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CONVERTIBLE
SECURITIES
FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2002
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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. They also stand out in an increasingly complex,
interconnected and interdependent 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.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
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TO OUR SHAREHOLDERS,
Convertible stocks and bonds are hybrid securities. Because they can be
converted into common stock, performance will be impacted by the dominant trend
in the equity markets. However, due to their significantly higher yield,
performance is also influenced by the direction of the bond market. In the
second quarter of 2002, the equity characteristics of converts restrained
performance. However, the strong bond market helped support convertible
securities prices. We invest in converts we believe to have two-thirds the
upside potential of the underlying stock and one-third the downside risk.
Comparing the Gabelli Convertible Securities Fund's (the "Fund's") performance
this quarter, a decline of 5.31%, to the performance of the Standard & Poor's
("S&P") 500 Index, which declined 13.39%, our risk appraisals have proven
accurate.
NEW NAME: SAME APPROACH
Effective August 1, 2002, the Gabelli Convertible Securities Fund will
change its name to the Gabelli Convertible and Income Securities Fund. Although
our name will change, our approach will not.
The Fund will maintain its investment objective of seeking a high level of
total return through a combination of current income and capital appreciation by
investing in convertible and other income producing securities.
With this change, the Fund will have more investment flexibility to meet
the new Securities and Exchange Commission ("SEC") requirement (Rule 35d-1) that
funds invest at least 80% of their assets in the type of securities specified in
their name. The Fund has determined that being required to invest 80% of its
assets strictly in convertible securities is not always optimal and,
accordingly, has determined to change its name as it strives to achieve its goal
of preserving and enhancing capital. The Fund expects to continue its practice
of investing in convertible securities to the extent attractive opportunities
are available.
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NEW FROM THE GABELLI PRESS:
GLOBAL CONVERTIBLE INVESTING:
THE GABELLI WAY
BY HART WOODSON
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A PROMISE KEPT
When we asked the shareholders of the Fund to vote to convert from an
open-end investment company to a closed-end fund, we expressed our intent to
have the Fund's common shares track the Fund's net asset value. Based on the
Fund's consistent and above average annualized performance since inception, we
expected that such a Fund would trade at or above net asset value. In addition,
over the past few years the Board of Directors has taken several initiatives to
maintain the Fund's public market price at a level equal to or exceeding the
Fund's net asset value. These initiatives included a stock repurchase plan, a
managed 8% Distribution Policy, and the issuance of preferred stock.
We are pleased to report that management kept its promise to shareholders
and the Fund is trading at a premium to net asset value. In fact, the Fund began
trading at a premium in February 2001 and has continued to trade above net asset
value, ending the quarter at a 14.58% premium. We have been able to preserve
shareholder wealth during a tough market environment. We have been conservative
during the past year and it has paid off; now is the time to be aggressive.
COMPARATIVE PERFORMANCE
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 2002 (A)
------------------------------------------------
SINCE YEAR
QUARTER INCEPTION (B) 10 YEAR 5 YEAR 3 YEAR 1 YEAR TO DATE
------- ------------- ------- ------ ------ ------ -------
Gabelli Convertible Securities Fund
NAV Return (c) ...................... (5.31)% 7.93% 7.24% 5.16% 0.34% (4.71)% (4.15)%
Gabelli Convertible Securities Fund
Investment Return (d) ............... (2.11)% 4.85%(e) N/A(e) 11.55% 7.82% 5.13% (0.30)%
S&P 500 Index ......................... (13.39)% 11.63% 11.42% 3.67% (9.17)% (17.98)% (13.15)%
Lipper Convertible Securities
Fund Average ........................ (6.51)% 9.94% 9.77% 5.16% 1.12% (9.24)% (6.07)%
(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. The S&P 500 Index is an unmanaged indicator of stock market
performance, while the Lipper Average reflects the average performance of
open-end mutual funds classified in this particular category. Performance
for periods less than one year are not annualized.
(b) From commencement of investment operations on July 3, 1989.
(c) Total returns and average annual returns reflect changes in net asset value
("NAV") and reinvestment of distributions and are net of expenses. Since
Inception return based on initial net asset value of $10.00.
(d) Total returns and average annual returns reflect changes in closing market
values on the New York Stock Exchange and reinvestment of distributions.
Since Inception return based on an initial offering price of $10.00.
(e) The Fund converted to closed-end status on March 31, 1995 and had no
operating history on the New York Stock Exchange prior to that date.
--------------------------------------------------------------------------------
2
PREMIUM / DISCOUNT DISCUSSION
As a refresher to our shareholders, the price of a closed-end mutual fund
is determined in the open market by willing buyers and sellers. Shares of the
Fund trade on the New York Stock Exchange and may trade at a premium to (higher
than) net asset value ("NAV") (the market value of the Fund's underlying
portfolio) or a discount to (lower than) net asset value. Of the 502 closed-end
funds in the U.S., approximately 37% currently trade at premiums to NAV versus
26% five years ago and 61% ten years ago.
Ideally, the Fund's market price will generally track the NAV. The Fund's
premium or discount to NAV fluctuates over time. Over our Fund's 7-year history,
the range fluctuated from a 20% premium in June 2002 to a 17% discount in April
2000. The average variance from NAV for the Fund since converting to closed-end
fund status is a 6.9% discount to NAV. Beginning in early 2001, the market price
of the Fund exceeded the NAV and this premium has gradually increased since.
"Mr. Market" often provides opportunities to invest at a discount. The
Fund has undertaken various initiatives to narrow the discount when appropriate
through distribution policies, share repurchase programs and use of leverage.
The Fund's long-term investment goal is to seek a high level of total
return through a combination of current income and capital appreciation. We
believe that our securities selection process adds to the investment equation.
We have a successful history of investment providing shareholders average annual
returns of 7.9% since inception. However, it is important to remember that "Mr.
Market" is a pendulum that swings both ways. As the market moves away from
momentum investing and back to basics, we believe that an excessive premium for
the Fund is not likely to be sustainable.
PREMIUM/DISCOUNT SINCE CONVERSION TO A CLOSED-END FUND
Year Premium/Discount
0
0.0099
-0.0761
-0.0978
-0.0334
-0.0903
-0.1056
-0.0657
-0.0701
-0.0957
-0.0263
Year 1996 -0.065
-0.1064
-0.0802
-0.1071
-0.1507
-0.0953
-0.1465
-0.146
-0.1318
-0.1497
-0.1492
-0.1652
Year 1997 -0.1399
-0.131
-0.1577
-0.1622
-0.1593
-0.1322
-0.147
-0.1538
-0.1321
-0.1557
-0.1432
-0.1017
Year 1998 -0.0956
-0.0882
-0.0733
-0.0815
-0.095
-0.062
-0.0848
-0.1485
-0.0705
-0.0372
-0.0325
-0.0175
Year 1999 -0.0315
-0.0745
-0.0275
-0.1027
-0.0909
-0.0689
-0.0991
-0.1019
-0.0842
-0.0948
-0.1525
-0.0735
Y2k -0.1207
-0.148
-0.1497
-0.1734
-0.1454
-0.1263
-0.1128
-0.123
-0.1022
-0.1553
-0.1088
-0.0893
Year 2001 -0.03
0.0096
0.0039
0.0202
0.0207
0.0337
0.0316
0.059
0.1202
0.1169
0.1167
0.1156
Year 2002 0.1061
0.0959
0.1067
0.0584
0.1702
0.1458
---------------------------------
JUNE 30, 2002
Net Asset Value $ 9.12
Market Price $10.45
Premium 14.58%
---------------------------------
3
OUR OBJECTIVE
Our mandate is to preserve and enhance our shareholders' wealth through a
conservative and 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.
Our Fund is managed with a 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 recognized for
and we anticipate will continue in the future. Of course, there are no
guarantees.
CONVERTIBLE SECURITIES ARE "HYBRIDS"
It is important to understand our stock selection discipline because price
movement in the underlying equity will generally have the greatest impact on
convertible securities pricing. The convertible securities market consists of
bonds, debentures, corporate notes, preferred stocks and warrants or other
similar securities which may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula.
Converts are "hybrid" securities that combine the capital appreciation potential
of equities with the higher yield of fixed income instruments. Our strategy
incorporates the purchase of convertible securities that 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.
CONVERTIBLE MARKET OVERVIEW
The convertible market, as measured by the Merrill Lynch All Convertible
Index, fell 7.61% during the second quarter. This compared to a decline of
20.71%, 13.39%, and 10.74% by the Nasdaq, the S&P 500 and the Dow Jones
Industrial Indices, respectively, as equity markets were hit by accounting
scandals, credit downgrades, and tensions in the Middle East. This provoked a
flight to quality as registered by the Merrill Lynch Government/Corporate Bond
Index, which rose 3.81%. Conversely, the Merrill Lynch U.S. High Yield Master II
Index fell 6.97% as credit spreads widened. This trend was reflected in the
convertible market as speculative grade convertibles dropped 10.3%, while
investment grade issues fell by only 4.9%. The average convertible now has the
highest conversion premium on record of 75% (up from 62% last quarter), a
current yield of 4.22% (versus 3.80%) and a credit rating of BBB- (versus BB+).
Despite the weaker U.S. dollar, the domestic convertible market remains
the largest in the world at $221 billion, or about 43% of the total global
market capitalization of $495 billion. Domestic new issuance slowed in the
quarter to $12 billion, less than half of its recent run rate. Investors were
bemused by Berkshire Hathaway's launch of the first convertible that effectively
paid a negative coupon. By product type, new issuance continues to be dominated
by the more equity-like structures as companies strive to repair balance sheets
and investors search for low premium convertibles with attractive current
yields. Year to date, convertible preferred stock and mandatory convertible
securities constituted 42% of total new issue activity versus only 19% during
all of 2001.
4
The only sector in the convertible market to post a positive return during
the quarter was Transportation (+0.3%). Media was the worst performing sector
(-20.5%), where cable company convertibles were particularly hard hit by the
Adelphia debacle. Meanwhile, the Technology (-13.3%), Telecom (-13.2%) and
Utilities (-9.9%) sectors remained weak. Finally, busted convertibles (-4.2%),
being less equity sensitive, outperformed balanced (-10.5%) and equity sensitive
convertibles (-15.1%), while small capitalization issuers (-11.3%) succumbed to
mid (-8.5%) and large-capitalization issuers (-6.7%). Finally, growth
convertibles (-8.6%) gave in to value convertibles (-6.3%).
COMMENTARY
THE ECONOMY: STAGGERING AHEAD
Although consumer confidence readings and retail sales softened in May,
most other economic data has been encouraging. Industrial production and
productivity continued to trend higher, new housing starts approached record
levels, and there was a modest up-tick in business investment. Importantly,
inflation remained dormant, most likely postponing any Federal Reserve Board
("Fed") rate hikes. We believe full year 2002 Gross Domestic Product ("GDP")
growth will be above the 3% to 3.5% range we expected at the beginning of the
year and that capital spending plus a recovery in Europe and Japan in 2003 will
help sustain economic growth in the year ahead.
Presently, investors appear to be questioning whether corporate earnings
will meet expectations in the coming quarters. We believe profits will be up
sharply this year as a result of the economic expansion, increased productivity,
cost cutting, financial re-engineering, and big decline in the "everything
including the kitchen sink" write-offs taken in 2001. Financial Accounting
Standards Board ("FASB") Rule 142, which does not require companies to amortize
goodwill, will also help earnings for many companies. In addition, a gradual
weakening of the dollar will boost profits for the large U.S. based
multinationals in the S&P 500 Index. Although stocks are still not cheap by
historical standards, rising earnings will make equity valuations considerably
more reasonable.
THE MARKET: A CRISIS IN CONFIDENCE
Unfortunately, over the short term, a recovering economy, a rebound in
corporate profits, and more reasonable equity valuations may not do much to
improve investor psychology, which has been battered by geopolitical tensions
and a crisis in confidence in the integrity of corporate America and Wall
Street.
It has become apparent that our quick victory over the Taliban in
Afghanistan has not eliminated the threat of terrorism at home or abroad. The
seemingly never-ending cycle of violence in the Middle East has further unnerved
investors. For a few tense weeks, investors also worried about a nuclear
confrontation between Pakistan and India over Kashmir. Clearly, it's a dangerous
world out there.
Investors have come to believe the stock market is a dangerous place as
well. Not only have they lost a pile of money over the last two years, but
"Enronitis," "Tycosis," "Marthritis" (the insider trading investigation of
Martha Stewart), and most recently "WorldCon" have many investors wondering what
malady will strike their portfolios next. Following the revelations (to some)
that Wall Street research is not what it's cracked up to be, investors are
reluctant to go to their broker for a portfolio check-up, fearing the cure may
be worse than the disease.
5
INVESTMENT SCORECARD
This quarter's best performing holdings came from a variety of industry
groups including: broadcasting (Granite Broadcasting), auto parts (Standard
Motor Products), defense (Northrup Grumman), hospitality (Innkeepers USA) and
aviation parts (Sequa).
Among our biggest disappointments were cable television companies
Cablevision Systems and UnitedGlobalCom. Our telecom and telecom equipment
company holdings such as Broadwing, AT&T and Lucent also retreated
significantly.
LET'S TALK CONVERTS
The following are stock specifics on selected convertible holdings of our
Fund. Favorable earnings prospects do not necessarily translate into higher
stock prices, but they do express a positive trend that we believe will develop
over time.
CITIZENS COMMUNICATIONS CO. (5.00% CV. PFD.) has recently become the country's
second largest independent local exchange carrier with about 2.5 million access
lines after completion of a $3.4 billion acquisition of almost 1.1 million lines
from Frontier. This and several other recent acquisitions, accompanied by
divestitures of its utilities operations, have repositioned the company as a
pure telecommunications carrier. After recent completion of the tender offer for
19% of shares that it already did not own, CZN now owns 100% of Electric
Lightwave Inc. (ELIX - $0.69 - Nasdaq), a competitive carrier with fiber optic
networks covering the Western part of the U.S. The company is now focused on
balance sheet deleveraging and achieving profitability at ELIX.
FRANKLIN RESOURCES INC. (ZERO COUPON, 05/11/31) is a financial holding company
that provides investment advisory and management services through its Franklin,
Templeton, Mutual Series, Bissett, and Fiduciary investment management groups as
well as banking services though its banking/finance segment. The company has
$279 billion in assets under management across a wide-range of investment
products and styles. Finally, the company operates in 37 offices in 29
countries, and is focused on further expanding its international investment
management business, particularly as pension systems are reformed in numerous
countries around the world.
GENERAL MOTORS CORP. (5.25% CV. PFD., SER. B; 4.50% CV. PFD., SER. A) is the
largest producer of motor vehicles in the world, with unit sales of over 8
million cars, trucks, and commercial vehicles in 2001 alone. The company has
operating subsidiaries in North America, Europe, Latin America and Asia, and
equity interests in manufacturers in Europe (Fiat Auto Holdings) and Japan
(Isuzu, Suzuki, Subaru). General Motors Acceptance Corporation provides retail
and wholesale financing to consumers and dealers worldwide, as well as vehicle
leasing, mortgage, and insurance products. The company's Hughes Electronics (GMH
- $10.40 - NYSE) subsidiary provides direct-to-home satellite television
services to over 10 million consumers in the U.S. under the DirecTV brand name.
HILTON HOTELS CORP. (HLT) (SUB. DEB. CV., 5.00%, 05/15/06) is recognized as one
of the world's preeminent hospitality companies. Hilton develops, owns, manages
and franchises hotels, resorts and vacation ownership properties. Based on the
number of hotel rooms, Hilton is the nation's third largest lodging company.
Hilton's hotel system includes approximately 2,000 properties totaling over
327,000 rooms worldwide. The Company's hotel brands include Hilton, Hilton
Garden Inn, Doubletree, Embassy Suites Hotels, Hampton Inn, Hampton Inn &
Suites, Homewood Suites by Hilton, Conrad, and Harrison Conference Centers.
Flagship properties include the Waldorf Astoria, the Hilton Chicago, the Hilton
Hawaiian Village Beach Resort & Spa, and the Palmer House Hilton. HLT formalized
a marketing alliance with the British company Hilton Group Plc (HG.L - $3.48 -
London Stock Exchange), owner of Hilton International, in January 1997 to
reunite the Hilton name worldwide for the first time in over 30 years.
6
ROBBINS & MYERS INC. (SUB. DEB. CV., 6.50%, 09/01/03) is an international
manufacturer of industrial mixing equipment, glass-lined vessels, industrial
pumps and corrosion resistant products serving the process industries such as
specialty chemicals, pharmaceuticals, water treatment, oil and gas, food and
beverage. In August 2001, the company completed the acquisition of Romaco, a
$150 million manufacturer of packaging, printing and processing of
pharmaceutical products. Romaco provides horizontal integration to Robbins'
mixer and vessel businesses and the acquisition is expected to be accretive to
earnings. With Romaco, 40% of Robbins & Myers revenues are in the pharmaceutical
market that is generally stable, with an average 6% to 8% rate of growth. The
company's remaining businesses are in specialty chemical (26%), energy (20%),
water and wastewater (4%) and other industries. Management's use of its strong
cash flow to make complementary acquisitions makes Robbins & Myers an attractive
company in a consolidating industry.
SEALED AIR CORP. ($2.00 CV. PFD., SER. A) is a global manufacturer and
distributor of a wide range of protective and specialty packaging materials and
systems for industrial, food and consumer products. Sealed Air is a strong free
cash flow generator, which will be used to pay down debt, make niche
acquisitions, and buy back stock.
SEQUA CORP. ($5.00 CV. PFD.) is a diversified company with businesses in
aerospace, pre-paint metal, specialty chemical, printing and cannery equipment.
Chromalloy Gas Turbine, Sequa's aerospace business, is the largest independent
supplier of aftermarket parts for the overhaul and repair of jet and industrial
gas turbine engines. We believe this business is attractive to original
equipment engine manufacturers like General Electric and Pratt & Whitney who are
looking to grow their replacement parts business. With roughly $800 million in
revenues, we estimate Chromalloy's private market value to be near the entire
public value of Sequa.
STANDARD MOTOR PRODUCTS INC. (SMP) (SUB. DEB. CV., 6.75%, 07/15/09),
headquartered in Long Island City, New York, supplies functional replacement
parts for the engine management, electrical and climate control systems of cars,
trucks and buses. The company services all makes and models, both new and old
cars, imported and domestic. SMP has two primary divisions--engine management
and temperature control--and believes it is the number one supplier to the North
American aftermarket in each of these lines.
THERMO ELECTRON CORP. (SUB. DEB. CV., 4.00%, 01/15/05) is a leading provider of
scientific instruments. It manufactures measurement instrumentation, and
provides information management software and worldwide services to markets which
include: the life sciences, clinical laboratories, healthcare,
telecommunications, food and beverage, chemical, oil and gas, and academic and
government clients. The company's products ensure the quality and safety of
materials used in manufacturing, improve industrial processes and protect the
environment--its instruments were also used at the Winter Olympics to identify
the use of banned substances and to search for explosive materials. As part of
its strategy to become an integrated instrument business, it is spinning off
non-core businesses, most of which has been completed.
U.S. CELLULAR CORP. (SUB. DEB. CV., ZERO COUPON, 06/15/15) is an 81%-owned
subsidiary of Telephone and Data Systems (TDS - $60.55 - AMEX) and is a wireless
carrier with cellular licenses covering over 27 million people primarily in
rural and suburban markets. The company currently serves over 3.5 million
subscribers and is an important roaming partner for national wireless carriers
such as AT&T Wireless Group (AWE - $5.85 - NYSE), Verizon Communications (VZ -
$40.15 -NYSE) and Sprint PCS Group (PCS - $4.47 - NYSE). The company recently
announced plans to upgrade its wireless infrastructure to be able to offer
high-speed data services in the near future. USM is in the process of acquiring
PCS properties in Chicago area for $650 million increasing its licensed
footprint by about 13 million people and adding 350,000 new customers. Having
operations in Chicago should significantly improve USM competitive position in
its midwest cluster.
7
SHAREHOLDER MEETING - MAY 20, 2002 - FINAL RESULTS
The Annual Meeting of Shareholders was held on May 20, 2002 at the Bruce
Museum in Greenwich, Connecticut. At that meeting, common shareholders and
preferred shareholders voting as a single class elected Anthonie C. van Ekris
and Salvatore J. Zizza as Directors of the Fund. A total of 6,941,983 votes and
6,946,923 votes were cast in favor of each Director and 54,272 votes and 49,332
votes were withheld for each Director, respectively. Preferred shareholders
voting as a separate class elected Anthony J. Colavita and Werner J. Roeder as
Directors of the Fund. A total of 1,153,862 votes and 1,152,862 votes were cast
in favor of each Director and 12,092 votes and 13,092 votes were withheld for
each Director, respectively.
Mario J. Gabelli, E. Val Cerutti, Dugald A. Fletcher, Karl Otto Pohl and
Anthony R. Pustorino continue to serve in their capacities as Directors of the
Fund.
We thank you for your participation and appreciate your continued support.
STOCK REPURCHASE PLAN
The Gabelli Convertible Securities Fund is authorized to repurchase up to
500,000 shares of the Fund's outstanding common shares. Pursuant to this stock
repurchase plan, the Fund may from time to time purchase shares of its capital
stock in the open market when the shares are trading at a discount of 10% or
more from the net asset value of the shares. In total, through June 30, 2002,
305,200 shares have been repurchased in the open market under this stock
repurchase plan.
COMMON STOCK 8% DISTRIBUTION POLICY
The Convertible Securities Fund continues to maintain its 8% Distribution
Policy whereby the Fund pays out to common stock shareholders 8% of its average
net assets each year. Pursuant to this policy, the Convertible Securities Fund
distributed $0.20 per share on June 24, 2002. The next distribution is scheduled
for September 2002.
8.00% CUMULATIVE PREFERRED STOCK - DIVIDENDS
The Convertible Securities Fund's 8.00% Cumulative Preferred Stock paid a
cash distribution on June 26, 2002 of $0.50 per share. For the twelve-months
ended June 30, 2002, Preferred Stock shareholders received distributions
totaling $2.00, the annual dividend rate per share of Preferred Stock. The next
distribution is scheduled for September 2002.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage at http://www.gabelli.com
contains information about Gabelli Asset Management Inc., the Gabelli Mutual
Funds, IRAs, 401(k)s, quarterly reports, closing prices and other current news.
You can send us e-mail at closedend@gabelli.com.
In our efforts to bring our shareholders more timely portfolio
information, Gabelli Fund's portfolio managers regularly participate in chat
sessions at www.gabelli.com as reflected below.
WHO WHEN
--- ----
Special Chats: Mario J. Gabelli First Monday of each month
Howard Ward First Tuesday of each month
8
In addition, every Wednesday will feature a different portfolio manager.
The upcoming Wednesday chat schedule is as follows:
AUGUST SEPTEMBER OCTOBER
------ --------- -------
1st Wednesday Susan Byrne Caesar Bryan Walter Walsh & Laura Linehan
2nd Wednesday Lynda Calkin Hart Woodson Caesar Bryan
3rd Wednesday Walter Walsh & Laura Linehan Charles Minter & Martin Weiner Henry Van der Eb
4th Wednesday Barbara Marcin Barbara Marcin Lynda Calkin
5th Wednesday Barbara Marcin
All chat sessions start at 4:15 PM (Eastern Time). Please arrive early, as
participation is limited.
You may sign up for our e-mail alerts at www.gabelli.com and receive early
notice of chat sessions, closing mutual fund prices, news events and media
sightings.
IN CONCLUSION
True to form, convertible securities held up relatively well as the stock
market got pounded in the second quarter. The next test will be to see if our
convertible portfolio participates as stocks right themselves. We are confident
that a more beneficial stock market will reward our shareholders in the years
ahead.
Sincerely,
/S/ Mario J. Gabelli
MARIO J. GABELLI
President and Chief Investment Officer
August 1, 2002
--------------------------------------------------------------------------------
SELECTED CONVERTIBLE HOLDINGS
JUNE 30, 2002
Citizens Communications Co. (5.00% Cv. Pfd.) Sealed Air Corp. ($2.00 Cv. Pfd., Ser. A)
Franklin Resources Inc. (Zero Coupon, 05/11/31) Sequa Corp. ($5.00 Cv. Pfd.)
General Motors Corp. (Cv. Pfd.) Standard Motor Products Inc. (Sub. Deb. Cv., 6.75%, 07/15/09)
Hilton Hotels Corp. (Sub. Deb. Cv., 5.00%, 05/15/06) Thermo Electron Corp. (Sub. Deb. Cv., 4.00%, 01/15/05)
Robbins & Myers Inc. (Sub. Deb. Cv., 6.50%, 09/01/03) U.S. Cellular Corp. (Sub. Deb. Cv., Zero Coupon, 06/15/15)
--------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
9
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS
JUNE 30, 2002 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- ---- -----
CONVERTIBLE CORPORATE BONDS -- 39.5%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 8.2%
$ 800,000 Exide Corp., Sub. Deb. Cv.,
2.900%, 12/15/05 (b)(c) ...... $ 601,359 $ 16,000
1,150,000 GenCorp Inc., Sub. Deb. Cv.,
5.750%, 04/15/07 (b) ......... 1,150,000 1,240,563
9,000,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 ............. 7,188,662 7,312,500
----------- -----------
8,940,021 8,569,063
----------- -----------
AVIATION: PARTS AND SERVICES -- 4.1%
4,396,000 Kaman Corp., Sub. Deb. Cv.,
6.000%, 03/15/12 ............. 4,166,130 4,291,595
----------- -----------
BUILDING AND CONSTRUCTION -- 0.0%
Foster Wheeler Ltd., Sub. Deb. Cv.,
40,000 6.500%, 06/01/07 (b) ......... 35,045 11,200
60,000 6.500%, 06/01/07 ............. 40,823 13,800
----------- -----------
75,868 25,000
----------- -----------
BUSINESS SERVICES -- 4.4%
900,000 BBN Corp., Sub. Deb. Cv.,
6.000%, 04/01/12 (a) ......... 883,198 850,500
10,000 First Data Corp.,
Sub. Deb. Cv.,
2.000%, 03/01/08 ............. 9,949 11,387
3,000,000 Franklin Resources Inc., Cv.,
Zero Coupon, 05/11/31 ........ 1,751,934 1,788,750
400,000 Navistar Financial Corp.,
Sub. Deb. Cv.,
4.750%, 04/01/09 (b) ......... 379,345 358,000
1,850,000 Trans-Lux Corp.,
Sub. Deb. Cv.,
7.500%, 12/01/06 ............. 1,787,409 1,579,438
----------- -----------
4,811,835 4,588,075
----------- -----------
CABLE -- 0.8%
200,000 Adelphia Communications
Corp., Sub. Deb. Cv.,
3.250%, 05/01/21+ (c) ........ 113,000 18,000
1,800,000 Charter Communications
Inc., Cv.,
4.750%, 06/01/06 ............. 1,309,789 821,250
----------- -----------
1,422,789 839,250
----------- -----------
COMPUTER SOFTWARE AND SERVICES -- 0.3%
300,000 Exodus Communications Inc.,
Sub. Deb. Cv.,
5.250%, 02/15/08 (c) ......... 163,036 1,125
350,000 QuadraMed Corp.,
Sub. Deb. Cv.,
5.250%, 05/01/05 ............. 262,944 290,500
----------- -----------
425,980 291,625
----------- -----------
CONSUMER PRODUCTS -- 0.6%
$1,500,000 Pillowtex Corp.,
Sub. Deb. Cv.,
6.000%, 03/15/12+ (c) ........ $ 120,955 $ 0
700,000 Standard Commercial Corp.,
Sub. Deb. Cv.,
7.250%, 03/31/07 ............. 613,597 669,375
----------- -----------
734,552 669,375
----------- -----------
CONSUMER SERVICES -- 0.2%
1,100,000 Ogden Corp., Sub. Deb. Cv.,
6.000%, 06/01/02+ (c) ........ 1,090,087 198,000
----------- -----------
DIVERSIFIED INDUSTRIAL -- 0.6%
500,000 GATX Corp., Cv.,
7.500%, 02/01/07 (b) ......... 500,000 579,375
----------- -----------
ELECTRONICS -- 4.7%
2,500,000 Agere Systems Inc.,
Sub. Deb. Cv.,
6.500%, 12/15/09 ............. 2,500,000 1,915,625
900,000 Oak Industries Inc.,
Sub. Deb. Cv.,
4.875%, 03/01/08 ............. 791,583 578,250
100,000 Solectron Corp., Cv.,
Zero Coupon, 05/08/20 ........ 53,081 59,000
2,500,000 Thermo Electron Corp.,
Sub. Deb. Cv.,
4.000%, 01/15/05 ............. 2,392,526 2,396,875
----------- -----------
5,737,190 4,949,750
----------- -----------
ENERGY AND UTILITIES -- 2.0%
325,000 Devon Energy Corp.,
Sub. Deb. Cv.,
4.950%, 08/15/08 ............. 319,502 325,000
200,000 Friede Goldman Halter Inc.,
Sub. Deb. Cv.,
4.500%, 09/15/04+ (c) ........ 129,732 21,000
1,700,000 Mirant Corp., Sub. Deb. Cv.,
2.500%, 06/15/21 ............. 1,279,478 1,243,125
511,000 Moran Energy Inc.,
Sub. Deb. Cv.,
8.750%, 01/15/08 ............. 356,300 511,000
----------- -----------
2,085,012 2,100,125
----------- -----------
EQUIPMENT AND SUPPLIES -- 1.6%
1,600,000 Robbins & Myers Inc.,
Sub. Deb. Cv.,
6.500%, 09/01/03 ............. 1,588,592 1,700,000
----------- -----------
See accompanying notes to financial statements.
10
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- ---- -----
CONVERTIBLE CORPORATE BONDS (CONTINUED)
HEALTH CARE -- 1.5%
$ 50,000 Apogent Technologies Inc.,
Cv.,
2.250%, 10/15/21 (b) ......... $ 51,932 $ 48,375
10,000 Inhale Therapeutic Systems,
Sub. Deb. Cv.,
6.750%, 10/13/06 (b) ......... 10,347 7,351
30,000 Invitrogen Corp.,
Sub. Deb. Cv.,
5.500%, 03/01/07 ............. 27,711 26,325
IVAX Corp., Sub. Deb. Cv.,
1,400,000 5.500%, 05/15/07 ............. 1,249,818 1,146,250
400,000 4.500%, 05/15/08 (b) ......... 323,442 300,000
150,000 Sabratek Corp., Sub. Deb. Cv.,
6.000%, 04/15/05+ (c) ........ 84,763 0
----------- -----------
1,748,013 1,528,301
----------- -----------
HOTELS AND GAMING -- 4.9%
5,500,000 Hilton Hotels Corp.,
Sub. Deb. Cv.,
5.000%, 05/15/06 ............. 4,987,278 5,190,625
----------- -----------
PAPER AND FOREST PRODUCTS -- 1.5%
200,000 Riverwood International Corp.,
Sub. Deb. Cv.,
6.750%, 09/15/03 ............. 199,907 230,890
1,400,000 Thermo Fibertek Inc.,
Sub. Deb. Cv.,
4.500%, 07/15/04 (b) ......... 1,284,935 1,372,000
----------- -----------
1,484,842 1,602,890
----------- -----------
PUBLISHING -- 0.1%
200,000 Times Mirror Ltd.,
Sub. Deb. Cv.,
Zero Coupon, 04/15/17 ........ 108,604 127,500
----------- -----------
RETAIL -- 1.5%
60,000 Costco Companies Inc.,
Sub. Deb. Cv.,
Zero Coupon, 08/19/17 ........ 43,968 53,250
300,000 Rite Aid Corp., Sub. Deb Cv.,
5.250%, 09/15/02 ............. 272,561 295,500
10,000 School Specialty Inc.,
Sub. Deb. Cv.,
6.000%, 08/01/08 ............. 10,175 10,850
1,200,000 Thermo Instrument Systems
Inc., Sub. Deb. Cv.,
4.500%, 10/15/03 (b) ......... 1,177,284 1,192,500
----------- -----------
1,503,988 1,552,100
----------- -----------
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- ---- -----
TELECOMMUNICATIONS -- 1.2%
$ 80,000 Amnex Inc., Sub. Deb. Cv.,
8.500%, 09/25/02+ (b)(c) ..... $ 71,773 $ 0
Bell Atlantic Corp., Cv.,
600,000 4.250%, 09/15/05 (b) ......... 598,054 606,000
90,000 4.250%, 09/15/05 ............. 95,691 90,731
1,300,000 NTL Inc., Sub. Deb. Cv.,
5.750%, 12/15/09 (c) ......... 595,953 195,000
500,000 Rogers Communications Inc.,
Sub. Deb. Cv.,
2.000%, 11/26/05 ............. 402,923 382,500
200,000 XO Communications Inc.,
Sub. Deb. Cv.,
5.750%, 01/15/09+ (b)(c) ..... 116,123 250
----------- -----------
1,880,517 1,274,481
----------- -----------
WIRELESS COMMUNICATIONS -- 1.3%
Nextel Communications
Inc., Cv.,
700,000 6.000%, 06/01/11 (b) ......... 551,877 282,417
1,700,000 5.250%, 01/15/10 ............. 1,127,065 711,875
100,000 4.750%, 07/01/07 ............. 67,739 46,000
1,100,000 United States Cellular Corp.,
Sub. Deb. Cv.,
Zero Coupon, 06/15/15 ........ 737,275 342,375
----------- -----------
2,483,956 1,382,667
----------- -----------
TOTAL CONVERTIBLE
CORPORATE BONDS .............. 45,775,254 41,459,797
----------- -----------
SHARES
------
CONVERTIBLE PREFERRED STOCKS -- 19.0%
AEROSPACE -- 1.2%
8,500 Northrop Grumman Corp.,
7.000% Cv. Pfd., Ser. B ...... 990,420 1,232,500
----------- -----------
AUTOMOTIVE -- 0.9%
5,000 Ford Motor Co. Capital
Trust II,
6.500% Cv. Pfd. .............. 250,000 281,250
General Motors Corp.,
14,000 5.250% Cv. Pfd., Ser. B ...... 350,000 367,780
12,000 4.500% Cv. Pfd., Ser. A ...... 300,000 310,080
----------- -----------
900,000 959,110
----------- -----------
See accompanying notes to financial statements.
11
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
---------- ---- -----
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
AVIATION: PARTS AND SERVICES -- 4.6%
Coltec Capital Trust,
17,000 5.250% Cv. Pfd. (b) .......... $ 802,500 $ 619,672
37,000 5.250% Cv. Pfd. .............. 1,479,875 1,348,698
30,000 Sequa Corp.,
$5.00 Cv. Pfd. ............... 2,297,667 2,820,000
----------- -----------
4,580,042 4,788,370
----------- -----------
BROADCASTING -- 1.0%
100 Gray Communications
Systems Inc.,
8.000% Cv. Pfd.,
Ser. C (b) ................... 1,000,000 1,000,000
----------- -----------
BUSINESS SERVICES -- 1.8%
14,000 Interep National Radio Sales Inc.,
4.000% Cv. Pfd.,
Ser. A (b) ................... 1,400,000 1,400,000
20,000 Key3Media Group,
5.500% Cv. Pfd. .............. 500,000 500,000
----------- -----------
1,900,000 1,900,000
----------- -----------
CABLE -- 0.5%
35,000 CVC Equity Securities Trust I,
6.500% Cv. Pfd. .............. 1,110,195 514,500
----------- -----------
DIVERSIFIED INDUSTRIAL -- 0.5%
2,400 GATX Corp.,
$2.50 Cv. Pfd. ............... 335,070 408,000
WHX Corp.,
28,000 6.500% Cv. Pfd., Ser. A+ ..... 216,762 109,760
10,000 $3.75 Cv. Pfd., Ser. B+ ...... 45,523 40,100
----------- -----------
597,355 557,860
----------- -----------
ENERGY AND UTILITIES -- 0.5%
500 Cinergy Corp.,
9.500% Cv. Pfd. .............. 25,025 29,225
2,500 FPL Group Inc.,
8.500% Cv. Pfd. .............. 125,000 138,525
200 KCS Energy Inc.,
5.000% Cv. Pfd.,
Ser. A (a) ................... 200,000 116,667
22,000 Semco Capital Trust II,
11.000% Cv. Pfd. ............. 202,290 186,120
----------- -----------
552,315 470,537
----------- -----------
ENTERTAINMENT -- 0.8%
1,000 Metromedia International
Group Inc.,
7.250% Cv. Pfd.+ ............. 25,331 2,000
MARKET
SHARES COST VALUE
---------- ---- -----
45,000 Rainbow Equity Securities
Trust II,
6.250% Cv. Pfd. .............. $ 1,000,380 $ 516,150
12,000 Six Flags Inc.,
7.250% Cv. Pfd. .............. 283,335 277,200
----------- -----------
1,309,046 795,350
----------- -----------
PAPER AND FOREST PRODUCTS -- 2.2%
57,000 Sealed Air Corp.,
$2.00 Cv. Pfd., Ser. A ....... 2,129,018 2,328,450
----------- -----------
REAL ESTATE -- 0.1%
5,000 Innkeepers USA Trust,
8.625% Cv. Pfd., Ser. A ...... 123,288 123,000
----------- -----------
TELECOMMUNICATIONS -- 4.2%
500 ALLTEL Corp.,
7.750% Cv. Pfd. .............. 25,100 24,270
16,400 Broadwing Inc.,
6.750% Cv. Pfd., Ser. B ...... 459,432 277,160
76,000 Citizens Communications Co.,
5.000% Cv. Pfd. .............. 3,790,426 3,070,400
700 Lucent Technologies
Capital Trust I,
7.750% Cv. Pfd. (b) .......... 692,250 336,159
1,000 Lucent Technologies Inc.,
8.000% Cv. Pfd. .............. 939,000 485,000
12,000 Philippine Long Distance
Telephone Co.,
$3.50 Cv. Pfd., Ser. III ..... 471,755 242,400
----------- -----------
6,377,963 4,435,389
----------- -----------
WIRELESS COMMUNICATIONS -- 0.7%
21,000 Allen Telecom Inc.,
7.750% Cv. Pfd., Ser. D ...... 1,046,350 748,650
3,000 Loral Space &
Communications Ltd.,
6.000% Cv. Pfd., Ser. D ...... 54,750 26,625
----------- -----------
1,101,100 775,275
----------- -----------
TOTAL CONVERTIBLE
PREFERRED STOCKS ............. 22,670,742 19,880,341
----------- -----------
COMMON STOCKS -- 3.0%
AVIATION: PARTS AND SERVICES -- 0.1%
9,000 Kaman Corp., Cl. A ............. 106,563 150,840
----------- -----------
BROADCASTING -- 0.1%
35,000 Granite Broadcasting Corp.+ .... 37,187 85,050
----------- -----------
CABLE -- 0.0%
10,000 UnitedGlobalCom Inc.,
Cl. A+ ....................... 91,270 27,500
----------- -----------
See accompanying notes to financial statements.
12
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
SHARES COST VALUE
---------- ---- -----
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES -- 1.7%
8,900 AGL Resources Inc. ............. $ 157,738 $ 206,480
10,000 BP plc, ADR .................... 384,270 504,900
3,000 CH Energy Group Inc. ........... 83,900 147,750
10,000 Conectiv ....................... 221,812 258,100
10,000 NiSource Inc.+ ................. 20,000 20,800
25,000 Northeast Utilities ............ 474,141 470,250
10,000 Progress Energy Inc.+ .......... 5,200 3,000
2,200 SJW Corp. ...................... 213,919 178,200
----------- -----------
1,560,980 1,789,480
----------- -----------
EQUIPMENT AND SUPPLIES -- 0.1%
50,000 Fedders Corp. .................. 310,916 126,500
----------- -----------
FINANCIAL SERVICES -- 0.5%
24,000 Argonaut Group Inc. ............ 532,291 514,080
----------- -----------
FOOD AND BEVERAGE -- 0.1%
3,609 Chiquita Brands
International Inc.+ .......... 99,993 64,637
----------- -----------
PUBLISHING -- 0.3%
12,000 News Corp. Ltd., ADR ........... 282,768 275,160
----------- -----------
TELECOMMUNICATIONS -- 0.1%
12,547 AT&T Corp. ..................... 134,832 134,253
1,000 Philippine Long Distance
Telephone Co., ADR+ .......... 12,470 7,460
----------- -----------
147,302 141,713
----------- -----------
WIRELESS COMMUNICATIONS -- 0.0%
49 Winstar Communications
Inc.+ ........................ 438 0
----------- -----------
TOTAL COMMON
STOCKS ....................... 3,169,708 3,174,960
----------- -----------
PREFERRED STOCKS -- 1.5%
BROADCASTING -- 1.3%
2,127 Granite Broadcasting Corp.,
12.750% Pfd. ................. 879,780 1,361,280
----------- -----------
PUBLISHING -- 0.2%
9,777 News Corp. Ltd., Pfd.,
ADR .......................... 189,209 193,096
----------- -----------
TOTAL PREFERRED
STOCKS ....................... 1,068,989 1,554,376
----------- -----------
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- ---- -----
CORPORATE BONDS -- 0.3%
BROADCASTING -- 0.0%
$ 15,000 Granite Broadcasting Corp.,
Sub. Deb.,
8.875%, 05/15/08 ............. $ 7,655 $ 13,200
----------- -----------
TELECOMMUNICATIONS -- 0.0%
400,000 Williams Communications
Group Inc.,
10.875%, 10/01/09 (c) ........ 158,030 35,000
----------- -----------
WIRELESS COMMUNICATIONS -- 0.3%
500,000 Nextel Communications Inc.,
9.500%, 02/01/11 ............. 347,450 247,500
----------- -----------
TOTAL CORPORATE
BONDS ........................ 513,135 295,700
----------- -----------
SHARES
------
WARRANTS -- 0.0%
BUSINESS SERVICES -- 0.0%
87,500 Interep National Radio
Sales Inc.+ .................. 0 0
----------- -----------
PRINCIPAL
AMOUNT
----------
U.S. GOVERNMENT OBLIGATIONS -- 35.6%
$37,438,000 U.S. Treasury Bills,
1.675% to 1.755%++,
07/05/02 to 09/19/02 ......... 37,375,425 37,375,439
------------ ------------
TOTAL INVESTMENTS -- 98.9% ................. $110,573,253 103,740,613
============
OTHER ASSETS, LIABILITIES AND
LIQUIDATION VALUE OF
CUMULATIVE PREFERRED STOCK -- (27.5)% ................. (28,805,462)
------------
NET ASSETS -- COMMON STOCK -- 71.4%
(8,212,263 common shares outstanding) ................. 74,935,151
------------
NET ASSETS -- PREFERRED STOCK -- 28.6%
(1,200,000 preferred shares outstanding) .............. 30,000,000
------------
TOTAL NET ASSETS -- 100.0% .............................. $104,935,151
============
NET ASSET VALUE PER COMMON SHARE
($74,935,151 / 8,212,263 shares outstanding) .................. $9.12
=====
See accompanying notes to financial statements.
13
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2002 (UNAUDITED)
MARKET
COMMON STOCKS SHARES PROCEEEDS VALUE
------------- ------ --------- -----
SECURITIES SOLD SHORT
KCS Energy Inc. .................. 43,299 $ 412,761 $ 75,773
============
----------------
For Federal tax purposes:
Aggregate cost .............................. $111,551,589
============
Gross unrealized appreciation ............... $ 2,661,254
Gross unrealized depreciation ............... (10,472,230)
------------
Net unrealized depreciation ................. $ (7,810,976)
============
-----------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) 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 June 30, 2002, the market value of Rule 144A securities amounted to
$9,369,862 or 8.93% of total net assets.
(c) Bond in default.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
See accompanying notes to financial statements.
14
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2002 (UNAUDITED)
ASSETS:
Investments, at value (cost $110,573,253) ................... $103,740,613
Cash and foreign currency, at value (cost $13,679) .......... 13,680
Dividends and interest receivable ........................... 1,032,525
Receivable for investments sold ............................. 412,761
------------
TOTAL ASSETS ................................................ 105,199,579
------------
LIABILITIES:
Securities sold short (proceeds $412,761) ................... 75,773
Dividends payable ........................................... 33,333
Payable for investment advisory fees ........................ 57,419
Payable to custodian ........................................ 461
Payable for legal and audit ................................. 21,988
Payable for shareholder communications expense .............. 27,846
Other accrued expenses and liabilities ...................... 47,608
------------
TOTAL LIABILITIES ........................................... 264,428
------------
PREFERRED STOCK:
Cumulative Preferred Stock (8.00%,
$25 liquidation value, $0.001 par value,
2,000,000 shares authorized with 1,200,000
shares issued and outstanding) ............................ 30,000,000
------------
NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS ................................. $ 74,935,151
============
NET ASSETS ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS CONSIST OF:
Capital stock, at par value ................................. $ 8,212
Additional paid-in capital .................................. 82,936,482
Accumulated net realized loss on investments,
securities sold short and foreign
currency transactions ..................................... (1,513,883)
Net unrealized depreciation on investments,
securities sold short and foreign
currency transactions ..................................... (6,495,660)
------------
TOTAL NET ASSETS ............................................ $ 74,935,151
============
NET ASSET VALUE PER COMMON SHARE
($74,935,151 / 8,212,263 shares outstanding;
100,000,000 shares authorized of
$0.001 par value) ......................................... $9.12
=====
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign taxes of $4,623) .................. $ 624,275
Interest .................................................... 2,115,645
------------
TOTAL INVESTMENT INCOME ..................................... 2,739,920
------------
EXPENSES:
Investment advisory fees .................................... 360,565
Payroll ..................................................... 51,244
Shareholder services fees ................................... 45,369
Shareholder communications expenses ......................... 37,556
Directors' fees ............................................. 27,654
Legal and audit fees ........................................ 27,389
Custodian fees .............................................. 14,848
Miscellaneous expenses ...................................... 27,706
------------
TOTAL EXPENSES .............................................. 592,331
------------
NET INVESTMENT INCOME ....................................... 2,147,589
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on investments, securities sold
short and foreign currency transactions ................... (203,647)
Net change in unrealized depreciation on
investments, securities sold short and
foreign currency transactions ............................. (4,074,255)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS ......................... (4,277,902)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................... (2,130,313)
------------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ....................................... (1,200,000)
------------
TOTAL DISTRIBUTIONS TO PREFERRED
STOCK SHAREHOLDERS ........................................ (1,200,000)
------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS
RESULTING FROM OPERATIONS ................................. ($3,330,313)
============
See accompanying notes to financial statements.
15
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2002 DECEMBER 31,
(UNAUDITED) 2001
----------- -----------
OPERATIONS:
Net investment income ............................................................. $ 2,147,589 $ 5,317,865
Net realized gain (loss) on investments, securities sold short and
foreign currency transactions ................................................... (203,647) 1,598,603
Net change in unrealized appreciation/depreciation of investments,
securities sold short and foreign currency transactions ......................... (4,074,255) 932,372
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................... (2,130,313) 7,848,840
----------- -----------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ............................................................. (1,200,000) (1,417,106)
Net realized gain on investments and foreign currency transactions ................ -- (982,894)
----------- -----------
TOTAL DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS ............................... (1,200,000) (2,400,000)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS RESULTING FROM OPERATIONS ............................. (3,330,313) 5,448,840
----------- -----------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income ............................................................. (964,561) (3,753,230)
Net realized gain on investments and foreign currency transactions ................ -- (2,639,941)
Paid-in capital ................................................................... (2,272,504) --
----------- -----------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS .................................. (3,237,065) (6,393,171)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets from common shares issued upon reinvestment
of dividends and distributions .................................................. 1,428,150 2,952,833
----------- -----------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS ........................... 1,428,150 2,952,833
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS ....................................................... (5,139,228) 2,008,502
NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS:
Beginning of period ............................................................... 80,074,379 78,065,877
----------- -----------
End of period (including undistributed net investment income of
$0 and $314,002, respectively) .................................................. $74,935,151 $80,074,379
=========== ===========
See accompanying notes to financial statements.
16
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 registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), whose investment
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 Fund was incorporated in Maryland on December 19, 1988 as an open-end
diversified management investment company and commenced investment operations on
July 3, 1989. The Board of Directors, upon approval at a special meeting of
shareholders held on February 17, 1995, voted to approve the conversion of the
Fund to closed-end status, effective March 31, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange 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 except for open short positions, which are
valued at the last asked price). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. If there were no asked prices quoted
on that day, then the security is valued at the closing bid price. 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
foreign markets are generally valued at the preceding closing values of such
securities on their respective exchanges. Securities and assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Board of Directors. Short term debt securities with remaining
maturities of 60 days or less are valued at amortized cost, unless the Board of
Directors determines such does not reflect the securities' fair value, in which
case these securities will be valued at their fair value as determined by the
Board of Directors. Debt instruments having a maturity greater than 60 days are
valued at the highest bid price obtained from a dealer maintaining an active
market in those securities. Options are valued at the last sale price on the
exchange on which they are listed. If no sales of such options have taken place
that day, they will be valued at the mean between their closing bid and asked
prices.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Bank of
New York, with member banks of the Federal Reserve System or with other brokers
or dealers that meet credit guidelines established by the Adviser and reviewed
by the Board of Directors. Under the terms of a typical repurchase agreement,
the Fund takes possession of an underlying debt obligation subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. The Fund will always receive and maintain securities as
collateral whose market value, including accrued interest, will be at least
equal to 100% of the dollar amount invested by the Fund in each agreement. The
Fund will make payment for such securities only upon physical delivery or upon
evidence of book entry transfer of the collateral to the account of the
custodian. To the extent that any repurchase transaction exceeds one business
day, the value of the collateral is marked-to-market on a daily basis to
maintain the adequacy of the collateral.
17
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
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 economically appropriate to the reduction of risks involved in
the management of the Fund's investments. 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 included in unrealized
appreciation/depreciation on investments and futures contracts. The Fund
recognizes a realized gain or loss when the contract is closed. At June 30,
2002, there were no open futures contracts.
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.
FORWARD FOREIGN EXCHANGE CONTRACTS. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. Forward foreign exchange contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
included in unrealized appreciation/depreciation on investments and foreign
currency transactions. 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 exchange 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 exchange contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain/(loss) 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. At June 30, 2002, the Fund held no forward
foreign exchange contracts.
SECURITIES SOLD SHORT. A short sale involves selling a security which the
Fund does not own. The proceeds received for 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 the 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.
FOREIGN CURRENCY TRANSLATION. 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 at the exchange rate prevailing
on the respective dates of such transactions. Unrealized gains and losses, which
result from
18
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
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 transactions. 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 trade date and
subsequent sale trade date is included in realized gain/(loss) on investments.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for as of the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. 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, timing differences and differing characterization
of distributions made by the Fund. Distributions to shareholders of the Fund's
8.00% Cumulative Preferred Stock ("Cumulative Preferred Stock") are accrued on a
daily basis and are determined as described in Note 5.
PROVISION FOR INCOME TAXES. The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. As a result, a Federal income tax provision is not required.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES. The Fund has entered into an
investment advisory agreement (the "Advisory Agreement") with the Adviser which
provides that the Fund will pay the Adviser a fee, computed daily and paid
monthly, equal on an annual basis to 1.00% of the value of the Fund's average
daily net assets. In accordance with the Advisory Agreement, the Adviser
provides a continuous investment program for the Fund's portfolio and oversees
the administration of all aspects of the Fund's business and affairs. The
Adviser has agreed to reduce the management fee on the incremental assets
attributable to the Cumulative Preferred Stock if the total return of the net
asset value of the common shares of the Fund, including distributions and
advisory fee subject to reduction, does not exceed the stated dividend rate of
the Cumulative Preferred Stock. For the six months ended June 30, 2002, the
Fund's total return on the net asset value of the common shares did not exceed
the stated dividend rate of the Cumulative Preferred Stock. Thus, such
management fees were not earned on the incremental assets.
During the six months ended June 30, 2002, Gabelli & Company, Inc. and its
affiliates received $7,782 in brokerage commissions as a result of executing
agency transactions in portfolio securities on behalf of the Fund.
4. PORTFOLIO SECURITIES. Costs of purchases and proceeds from sales of
securities, other than short-term securities, for the six months ended June 30,
2002 aggregated $31,992,165 and $33,377,421, respectively.
19
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
5. CAPITAL. The Articles of Incorporation, dated December 19, 1988, permit the
Fund to issue 100,000,000 shares of common stock (par value $0.001).
Transactions in common stock were as follows:
SIX MONTHS ENDED
JUNE 30, 2002 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2001
---------------------- ----------------------
Shares Amount Shares Amount
------- ---------- -------- ----------
Shares issued upon reinvestment
of dividends and distributions ......................... 137,546 $1,428,150 286,972 $2,952,833
Net decrease from repurchase of common shares ............ -- -- -- --
------- ---------- -------- ----------
Net increase ............................................. 137,546 $1,428,150 286,972 $2,952,833
======= ========== ======== ==========
The Adviser has been authorized to repurchase on behalf of the Fund up to
500,000 shares of Common Stock of the Fund in the open market, whenever the
shares are trading at a discount of 10% or more from the net asset value of the
shares. For the six months ended June 30, 2002, the Fund did not repurchase any
shares of Common Stock. All shares of Common Stock repurchased have been
retired.
In addition, the Fund has been authorized to issue up to 2,000,000 shares
of Preferred Stock of which 1,200,000 shares has been designated as $0.001 par
value 8% Cumulative Preferred Stock. Dividends on shares of the Cumulative
Preferred Stock are cumulative. The Fund is required to meet certain asset
coverage tests with respect to the Cumulative Preferred Stock as required by the
1940 Act and by the Shares' Articles Supplementary. If the Fund fails to meet
these requirements and does not correct such failure, the Fund may be required
to redeem, in part or in full, the Cumulative Preferred Stock at a redemption
price of $25.00 per share plus an amount equal to the accumulated and unpaid
dividends whether or not declared on such shares in order to meet these
requirements. Additionally, failure to meet the foregoing asset requirement
could restrict the Fund's ability to pay dividends to Common Shareholders and
could lead to sales of portfolio securities at inopportune times. The Preferred
Stock is callable at the redemption price at the option of the Fund after May
15, 2002. This Cumulative Preferred Stock introduced leverage into the capital
structure of the Fund. This leverage tends to magnify both the risks and
opportunities to Common Shareholders. At June 30, 2002, the 1,200,000 shares of
8% Cumulative Preferred Stock outstanding accrued dividends in the amount of
$33,333. The income received on the Fund's assets may vary in a manner unrelated
to the fixed rate, which could have either a beneficial or detrimental impact on
net investment income and gains available to Common Shareholders.
The Fund shall not declare dividends or make other distributions on
1,200,000 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%.
20
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
The holders of Cumulative Preferred Stock have voting rights equivalent to
those of 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 1940
Act requires that along with approval of a majority of the holders of Common
Stock, approval of a majority of the holders of any outstanding shares of
Cumulative Preferred Stock, voting separately as a class, would be required to
(a) adopt any plan of reorganization that would adversely affect the Cumulative
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.
Under Emerging Issues Task Force (EITF) promulgating Topic D-98,
CLASSIFICATION AND MEASUREMENT OF REDEEMABLE SECURITIES, which was issued on
July 19, 2001, preferred securities that are redeemable for cash or other assets
are to be classified outside of permanent equity to the extent that the
redemption is at a fixed or determinable price and at the option of the holder
or upon the occurrence of an event that is not solely within the control of the
issuer. Subject to the guidance of the EITF, the Fund's Cumulative Preferred
Stock, which was previously classified as a component of net assets, has been
reclassified outside of permanent equity (net assets attributable to common
stock shareholders) in the accompanying financial statements. Prior year amounts
have also been reclassified to conform with this presentation. The impact of
this reclassification creates no change to the net assets available to common
shareholders.
6. SUBSEQUENT EVENT. Effective August 1, 2002, the Fund changed its name to The
Gabelli Convertible and Income Securities Fund Inc. The Fund continues to
maintain its investment objective of seeking a high level of total return
through a combination of current income and capital appreciation.
Consistent with its new name, under normal market conditions, the Fund
will invest at least 80% of its net assets in a combination of convertible
securities and income producing securities (the "80% Policy"). The Fund expects
to continue its practice of investing in convertible securities to the extent
attractive opportunities are available.
The 80% Policy may be changed without shareholder approval. However, the
Fund has adopted a policy to provide shareholders with at least 60 days' prior
notice of the implementation of any change in the 80% Policy.
21
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A FUND COMMON SHARE SIX MONTHS ENDED
OUTSTANDING THROUGHOUT EACH PERIOD: JUNE 30, 2002 YEAR ENDED DECEMBER 31,
-------------------------------------------------------
OPERATING PERFORMANCE: (UNAUDITED) 2001 2000 1999 1998 1997
----------- -------- -------- -------- --------- --------
Net asset value, beginning of period ................. $ 9.92 $ 10.02 $ 11.40 $ 11.45 $ 11.48 $ 11.08
-------- -------- -------- -------- --------- --------
Net investment income ................................ 0.27 0.68 0.72 0.51 0.53 0.49
Net realized and unrealized gain (loss) on investments (0.53) 0.32 (0.52) 0.77 0.65 1.23
-------- -------- -------- -------- --------- --------
Total from investment operations ..................... (0.26) 1.00 0.20 1.28 1.18 1.72
-------- -------- -------- -------- --------- --------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ................................ (0.15) (0.18) (0.13) (0.11) (0.13) (0.08)
Net realized gain on investments ..................... -- (0.12) (0.17) (0.19) (0.17) (0.11)
-------- -------- -------- -------- --------- --------
Total distributions to preferred stock shareholders .. (0.15) (0.30) (0.30) (0.30) (0.30) (0.19)
-------- -------- -------- -------- --------- --------
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS RESULTING
FROM OPERATIONS ...................................... (0.41) 0.70 (0.10) 0.98 0.88 1.53
-------- -------- -------- -------- --------- --------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income ................................ (0.12) (0.48) (0.57) (0.39) (0.39) (0.40)
Net realized gain on investments ..................... -- (0.33) (0.73) (0.64) (0.53) (0.56)
Paid-in capital ...................................... (0.28) -- -- -- -- --
-------- -------- -------- -------- --------- --------
Total distributions to common stock shareholders ..... (0.40) (0.81) (1.30) (1.03) (0.92) (0.96)
-------- -------- -------- -------- --------- --------
CAPITAL SHARE TRANSACTIONS:
Increase in net asset value from
common share transactions .......................... 0.01 0.01 0.02 -- 0.01 0.01
Preferred share offering costs charged to
paid-in capital .................................... -- -- -- -- -- (0.18)
-------- -------- -------- -------- --------- --------
Total capital share transactions ..................... 0.01 0.01 0.02 0.00 0.01 (0.17)
-------- -------- -------- -------- --------- --------
NET ASSET VALUE ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS, END OF PERIOD ........................ $ 9.12 $ 9.92 $ 10.02 $ 11.40 $ 11.45 $ 11.48
======== ======== ======== ======== ========= ========
Net asset value total return + ....................... (4.2)% 7.0% 0.0% 9.4% 8.3% 13.5%
======== ======== ======== ======== ========= ========
Market value, end of period .......................... $ 10.45 $ 10.90 $ 9.13 $ 10.56 $ 11.25 $ 10.31
======== ======== ======== ======== ========= ========
Total investment return ++ ........................... (0.3)% 29.1% (1.7)% 3.2% 18.4% 22.2%
======== ======== ======== ======== ========= ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets including liquidation value of preferred
shares, end of period (in 000's) ................... $104,935 $110,074 $108,066 $120,179 $120,726 $122,382
Net assets attributable to common shares,
end of period (in 000's) ........................... $ 74,935 $ 80,074 $ 78,066 $ 90,179 $ 90,726 $ 92,382
Ratio of net investment income to average
net assets attributable to common shares ........... 5.44%(d) 6.58% 6.49% 4.35% 4.54% 4.23%
Ratio of operating expenses to average
net assets attributable to common shares (b) ....... 1.50%(d) 1.46% 1.48% 1.80% 1.83% 1.68%
Ratio of operating expenses to average total net assets
including liquidation value of preferred shares .... 1.09%(d) 1.07% 1.10% 1.36% 1.38% 1.39%
Portfolio turnover rate .............................. 47% 59% 169% 175% 149% 243%
CUMULATIVE PREFERRED STOCK:
8.00% Cumulative Preferred Stock
Liquidation value, end of period (in 000's) .......... $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Total shares outstanding (in 000's) .................. 1,200 1,200 1,200 1,200 1,200 1,200
Liquidation preference per share ..................... $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00
Average market value (c) ............................. $ 25.98 $ 25.80 $ 24.31 $ 25.36 $ 26.84 $ 25.69
Asset coverage ....................................... 350% 367% 360% 401% 402% 408%
Asset coverage per share ............................. $ 87.47 $ 91.72 $ 90.05 $ 100.15 $ 100.60 $ 101.99
-------------------------
+ Based on net asset value per share, adjusted for reinvestment of
distributions. Total return for the period of less than one year is not
annualized.
++ Based on market value per share, adjusted for reinvestment of
distributions. Total return for the period of less than one year is not
annualized.
(a) Amount represents less than $0.005 per share.
(b) The ratio of operating expenses to average net assets attributable to
common stock for the fiscal year ended December 31, 1997 does not include a
reduction of expenses for custodian fee credits on cash balances maintained
with the custodian. Including the custodian fee credit, the ratio of
operating expenses to average net assets attributable to common stock for
the year would have been 1.67%.
(c) Based on weekly prices.
(d) Annualized.
See accompanying notes to financial statements.
22
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 EquiServe Trust Company ("EquiServe") 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 EquiServe
P.O. Box 43011
Providence, RI 02940-3011
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan may contact EquiServe at 1 (800)
336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at EquiServe must
do so in writing or by telephone. Please submit your request to the above
mentioned address or telephone number. Include in your request your name,
address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such transactions.
If your shares are held in the name of a broker, bank or nominee, you
should contact such institution. If such institution is not participating in the
Plan, your account will be credited with a cash dividend. In order to
participate in the Plan through such institution, it may be necessary for you to
have your shares taken out of "street name" and re-registered in your own name.
Once registered in your own name your dividends will be automatically
reinvested. Certain brokers participate in the Plan. Shareholders holding shares
in "street name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of cash dividends is determined in the following manner. Under the
Plan, whenever the market price of the Convertible Securities Fund's Common
Stock is equal to or exceeds net asset value at the time shares are valued for
purposes of determining the number of shares equivalent to the cash dividends or
capital gains distribution, participants are issued shares of Common Stock
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Convertible Securities Fund's
Common Stock. The valuation date is the dividend or distribution payment date
or, if that date is not a New York Stock Exchange trading day, the next trading
day. If the net asset value of the Common Stock at the time of valuation exceeds
the market price of the Common Stock, participants will receive shares from the
Convertible Securities Fund valued at market price. If the Convertible
Securities Fund should declare a dividend or capital gains distribution payable
only in cash, EquiServe will buy Common Stock in the open market, or on the New
York Stock Exchange or elsewhere, for the participants' accounts, except that
EquiServe will endeavor to terminate purchases in the open market and cause the
Convertible Securities Fund to issue shares at net asset value if, following the
commencement of such purchases, the market value of the Common Stock exceeds the
then current net asset value.
23
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Convertible Securities Fund reserves the right to amend or terminate
the Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the members
of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by EquiServe on at
least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Convertible Securities Fund. In
order to participate in the Voluntary Cash Purchase Plan, shareholders must have
their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to EquiServe for investments in the Convertible
Securities Fund's shares at the then current market price. Shareholders may send
an amount from $250 to $10,000. EquiServe will use these funds to purchase
shares in the open market on or about the 1st and 15th of each month. EquiServe
will charge each shareholder who participates $0.75, plus a pro rata share of
the brokerage commissions. Brokerage charges for such purchases are expected to
be less than the usual brokerage charge for such transactions. It is suggested
that any voluntary cash payments be sent to EquiServe, P.O. Box 43011,
Providence, RI 02940-3011 such that EquiServe receives such payments
approximately 10 days before the investment date. 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 EquiServe 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.
24
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1422
DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN & CHIEF INVESTMENT OFFICER,
GABELLI ASSET MANAGEMENT INC.
E. Val Cerutti
CHIEF EXECUTIVE OFFICER,
CERUTTI CONSULTANTS, INC.
Anthony J. Colavita
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 EMERITUS, PACE UNIVERSITY
Werner J. Roeder, MD
VICE PRESIDENT/MEDICAL AFFAIRS,
LAWRENCE HOSPITAL CENTER
Anthonie C. van Ekris
MANAGING DIRECTOR,
BALMAC INTERNATIONAL, INC.
Salvatore J. Zizza
CHAIRMAN, HALLMARK ELECTRICAL SUPPLIES CORP.
OFFICERS AND PORTFOLIO MANAGERS
Mario J. Gabelli, CFA
PRESIDENT & CHIEF INVESTMENT OFFICER
Bruce N. Alpert
VICE PRESIDENT & TREASURER
Peter W. Latartara
VICE PRESIDENT
A. Hartswell Woodson, III
ASSOCIATE PORTFOLIO MANAGER
James E. McKee
SECRETARY
INVESTMENT ADVISER
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company
COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
STOCK EXCHANGE LISTING
Common 8.00% Preferred
-------- ---------------
NYSE-Symbol: GCV GCV Pr
Shares Outstanding: 8,212,263 1,200,000
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Sunday's The New York Times and in
Monday's The Wall Street Journal. It is also listed in Barron's Mutual
Funds/Closed End Funds section under the heading "Convertible Securities Funds."
The Net Asset Value may be obtained each day by calling (914) 921-5071.
--------------------------------------------------------------------------------
For general information about the Gabelli Funds,
call 1-800-GABELLI (1-800-422-3554), fax us at
914-921-5118, visit Gabelli Funds' Internet
homepage at: HTTP://WWW.GABELLI.COM,
or e-mail us at: closedend@gabelli.com
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Convertible Securities Fund may from
time to time purchase shares of its common 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. The Convertible Securities Fund may also,
from time to time, purchase shares of its Cumulative Preferred Stock in the open
market when the shares are trading at a discount to the Liquidation Value of
$25.00.
--------------------------------------------------------------------------------
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER
RYE, NY 10580-1422
(914) 921-5070
HTTP://WWW.GABELLI.COM
SEMI-ANNUAL REPORT
JUNE 30, 2002
GBFCS 06/02