Gabelli Convertible and Income Securities Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number            811-05715                   

                      The Gabelli Convertible and Income Securities Fund Inc.                      

(Exact name of registrant as specified in charter)

One Corporate Center

                                             Rye, New York 10580-1422                                              

(Address of principal executive offices) (Zip code)

Bruce N. Alpert

Gabelli Funds, LLC

One Corporate Center

                                 Rye, New York 10580-1422                                 

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-800-422-3554

Date of fiscal year end:  December 31

Date of reporting period:  March 31, 2014

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.


Item 1. Schedule of Investments.

The Schedule(s) of Investments is attached herewith.


The Gabelli Convertible and Income

Securities Fund Inc.

 

First Quarter Report — March 31, 2014

  LOGO
  Mario J. Gabelli, CFA
  Portfolio Manager
 

To Our Shareholders,

For the quarter ended March 31, 2014, the net asset value (“NAV”) total return of The Gabelli Convertible and Income Securities Fund Inc. was 1.0%, compared with a total return of 1.9% for the Barclays Government/Credit Bond Index. The total return for the Fund’s publicly traded shares was 2.3%. The Fund’s NAV per share was $6.43, while the price of the publicly traded shares closed at $6.18 on the New York Stock Exchange (“NYSE”). See below for additional performance information.

Enclosed is the schedule of investments as of March 31, 2014.

Comparative Results

Average Annual Returns through March 31, 2014 (a) (Unaudited)

  Since
     Quarter   1 Year   5 Year   10 Year   Inception
(07/03/89)

Gabelli Convertible and Income Securities Fund
NAV Total Return (b)

       0.96 %       13.09 %       15.55 %       6.12 %       7.18 %

Investment Total Return (c)

       2.26         8.56         11.95         3.06         6.13 (d)

Standard & Poor’s (“S&P”) 500 Index

       1.81         21.86         21.16         7.42         9.77 (e)

Barclays Government/Credit Bond Index

       1.90         (0.22 )       5.03         4.36         N/A (f)

Lipper Convertible Securities Fund Average

       3.06         18.12         17.78         7.04         8.64 (e)
  (a)

Returns 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. Current performance may be lower or higher than the performance data presented. Visit www.gabelli.com for performance information as of the most recent month end. Performance returns for periods of less than one year are not annualized. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The S&P 500 Index is an unmanaged indicator of stock market performance. The Barclays Government/Credit Bond Index is a market value weighted index that tracks the performance of fixed rate, publicly placed, dollar denominated obligations. The Lipper Convertible Securities Fund Average reflects the average performance of open-end mutual funds classified in this particular category. Dividends and interest income are considered reinvested. You cannot invest directly in an index.

 
  (b)

Total returns and average annual returns reflect changes in the NAV per share, reinvestment of distributions at NAV on the ex-dividend date, and adjustments for rights offerings and are net of expenses. Since inception return is based on an initial NAV of $10.00.

 
  (c)

Total returns and average annual returns reflect changes in closing market values on the NYSE, reinvestment of distributions, and adjustments for rights offerings. Since inception return is based on an initial offering price of $11.25.

 
  (d)

The Fund converted to closed-end status on March 31, 1995 and had no operating history on the NYSE prior to that date.

 
  (e)

From June 30, 1989, the date closest to the Fund’s inception for which data is available.

 
  (f)

The Barclays Government/Credit Bond Index inception date is January 29, 1999.

 


The Gabelli Convertible and Income Securities Fund Inc.

Schedule of Investments — March 31, 2014 (Unaudited)

 

 

Principal
Amount

         

Market

Value

 
  

CONVERTIBLE CORPORATE BONDS — 14.2%

  

  

Aerospace — 1.9%

  
$ 1,000,000      

GenCorp Inc., Sub. Deb.,
4.063%, 12/31/39

   $ 2,045,625   
     

 

 

 
  

Automotive — 1.9%

  

  

Navistar International Corp., Sub. Deb.,

  
  700,000      

3.000%, 10/15/14

     713,563   
  700,000      

4.500%, 10/15/18(a)

     687,750   
  700,000      

4.750%, 04/15/19(a)

     702,188   
     

 

 

 
        2,103,501   
     

 

 

 
  

Broadcasting — 0.3%

  

  200,000      

Sirius XM Radio Inc.,
7.000%, 12/01/14(a)

     355,875   
     

 

 

 
  

Building and Construction — 1.6%

  

  150,000      

Ascent Capital Group Inc.,
4.000%, 07/15/20

     150,187   
  1,200,000      

Layne Christensen Co.,
4.250%, 11/15/18(a)

     1,254,000   
  200,000      

Lennar Corp.,
2.750%, 12/15/20(a)

     366,000   
     

 

 

 
        1,770,187   
     

 

 

 
  

Diversified Industrial — 5.9%

  

  3,500,000      

Griffon Corp., Sub. Deb.,
4.000%, 01/15/17(a)

     3,968,125   
  1,400,000      

Roper Industries Inc., Sub. Deb. STEP,
0.000%, 01/15/34

     2,352,875   
  100,000      

Trinity Industries Inc., Sub. Deb.,
3.875%, 06/01/36

     159,375   
     

 

 

 
        6,480,375   
     

 

 

 
  

Electronics — 0.1%

  

  100,000      

Intel Corp., Sub. Deb.,
3.250%, 08/01/39

     140,000   
     

 

 

 
  

Entertainment — 0.0%

  

  100,000      

THQ Inc.,
5.000%, 08/15/14†

     26,125   
     

 

 

 
  

Environmental Services — 0.4%

  

  350,000      

Covanta Holding Corp.,
3.250%, 06/01/14

     407,531   
     

 

 

 
  

Financial Services — 1.4%

  

  1,500,000      

Janus Capital Group Inc.,
3.250%, 07/15/14

     1,505,625   
     

 

 

 
  

Health Care — 0.4%

  

  100,000      

Chemed Corp.,
1.875%, 05/15/14

     112,375   
  100,000      

NuVasive Inc.,
2.750%, 07/01/17

     119,250   

Principal
Amount

         

Market

Value

 
$ 250,000      

Wright Medical Group Inc.,
2.625%, 12/01/14

   $ 254,844   
     

 

 

 
        486,469   
     

 

 

 
  

Hotels and Gaming — 0.2%

  

  100,000      

MGM Resorts International,
4.250%, 04/15/15

     145,812   
  100,000      

Morgans Hotel Group Co.,
2.375%, 10/15/14

     99,375   
     

 

 

 
        245,187   
     

 

 

 
  

Retail — 0.1%

  

  60,000      

Costco Wholesale Corp., Sub. Deb.,
Zero Coupon, 08/19/17

     152,475   
     

 

 

 
  

TOTAL CONVERTIBLE CORPORATE BONDS

     15,718,975   
     

 

 

 

Shares

             
  

CONVERTIBLE PREFERRED STOCKS — 1.8%

  

  

Energy and Utilities — 0.3%

  
  6,000      

AES Trust III, 6.750%

     306,660   
  300      

El Paso Energy Capital Trust I, 4.750%

     15,315   
     

 

 

 
        321,975   
     

 

 

 
  

Food and Beverage — 1.0%

  
  

Post Holdings Inc.,

  
  1,000      

2.500%, Series C(a)

     110,625   
  8,000      

3.750%(a)

     997,928   
     

 

 

 
        1,108,553   
     

 

 

 
  

Telecommunications — 0.5%

  
  12,000      

Cincinnati Bell Inc., 6.750%, Ser. B

     543,840   
     

 

 

 
  

TOTAL CONVERTIBLE PREFERRED STOCKS

     1,974,368   
     

 

 

 
  

COMMON STOCKS — 67.5%

  
  

Aerospace — 5.9%

  
  200      

Rockwell Automation Inc.

     24,910   
  365,000      

Rolls-Royce Holdings plc

     6,535,352   
     

 

 

 
        6,560,262   
     

 

 

 
  

Automotive: Parts and Accessories — 1.9%

  

  24,000      

Genuine Parts Co.

     2,084,400   
     

 

 

 
  

Cable and Satellite — 0.1%

  
  3,000      

Rogers Communications Inc., Cl. B

     124,320   
     

 

 

 
  

Communications Equipment — 0.4%

  

  20,000      

Corning Inc.

     416,400   
     

 

 

 
  

Computer Hardware — 1.2%

  
  7,000      

International Business Machines Corp.

     1,347,430   
     

 

 

 
  

Computer Software and Services — 0.3%

  

  8,500      

Diebold Inc.

     339,065   
     

 

 

 
 

 

See accompanying notes to schedule of investments.

 

2


The Gabelli Convertible and Income Securities Fund Inc.

Schedule of Investments (Continued) — March 31, 2014 (Unaudited)

 

 

 

Shares

          Market
Value
 
  

COMMON STOCKS (Continued)

  
  

Consumer Products — 1.3%

  
  35,000      

Swedish Match AB

   $ 1,143,720   
  3,500      

The Procter & Gamble Co.

     282,100   
     

 

 

 
        1,425,820   
     

 

 

 
  

Diversified Industrial — 1.2%

  
  50,000      

General Electric Co.

     1,294,500   
  2,075      

Textron Inc.

     81,527   
     

 

 

 
        1,376,027   
     

 

 

 
  

Electronics — 0.1%

  
  6,000      

LSI Corp.

     66,420   
     

 

 

 
  

Energy and Utilities — 11.7%

  
  5,000      

Anadarko Petroleum Corp.

     423,800   
  10,000      

BP plc, ADR

     481,000   
  5,000      

Chevron Corp.

     594,550   
  4,000      

ConocoPhillips

     281,400   
  10,000      

CONSOL Energy Inc.

     399,500   
  5,500      

Devon Energy Corp.

     368,115   
  15,000      

Exxon Mobil Corp.

     1,465,200   
  34,000      

Great Plains Energy Inc.

     919,360   
  5,000      

Halliburton Co.

     294,450   
  17,000      

Hess Corp.

     1,408,960   
  20,000      

National Fuel Gas Co.

     1,400,800   
  18,000      

NextEra Energy Inc.

     1,721,160   
  2,000      

Northeast Utilities

     91,000   
  2,000      

Peabody Energy Corp.

     32,680   
  16,000      

Royal Dutch Shell plc, Cl. A, ADR

     1,168,960   
  30,000      

Severn Trent plc

     911,758   
  8,000      

SJW Corp.

     236,480   
  10,000      

UNS Energy Corp.

     600,300   
  10,000      

Weatherford International Ltd.†

     173,600   
     

 

 

 
        12,973,073   
     

 

 

 
  

Equipment and Supplies — 0.4%

  
  1,500      

Graco Inc.

     112,110   
  8,000      

Mueller Industries Inc.

     239,920   
  1,000      

The Timken Co.

     58,780   
     

 

 

 
        410,810   
     

 

 

 
  

Financial Services — 17.4%

  
  45,000      

AllianceBernstein Holding LP

     1,123,650   
  28,000      

American Express Co.

     2,520,840   
  10,000      

American International Group Inc.

     500,100   
  1,000      

Deutsche Bank AG

     44,830   
  5,000      

GAM Holding AG

     90,210   
  4,000      

HSBC Holdings plc, ADR

     203,320   
  10,000      

JPMorgan Chase & Co.

     607,100   
  10,000      

Julius Baer Group Ltd.

     443,753   
  16,000      

Kinnevik Investment AB, Cl. A

     591,320   
  10,000      

Legg Mason Inc.

     490,400   
  4,000      

M&T Bank Corp.

     485,200   

Shares

          Market
Value
 
  7,000      

Marsh & McLennan Companies Inc.

   $ 345,100   
  25,000      

Morgan Stanley

     779,250   
  18,000      

Northern Trust Corp.

     1,180,080   
  10,000      

Royal Bank of Canada

     659,900   
  13,000      

State Street Corp.

     904,150   
  6,000      

T. Rowe Price Group Inc.

     494,100   
  48,000      

The Bank of New York Mellon Corp.

     1,693,920   
  20,000      

The Hartford Financial Services Group Inc.

     705,400   
  20,000      

The PNC Financial Services Group Inc.

     1,740,000   
  2,000      

W. R. Berkley Corp.

     83,240   
  60,000      

Wells Fargo & Co.(b)

     2,984,400   
  325,000      

Wright Investors’ Service Holdings Inc.†

     601,250   
     

 

 

 
        19,271,513   
     

 

 

 
  

Food and Beverage — 5.8%

  
  14,000      

Beam Inc.

     1,166,200   
  14,000      

Davide Campari-Milano SpA

     114,759   
  1,000      

Diageo plc, ADR

     124,590   
  6,000      

Dr Pepper Snapple Group Inc.

     326,760   
  3,000      

General Mills Inc.

     155,460   
  5,000      

Kellogg Co.

     313,550   
  5,000      

Mondelēz International Inc., Cl. A

     172,750   
  400,000      

Parmalat SpA

     1,378,759   
  2,020      

Pernod Ricard SA

     235,152   
  1,500      

Post Holdings Inc.†

     82,680   
  2,000      

Remy Cointreau SA

     160,497   
  54,000      

The Coca-Cola Co.

     2,087,640   
  2,000      

The Hillshire Brands Co.

     74,520   
     

 

 

 
        6,393,317   
     

 

 

 
  

Health Care — 11.2%

  
  14,000      

Becton, Dickinson and Co.

     1,639,120   
  3,500      

Covidien plc

     257,810   
  30,000      

Eli Lilly & Co.

     1,765,800   
  1,080,296      

Elite Pharmaceuticals Inc.†

     442,381   
  10,000      

Express Scripts Holding Co.†

     750,900   
  21,000      

Johnson & Johnson

     2,062,830   
  9,000      

Merck & Co. Inc.

     510,930   
  65,000      

Pfizer Inc.

     2,087,800   
  50,000      

Roche Holding AG, ADR

     1,886,000   
  10,000      

UnitedHealth Group Inc.

     819,900   
  6,000      

Zoetis Inc.

     173,640   
     

 

 

 
        12,397,111   
     

 

 

 
  

Hotels and Gaming — 0.6%

  
  15,000      

Ryman Hospitality Properties Inc.

     637,800   
     

 

 

 
  

Metals and Mining — 0.0%

  
  4,000      

Alcoa Inc.

     51,480   
     

 

 

 
  

Retail — 3.2%

  
  35,000      

CVS Caremark Corp.

     2,620,100   
  4,000      

Walgreen Co.

     264,120   
 

 

See accompanying notes to schedule of investments.

 

3


The Gabelli Convertible and Income Securities Fund Inc.

Schedule of Investments (Continued) — March 31, 2014 (Unaudited)

 

 

 

Shares

         

Market

Value

 
  

COMMON STOCKS (Continued)

  

  

Retail (Continued)

  
  8,000      

Wal-Mart Stores Inc.

   $ 611,440   
     

 

 

 
        3,495,660   
     

 

 

 
  

Specialty Chemicals — 0.4%

  
  2,200      

Chemtura Corp.†

     55,638   
  4,000      

International Flavors & Fragrances Inc.

     382,680   
     

 

 

 
        438,318   
     

 

 

 
  

Telecommunications — 3.2%

  
  11,000      

BCE Inc.

     474,540   
  7,000      

Belgacom SA

     219,199   
  2,700      

Philippine Long Distance Telephone Co., ADR

     164,754   
  2,400      

Swisscom AG

     1,474,125   
  24,000      

Telekom Austria AG

     238,588   
  20,000      

Verizon Communications Inc.

     951,400   
     

 

 

 
        3,522,606   
     

 

 

 
  

Transportation — 1.0%

  
  17,000      

GATX Corp.

     1,153,960   
     

 

 

 
  

Wireless Communications — 0.2%

  

  7,000      

Turkcell Iletisim Hizmetleri A/S, ADR†

     96,390   
  2,000      

United States Cellular Corp.

     82,020   
     

 

 

 
        178,410   
     

 

 

 
  

TOTAL COMMON STOCKS

     74,664,202   
     

 

 

 
  

WARRANTS — 0.0%

  
  

Food and Beverage — 0.0%

  
  1,300      

Parmalat SpA, GDR, expire 12/31/15†(a)(c)

     871   
     

 

 

 

Principal
Amount

             
  

CORPORATE BONDS — 0.0%

  
  

Energy and Utilities — 0.0%

  
$ 1,000,000      

Texas Competitive Electric Holdings Co. LLC,
Ser. B, 10.250%, 11/01/15

     30,000   
     

 

 

 
  

U.S. GOVERNMENT OBLIGATIONS — 16.5%

  

  18,182,000      

U.S. Treasury Bills,
0.040% to 0.105%††,
04/10/14 to 09/18/14(d)

     18,179,828   
     

 

 

 
  

TOTAL INVESTMENTS — 100.0%
(Cost $84,342,197)

   $ 110,568,244   
     

 

 

 
         

Market

Value

 
  

Aggregate tax cost

   $ 84,856,701   
     

 

 

 
  

Gross unrealized appreciation

   $ 27,412,212   
  

Gross unrealized depreciation

     (1,700,669
     

 

 

 
  

Net unrealized appreciation/depreciation

   $ 25,711,543   
     

 

 

 

 

Notional
Amount

         

Termination
Date

  Unrealized
Appreciation
 
  

EQUITY CONTRACT FOR DIFFERENCE SWAP AGREEMENTS

 
$ 846,951      

Rolls-Royce Holdings plc(e)

   06/27/14   $ 3,274   
       

 

 

 

 

(47,500 Shares)

    

 

(a)

 

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2014, the market value of Rule 144A securities amounted to $8,443,362 or 7.64% of total investments.

(b)

 

Securities, or a portion thereof, with a value of $2,884,920 were deposited with the broker as collateral for the equity contract for difference swap agreements.

(c)

 

Illiquid security.

(d)

 

At March 31, 2014, $760,000 of the principal amount was pledged as collateral for equity contract for difference swap agreements.

(e)

 

At March 31, 2014, the Fund had entered into equity contract for difference swap agreements with The Goldman Sachs Group, Inc.

 

Non-income producing security.

††

 

Represents annualized yield at date of purchase.

ADR

 

American Depositary Receipt

GDR

 

Global Depositary Receipt

STEP

 

Step coupon security. The rate disclosed is that in effect at March 31, 2014.

 

 

See accompanying notes to schedule of investments.

 

4


The Gabelli Convertible and Income Securities Fund Inc.

Notes to Schedule of Investments (Unaudited)

 

 

 

The Fund’s schedule of investments is prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), which may require the use of management estimates and assumptions. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund in the preparation of its schedule of investments.

Security Valuation. Portfolio securities listed or traded on a nationally recognized securities exchange or traded in the U.S. over-the-counter market for which market quotations are readily available are valued at the last quoted sale price or a market’s official closing price as of the close of business on the day the securities are being valued. If there were no sales that day, the security is valued at the average of the closing bid and asked prices or, if there were no asked prices quoted on that day, then the security is valued at the closing bid price on that day. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Directors (the “Board”) so determines, by such other method as the Board shall determine in good faith to reflect its fair market value. Portfolio securities traded on more than one national securities exchange or market are valued according to the broadest and most representative market, as determined by Gabelli Funds, LLC (the “Adviser”).

Portfolio securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly after the close of the foreign market, but prior to the close of business on the day the securities are being valued. Debt instruments with remaining maturities of sixty days or less that are not credit impaired are valued at amortized cost, unless the Board determines such amount does not reflect the securities’ fair value, in which case these securities will be fair valued as determined by the Board. Debt instruments having a maturity greater than sixty days for which market quotations are readily available are valued at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing bid price. U.S. government obligations with maturities greater than sixty days are normally valued using a model that incorporates market observable data such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued principally using dealer quotations. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded.

Securities and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of available financial and non-financial information about the company; comparisons with the valuation and changes in valuation of similar securities, including a comparison of foreign securities with the equivalent U.S. dollar value American Depositary Receipts securities at the close of the U.S. exchange; and evaluation of any other information that could be indicative of the value of the security.

The inputs and valuation techniques used to measure fair value of the Fund’s investments are summarized into three levels as described in the hierarchy below:

 

   

Level 1 — quoted prices in active markets for identical securities;

   

Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.); and

   

Level 3 — significant unobservable inputs (including the Board’s determinations as to the fair value of investments).

 

5


The Gabelli Convertible and Income Securities Fund Inc.

Notes to Schedule of Investments (Unaudited) (Continued)

 

 

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in the aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of the Fund’s investments in securities and other financial instruments by inputs used to value the Fund’s investments as of March 31, 2014 is as follows:

 

     Valuation Inputs     
     Level 1
Quoted Prices
   Level 2 Other Significant
Observable Inputs
   Level 3 Significant
Unobservable Inputs
   Total Market Value
at 3/31/14

INVESTMENTS IN SECURITIES:

                   

ASSETS (Market Value):

                   

Convertible Corporate Bonds (a)

              $ 15,718,975                 $ 15,718,975  

Convertible Preferred Stocks:

                   

Food and Beverage

     $ 110,625          997,928                   1,108,553  

Other Industries (a)

       865,815                            865,815  

Total Convertible Preferred Stocks

       976,440          997,928                   1,974,368  

Common Stocks

       74,664,202                            74,664,202  

Warrants (a)

                       $ 871          871  

Corporate Bonds (a)

                30,000                   30,000  

U.S. Government Obligations

                18,179,828                   18,179,828  

TOTAL INVESTMENTS IN SECURITIES – ASSETS

     $ 75,640,642        $ 34,926,731        $ 871        $ 110,568,244  

INVESTMENTS IN SECURITIES:

  

              

OTHER FINANCIAL INSTRUMENTS:*

  

              

ASSETS (Unrealized Appreciation):

  

              

EQUITY CONTRACT

                   

Contract for Difference Swap Agreement

              $ 3,274                 $ 3,274  

 

(a) Please refer to the Schedule of Investments (“SOI”) for the industry classifications of these portfolio holdings.
* Other financial instruments are derivatives reflected in the SOI, such as options, futures, forwards, and swaps, which may be valued at the unrealized appreciation/depreciation of the instrument.

The Fund did not have significant transfers among Level 1, Level 2, and Level 3 during the period ended March 31, 2014. The Fund’s policy is to recognize transfers among Levels as of the beginning of the reporting period.

 

6


The Gabelli Convertible and Income Securities Fund Inc.

Notes to Schedule of Investments (Unaudited) (Continued)

 

 

 

The following table reconciles Level 3 investments for which significant unobservable inputs were used to determine fair value:

 

     Balance
as of
12/31/13
  Accrued
discounts/
(premiums)
  Realized
gain/
(loss)
   Change in
unrealized
appreciation/
depreciation
  Purchases   Sales   Transfers
into
Level 3††
  Transfers
out of
Level 3††
  Balance
as of
3/31/14
  Net change
in unrealized
appreciation/
depreciation
during the
period on
Level 3
investments
still held at
3/31/14

INVESTMENTS IN SECURITIES:

                                        

ASSETS (Market Value):

                                        

Common Stocks:

                                        

Aerospace

    $ 51,981               $ 820        $ (1,287 )             $ (51,514 )                                

Energy and Utilities

      0                 3,903                          (3,903 )                                

Total Common Stocks

      51,981                 4,723          (1,287 )               (55,417 )                                

Warrants:

                                        

Food and Beverage

                               (23 )                     $ 894               $ 871       $ (23 )

TOTAL INVESTMENTS IN SECURITIES

    $ 51,981               $ 4,723        $ (1,310 )             $ (55,417 )     $ 894               $ 871       $ (23 )

 

†† The Fund’s policy is to recognize transfers into and transfers out of Level 3 as of the beginning of the reporting period.

 

Description    Balance at 3/31/14    Valuation Technique    Unobservable Input    Range  

INVESTMENTS IN SECURITIES:

           

ASSETS (Market Value):

           

Warrants:

           

Food and Beverage

   $871    Dividend entitlement    Liquidation Value      0

 

Unobservable Input    Impact to Value if Input Increases    Impact to Value if Input Decreases

Liquidation Value

   N/A    N/A

Additional Information to Evaluate Qualitative Information.

General. The Fund uses recognized industry pricing services – approved by the Board and unaffiliated with the Adviser – to value most of its securities, and uses broker quotes provided by market makers of securities not valued by these and other recognized pricing sources. Several different pricing feeds are received to value domestic equity securities, international equity securities, preferred equity securities, and fixed income securities. The data within these feeds is ultimately sourced from major stock exchanges and trading systems where these securities trade. The prices supplied by external sources are checked by obtaining quotations or actual transaction prices from market participants. If a price obtained from the pricing source is deemed unreliable, prices will be sought from another pricing service or from a broker/dealer that trades that security or similar securities.

Fair Valuation. Fair valued securities may be common and preferred equities, warrants, options, rights, and fixed income obligations. Where appropriate, Level 3 securities are those for which market quotations are not available, such as securities not traded for several days, or for which current bids are not available, or which are restricted as to transfer. Among the factors to be considered to fair value a security are recent prices of comparable securities that are publicly traded, reliable prices of securities not publicly traded, the use of

 

7


The Gabelli Convertible and Income Securities Fund Inc.

Notes to Schedule of Investments (Unaudited) (Continued)

 

 

 

valuation models, current analyst reports, valuing the income or cash flow of the issuer, or cost if the preceding factors do not apply. A significant change in the unobservable inputs could result in a lower or higher value in Level 3 securities. The circumstances of Level 3 securities are frequently monitored to determine if fair valuation measures continue to apply.

The Adviser reports quarterly to the Board the results of the application of fair valuation policies and procedures. These include back testing the prices realized in subsequent trades of these fair valued securities to fair values previously recognized.

Derivative Financial Instruments. The Fund may engage in various portfolio investment strategies by investing in a number of derivative financial instruments for the purposes of increasing the income of the Fund, hedging against changes in the value of its portfolio securities and in the value of securities it intends to purchase, or hedging against a specific transaction with respect to either the currency in which the transaction is denominated or another currency. Investing in certain derivative financial instruments, including participation in the options, futures, or swap markets, entails certain execution, liquidity, hedging, tax, and securities, interest, credit, or currency market risks. Losses may arise if the Adviser’s prediction of movements in the direction of the securities, foreign currency, and interest rate markets is inaccurate. Losses may also arise if the counterparty does not perform its duties under a contract, or that, in the event of default, the Fund may be delayed in or prevented from obtaining payments or other contractual remedies owed to it under derivative contracts. The creditworthiness of the counterparties is closely monitored in order to minimize these risks. Participation in derivative transactions involves investment risks, transaction costs, and potential losses to which the Fund would not be subject absent the use of these strategies. The consequences of these risks, transaction costs, and losses may have a negative impact on the Fund’s ability to pay distributions.

The Fund’s derivative contracts held at March 31, 2014, if any, are not accounted for as hedging instruments under GAAP and are disclosed in the Schedule of Investments together with the related counterparty.

Swap Agreements. The Fund may enter into equity contract for difference swap transactions for the purpose of increasing the income of the Fund. The use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an equity contract for difference swap, a set of future cash flows is exchanged between two counterparties. One of these cash flow streams will typically be based on a reference interest rate combined with the performance of a notional value of shares of a stock. The other will be based on the performance of the shares of a stock. Depending on the general state of short term interest rates and the returns on the Fund’s portfolio securities at the time an equity contract for difference swap transaction reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as on the expiring transaction.

 

8


The Gabelli Convertible and Income Securities Fund Inc.

Notes to Schedule of Investments (Unaudited) (Continued)

 

 

 

The Fund has entered into equity contract for difference swap agreement with The Goldman Sachs Group, Inc. Details of the swap at March 31, 2014 are reflected within the Schedule of Investments and further details are as follows:

 

Notional Amount

  

Equity Security Received

  

Interest Rate/Equity Security Paid

  

Termination

Date

  

Net Unrealized
Appreciation

$846,951 (47,500 Shares)

   Market Value Appreciation on: Rolls-Royce Holdings plc    One month LIBOR plus 90 bps plus Market Value Depreciation on: Rolls-Royce Holdings plc    6/27/14    $3,274

Limitations on the Purchase and Sale of Futures Contracts, Certain Options, and Swaps. Subject to the guidelines of the Board, the Fund may engage in “commodity interest” transactions (generally, transactions in futures, certain options, certain currency transactions, and certain types of swaps) only for bona fide hedging or other permissible transactions in accordance with the rules and regulations of the Commodity Futures Trading Commission (“CFTC”). Pursuant to amendments by the CFTC to Rule 4.5 under the Commodity Exchange Act (“CEA”), the Adviser has filed a notice of exemption from registration as a “commodity pool operator” with respect to the Fund. The Fund and the Adviser are therefore not subject to registration or regulation as a commodity pool operator under the CEA. In addition, certain trading restrictions are now applicable to the Fund as of January 1, 2013. These trading restrictions permit the Fund to engage in commodity interest transactions that include (i) “bona fide hedging” transactions, as that term is defined and interpreted by the CFTC and its staff, without regard to the percentage of the Fund’s assets committed to margin and options premiums and (ii) non-bona fide hedging transactions, provided that the Fund does not enter into such non-bona fide hedging transactions if, immediately thereafter, either (a) the sum of the amount of initial margin deposits on the Fund’s existing futures positions or swaps positions and option or swaption premiums would exceed 5% of the market value of the Fund’s liquidating value, after taking into account unrealized profits and unrealized losses on any such transactions, or (b) the aggregate net notional value of the Fund’s commodity interest transactions would not exceed 100% of the market value of the Fund’s liquidating value, after taking into account unrealized profits and unrealized losses on any such transactions. Therefore, in order to claim the Rule 4.5 exemption, the Fund is limited in its ability to invest in commodity futures, options, and certain types of swaps (including securities futures, broad based stock index futures, and financial futures contracts). As a result, in the future, the Fund will be more limited in its ability to use these instruments than in the past, and these limitations may have a negative impact on the ability of the Adviser to manage the Fund, and on the Fund’s performance.

Securities Sold Short. The Fund may enter into short sale transactions. Short selling involves selling securities that may or may not be owned and, at times, borrowing the same securities for delivery to the purchaser, with an obligation to replace such borrowed securities at a later date. The proceeds received from short sales are recorded as liabilities and the Fund records an unrealized gain or loss to the extent of the difference between the proceeds received and the value of an open short position on the day of determination. The Fund records a realized gain or loss when the short position is closed out. By entering into a short sale, the Fund bears the market risk of an unfavorable change in the price of the security sold short. Dividends on short sales are recorded as an expense by the Fund on the ex-dividend date and interest expense is recorded on the accrual basis. The broker retains collateral for the value of the open positions, which is adjusted periodically as the value of the position fluctuates. At March 31, 2014, there were no short sales outstanding.

 

9


The Gabelli Convertible and Income Securities Fund Inc.

Notes to Schedule of Investments (Unaudited) (Continued)

 

 

 

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments, and other assets and liabilities are translated into U.S. dollars at current exchange rates. Purchases and sales of investment securities, income, and expenses are translated at the exchange rate prevailing on the respective dates of such transactions. Unrealized gains and losses that result from changes in foreign exchange rates and/or changes in market prices of securities have been included in unrealized appreciation/depreciation on investments and foreign currency translations. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions, foreign currency transactions, and the difference between the amounts of interest and dividends recorded on the books of the Fund and the amounts actually received. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial purchase trade date and subsequent sale trade date is included in realized gain/(loss) on investments.

Foreign Securities. The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the inability to repatriate funds, less complete financial information about companies, and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than securities of comparable U.S. issuers.

Foreign Taxes. The Fund may be subject to foreign taxes on income, gains on investments, or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.

Restricted Securities. The Fund may invest up to 15% of its net assets in securities for which the markets are restricted. Restricted securities include securities whose disposition is subject to substantial legal or contractual restrictions. The sale of restricted securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. Securities freely saleable among qualified institutional investors under special rules adopted by the SEC may be treated as liquid if they satisfy liquidity standards established by the Board. The continued liquidity of such securities is not as well assured as that of publicly traded securities, and accordingly the Board will monitor their liquidity. For the restricted securities the Fund held as of March 31, 2014, refer to the Schedule of Investments.

Tax Information. The Fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended.

 

10


The Gabelli Convertible and Income Securities Fund Inc.

Notes to Schedule of Investments (Unaudited) (Continued)

 

 

 

At December 31, 2013, the Fund had net capital loss carryforwards for federal income tax purposes which are available to reduce future required distributions of net capital gains to shareholders. Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward for an unlimited period capital losses incurred in years beginning after December 22, 2010. In addition, these losses must be utilized prior to the losses incurred in pre-enactment taxable years. As a result of the rule, pre-enactment capital loss carryforwards may have an increased likelihood of expiring unused. Additionally, post enactment capital losses that are carried forward will retain their character as either short term or long term capital losses rather than being considered all short term as under previous law. The Fund has a capital loss carryforward available through 2018 of $645,470.

 

11


THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.

One Corporate Center

Rye, NY 10580-1422

Portfolio Manager Biography

Mario J. Gabelli, CFA, is Chairman and Chief Executive Officer of GAMCO Investors, Inc. that he founded in 1977 and Chief Investment Officer – Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School and Honorary Doctorates from Fordham University and Roger Williams University.

 

 

 

We have separated the portfolio manager’s commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the content of the portfolio manager’s commentary is unrestricted. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at www.gabelli.com.

The Net Asset Value per share appears in the Publicly Traded Funds column, under the heading “Convertible Securities Funds,” 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 per share may be obtained each day by calling (914) 921-5070 or visiting www.gabelli.com.

The NASDAQ symbol for the Net Asset Value is “XGCVX.”

 

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund may, from time to time, purchase its common shares in the open market when the Fund’s shares are trading at a discount of 10% or more from the net asset value of the shares. The Fund may also, from time to time, purchase its preferred shares in the open market when the preferred shares are trading at a discount to the liquidation value.


 

THE GABELLI CONVERTIBLE AND

INCOME SECURITIES FUND INC.

One Corporate Center

Rye, NY 10580-1422

 

t 800-GABELLI (800-422-3554)

 

f 914-921-5118

 

e info@gabelli.com

 

   GABELLI.COM

 

 

 

DIRECTORS   OFFICERS

Mario J. Gabelli, CFA

Chairman &

Chief Executive Officer,

GAMCO Investors, Inc.

 

E. Val Cerutti

Chief Executive Officer,

Cerutti Consultants, Inc.

 

Anthony J. Colavita

President,

Anthony J. Colavita, P.C.

 

Dugald A. Fletcher

President,

Fletcher & Company, Inc.

 

Anthony R. Pustorino

Certified Public Accountant,

Professor Emeritus,

Pace University

 

Werner J. Roeder, MD

Medical Director,

Lawrence Hospital

 

Anthonie C. van Ekris

Chairman,

BALMAC International, Inc.

 

Salvatore J. Zizza

Chairman,

Zizza & Associates Corp.

 

Bruce N. Alpert

President

 

Andrea R. Mango

Secretary

 

Agnes Mullady

Treasurer

 

Richard J. Walz

Chief Compliance Officer

 

Laurissa M. Martire

Vice President & Ombudsman

 

INVESTMENT ADVISER

 

Gabelli Funds, LLC

One Corporate Center

Rye, New York 10580-1422

 

CUSTODIAN

 

State Street Bank and Trust

Company

 

COUNSEL

 

Skadden, Arps, Slate, Meagher &

Flom LLP

 

TRANSFER AGENT AND REGISTRAR

 

Computershare Trust Company, N.A.

 

 

GCV Q1/2014

LOGO

 


Item 2. Controls and Procedures.

 

  (a)

The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

 

  (b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 3. Exhibits.

Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant)

 

The Gabelli Convertible and Income Securities Fund Inc.

 

By (Signature and Title)*

 

/s/ Bruce N. Alpert

 

 

    Bruce N. Alpert, Principal Executive Officer

 

Date

  5/16/2014

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*

 

/s/ Bruce N. Alpert

 

 

    Bruce N. Alpert, Principal Executive Officer

 

Date

  5/16/2014

 

By (Signature and Title)*

 

/s/ Agnes Mullady

 

 

    Agnes Mullady, Principal Financial Officer and Treasurer

 

Date

  5/16/2014

* Print the name and title of each signing officer under his or her signature.