[GRAPHIC OMITTED]
GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
THIRD QUARTER REPORT
SEPTEMBER 30, 1999
<PAGE>
[GRAPHIC OMITTED]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
Our cover icon represents the underpinnings of Gabelli. The Teton mountains in
Wyoming represent what we believe in in America -- that creativity, ingenuity,
hard work and a global uniqueness provide enduring values. 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 by
investing in convertible securities.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
<PAGE>
TO OUR SHAREHOLDERS,
Through most of the third quarter of 1999, stocks were
slowly sinking under the weight of a declining bond market,
a tumbling dollar, and the prospect of more aggressive [GRAPHIC OMITTED]
Federal Reserve monetary policy tightening. Technology
stocks--the last bastion of strength in an otherwise weak
market--finally cracked in the last two weeks of the [GRAPHIC OMITTED]
quarter, sending virtually all market indices sharply lower. THE GABELLI
Although finishing the quarter relatively flat, bonds CONVERTIBLE
remained under pressure from the very same economic forces SECURITIES
that pushed stocks lower. Convertible securities' yield FUND, INC.
component helped them outperform equities in this difficult
market.
INVESTMENT PERFORMANCE
For the third quarter ended September 30, 1999, The
Gabelli Convertible Securities Fund, Inc.'s ("Convertible
Securities Fund") net asset value (NAV) per share decreased
2.02% to $11.67, after adjusting for the $0.20 per share
distribution paid on September 27, 1999. This compares to a
decrease of 1.83% for the Lipper Inc. Convertible Securities
Fund Average over the same period. The Lipper average is an
unmanaged indicator of investment performance. For the
twelve months ended September 30, 1999, the Fund increased
15.47% versus an increase of 21.00% for the Lipper Inc.
Convertible Securities Fund Average over this period.
The three- and five-year average annual returns of the Convertible
Securities Fund were 10.67% and 10.31%, respectively. Since inception on July 3,
1989 through September 30, 1999, the Convertible Securities Fund achieved a
166.72% total return which represents an average annual return of 10.04%.
The Fund's common shares on the New York Stock Exchange ended the quarter
at $10.6875, down 3.79% for the quarter, up 13.77% for the past twelve months
and up 42.17% from its initial price of $11.25 on March 31, 1995 after adjusting
for the reinvestment of dividends totaling $4.365 per share which were paid
during this period.
Our Fund is managed with the goal of achieving a 600-800 basis point
spread above long-term treasury yields. We hope to generate these returns over
the long term. This is the type of performance that our Fund has been known for
and we anticipate will continue in the future. Of course, there are no
guarantees.
Over the past few months the Fund's shares have traded at an average
discount of approximately 8% to the net asset value. At these price levels, the
Fund is an ideal opportunity for investors to add to their positions. Our
monthly cash purchase program provides an easy way for registered shareholders
to acquire additional shares at the current market price at no commission. In
addition, to underscore that "we eat our own cooking", Gabelli Funds, LLC, the
Fund's Investment Adviser (the "Adviser"), and its affiliates have announced
their intention to buy up to one million common shares in the open market
(569,264 of which have been acquired to date). The Fund has also instituted a
share repurchase program which we discuss later in this report.
<PAGE>
INVESTMENT RESULTS (a)(c)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTER
--------------------------------------
1ST 2ND 3RD 4TH YEAR
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1999: Net Asset Value .......................... $11.45 $12.13 $11.67 -- --
Total Return ............................. 1.8% 7.8% (2.0)% -- --
- -----------------------------------------------------------------------------------------------------------------
1998: Net Asset Value .......................... $11.87 $11.66 $10.96 $11.45 $11.45
Total Return ............................. 5.3% 0.0% (4.2)% 7.4% 8.3%
- -----------------------------------------------------------------------------------------------------------------
1997: Net Asset Value .......................... $11.13 $11.38 $11.81 $11.48 $11.48
Total Return ............................. 1.7% 3.5% 5.0% 2.8% 13.5%
- -----------------------------------------------------------------------------------------------------------------
1996: Net Asset Value .......................... $11.28 $11.33 $11.23 $11.08 $11.08
Total Return ............................. 3.6% 1.6% 0.3% 2.6% 8.4%
- -----------------------------------------------------------------------------------------------------------------
1995: Net Asset Value .......................... $11.14 $11.51 $11.64 $11.01 $11.01
Total Return ............................. 5.1% 5.2% 3.0% 1.1% 15.0%
- -----------------------------------------------------------------------------------------------------------------
1994: Net Asset Value .......................... $11.54 $11.39 $11.60 $10.60 $10.60
Total Return ............................. 0.2% (1.3)% 1.8% (0.9)% (0.2)%
- -----------------------------------------------------------------------------------------------------------------
1993: Net Asset Value .......................... $12.07 $12.36 $12.75 $11.52 $11.52
Total Return ............................. 5.4% 2.4% 3.2% 1.5% 13.1%
- -----------------------------------------------------------------------------------------------------------------
1992: Net Asset Value .......................... $11.29 $11.52 $11.90 $11.45 $11.45
Total Return ............................. 3.5% 2.0% 3.3% 3.6% 13.0%
- -----------------------------------------------------------------------------------------------------------------
1991: Net Asset Value .......................... $11.06 $11.27 $11.57 $10.91 $10.91
Total Return ............................. 5.6% 1.9% 2.7% 1.8% 12.5%
- -----------------------------------------------------------------------------------------------------------------
1990: Net Asset Value .......................... $10.56 $10.68 $10.56 $10.47 $10.47
Total Return ............................. 1.5% 2.1% (1.1)% 3.8% 6.3%
- -----------------------------------------------------------------------------------------------------------------
1989: Net Asset Value .......................... -- -- $10.54 $10.51 $10.51
Total Return ............................. -- -- 5.4%(b) 0.8% 6.3%(b)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURNS - SEPTEMBER 30, 1999 (A)
-----------------------------------------------
1 Year ............................. 15.47%
5 Year ............................. 10.31%
Life of Fund (b) ................... 10.04%
(a) Total return and average annual return reflect changes in net asset value
and reinvestment of dividends and are net of expenses. Of course, the returns
noted represent past performance and do not guarantee future results. Investment
returns and the principal value of an investment will fluctuate. When shares are
sold they may be worth more or less than their original cost.
(b) From commencement of operations on July 3, 1989.
(c) The Fund converted to closed-end status on March 31, 1995.
Dividend History - Common Stock
- -----------------------------------------------------------
PAYMENT DATE RATE PER SHARE REINVESTMENT PRICE
- ------------ -------------- ------------------
September 27, 1999 $0.200 $10.86
June 28, 1999 $0.200 $11.38
March 29, 1999 $0.200 $11.04
December 28, 1998 $0.320 $11.49
September 28, 1998 $0.200 $10.52
June 26, 1998 $0.200 $11.02
March 26, 1998 $0.200 $11.10
December 26, 1997 $0.600 $10.49
September 26, 1997 $0.120 $10.44
June 27, 1997 $0.120 $ 9.96
March 27, 1997 $0.120 $ 9.63
December 27, 1996 $0.375 $ 9.51
September 23, 1996 $0.120 $ 9.73
June 24, 1996 $0.120 $10.17
March 25, 1996 $0.120 $10.41
December 27, 1995 $0.750 $10.95
September 27, 1995 $0.200 $11.10
June 27, 1995 $0.200 $11.21
December 31, 1994 $0.900 $10.60
December 31, 1993 $1.425 $11.52
December 31, 1992 $0.876 $11.45
December 31, 1991 $0.865 $10.91
December 31, 1990 $0.490 $10.47
June 28, 1990 $0.100 $10.68
March 29, 1990 $0.100 $10.55
December 29, 1989 $0.115 $10.51
- --------------------------------------------------------------------------------
2
<PAGE>
WHAT WE DO
The success of momentum investing in recent years and
investors' desire for instant gratification have combined to
make value investing appear dull. At the risk of being dull,
we will once again describe the "boring" value approach that [GRAPHIC OMITTED]
has seen us through both good and bad markets over the last
10 years at The Gabelli Convertible Securities Fund and for
over 22 years at Gabelli Asset Management Company. In past CASH FLOW
reports, we have tried to articulate our investment ---------------
philosophy and methodology. The following graphic further RESEARCH
illustrates the interplay among the four components of our --------------
valuation approach.
Our focus is on free cash flow: earnings before interest, taxes,
depreciation and amortization (EBITDA) minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value (PMV) estimates.
Finally, we look for a catalyst: something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing world-wide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
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 which are
trading at a premium above parity with the common stock but which generally
provide a higher yield and, over time, capital appreciation. We will also seek
out "busted" converts, where the underlying common stock has dropped
significantly and the values of both the conversion privilege and the convert
are down. Such securities will provide both high yields and long-term capital
appreciation potential.
3
<PAGE>
OUR INVESTMENT OBJECTIVES
Our mandate is to preserve and enhance our shareholders' wealth through a
conservative, disciplined approach to convertible securities investing. Our goal
is to generate profitable returns in strong markets and protect principal in
weak markets by taking advantage of the unique characteristics of convertible
securities.
COMMENTARY
TOO MUCH OF A GOOD THING?
In the third quarter of 1999, the U.S. economy continued to barrel along
at a pace that investors feared would lead to higher inflation. Paced by the
long anticipated recovery in Japan, Asian economies are perking up. Coupled with
prospects that European economies are gaining momentum, this has spawned concern
that synchronized global growth would further increase inflationary pressure
here at home. All of this positive global economic news was simply too much of a
good thing for the U.S. bond market, which continued to slide.
Long term, synchronized global growth is a blessing--we should all be
thinking in terms of Gross World Product ("GWP") rather than Gross Domestic
Product ("GDP"). However, in the short term it may put additional pressure on
the Fed to press down on the monetary brakes. Investors should view this as a
dose of cod liver oil--bitter medicine, but a tonic that will improve the long
term health of the economy and the stock market. Unfortunately, "Mr. Market"
often does not like to take his medicine and additional Fed interest rate hikes
and higher bond yields are not likely to improve his mood. So, even though third
quarter corporate earnings are likely to be quite strong, price/earnings ("P/E")
multiples (a function of investor psychology and interest rates) may continue to
contract, sending stocks even lower. The good news in this scenario would be the
return of Ben Graham's "margin of safety" to the market.
If the domestic economy begins to decelerate in the fourth quarter and the
Fed declares a monetary cease-fire, "Mr. Market" may be in a better mood.
Although P/E multiples are not likely to expand, they may stabilize, allowing
earnings to rally stocks. However, with equity valuations still at relatively
lofty levels, advances will engender additional speculative risks.
THE DOLLAR IN LIMBO--HOW LOW CAN IT GO?
As we write, the dollar has hit a four-year low against the yen. This is
another good news/bad news situation. A cheaper dollar benefits U.S. exporters
and ultimately would help reduce trade deficits, which have been running at
extraordinarily high levels. It also bolsters dollar denominated earnings from
the international operations of U.S. companies. However, over the short term, it
actually increases dollar calculated trade deficits. Perhaps most importantly, a
lower dollar is potentially inflationary, because the prices of imported
products that U.S. consumers treasure will move higher. If the American consumer
is willing to pay these higher prices for Toyota cars and trucks, Sony big
screen televisions, and Sega video games, it will soon be reflected in the
Consumer Price Index ("CPI"). This leads us to another important question...
4
<PAGE>
WILL FATIGUE HIT THE AMERICAN CONSUMER?
High employment and the "wealth effect" of a rising housing and stock
market have buoyed consumer confidence. Discretionary income has risen as a
result of depressed energy prices, low mortgage rates, and rising wages. If the
domestic economy does slow down, consumers may become more concerned about job
security. When investors receive third quarter statements from their brokers,
money managers and mutual funds, they will realize that their net worth has been
trimmed. Americans are paying more at the pump for gasoline and their home
heating bills will be significantly higher this winter. Variable rate mortgage
payments will increase and new fixed rate mortgages are higher. So, consumers
will not be able to raise spending money by leveraging real estate assets--no
more "take the home mortgage from $100,000 to $150,000 with the same monthly
payments and pocket the difference". As aforementioned, the prices for imported
goods are increasing. Will all this be enough to cause the American consumer to
tighten the purse strings? Or, will a significant tax cut--the Republicans are
running on the "3 Fs" (Faith, Finances, and Family)--embolden the American
consumer and keep the economic wheels moving here and abroad?
THIS QUARTER'S SCORECARD
In the third quarter of 1999, our wireless communications investments
(Omnipoint, Vodafone AirTouch plc, and Sprint Corp.) performed quite well as
several deals in the industry helped surface value. The oil patch (Atlantic
Richfield) was productive and we struck gold with Coeur d'Alene mines. Cyclical
company converts including GATX, Sealed Air, and Coltec disappointed as
investors feared that additional Fed tightening would take the starch out of the
economy, and our investment in Boston Chicken continued to cause portfolio
indigestion.
GOOD THINGS COME TO THOSE WHO WAIT
The critical element to our success in the equities and convertible
securities markets has been patience in both the selection process and in
waiting for the values of portfolio positions to be recognized. We will continue
to be patient and opportunistic in selecting converts for the Fund and will
invest in short-term instruments (including time sensitive work-outs) when
appropriate. We bought mostly short-term U.S. Treasury obligations in the past.
However, the U.S. financial system has improved significantly and we now take
advantage of other short-term alternatives. In this regard, the Convertible
Securities Fund at times engages in risk arbitrage to generate returns. By risk
arbitrage we mean investing in "event" driven situations; primarily, but not
exclusively, in announced mergers, acquisitions, reorganizations and other
"workout" opportunities. In order to avoid overall market risk in these
opportunities, the Fund will concentrate on the lower risk transactions.
We borrow a quote from Warren Buffett to explain our occasional use of
risk arbitrage in the Fund:
"Our subsidiaries sometimes engage in arbitrage as an alternative to
holding short-term cash equivalents. We prefer, of course, to make major
long-term commitments. But we often have more cash than good ideas. At such
times arbitrage sometimes promises much greater returns than Treasury Bills and,
equally important, cools any temptation we may have to relax our standards for
long-term investments."
In short, the high cash position in the Fund does not reflect any effort
on our part to time the convertible securities market. It is rather a
consequence of our value oriented discipline. At the same time, some of our
convertible securities have been called by the issuer and we either received
cash or stock. Our portfolio turnover
5
<PAGE>
rate reflects this activity, as well as our investments in "event" driven
situations which were consummated during the year. We are always hard at work
evaluating opportunities and identifying fundamental bargains to progress to a
more fully invested posture. However, we will not stretch our fundamental
parameters and introduce greater market risk to the portfolio.
We thought we would share with you a piece on risk arbitrage written by
Regina M. Pitaro, a Managing Director of Gabelli Asset Management Company.
RISK ARBITRAGE - ANNOUNCEMENT OF A MERGER IS THE BEGINNING OF AN OPPORTUNITY
RISK ARBITRAGE: "THE THIRD WAVE OF TAKEOVERS"(TM)
We are in the midst of the third great wave of mergers and acquisitions
since World War II. The first wave swelled in the 1960's with conglomerators
like LTV's Jimmy Ling, Gulf & Western's Charles Bluhdorn, and ITT's Harold
Geneen merging companies in non-related industries. They did so in an attempt
to produce more consistent earnings growth through the ups and downs of the
business cycle. The second major wave of takeovers began in the 1980's, when
financial engineers including leveraged buyout firms like Kohlberg, Kravis &
Roberts, and corporate raiders like T. Boone Pickens used junk debt to gobble
up undervalued companies and then dismember them for a profit. This second
wave broke as financially unrealistic deals like the proposed leveraged
buyout (LBO) of United Airlines fell apart, the junk bond market collapsed,
and the House of Drexel disintegrated under the weight of a government
criminal investigation.
The third great wave of mergers and acquisitions is being driven by
consolidators--companies in a wide range of industries buying competitors in
order to extend their franchises, trim costs and increase profitability. We
trace the beginning of this wave to March 14, 1994, when much admired General
Electric Chairman Jack Welch launched a hostile bid to buy Kemper
Insurance--signaling that deals were once again respectable. This Third Wave
will continue to gain momentum as companies worldwide jockey for market
position and profits in the increasingly competitive global economy.
[FIGURES BELOW REPRESENTS BAR CHART IN ITS PRINTED FORM]
THIRD WAVE - U.S. DEAL ACTIVITY
----------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------------------------------------------
340 511 652 919 1620
$ Billions
$2,000
$1,200
$800
$400
$0
6
<PAGE>
----------------------------------------------------------------------------
DEAL ACTIVITY
$ BILLIONS 1994 1995 1996 1997 1998
---------- ---- ---- ---- ---- -----
Worldwide $575 $950 $1,140 $1,600 $2,453
U.S. Total 340 511 652 919 1,620
U.S. Cash 212 254 356 450 549
SOURCE: SECURITIES DATA CORP.
----------------------------------------------------------------------------
There are two ways investors can take advantage of merger and
acquisition activity. The first is buying public shares of likely takeover
candidates before the "deal" is announced. Gabelli Asset Management's ability
to identify industries ripe for consolidation and our focus on undervalued
companies has resulted in a long list of portfolio holdings being taken over
at substantial premiums to our purchase prices. The second (and much less
known) method is through risk arbitrage. It would take a book to detail all
the complexities of risk arbitrage. In this article, I'll provide the basics,
and more importantly, the reasons why I believe risk arbitrage is such a
compelling investment strategy.
HOW TO PROFIT FROM ARBITRAGE DEALS
Simply stated, risk arbitrage is investing in a merger or acquisition
target after the deal has been announced and pocketing the spread between the
trading price of the target company following the announcement and the deal
price upon closing. This spread is usually relatively narrow--offering a
somewhat modest nominal total return. However, since deals generally close in
much less than a year's time, this modest total return translates into a much
more attractive annualized return.
The following is a very basic risk arbitrage investment that we made in
the Convertible Securities Fund. On March 22, 1999, the NYSE listed First
Data Corp. announced it would pay $25.50 in cash for all the remaining
publicly owned shares of Paymentech, Inc. (55% of the company would continue
to be owned by Bank One). The deal was expected to close within 4 months.
Following the announcement, we were able to purchase Paymentech shares at an
average price of $25.05. The spread between our purchase price and the value
of the stock upon closing was 1.8%. The deal closed on July 27, 1999,
generating an annualized return of 9.5%.
This particular arbitrage worked out very well for the Fund. We were
able to buy Paymentech shares at a good discount to the final transaction
price and the deal closed on schedule. Remember, risk arbitrage returns are
impacted by deal flow, not the direction of the stock market. If deal flow
continues to be as robust as we anticipate over the next ten years, risk
arbitrage has the potential to deliver consistent annual returns in the low
to mid teens.
7
<PAGE>
THE POWER OF COMPOUND RETURNS
The great advantage of risk arbitrage is that it is largely a market
neutral strategy--deals get done in good markets and bad--that can deliver
consistent returns even in volatile markets. Because a conservatively managed
risk arbitrage portfolio produces consistent gains, the financial magic of
compounding works strongly in its favor. We offer two examples of the power
of compounding returns.
Once upon a time, there was a king in a far away land. In order to
repay the local sage for saving his daughter's life, the king offered the
sage any reward he wished. The sage asked for what appeared to be a modest
stipend--one grain of rice--the amount to be doubled each day for 31 days.
The sage would receive one grain of rice that day, two the next, four the
next, and so on. The king thought nothing of giving away a few grains of rice
on a daily basis. But, it was only a matter of weeks before the king's
granaries were empty and the sage had become the richest man in the land.
After only one month, the king was paying the sage over 1 billion grains of
rice a day. In 31 days, one grain became one billion through the magic of
compounding.
The purchase of Manhattan Island from the Indians for just $24 worth of
beads is generally considered one of the greatest investments in history. The
estimated value of all the real estate in Manhattan today is around $10
trillion dollars. Amazingly, this equates to an annualized compounded return
of just 7.4% in the 375 years since the deal was done.
IS THERE RISK IN RISK ARBITRAGE?
At this juncture, you may be wondering where is the risk in risk
arbitrage? The biggest risk in risk arbitrage is that announced deals will
not be consummated and that the stock of the company to be acquired will sink
following a bust up in the deal. In fact, in virtually every individual risk
arbitrage investment, upside potential is dwarfed by downside risk. One old
time pundit said it best ... "arbitrage is the only business we know where
you risk dollars to make nickels." The second biggest risk is that the deal
may take much longer to close than first anticipated, turning an attractive
annualized gain into a much more modest return.
Deals do break for a variety of reasons and a busted deal generally
means a big loss. However, during this third great wave of mergers and
acquisitions, 96.5% of all announced deals have been consummated. That puts
the odds in the arbritrageur's favor, particularly if he or she knows how to
analyze a deal in a manner that helps avoid most if not all the inevitable
potholes. Regarding the timing issue, deals do get stretched out, but
provided one is not investing with leverage or having to bear the cost of a
short position in a stock swap deal, this generally results in a more modest
gain rather than a loss. As reassurance, our Fund concentrates on the lower
risk transactions. [ ]
8
<PAGE>
8% DISTRIBUTION POLICY
The Convertible Securities Fund continues to maintain its 8% Distribution
Policy whereby the Fund pays out 8% of its average net assets each year. The
method is to pay $0.20 per share in each of the first three quarters of the year
and a distribution in the fourth quarter of a sufficient amount to pay 8% of the
average net assets of the Fund or to satisfy the minimum distribution
requirements of the Internal Revenue Code. The Fund recently distributed $0.20
per share on September 27, 1999 in line with this 8% annual distribution policy.
STOCK REPURCHASE PLAN
The Gabelli Convertible Securities Fund is authorized to repurchase up to
250,000 shares of the Convertible Securities Fund's outstanding shares. Pursuant
to this stock repurchase plan, the Convertible Securities 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 September 30, 1999, 180,300 shares were repurchased in the open
market since the inception of this stock repurchase plan. Since the discount to
net asset value has narrowed and remained under 10% throughout most of this
year, the Fund has been unable to aggressively purchase shares. In fact, the
discount to net asset value was under 10% during most of last year as well.
PREFERRED STOCK - AN INVESTMENT FOR THE FUTURE
On May 16, 1997, the Fund successfully completed its offering of
cumulative preferred stock which is rated `AAA' by Standard and Poor's. The Fund
issued 1,200,000 Preferred Shares at $25 per share ($30 million) with an annual
dividend rate of $2.00 per share paying quarterly. The Preferred Shares are
trading on the New York Stock Exchange under the symbol "GCV Pr" and closed at
$25.125 on September 30, 1999.
How would Preferred Shares benefit Common Shareholders? Through September
30, 1999, the Convertible Securities Fund has earned a 10.0% average annual
return. The Preferred Shares were issued with an annual dividend rate of 8.00%.
The only obligation that the Fund has to the Preferred Shareholders is to pay
the stated dividend rate. Given the current market environment, we considered
this to be an ideal opportunity to take advantage of relatively low long-term
interest rates and to earn an excess return for our Common Shareholders
consistent with our conservative investment approach. Any return earned in
excess of the stated dividend rate, which is less than the Fund's average annual
return, would directly benefit Common Shareholders; however, any shortfall from
the stated rate would impact the Common Shareholders in the opposite fashion.
Therefore, by taking advantage of the current relatively low interest rate
environment and achieving our investment objectives, the Preferred Share
issuance offers what we believe is a conservative method of potentially adding
wealth for our Common Shareholders.
Furthermore, Common Shareholders stand to receive certain tax benefits as
a result of the Preferred Stock offering. Since taxable income is allocated to
the Preferred Shareholders before Common Shareholders, taxable distributions to
Common Shareholders are not required to the extent they would be if the
Preferred Shares were not outstanding. With the completion of the preferred
offering, the Adviser has agreed to waive the management fee on the incremental
assets during any year in which the net asset value total return on the Fund
does not exceed the stated dividend rate on the Preferred Shares.
9
<PAGE>
LET'S TALK CONVERTS
The following are specifics on selected holdings of our Fund. Favorable
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
prospects do not necessarily translate into higher prices, but they do express a
positive trend which we believe will develop over time.
ATLANTIC RICHFIELD CO. (ARCO) ($2.80 CV. PFD.) is the leading gasoline marketer
on the U.S. west coast, with 1,760 retail sites spread across California,
Arizona, Nevada, Oregon and Washington. Two refineries are operated in the
region. ARCO has proven oil reserves of 2.8 billion barrels, mainly in Alaska.
The company's proven gas reserves total 9.8 trillion cubic feet, but gas
reserves of a further 15 trillion cubic feet, mainly in Southeast Asia, are
unbooked. BP Amoco (BPA - $110.8125 - NYSE) has reached an agreement to combine
with ARCO in an all-share transaction valuing ARCO at almost $27 billion. The
deal will give BP Amoco the largest oil output of any non-state company.
CITIZENS UTILITIES CO. (CZN) (5.00% CV. PFD.) provides telecommunications
services and public services to approximately 1.8 million customers in 21
states. Citizens owns 83% of Electric Lightwave (ELIX - $13.25 - Nasdaq), a
competitive local exchange carrier ("CLEC") serving primarily the western U.S.
Last year, management authorized the separation of Citizens' telecommunications
businesses and public services businesses into two stand-alone, publicly traded
companies. Recently, CZN announced agreements to acquire over 700,000 rural
access lines in 10 states for $2.3 billion. CZN intends to finance the
transactions by divesting its public services operations. The company has sold
its 16% stake in Centennial Cellular Corp. for approximately $205 million.
Citizens also anticipates monetizing its ownership of Century Communications'
(CTYA - $45.625 - Nasdaq) stock and cable operations through a sale to Adelphia
Communications for approximately $220 million.
MARK IV INDUSTRIES INC. (SUB. DEB. CV., 4.75%, 11/01/04) is a $2.2 billion
global manufacturing company headquartered in the Buffalo, N.Y. suburb of
Amherst, with 17,000 employees worldwide. The company's core technologies
include power transmission, fluid transfer and filtration systems and components
for global industrial and automotive markets.
MEDIAONE GROUP INC. (UMG) (4.50% CV. PFD., SER. D) is one of the nation's
leading broadband services companies. UMG provides more than five million
subscribers in 17 states with basic and premium cable television services and
has recently introduced high speed Internet access, telephone services and
digital television in some of its service areas. MediaOne was created from the
1996 union of telecommunications company MediaOne Group (formerly US West Media
Group) and Continental Cablevision. Headquartered in Englewood, Colorado, the
company is conducting a national upgrade of its hybrid fiber optic/coaxial cable
("HFC") network to broadband technology, which improves traditional cable
service and enables next-generation products and services. UMG's investment
interests include 25% of Time Warner Entertainment (which includes Warner
Brothers Studio and Home Box Office), 24% of PCS Prime Co. and almost 27% of
TeleWest plc. The number three U.S. cable television provider recently agreed to
be acquired by AT&T Corp. (T - $43.50 - NYSE) for $54 billion.
OMNIPOINT CORP. (OMPT) (7.00% CV. PFD.) is a leading personal communications
services ("PCS") carrier in the U.S., with licenses covering major metropolitan
areas containing nearly 100 million people. On June 23, 1999, Omnipoint agreed
to be acquired by VoiceStream Wireless (VSTR - $61.72 - Nasdaq) for 0.825 shares
of VoiceStream and $8.00 cash per shares of OMPT. The combined company will have
PCS licenses covering about 190 million points of presence ("POPs") and will
become a major PCS carrier
SEAGRAM CO. (7.50% CV. PFD.), with its 1995 purchase of an 80% interest in MCA
from Matsushita Electric Industrial Co. for $5.7 billion, operates two global
businesses: beverages and entertainment. Spirits and Wine group's major beverage
brands include Chivas Regal, Martell, Mumm, Crown Royal and Seagram's Gin. With
its
10
<PAGE>
$10.4 billion December acquisition of Polygram, Seagram has created the world's
leading music company, the Universal Music Group. Seagram's entertainment
business includes the Universal Motion Pictures Group, the Universal Studios
Recreation Group and a 46% interest in USANetworks (USAI - $38.75 - Nasdaq).
SPRINT CORP. (FON) ($1.50 CV. PFD., SER. 1; $1.50 CV. PFD., SER. 2; 8.25% CV.
PFD.) is the third largest long distance carrier and the second largest
independent local telephone company in the U.S. Sprint has positioned itself
globally through a joint venture called GlobalOne. Its joint venture partners,
France Telecom and Deutsche Telekom, also have a direct 20% stake in Sprint. FON
faces risks from prospective new entrants in its long distance business which
may be offset by the "ION" high bandwith network the company is developing and
by other new services. On October 5, 1999, MCI Worldcom announced plans to
acquire Sprint for $125 billion in stock and cash. The transaction is expected
to close in about 12 months upon regulatory approval. Sprint PCS group is the
leading all digital personal communications services ("PCS") carrier in the U.S.
with over four million customers and licenses covering over 230 million people.
Sprint PCS will be acquired as part of MCI Worldcom's acquisition of Sprint
Corp.
USA NETWORKS INC. (SUB. DEB. CV., 7.00%, 07/01/03), through its subsidiaries,
engages in diversified media and electronic commerce businesses that include:
electronic retailing, ticketing operations and television broadcasting. Chairman
and CEO Barry Diller has brought together under one umbrella: the USA Network,
the Sci-Fi Channel, USA Networks Studios, USA Broadcasting, The Home Shopping
Network and the Ticketmaster Group. The plan is to integrate these assets,
leveraging programming, production capabilities and electronic commerce across
this strong distribution platform.
DIVIDENDS
The Fund recently distributed a dividend of $0.20 per share to Common
Shareholders on September 27, 1999 in line with the Fund's 8% annual
distribution policy. For the twelve months ended September 30, 1999, the Fund
distributed a total of $0.92 per share to Common Shareholders. Our Preferred
Shareholders were paid a dividend of $0.50 per share on September 27, 1999. For
the twelve months ended September 30, 1999, the Preferred Shareholders received
a total distribution of $2.00 per share, which is the annual dividend rate on
the Preferred Shares.
DAILY NAVS NOW DISTRIBUTED BY NASDAQ
Since our inception, we have made the net asset value available on nightly
recordings through 1-800-GABELLI. Now, Nasdaq is also disseminating the daily
per share net asset values (NAVs) for the Gabelli Convertible Securities Fund,
which is traded on the New York Stock Exchange. The NAV ticker symbol via Nasdaq
is "XGCVX."
The NAVs are available through any stock quote lookup service and on
broker Nasdaq level one terminals. The dissemination of daily NAVs allows
investors and brokers to better track the long-term performance of the Fund's
underlying portfolio. We support Nasdaq's efforts in making closed-end funds'
NAVs available on a daily basis.
NO COMMISSION PURCHASES
When the Convertible Securities Fund converted to closed-end status on
March 31, 1995, we offered shareholders the opportunity to sell their shares at
no commission for up to two years. On March 31, 1997, this ability to sell your
convertible shares at no commission expired. However, we have extended through
December 31, 1999, our offer to shareholders to buy shares through our Voluntary
Cash Purchase Plan at no commission. This Plan is available every month. Please
see the details of this Plan at the end of this report.
11
<PAGE>
INTERNET
You can now visit us on the Internet. Our home page 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 [email protected].
IN CONCLUSION
The short term outlook for the market is, as always, uncertain. Investor
psychology seems to have reversed itself. Last year, investors shrugged off bad
news--anemic earnings, international economic turmoil, and big losses from
highly leveraged hedge funds. This year, good news--a strong U.S. economy, good
earnings, and the prospect for synchronized global growth--has investors
worried. Mr. Market will eventually sort all this out. Increasing one's exposure
to convertible securities is one way to dampen the risk in equities without
sacrificing too much upside potential. We try to structure the Fund's portfolio
so that it has two-thirds of the upside potential of an equities portfolio, with
one-third the downside risk. By so doing, we offer our shareholders a smoother
ride through the market cycles.
Sincerely,
/s/ MARIO J. GABELLI
--------------------
MARIO J. GABELLI
President and
Chief Investment Officer
October 25, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TOP TEN CONVERTIBLE HOLDINGS
SEPTEMBER 30, 1999
------------------
<S> <C>
Sprint ($1.50 Cv. Pfd., Ser . 1; $1.50 Cv. Pfd., Atlantic Richfield Co. ($2.80 Cv. Pfd.)
Ser. 2; 8.25% Cv. Pfd.)
Standard Motor Products (Sub. Deb. Cv., 6.75%, 07/15/09) MediaOne Group (4.50% Cv. Pfd., Ser. D)
Mark IV Industries (Sub. Deb. Cv., 4.75%, 11/01/04) Cendant Corp. (1.30% Cv. Pfd., 7.50% Cv. Pfd.)
WHX Corp. (6.50% Cv. Pfd., Ser. A; $3.75 Cv. Pfd., Ser. B) Sequa Corp. ($5.00 Cv. Pfd.)
Citizens Utilities (5.00% Cv. Pfd.) Hilton Hotels Corp. (Sub. Deb. Cv., 5.00%, 05/15/06)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
12
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1999 (UNAUDITED)
================================================================================
PRINCIPAL MARKET
AMOUNT VALUE
- --------- -------
CONVERTIBLE CORPORATE BONDS -- 20.2%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.1%
$ 550,000 Exide Corp. Sub. Deb. Cv.
2.90%, 12/15/05 (b) ................. $ 312,812
4,000,000 Standard Motor Products Inc.
Sub. Deb. Cv.
6.75%, 07/15/09 ..................... 3,522,500
-------------
3,835,312
-------------
AVIATION: PARTS AND SERVICES -- 1.5%
1,844,000 Kaman Corp. Sub. Deb. Cv.
6.00%, 03/15/12 ..................... 1,788,680
-------------
BUSINESS SERVICES -- 2.0%
900,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12 (a) ................. 870,810
1,700,000 Trans-Lux Corp. Sub. Deb. Cv.
7.50%, 12/01/06 ..................... 1,581,000
-------------
2,451,810
-------------
COMPUTER SOFTWARE AND SERVICES -- 0.1%
275,000 QuadraMed Corp. Sub. Deb. Cv.
5.25%, 05/01/05 ..................... 140,250
-------------
CONSUMER PRODUCTS -- 0.4%
750,000 Standard Commercial Corp.
Sub. Deb. Cv.
7.25%, 03/31/07 ..................... 506,250
-------------
CONSUMER SERVICES -- 0.1%
200,000 Ogden Corp. Sub. Deb. Cv.
6.00%, 06/01/02 ..................... 155,500
-------------
ELECTRONIC EQUIPMENT -- 0.1%
ASM Lithography Holding Cv.
40,000 2.50%, 04/09/05 ..................... 49,594
10,000 2.50%, 04/09/05 (b) ................. 12,399
-------------
61,993
-------------
ENERGY AND UTILITIES -- 1.0%
100,000 Halter Marine Group Inc.
Sub. Deb. Cv.
4.50%, 09/15/04 ..................... 61,125
1,100,000 Moran Energy Inc.
Sub. Deb. Cv.
8.75%, 01/15/08 ..................... 1,069,750
100,000 Texaco Capital Inc. Cv.
3.50%, 08/05/04 ..................... 102,000
-------------
1,232,875
-------------
ENTERTAINMENT -- 0.7%
150,000 Kushner-Locke Co. Sub. Deb. Cv.
8.00%, 12/15/00 (a) ................. 128,205
800,000 USA Networks Inc.
Sub. Deb. Cv.
7.00%, 07/01/03 ..................... 775,000
-------------
903,205
-------------
EQUIPMENT AND SUPPLIES -- 4.6%
$1,300,000 Intermagnetics General Corp.
Sub. Deb. Cv.
5.75%, 09/15/03 (b) ................. $ 845,000
1,072,000 Kollmorgen Corp. Sub. Deb. Cv.
8.75%, 05/01/09 ..................... 1,084,060
4,050,000 Mark IV Industries Sub. Deb. Cv.
4.75%, 11/01/04 ..................... 3,503,250
210,000 Robbins & Myers Inc. Sub. Deb. Cv.
6.50%, 09/01/03 ..................... 172,200
-------------
5,604,510
-------------
FOOD AND BEVERAGE -- 0.1%
110,000 Boston Chicken Inc. Sub. Deb. Cv.
7.75%, 05/01/04 ..................... 1,100
100,000 Chiquita Brands International Inc. Cv.
7.00%, 03/28/01 ..................... 93,000
-------------
94,100
-------------
HEALTH CARE -- 0.6%
750,000 Ivax Corp. Deb. Cv.
6.50%, 11/15/01 ..................... 729,375
150,000 Sabratek Corp. Sub. Deb. Cv.
6.00%, 04/15/05 ..................... 39,750
-------------
769,125
-------------
HOME FURNISHINGS -- 1.9%
3,500,000 Pillowtex Corp. Sub. Deb. Cv.
6.00%, 03/15/12 ..................... 2,292,500
-------------
HOTELS AND GAMING -- 1.9%
2,900,000 Hilton Hotels Corp. Sub. Deb. Cv.
5.00%, 05/15/06 ..................... 2,349,000
-------------
METALS AND MINING--0.3%
500,000 Coeur d'Alene Mines Corp.
Sub. Deb. Cv.
6.00%, 06/10/02 ..................... 307,500
-------------
PAPER AND FOREST PRODUCTS -- 0.3%
200,000 Riverwood International Corp.
Sub. Deb. Cv.
6.75%, 09/15/03 ..................... 230,890
150,000 Thermo Fibertek Inc. Cv.
4.50%, 07/15/04 (b) ................. 125,812
-------------
356,702
-------------
PUBLISHING -- 0.9%
700,000 News America Holdings Inc.
Sub. Deb. Cv.
Zero Cpn., 03/31/02 ................. 959,000
50,000 United News & Media plc
Sub. Deb. Cv.
6.125%, 12/03/03 (c) ................ 81,903
-------------
1,040,903
-------------
REAL ESTATE AND DEVELOPMENT -- 0.1%
125,000 Rockefeller Center Properties Inc.
Sub. Deb. Cv.
Zero Cpn., 12/31/00 ................. 103,750
-------------
13
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1999 (UNAUDITED)
================================================================================
PRINCIPAL MARKET
AMOUNT VALUE
- --------- -------
RETAIL -- 0.0% $ 60,000 Costco Companies Inc.
Sub. Deb. Cv.
Zero Cpn., 08/19/17 ................. $ 51,900
100,000 JumboSports Inc.
Sub. Deb. Cv.
4.25%, 11/01/00 ..................... 5,500
-------------
57,400
-------------
TECHNOLOGY -- 0.1%
150,000 Thermo Electron Corp.
Sub. Deb. Cv.
4.25%, 01/01/03 (b) ................. 131,250
-------------
TELECOMMUNICATIONS -- 0.4%
Amnex Inc. Sub. Deb. Cv.
30,000 8.50%, 09/25/02 ..................... 1,347
50,000 8.50%, 09/25/02 (b) ................. 2,245
500,000 Rogers Communications Inc.
Sub. Deb. Cv.
2.00%, 11/26/05 ..................... 380,313
50,000 Telefonica Europe BV
Sub. Deb. Cv.
2.00%, 07/15/02 ..................... 80,875
-------------
464,780
-------------
TRANSPORTATION -- 0.0%
140,000 WorldCorp. Inc. Sub. Deb. Cv.
7.00%, 05/15/04 ..................... 16,100
-------------
TOTAL CONVERTIBLE
CORPORATE BONDS ..................... 24,663,495
-------------
SHARES
------
CONVERTIBLE PREFERRED STOCKS -- 25.2%
AGRICULTURE -- 0.1% 3,000 Monsanto Co.
6.50% Cv. Pfd. ...................... 108,000
-------------
AVIATION: PARTS AND SERVICES -- 1.5%
Coltec Capital Trust
25,000 5.25% Cv. Pfd. ...................... 1,206,250
17,000 5.25% Cv. Pfd. (b) .................. 692,750
-------------
1,899,000
-------------
BUSINESS SERVICES -- 2.0%
Cendant Corp.
90,000 1.30% Cv. Pfd. ...................... 2,269,687
5,000 7.50% Cv. Pfd. ...................... 145,313
-------------
2,415,000
-------------
CABLE -- 2.0%
18,000 MediaOne Group
4.50% Cv. Pfd. Ser. D ............... 2,430,000
-------------
DIVERSIFIED INDUSTRIAL -- 2.9%
1,400 GATX Corp.
$2.50 Cv. Pfd. ...................... $ 217,000
WHX Corp.
47,000 $3.75 Cv. Pfd. Ser. B ............... 1,571,563
45,000 6.50% Cv. Pfd. Ser. A ............... 1,701,562
-------------
3,490,125
-------------
ENERGY AND UTILITIES -- 4.7%
6,000 Atlantic Richfield Co.
$2.80 Cv. Pfd. ...................... 2,558,250
65,000 Citizens Utilities Co.
5.00% Cv. Pfd. ...................... 3,233,750
-------------
5,792,000
-------------
ENTERTAINMENT -- 0.1%
4,500 Metromedia International Group Inc.
7.25% Cv. Pfd. ...................... 110,813
-------------
EQUIPMENT AND SUPPLIES -- 2.0%
25,000 Sequa Corp. $5.00 Cv. Pfd. .......... 2,400,000
-------------
FOOD AND BEVERAGE -- 0.2%
5,000 Seagram Co. 7.50% Cv. Pfd. ............. 232,188
-------------
PAPER AND FOREST PRODUCTS -- 1.4%
34,500 Sealed Air Corp.
$2.00 Cv. Pfd. Ser. A ............... 1,750,875
-------------
PUBLISHING -- 0.3%
15,000 Reader's Digest
$1.9336 Cv. Pfd. .................... 423,750
-------------
RETAIL -- 0.2%
2,000 Automatic Com Exchange Security
6.50% Cv. Pfd. ...................... 25,750
3,000 CVS Corp.
6.00% Cv. Pfd. ...................... 227,062
-------------
252,812
-------------
SPECIALTY CHEMICALS -- 0.0%
1,000 Merrill Lynch & Co. (IMC Global)
6.25% Cv. Pfd. ...................... 17,437
-------------
TELECOMMUNICATIONS -- 7.2%
8,000 Philippine Long Distance
$3.50 Cv. Pfd. Ser. III ............. 332,000
Sprint Corp.
3,000 $1.50 Cv. Pfd. Ser. 1 ............... 1,320,000
2,200 $1.50 Cv. Pfd. Ser. 2 ............... 990,000
73,000 8.25% Cv. Pfd. ...................... 5,721,375
1,500 TCI Pacific Communications Inc.
5.00% Cv. Pfd. ...................... 402,000
-------------
8,765,375
-------------
WIRELESS COMMUNICATIONS -- 0.6%
8,000 Omnipoint Corp.
7.00% Cv. Pfd. ...................... 726,000
-------------
TOTAL CONVERTIBLE
PREFERRED STOCKS .................... 30,813,375
-------------
14
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1999 (UNAUDITED)
================================================================================
PRINCIPAL MARKET
AMOUNT VALUE
- --------- -------
COMMON STOCKS -- 17.1%
AVIATION: PARTS AND SERVICES -- 0.2%
18,000 Kaman Corp. ........................... $ 229,500
-------------
BROADCASTING -- 0.4%
45,000 Granite Broadcasting Corp. ............ 500,625
-------------
BUILDING AND CONSTRUCTION -- 2.0%
50,000 Lone Star Industries Inc. ............. 2,493,750
-------------
BUSINESS SERVICES -- 3.0%
100,000 Nielsen Media Research ................ 3,718,750
-------------
DIVERSIFIED INDUSTRIAL -- 0.1%
10,000 Thermo Power Corp. .................... 118,125
-------------
ENERGY AND UTILITIES -- 4.3%
20,000 AGL Resources Inc. .................... 325,000
10,000 Aquarion Co. .......................... 358,750
12,000 Central Hudson Gas and Electric Corp. . 472,500
25,000 Cilcorp Inc. .......................... 1,620,312
4,000 New England Electric System ........... 207,500
8,400 NStar ................................. 325,500
60,000 Southwest Gas Corp. ................... 1,616,250
10,000 United Water Resources Inc. ........... 326,250
-------------
5,252,062
-------------
EQUIPMENT AND SUPPLIES -- 0.4%
4,000 Case Corp. ............................ 199,250
50,000 Fedders Corp., Cl. A .................. 246,875
-------------
446,125
-------------
FINANCIAL SERVICES -- 0.7%
20,000 Argonaut Group Inc. ................... 502,500
3,000 Orion Capital Corp .................... 142,125
4,000 Republic New York Corp. ............... 245,750
-------------
890,375
-------------
FOOD AND BEVERAGE -- 1.4%
159,000 Chock Full o'Nuts Corp ................ 1,729,125
-------------
SPECIALTY CHEMICALS -- 2.0%
50,000 Nalco Chemical Co ..................... 2,525,000
-------------
RETAIL -- 0.3%
10,000 Delhaize America Inc. ................. 211,875
2,000 Hannaford Bros. Co. ................... 140,875
-------------
352,750
-------------
TELECOMMUNICATIONS -- 0.7%
48,276 Rogers Communications Inc., Cl. B ..... 816,150
-------------
WIRELESS COMMUNICATIONS -- 1.6%
8,074 Vodafone AirTouch plc, ADR ............ 1,919,594
-------------
730,750 TOTAL COMMON STOCKS ................... 20,991,931
-------------
PREFERRED STOCKS -- 0.0%
CABLE -- 0.0%
1,000 MediaOne Financing
Trust II Pfd. ....................... 25,250
-------------
U.S. GOVERNMENT OBLIGATIONS -- 36.7%
$45,068,000 U.S. Treasury Bills,
4.50% to 4.87%
due 10/07/99 to 12/02/99 ............ $ 44,847,712
-------------
TOTAL INVESTMENTS -- 99.2%
(Cost $114,316,090) ......................... 121,341,763
-------------
THER ASSETS, LIABILITIES AND
LIQUIDATION VALUE OF
CUMULATIVE PREFERRED
STOCK -- (23.7)% .............................. (29,004,710)
-------------
NET ASSETS -- COMMON STOCK -- 75.5%
(7,912,645 common shares outstanding) ........... 92,337,053
-------------
NET ASSETS -- CUMULATIVE
PREFERRED STOCK -- 24.5%
(1,200,000 preferred shares outstanding) ....... 30,000,000
-------------
TOTAL NET ASSETS -- 100.0% ........................ $122,337,053
=============
NET ASSET VALUE PER COMMON SHARE
($92,337,053 (divided by) 7,912,645 common
shares outstanding) ........................... $11.67
=======
SHARES
-------
SHORT POSITIONS
COMMON STOCKS
8,074 Vodafone AirTouch plc, ADR ............ $ 1,919,594
20,000 Sara Lee Corp ......................... 468,750
============
$ 2,388,344
============
- -------------------------------
For Federal tax purposes:
Aggregate cost $114,316,089
============
Gross unrealized appreciation--investments $ 11,074,660
Gross unrealized depreciation--short positions (262,998)
Gross unrealized depreciation--investments (4,048,986)
------------
Net unrealized appreciation $ 6,762,676
===========+
(a) Security fair valued as determined by the Board of Directors.
(b) Security exempt from registration under Rule 144A of rhe Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At
September 30, 1999, Rule 144A securities amounted to $2,173,209 or 1.8% of
net assets.
(c) Principal amount denoted in British Pounds.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR American Depositary Receipt.
15
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT AND
VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the Policy of The Gabelli Convertible Securities Fund, Inc.
("Convertible Securities Fund") to automatically reinvest dividends. As a
"registered" shareholder you automatically become a participant in the
Convertible Securities Fund's Automatic Dividend Reinvestment Plan (the "Plan").
The Plan authorizes the Convertible Securities Fund to issue shares to
participants upon an income dividend or a capital gains distribution regardless
of whether the shares are trading at a discount or a premium to net asset value.
All distributions to shareholders whose shares are registered in their own names
will be automatically reinvested pursuant to the Plan in additional shares of
the Convertible Securities Fund. Plan participants may send their stock
certificates to State Street Bank and Trust Company ("State Street") to be held
in their dividend reinvestment account. Registered shareholders wishing to
receive their distribution in cash must submit this request in writing to:
The Gabelli Convertible Securities Fund, Inc.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan or requesting a copy of the terms of the
Plan may contact State Street at 1 (800) 336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at State Street
Bank must do so in writing or by telephone. Please submit your request to the
above mentioned address or telephone number. Include in your request your name,
address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such transactions.
If your shares are held in the name of a broker, bank or nominee, you
should contact such institution. If such institution is not participating in the
Plan, your account will be credited with a cash dividend. In order to
participate in the Plan through such institution, it may be necessary for you to
have your shares taken out of "street name" and re-registered in your own name.
Once registered in your own name your dividends will be automatically
reinvested. Certain brokers participate in the Plan. Shareholders holding shares
in "street name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of cash dividends is determined in the following manner. Under the
Plan, whenever the market price of the Convertible Securities Fund's Common
Stock is equal to or exceeds net asset value at the time shares are valued for
purposes of determining the number of shares equivalent to the cash dividends or
capital gains distribution, participants are issued shares of Common Stock
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Convertible Securities Fund's
Common Stock. The valuation date is the dividend or distribution payment date
or, if that date is not a New York Stock Exchange trading day, the next trading
day. If the net asset value of the Common Stock at the time of valuation exceeds
the market price of the Common Stock, participants will receive shares from the
Convertible Securities Fund valued at market price. If the Convertible
Securities Fund should declare a dividend or capital gains distribution payable
only in cash, State Street will buy Common Stock in the open market, or on the
New York Stock Exchange or elsewhere, for the participants' accounts, except
that State Street will endeavor to terminate purchases in the open market and
cause the Convertible Securities Fund to issue shares at net asset value if,
following the commencement of such purchases, the market value of the Common
Stock exceeds the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Convertible Securities Fund reserves the right to amend or terminate
the Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the members
of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by State Street on at
least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Convertible Securities Fund. In
order to participate in the Voluntary Cash Purchase Plan, shareholders must have
their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street Bank and Trust Company for investments
in the Convertible Securities Fund shares at the then current market price.
Shareholders may send an amount from $250 to $10,000. State Street Bank and
Trust Company will use these funds to purchase shares in the open market on or
about the 1st and 15th of each month. State Street Bank and Trust Company will
charge each shareholder who participates $0.75, plus a pro rata share of the
brokerage commissions. Brokerage charges for such purchases are expected to be
less than the usual brokerage charge for such transactions. However, the Fund's
Adviser, Gabelli Funds, LLC, has arranged that these purchases will be executed
at no commission through December 31, 1999. It is suggested that any voluntary
cash payments be sent to State Street Bank and Trust Company, P.O. Box 8200,
Boston, MA 02266-8200 such that State Street receives such payments
approximately 10 days before the investment date. Funds not received at least
five days before the investment date shall be held for investment until the next
purchase date. A payment may be withdrawn without charge if notice is received
by State Street Bank and Trust Company at least 48 hours before such payment is
to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Convertible Securities Fund.
16
<PAGE>
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN
E. Val Cerutti
CHIEF EXECUTIVE OFFICER
CERUTTI CONSULTANTS, INC.
Felix J. Christiana
FORMER SENIOR VICE PRESIDENT
DOLLAR DRY DOCK SAVINGS BANK
Anthony J. Colavita, P.C.
ATTORNEY-AT-LAW
ANTHONY J. COLAVITA, P.C.
Dugald A. Fletcher
PRESIDENT, FLETCHER & COMPANY, INC.
Karl Otto Pohl
FORMER PRESIDENT, DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT
PROFESSOR, PACE UNIVERSITY
Anthonie C. van Ekris
MANAGING DIRECTOR
BALMAC INTERNATIONAL, INC.
Salvatore J. Zizza
CHAIRMAN
THE BETHLEHEM 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
<PAGE>
INVESTMENT ADVISOR
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1434
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
STOCK EXCHANGE LISTING
COMMON 8.00% PREFERRED
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NYSE-Symbol: GCV GCV Pr
Shares Outstanding: 7,912,645 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.
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For general information about the Gabelli Funds, call 1-800-GABELLI
(1-800-422-3554), fax us at 914-921-5118, visit our Internet homepage at:
HTTP:/WWW.GABELLI.COM, or e-mail us at: [email protected]
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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.
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<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER
RYE, NY 10580-1434
(914) 921-5070
HTTP://WWW.GABELLI.COM
THIRD QUARTER REPORT
SEPTEMBER 30, 1999
