------
2,117,438
-------------
EQUIPMENT AND SUPPLIES - 3.22%
50,000 Fedders Corporation
Cv. Pfd. ..................................... 315,625
25,000 Navistar International, Inc.
$6.00 Cv. Pfd. Ser. G ........................ 1,528,125
24,000 Sequa Corporation
$5.00 Cv. Pfd. ............................... 2,088,000
-------------
3,931,750
-------------
PUBLISHING - 0.50%
10,000 Golden Books Family Entertainment, Inc.
8.75% Cv. Pfd. (b) ........................... 613,750
-------------
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
The Gabelli Convertible Securities Fund, Inc.
Portfolio of Investments (Continued) -- June 30, 1997 (Unaudited)
================================================================================
Market
Shares Value
------ -----
TELECOMMUNICATIONS - 1.17%
3,000 Sprint Corporation
$1.50 Cv. Pfd. Ser. 1 ........................ $ 468,000
2,200 Sprint Corporation
$1.50 Cv. Pfd. Ser. 2 ........................ 340,450
8,000 Sprint Corporation
8.25% Cv. Pfd. ............................... 289,000
4,000 TCI Communications, Inc.
4.25% Cv. Pfd. Ser. A ........................ 173,000
1,500 TCI Pacific Communications, Inc.
5.00% Cv. Pfd. ............................... 154,500
------------
1,424,950
------------
WIRELESS COMMUNICATIONS - 1.76%
44,000 AirTouch Communications Inc.
6.00% Cv. Pfd. Cl. B ......................... 1,254,000
18,600 AirTouch Communications, Inc.
4.25% Cv. Pfd. Cl. C ......................... 892,800
------------
2,146,800
------------
TOTAL CONVERTIBLE
PREFERRED STOCKS ............................... 13,639,219
------------
COMMON STOCKS - 21.19%
AUTOMOTIVE: PARTS AND ACCESSORIES - 1.14%
59,982 GenCorp, Inc. .................................. 1,387,082
------------
BUSINESS SERVICES - 1.57%
60,000 Prime Service, Inc.+ ........................... 1,916,250
------------
CABLE - 2.82%
100,000 International Family
Entertainment, Inc.+ ......................... 3,437,500
------------
CONSUMER PRODUCTS - 7.92%
110,400 Mafco Consolidated Group Inc. .................. 3,698,400
120,000 Tambrands Inc. ................................. 5,985,000
------------
9,683,400
------------
DIVERSIFIED INDUSTRIAL - 1.36%
28,735 GATX Corporation ............................... 1,659,446
------------
ENERGY - 0.43%
8,000 Exxon Corporation .............................. 492,000
2,000 Santa Fe Energy Resources, Inc.+ ............... 29,375
------------
521,375
------------
EQUIPMENT AND SUPPLIES - 1.71%
100,000 Giddings & Lewis, Inc. ......................... 2,087,500
------------
Shares
or
Principal Market
Amount Value
------ -----
HEALTH CARE - 2.95%
15,000 Genentech, Inc. ................................ $ 884,063
30,000 Rhone-Poulenc Rorer, Inc. ...................... 2,726,250
------------
3,610,313
------------
INSURANCE - 1.23%
60,000 Integon Corp. .................................. 1,500,000
------------
METALS AND MINING - 0.05%
2,000 Freeport-McMoran Copper & Gold, Inc.
Cl. A+ ....................................... 58,500
------------
REAL ESTATE - 0.01%
2,000 Property Capital Trust ......................... 12,750
------------
TOTAL COMMON STOCKS 25,874,116
------------
U.S. GOVERNMENT OBLIGATIONS - 45.83%
$56,150,000 U.S. Treasury Bills
4.62% to 5.00%,
due 07/10/97 to 08/21/97 ..................... 55,966,141
------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS .................................... 55,966,141
------------
TOTAL
INVESTMENTS -- 99.47%
(Cost $115,151,199) .......................... 121,460,437
------------
Cash and Other Assets, in excess of
Liabilities-- 0.53% ............................ 643,659
------------
NET ASSETS -- COMMON STOCK
(8,092,945 common
shares outstanding) .......................... 92,104,096
------------
NET ASSETS -- PREFERRED STOCK
(1,200,000 preferred
shares outstanding) .......................... 30,000,000
------------
TOTAL NET ASSETS -- 100.00% .................... $122,104,096
============
NET ASSET VALUE PER COMMON SHARE ............... $11.38
======
- -------------------
(a)- Principal amount denoted in French Francs.
(b)- Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 1997 Rule 144A
securities amounted to $6,856,074 or 5.6% of net assets.
For Federal income tax purposes:
Aggregate cost............................. $115,151,199
============
Gross unrealized appreciation.............. $ 7,256,499
Gross unrealized depreciation.............. (947,261)
-----------
Net unrealized appreciation................ $ 6,309,238
===========
+ Non-income producing security.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
The Gabelli Convertible Securities Fund, Inc.
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
================================================================================
Assets:
Investments in securities, at value
(Cost $115,151,199) ..................................... $ 121,460,437
Cash ...................................................... 231,591
Receivable for investments sold ........................... 6,621,799
Accrued interest receivable ............................... 392,098
Dividends receivable ...................................... 108,713
Prepaid insurance ......................................... 16,172
-------------
Total Assets ............................................ 128,830,810
-------------
Liabilities:
Payable to Advisor ........................................ 75,627
Payable for investments purchased ......................... 4,859,118
Dividends payable ......................................... 1,271,076
Payable for offering costs (Preferred) .................... 441,987
Other accrued expenses .................................... 78,906
-------------
Total Liabilities ....................................... 6,726,714
-------------
Net Assets ............................................ $ 122,104,096
=============
Net Assets Consist of:
Cumulative Preferred Stock ($25 per
share, 1,200,000 shares of preferred
stock outstanding) ..................................... $ 30,000,000
Capital Stock, at par value ............................... 8,093
Additional paid-in capital ................................ 83,826,814
Distributions in excess of net
investment income ....................................... (703,887)
Accumulated net realized gains on investments ............. 2,663,740
Net unrealized appreciation (depreciation)
on investments and assets and liabilities
denominated in foreign currencies ....................... 6,309,336
-------------
Total Net Assets ...................................... $ 122,104,096
=============
Net Asset Value Per Common Share ............................ $ 11.38
=============
($92,104,096 / 8,092,945 common shares outstanding;
100,000,000 shares authorized of $0.001 par value)
Statement of Operations
For the Six Months Ended June 30, 1997 (Unaudited)
================================================================================
Income:
Interest .................................................. $1,896,893
Dividends ................................................. 539,740
----------
Total income ............................................ 2,436,633
----------
Expenses:
Investment advisory fee ................................... 450,311
Printing and mailing ...................................... 70,457
Transfer and shareholder servicing agent .................. 38,446
Directors' fees and expenses .............................. 30,000
Legal and audit fees ...................................... 20,642
Custodian fees and expenses ............................... 16,309
Miscellaneous ............................................. 30,426
----------
Total expenses .......................................... 656,591
----------
Net investment income ..................................... 1,780,042
----------
Net Realized and Unrealized
Gain on Investments:
Net realized gain on investments .......................... 2,727,769
Net change in unrealized appreciation ..................... 1,586,102
----------
Net gain on investments ................................... 4,313,871
----------
Net increase in net assets resulting
from operations ......................................... $6,093,913
==========
Statement of Changes in Net Assets
================================================================================
Six Months Ended Year Ended
June 30, 1997 December 31,
(Unaudited) 1996
-------------- -------------
Increase (decrease) in Net Assets:
Net investment income ..................... $ 1,780,042 $ 3,950,672
Net realized gain on investments .......... 2,727,769 1,925,851
Net realized gain on futures .............. -- 57,335
Net change in unrealized appreciation ..... 1,586,102 536,303
------------- -------------
Net increase in net assets
resulting from operations ............... 6,093,913 6,470,161
------------- -------------
Distributions from net investment income .. (1,942,307) (3,950,672)
Distributions from net realized gains ..... -- (1,982,772)
Distributions in excess of net
investment income ....................... (299,801) (14,871)
------------- -------------
(2,242,108) (5,948,315)
------------- -------------
Net proceeds of issuance of preferred stock 28,593,000 --
------------- -------------
Net increase in net assets .............. 32,444,805 521,846
Net Assets:
Beginning of period ....................... 89,659,291 89,137,445
------------- -------------
End of period ............................. $ 122,104,096 $ 89,659,291
============= =============
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
The Gabelli Convertible Securities Fund, Inc.
Notes to Financial Statements (Unaudited)
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 effect 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.
Forward Foreign Currency Contracts. The Fund may hold currencies to meet
settlement requirements for foreign securities and may engage in currency
exchange transactions to hedge against changes in exchange rates. Forward
foreign currency contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded by the Fund as an
unrealized gain or loss. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the Fund's portfolio securities, but it
does establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that might
result should the value of the currency increase. In addition, the Fund could be
exposed to risks if the counterparties to the contracts are unable to meet the
terms of their contracts.
16
<PAGE>
The Gabelli Convertible Securities Fund, Inc.
Notes to Financial Statements (Unaudited) (Continued)
At June 30, 1997, the Fund had short positions in the following forward
foreign currency contracts.
Settlement Unrealized
Amount Foreign Currency Date Value Loss
------ ---------------- ---- ---------- ----
1,697,809,127 Sell Italian Lira 07/08/97 $1,000,477 $766
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. For the six months ended June 30, 1997 there were no futures
contracts outstanding.
There are several risks in connection with the use of futures contracts as
a hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
Short 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. Dividends and distributions to preferred shareholders are
accrued and determined as described in Note 3.
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.
17
<PAGE>
The Gabelli Convertible Securities Fund, Inc.
Notes to Financial Statements (Unaudited) (Continued)
3. Capital
The Articles of Incorporation, dated December 19, 1988, permit the Fund to
issue 100,000,000 (par value $0.001) common stock. On May 9, 1997, the Board of
Directors authorized the issuance of 1,200,000 shares (par value $.001) of 8%
Cumulative Preferred Stock ("Preferred Stock"). The Preferred Stock is
redeemable at $25.00 per share plus any accumulated or unpaid dividends, whether
or not earned or declared, if certain requirements relating to the assets and
liablilites of the Fund as set forth in the Articles of Incorporation are not
satisfied.
The Fund shall not declare dividends or make other distributions on shares
of common stock or purchase any such shares if at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
Preferred Stock would be less than 200%.
The holders of Preferred Stock have voting rights equal to the holders of
common stock (one vote per share) and will vote together with holders of shares
of common stock as a single class. In addition, the Investment Company Act of
1940 requires that along with approval of the holders of a majority of any
outstanding preferred shares, voting separately as a class would be required to
(a) adopt any plan of reorganization that would adversely affect the Preferred
Stock, and (b) take any action requiring a vote of security holders, including,
among other things, changes in the Fund's subclassification as a closed-end
investment company or changes in its fundamental investment restrictions.
4. Purchases and Sales of Securities
Purchases and sales of securities for the six months ended June 30, 1997,
other than U.S. government obligations and short-term securities, aggregated
$91,890,748 and $89,029,778 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. In addition, the Advisor has agreed to waive the portion of its
investment advisory fee attributable to an amount of assets of the Fund equal to
the aggregate liquidation preference ($30 million) of the Cumulative Preferred
Stock for any calendar year in which the total return of the Fund, including
distributions and the advisory fee subject to potential waiver, allocable to
common stock is less than the stated dividend rate (8%) of the Cumulative
Preferred Stock. During the six months ended June 30, 1997, the advisory fee was
reduced by $36,986 pursuant to this agreement
6. Transactions with Affiliates
The Fund paid brokerage commissions during the six months ended June 30,
1997 of $28,615 to Gabelli & Company, Inc. and its affiliates.
18
<PAGE>
The Gabelli Convertible Securities Fund, Inc.
Financial Highlights (Unaudited)
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended ---------------------------------------------------------------
June 30, 1997 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating Performance:
Net asset value, beginning of period ......... $ 11.08 $ 11.01 $ 10.60 $ 11.52 $ 11.45 $ 10.91
-------- ------- ------- -------- -------- -------
Net investment income ........................ 0.22 0.49 0.53 0.69 0.76 0.65
Net realized and unrealized gain (loss)
on securities ............................. 0.49 0.31 1.03 (0.71) 0.74 0.76
Offering expenses charged to capital surplus . (0.17) -- -- -- -- --
-------- ------- ------- -------- -------- -------
Total from investment operations ............. 0.54 0.80 1.56 (0.02) 1.50 1.41
-------- ------- ------- -------- -------- -------
Less Distributions:
Dividends from net investment income ......... (0.24) (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 ............... $ 11.38 $ 11.08 $ 11.01 $ 10.60 $ 11.52 $ 11.45
======== ======= ======= ======== ======== =======
Market value, end of period .................. $ 9.88 $ 9.25 $ 10.75 -- -- --
======== ======= ======= ======== ======== =======
Total Net Asset Value Return+(a) ............. 5.2% 8.4% 15.0% (0.2)% 13.1% 13.0%
Total Investment Return+(b) .................. 9.4% (7.3)% 12.3% -- -- --
Ratios to average net assets/supplemental data:
Net assets, end of period (in thousands) ..... $122,104 $89,659 $89,137 $112,090 $108,674 $92,541
Ratio of operating expenses to
average net assets(c) ..................... 1.34% 1.45% 1.56% 1.31% 1.38% 1.40%
Ratio of net investment income (loss)
to average net assets ...................... 3.65% 4.33% 4.60% 4.77% 4.58% 5.53%
Portfolio turnover rate ...................... 145% 114% 140% 67% 45% 32%
Average commission rate(d) ................... $0.03718 $0.0423 -- -- -- --
</TABLE>
- ---------------
+ Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of distributions.
(a) Based on net asset value per share, adjusted for reinvestment of all
distributions.
(b) Based on net asset value per share through March 31, 1995, the date of
conversion of the Fund to closed-end status, and market value thereafter,
adjusted for reinvestment of all distributions.
(c) Includes, for 1995, a current period expense associated with the conversion
of the Fund to closed-end Status. Without the conversion expense, this
ratio would have been 1.28% in 1995. Includes, for 1997, the advisory fee
reduction on incremental assets raised through the issuance of preferred
shares of $36,986. Without this advisory fee reduction, this ratio would
have been 1.42%.
(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.
The accompanying notes are an integral part of the financial statements.
19
<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 or requesting a copy of the terms of 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.
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. The Fund's Advisor,
Gabelli Funds, Inc., has arranged that these purchases will be executed at no
commission through December 31, 1997. It is suggested that any voluntary cash
payments be sent to State Street Bank and Trust Company, P.O. Box 8200, Boston,
MA 02266-8200 such that State Street receives such payments approximately 10
days before the 15th of the month. Funds not received at least five days before
the investment date shall be held for investment in the following month. A
payment may be withdrawn without charge if notice is received by State Street at
least 48 hours before such payment is to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Convertible Securities Fund.
20
<PAGE>
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
One Corporate Center, Rye, NY 10580-1434
Directors
Mario J. Gabelli, CFA
President and Chief Investment Officer
E. Val Cerutti
Chief Executive Officer
Cerutti Consultants, Inc.
Felix J. Christiana
Former Senior Vice President
Dollar Dry Dock Savings Bank
Anthony J. Colavita, P.C.
Attorney-at-Law
Anthony J. Colavita, P.C.
Dugald A. Fletcher
President, Fletcher & Company, Inc.
Karl Otto Pohl
Former President, Deutsche Bundesbank
Anthony R. Pustorino
Certified Public Accountant
Professor, Pace University
Anthonie C. van Ekris
Managing Director
BALMAC International, Inc.
Salvatore J. Zizza
Chairman & Chief Executive Officer
The Lehigh Group, Inc.
Officers and Portfolio Managers
Mario J. Gabelli, CFA
President & Chief Investment Officer
Bruce N. Alpert
Vice President & Treasurer
Peter W. Latartara
Assistant Vice President
A. Hartswell Woodson, III
Associate Portfolio Manager
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 LLP
Stock Exchange Listing
NYSE-Symbol: GVC
Shares Outstanding 8,092,945
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Saturday's The New York Times and
Monday's in The Wall Street Journal.
It is also listed in Barron's Mutual Funds/Closed End Funds section under the
heading "Convertible Securities Funds".
The Net Asset Value may be obtained each day by calling (914) 921-5071.
- --------------------------------------------------------------------------------
For general information about the Gabelli Funds, call 1-800-GABELLI
(1-800-422-3554), fax us at 914-921-5118, visit our Internet homepage at:
http://www.gabelli.com, or e-mail us at: [email protected]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Convertible Securities Fund may from
time to time purchase shares of its capital stock in the open market when the
Convertible Securities Fund shares are trading at a discount of 10% or more from
the net asset value of the shares.
- --------------------------------------------------------------------------------
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
One Corporate Center
Rye, NY 10580-1434
914-921-5070
http://www.gabelli.com
Semi-Annual Report
June 30, 1997
