[Logo and Graphic]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1999
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[Logo]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
Our cover icon represents the underpinnings of Gabelli. The Teton mountains in
Wyoming represent what we believe in in America -- that creativity, ingenuity,
hard work and a global uniqueness provide enduring values. 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.
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TO OUR SHAREHOLDERS,
Our convertible securities portfolio bucked [photo]
the headwind of rising interest rates in the [logo]
second quarter of 1999. Our value discipline and THE GABELLI
research bias toward smaller companies deserves CONVERTIBLE
most of the credit for the Fund's solid gains in SECURITIES
what was a difficult period for convertible FUND, INC.
securities in general.
INVESTMENT PERFORMANCE
For the second quarter ended June 30, 1999, The Gabelli Convertible
Securities Fund, Inc.'s ("Convertible Securities Fund") net asset value (NAV)
per share increased 7.8% to $12.13, after adjusting for the $0.20 per share
distribution paid on June 28, 1999. This compares to an increase of 8.1% 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 June 30, 1999, the Fund increased 12.9% versus an increase of 8.8%
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 11.6% and 11.2%, respectively. Since inception on July 3,
1989 through June 30, 1999, the Convertible Securities Fund achieved a 172.2%
total return which represents an average annual return of 10.5%.
The Fund's common shares on the New York Stock Exchange ended the quarter
at $11.3125, up 3.5% for the quarter, up 12.1% for the past twelve months and up
47.6% from its initial price of $11.25 on March 31, 1995 after adjusting for the
reinvestment of dividends totaling $4.165 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 7% to the net asset value. At these price levels, the
Fund is an ideal opportunity for investors to add to their positions. Our
monthly cash purchase program provides an easy way for registered Shareholders
to acquire additional shares at the current market price at no commission. In
addition, to underscore that "we eat our own cooking", the 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.
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INVESTMENT RESULTS (a)(c)
================================================================================
Quarter
----------------------------------
1st 2nd 3rd 4th Year
1999: Net Asset Value ...... $11.45 $12.13 __ __ __
Total Return ......... 1.8% 7.8% __ __ __
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS - JUNE 30, 1999 (A)
1 Year .................. 12.9%
5 Year .................. 11.2%
Life of Fund (b) ........ 10.5%
(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
- ------------ -------------- ------------------
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
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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 has seen us through both good and
bad markets over the last 10 years at The Gabelli [LOGO]
Convertible Securities Fund and for over 21 years
at Gabelli Asset Management Company. In past
reports, we have tried to articulate our
investment philosophy and methodology. The
following graphic further 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.
3
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.
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
THE ECONOMY: DUELING DATA ON INFLATION
Inflation played "peek-a-boo" with investors in the second quarter of
1999. A jump in April's Consumer Price Index ("CPI") rattled the bond market and
had equity investors holding their breath. Inflation all but disappeared again
in the May CPI numbers. The bond market stabilized and stocks regained momentum.
Then, citing the emergence of "incipient ingredients" for inflation and the long
lead time of monetary policy, the Federal Reserve decided to hike the Federal
Funds rate by 25 basis points on June 30, in what Chairman Alan Greenspan
characterized as a "preemptive action" against inflation. This sparked a flurry
of observers to question whether this single modest rate hike would be an
effective vaccination against inflation or just the first in a series of shots
that will eventually take the froth out of the economy and financial markets.
We are not optimistic on inflation. The inflationary threat comes
partially from rising commodities prices, (most notably oil), which are
recovering from severely depressed levels following the Asian economic meltdown,
and from the prospect of wage inflation in fully employed America. Thus far,
technology driven productivity gains have offset rising wages. Along with Fed
Chairman Greenspan, we are not sure how much longer this can continue in an
America with help wanted signs in an increasing number of corporate windows.
THE MARKET: EARNINGS AND INTEREST RATES
In our first quarter 1999 letter to shareholders, we also opined that
earnings and interest rates would call the market tune for the balance of the
year. In general, first quarter earnings met consensus estimates and second
quarter earnings should be stronger than anticipated, with particularly good
comparisons to 1998's second quarter, when General Motor's strike and the plunge
in energy prices crimped reported results. However, interest rates are higher,
and until we see convincing evidence that inflation is firmly under control,
rates are not likely to trend much lower. With the S&P 500's gains already
approximating 1999 earnings growth forecasts, we see an inadequate "margin of
safety" in the stock market. Money flowing into the markets, particularly from
deal activity, is the fuel powering a market that still favors stocks. However,
money is no longer pouring into equity mutual funds at the rates we have seen in
previous years. All this conjecture leads us to the opinion that stock
selectivity remains crucial over the next twelve months.
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VALUE ADDS VALUE
As hybrid securities, convertibles have "bond value" (the value of yield)
and "stock value" (the value determined by the performance of underlying
equities). With interest rates rising this quarter the "bond value" of
convertible securities declined across the board. Growth company convertibles
suffered the double whammy of lower "bond values" and flat to declining stock
prices. Value converts fared much better, with stocks in traditional value
sectors like the cyclicals, energy and other commodities oriented industries,
and utilities materially outperforming growth stocks.
Our portfolio has always had a smaller cap value bias. This has not worked
in our favor in recent years, with growth stocks materially outperforming value
stocks and large cap stocks significantly outperforming smaller company
equities. Now the tide may be turning.
Style and capitalization sectors generally take lengthy turns leading the
market. Does the ascent of value and small cap stocks this quarter signify a
major change in market leadership? One quarter of outperformance does not a
trend make. But, fundamentals favor value stocks and small cap equities going
forward. Despite the strong second quarter rally, based on historical
measurements, value stocks remain cheap and growth stocks are still overvalued.
Small cap stocks offer the dual advantages of generally better earnings growth
prospects than large caps and materially lower price/earnings and price/cash
flow multiples. If value and smaller cap stocks assume stock market leadership,
value oriented smaller company converts will also.
UN-BUSTED CONVERTIBLES
As previously discussed, our portfolio is usually peppered with "busted"
convertibles. These are converts in which the underlying equities are trading
well below conversion parity. Generally, these are very high yielding converts
that enhance portfolio income. Occasionally, these "busted" converts make
substantial capital appreciation contributions as well, as the underlying
equities recover either through an earnings turnaround or a deal.
This quarter, several of our "busted" converts made very nice moves.
Omnipoint converts rose sharply when VoiceStream Wireless made a bid for the
company. Our Chock Full o'Nuts convertible securities holdings also soared, when
it was discovered that Chairman Norman Alexander had failed to disclose to
shareholders that Sarah Lee had been trying to buy the company. We must take
some individual credit for this in that we published a letter alerting
shareholders and the investment community to Mr. Alexander's omission. Earnings
and stock price rebounds for Sealed Air and Cendant also translated into
excellent performance for our "busted" convertible holdings in these companies.
As always, we had some disappointments as well. Our Merrill Lynch holdings
treaded water as rising interest rates cooled off financial service industry
stocks. After several years of exceptional performance, our CSC (Cablevision)
holdings declined as "Johnnie come lately" momentum investors bailed out of
cable television stocks. Some of our "busted" converts got busted even further,
most notably Boston Chicken, which jumped out of the frying pan into the fire.
5
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BARRON'S ROUNDTABLE - MARK IV INDUSTRIES
Mario Gabelli, our Chief Investment Officer, has appeared in the
prestigious Barron's Roundtable discussion annually since 1980. Many of our
readers have enjoyed the inclusion of selected and edited comments from Barron's
Roundtable in previous reports to shareholders. Once again, we are including
selected comments of Mario Gabelli from Barron's 1999 Midyear Roundtable,
specifically his comments on one of our more recent holdings - Mark IV
Industries Inc. Mark IV Industries is a $2.2 billion global manufacturing
company 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. For our shareholders who prefer to
view the entire interview, the complete text is available on the Internet at
www.gabelli.com.
GABELLI: Mark IV is located outside Buffalo, New York. The stock is around
18. There are 50 million shares outstanding. The company is buying back shares.
Revenues in the year ended February 28, 1999, were $1.95 billion. Long-term debt
is $800 million. GAAP book is $13 a share.
Mark IV has a very good package of companies in the industrial and
auto-parts businesses. The stock sells at six times trailing 12-month EBITDA
[Earnings Before Interest, Taxes, Depreciation and Amortization], which in
today's world is very attractive. I don't have earnings estimates. I'm looking
at growth in EBITDA, which over the next five years could grow annually in the
high-single-digit, low-double-digit range, without further acquisitions. They
bought an Italian maker of small gasoline and diesel engines. They're trying to
package it with certain transmission technology they're developing. This
combination could become an interesting growth vehicle over the next five years.
Even if it doesn't work as well as some would argue, this is a very attractive,
cheap stock. [ ]
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."
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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 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.
Global mergers and acquisitions surged to $1.5 trillion during the first
six months of 1999, fueled by deregulation, low interest rates, increasing
competition and the introduction of a common currency in Europe. More than half
the transactions announced worldwide, or $829.1 billion, came in the second
quarter. The Convertible Securities Fund participated in some of these
transactions through our holdings in Platinum Technology International and Nine
West Group, illustrating our occasional use of risk arbitrage in announced
deals.
PLATINUM TECHNOLOGY INTERNATIONAL, INC. (SUB. DEB. CV., 6.25%, 12/15/02)
agreed to be bought by Computer Associates International, Inc. (CA - $35 5/8
- NYSE), for about $3.5 billion in cash, bolstering CA's fledgling service
business. It paid $29.25 for each share of Platinum Technology, which makes
software to manage data and helps companies run their information systems. CA
plans to link its products with Platinum Technology's consulting services,
especially in Europe. CA also wants Platinum Technology's software for
managing data and technology. The acquisition brings together two companies
that were involved in what was often a heated rivalry. Following the
announcement of this deal the Convertible Securities Fund increased its
position in Platinum Technology converts and achieved a 1.5% return in terms
of capital appreciation following the tender of these converts, which is an
annualized return of 8.1%. In addition, the Fund received the interest income
of the bond.
NINE WEST GROUP INC. (SUB. DEB. CV., 5.50%, 07/15/03), the nation's top maker
and seller of dress shoes for women, agreed to be bought by Jones Apparel
Group, Inc. (JNY - $28 7/8 - NYSE) for about $26 a share in stock and cash.
Nine West operates about 1,500 stores worldwide. JNY has focused on getting
licenses for brands such as Lauren by Ralph Lauren and selling the fashions
it designs mainly through department stores. Now, it wants to put some of
Nine West's well-known shoe brands such as Pappagallo and Easy Spirit on
clothing. White Plains, New York-based Nine West holds roughly a third of the
U.S. women's shoe market through its own stores such as 9 & Co. and another
7,000 department, specialty and independent shoe stores that carry its shoes,
handbags, hosiery and jewelry. Sales for the combined company are expected to
reach $4.5 billion in the year 2000. We began buying Nine West converts in
early 1998 and dramatically increased our position following the announcement
of the deal with Jones Apparel Group. Not only does the Fund receive a nice
yield from these Nine West converts which enhances portfolio income,
appreciation of these converts as of June 30, 1999 was 12.6% over our holding
period.
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CORPORATE GOVERNANCE
The Gabelli Convertible Securities Fund continues to consider actions that
may reduce or eliminate the market discount of its shares. How do we accomplish
this? There are several factors that historically have worked to narrow the
discounts of closed-end funds. These include distribution policies and stock
repurchase programs, both of which we have instituted.
DISTRIBUTION POLICY
A fund with a distribution policy establishes a fixed payment each year to
its shareholders as a percentage of net assets or a specific dollar amount. In
order to accelerate our effort to drive the current discount to a premium, the
Convertible Securities Fund, at a meeting of the Board of Directors on May 13,
1998, instituted an 8% annual distribution policy. Investors usually favor funds
that offer a constant stream of cash, or a predictable yield. Thus, there is
more demand for funds with a distribution policy and historically they trade at
a more narrow discount than funds without a distribution policy.
In the case of the Gabelli Convertible Securities Fund, the Fund pays out
a minimum annual distribution of 8% of the net asset value. 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 June 28, 1999 in line with this 8% annual distribution policy.
STOCK REPURCHASE PLAN
A stock repurchase plan allows a company to buy back its own shares in the
open market (in our case, the New York Stock Exchange). This reduces the total
number of shares outstanding and increases the earnings per share. At a special
meeting of the Board of Directors on October 27, 1997, the Board authorized the
repurchase of up to 250,000 shares of the Convertible Securities Fund's
outstanding shares. We were the first company on the New York Stock Exchange to
announce a stock repurchase program on this date when the market declined 554.26
points, or 7.2%.
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 June 30, 1999, 176,300 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 the first six months 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.
When the Convertible Securities Fund purchases its own shares at a
discount to NAV, the Fund realizes a benefit equal to the difference between the
net asset value and the purchase price. This benefit is credited to the net
assets of the remaining shares, thus boosting the NAV. The larger the discount,
the greater the benefit on the NAV. Further, the market price is determined by
supply and demand factors. If there are more sellers than buyers the price will
decline until buyers enter the market to establish a sales price. A stock
repurchase program increases demand for the Convertible Securities Fund's shares
in the open market. This provides a willing buyer of fund shares which offsets,
at least in part, sales of fund shares.
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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
$25.5625 on June 30, 1999.
How would Preferred Shares benefit Common Shareholders? Through June 30,
1999, the Convertible Securities Fund has earned a 10.5% 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.
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.
AMERICAN BANKERS INSURANCE GROUP INC. (ABI) ($3.125 CV. PFD., SER B) has agreed
to be acquired by Fortis for $2.8 billion in cash and assumed debt, making the
Dutch-Belgian financial company the largest insurer of consumer and credit card
loans in the U.S. Fortis, Belgium's largest financial company, will pay $55 per
share for each American Bankers share. Fortis has been expanding outside its
home markets (Belgium, the Netherlands and Luxembourg) by developing specialized
insurance businesses such as funeral insurance and health policies for small
companies. The transaction is expected to be completed during the third quarter
of 1999.
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 - $13.00 - 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-
9
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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 - $46.00 - Nasdaq) stock and cable operations through a
sale to Adelphia Communications for approximately $220 million.
HILTON HOTELS CORP. (SUB. DEB. CV., 5.00%, 05/15/06) is internationally
recognized as one of the 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 seventh largest hotel
company. Hilton has approximately 250 hotels and resorts in cities throughout
the United States, including 61 owned and managed hotels and 188 hotels under
franchise agreements. Flagship properties include The Waldorf-Astoria, the
Hilton Chicago & Towers and Hilton Hawaiian Village (98%-owned). Hilton
formalized a marketing alliance with British company Ladbroke Group (owner of
Hilton International) in January to reunite the Hilton name worldwide for the
first time in over 30 years. Hilton's casino gaming properties were spun-off
last December into a new company, Park Place Entertainment (PPE - $9.6875 -
NYSE).
KAMAN CORP. (SUB. DEB. CV., 6.00%, 03/15/12), founded in 1945, is a pioneer in
the helicopter industry. Aircraft manufacturing remains the core of the
business. Kaman services both commercial and government markets with helicopters
and aircraft components. The company also produces specialized, high-value niche
market products and services which tend to be technological leaders in their
markets. Kaman is a major, national distributor of original equipment, repair
and replacement products and value-added services to nearly every sector of
North American industry. The company also manufactures and distributes musical
instruments (Ovation guitars) and accessories to independent retailers.
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. The Group'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 company recently agreed to
be acquired by AT&T Corp. (T - $55.8125 - NYSE) for $54 billion.
OMNIPOINT CORP. (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 - $28.4375 - Nasdaq) for $32 per share in
cash and stock. The combined company will have PCS licenses covering about 190
million points of presence ("POPs") and will become a major PCS carrier.
10
<PAGE>
ROGERS COMMUNICATIONS INC. (SUB. DEB. CV., 2.00%, 11/26/05) is a Canadian
company engaged in cable operations, cellular (through its 81%-owned Rogers
Cantel Mobile cellular provider) and media. Through Rogers@Home, the company
will be one of the major beneficiaries of the growing penetration of cable high
speed access to the Internet in Canadian homes.
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 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 - $40.125 - 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. Sprint PCS group is the leading personal communications
services ("PCS") carrier in the U.S. with over 3.5 million customers and
licenses covering over 230 million people.
SHAREHOLDER MEETING - MAY 17, 1999 - FINAL RESULTS
The Annual Meeting of Shareholders was held on May 17, 1999 at the
Greenwich Hyatt Regency in Greenwich, Connecticut. At that meeting, Common and
Preferred Shareholders elected Anthonie C. van Ekris and Salvatore J. Zizza as
Directors of the Convertible Securities Fund. A total of 6,576,123 votes and
6,570,709 votes were cast in favor of each Director and 76,667 votes and 82,081
votes were withheld for each Director, respectively. Preferred Shareholders,
voting as a separate class, elected Anthony J. Colavita as Director of the
Preferred Shares of the Convertible Securities Fund. A total of 1,109,172 votes
were cast in favor and 8,309 votes were withheld.
Mario J. Gabelli, E. Val Cerutti, Dugald A. Fletcher, Anthony R.
Pustorino, Felix J. Christiana and Karl Otto Pohl continue to serve in their
capacities as Directors of the Convertible Securities Fund.
In addition, Common and Preferred Shareholders elected
PricewaterhouseCoopers LLP as the independent accountants for the Convertible
Securities Fund for the year ending December 31, 1999. 6,569,132 votes were cast
in favor of the approval of this proposal, 39,440 votes were cast against the
proposal and 44,218 votes abstained.
We thank you for your participation and appreciate your continued support.
11
<PAGE>
DIVIDENDS
The Fund recently distributed a dividend of $0.20 per share to Common
Shareholders on June 28, 1999 in line with the Fund's 8% annual distribution
policy. For the twelve months ended June 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 June 28, 1999. For the twelve months ended June
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 for
another year, 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.
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].
12
<PAGE>
IN CONCLUSION
The unique characteristics of convertible securities make them an ideal
investment vehicle for conservative investors. Our highly selective value
oriented approach shapes a portfolio with high yields and the realistic
potential for meaningful capital appreciation as well. This quarter, our
portfolio's higher yield and the superior relative performance of value stocks
combined to produce attractive absolute and relative returns. Going forward, we
believe our bias to value and smaller company convertibles will continue to work
to our advantage.
Sincerely,
/s/ Mario J. Gabelli
--------------------
MARIO J. GABELLI
President and
Chief Investment Officer
July 30, 1999
================================================================================
TOP TEN CONVERTIBLE HOLDINGS
JUNE 30, 1999
Sprint ($1.50 Cv. Pfd., Ser. 1; $1.50 Cv. Pfd., Ser. 2; 8.25% Cv. Pfd.)
American Bankers Insurance ($3.125 Cv. Pfd., Ser. B)
Mark IV Industries (Sub. Deb. Cv., 4.75%, 11/01/04)
Citizens Utilities (5.00% Cv. Pfd.)
WHX Corp. (6.50% Cv. Pfd., Ser. A; $3.75 Cv. Pfd., Ser. B)
Cendant Corp. (1.30% Cv. Pfd., 7.50% Cv. Pfd.)
MediaOne Group (4.50% Cv. Pfd., Ser. D)
Hilton Hotels Corp. (Sub. Deb. Cv., 5.00%, 05/15/06)
Fieldcrest Cannon Inc. (Sub. Deb. Cv., 6.00%, 03/15/12)
Atlantic Richfield Co. ($2.80 Cv. Pfd.)
================================================================================
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.
13
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- JUNE 30, 1999 (UNAUDITED)
================================================================================
PRINCIPAL MARKET
AMOUNT COST VALUE
-------- ------------ ------------
CONVERTIBLE CORPORATE BONDS -- 22.49%
AUTOMOTIVE: PARTS AND ACCESSORIES-- 0.26%
$ 550,000 Exide Corp. Sub. Deb. Cv.
2.90%, 12/15/05 ................ $ 374,430 $ 330,000
------------ ------------
AVIATION: PARTS AND SERVICES -- 1.05%
1,330,000 Kaman Corp. Sub. Deb. Cv.
6.00%, 03/15/12 ................ 1,293,248 1,325,013
------------ ------------
BUSINESS SERVICES -- 0.69%
900,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12 (a) . .......... 880,222 870,021
------------ ------------
CABLE -- 0.31%
500,000 Rogers Communications Inc.
Sub. Deb. Cv.
2.00%, 11/26/05 ................ 333,696 385,625
------------ ------------
COMPUTER SOFTWARE AND SERVICES -- 1.90%
2,250,000 PLATINUM Technology International Inc.
Sub. Deb. Cv.
6.25%, 12/15/02 ................ 2,216,262 2,264,063
250,000 QuadraMed Corp. Sub. Deb. Cv.
5.25%, 05/01/05 ................ 162,526 136,250
------------ ------------
2,378,788 2,400,313
------------ ------------
CONSUMER PRODUCTS -- 2.33%
3,500,000 Fieldcrest Cannon Inc.
Sub. Deb. Cv.
6.00%, 03/15/12 ................ 2,540,741 2,480,625
750,000 Standard Commercial Corp.
Sub. Deb. Cv.
7.25%, 03/31/07 ................ 615,507 457,500
------------ ------------
3,156,248 2,938,125
------------ ------------
CONSUMER SERVICES -- 0.07%
100,000 Ogden Corp. Sub. Deb. Cv.
6.00%, 06/01/02 ................ 99,444 93,000
------------ ------------
ELECTRONIC EQUIPMENT -- 1.32%
ASM Lithography Holding Cv.
40,000 2.50%, 04/09/05 ................. 17,991 20,216
10,000 2.50%, 04/09/05 (b) ............. 4,454 5,054
1,700,000 Trans-Lux Corp. Sub. Deb. Cv.
7.50%, 12/01/06 ................ 1,631,244 1,640,500
------------ ------------
1,653,689 1,665,770
------------ ------------
ENERGY AND UTILITIES -- 0.95%
100,000 Halter Marine Group Inc.
Sub. Deb. Cv.
4.50%, 09/15/04................. 56,223 $61,000
1,100,000 Moran Energy Inc.
Sub. Deb. Cv.
8.75%, 01/15/08 ................ 757,842 1,039,118
100,000 Texaco Capital Inc. Cv.
3.50%, 08/05/04 ................ 100,462 101,500
------------ ------------
914,527 1,201,618
------------ ------------
ENTERTAINMENT -- 0.82%
200,000 Kushner-Locke Co.
Sub. Deb. Cv.
8.00%, 12/15/00 (a) . .......... 171,618 222,222
800,000 Savoy Pictures Entertainment Inc.
Sub. Deb. Cv.
7.00%, 07/01/03 ................ 745,759 807,000
------------ ------------
917,377 1,029,222
------------ ------------
EQUIPMENT AND SUPPLIES -- 4.65%
1,285,000 Intermagnetics General Corp.
Sub. Deb. Cv.
5.75%, 09/15/03 (b) . .......... 1,260,443 905,925
1,072,000 Kollmorgen Corp.
Sub. Deb. Cv.
8.75%, 05/01/09 ................ 847,664 1,073,340
4,000,000 Mark IV Industries
Sub. Deb. Cv.
4.75%, 11/01/04 ................ 3,456,484 3,529,999
210,000 Robbins & Myers Inc.
Sub. Deb. Cv.
6.50%, 09/01/03 ................ 204,947 204,750
150,000 Thermo Electron Corp.
Sub. Deb. Cv.
4.25%, 01/01/03 (b) . .......... 135,396 135,188
------------ ------------
5,904,934 5,849,202
------------ ------------
FOOD AND BEVERAGE -- 1.96%
110,000 Boston Chicken Inc.
Sub. Deb. Cv.
7.75%, 05/01/04+ ............... 14,081 5,500
100,000 Chiquita Brands
International Inc. Cv.
7.00%, 03/28/01 ................ 97,188 92,000
Chock Full o' Nuts Corp.
Sub. Deb. Cv.
1,000,000 7.00%, 04/01/12 ................ 772,418 1,240,000
865,000 8.00%, 09/15/06 ................ 861,291 1,133,150
------------ ------------
1,744,978 2,470,650
------------ ------------
14
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)-- JUNE 30, 1999 (UNAUDITED)
================================================================================
PRINCIPAL MARKET
AMOUNT COST VALUE
-------- ------------ ------------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
HEALTH CARE -- 0.57%
$ 750,000 Ivax Corp. Deb. Cv.
6.50%, 11/15/01 ................ $ 679,838 $ 723,750
------------ ------------
HOTELS AND GAMING -- 2.11%
2,900,000 Hilton Hotels Corp.
Sub. Deb. Cv.
5.00%, 05/15/06 ................ 2,706,962 2,660,750
------------ ------------
METALS AND MINING -- 0.22%
500,000 Coeur d'Alene Mines Corp.
Sub. Deb. Cv.
6.00%, 06/10/02 ................ 464,083 282,500
------------ ------------
PAPER AND FOREST PRODUCTS -- 0.28%
200,000 Riverwood International Corp.
Sub. Deb. Cv.
6.75%, 09/15/03 ................ 199,771 230,800
150,000 Thermo Fibertek Inc. Cv.
4.50%, 07/15/04 (b) . .......... 129,755 126,000
------------ ------------
329,526 356,800
------------ ------------
PUBLISHING -- 0.83%
700,000 News America Holdings Inc.
Sub. Deb. Cv.
Zero Cpn., 03/31/02 . .......... 567,980 959,000
50,000(c) United News & Media plc
Sub. Deb. Cv.
6.125%, 12/03/03 ............... 86,568 83,055
------------ ------------
654,548 1,042,055
------------ ------------
REAL ESTATE AND DEVELOPMENT -- 0.08%
125,000 Rockefeller Center Properties Inc.
Sub. Deb. Cv.
Zero Cpn., 12/31/00 . .......... 104,276 100,000
------------ ------------
RETAIL -- 1.65%
60,000 Costco Companies Inc.
Sub. Deb. Cv.
Zero Cpn., 08/19/17 . .......... 41,462 56,325
100,000 JumboSports Inc.
Sub. Deb. Cv.
4.25%, 11/01/00+ ............... 41,283 5,250
2,000,000 Nine West Group Inc.
Sub. Deb. Cv.
5.50%, 07/15/03 ................ 1,805,438 2,012,500
------------ ------------
1,888,183 2,074,075
------------ ------------
TELECOMMUNICATIONS -- 0.07%
Amnex Inc. Sub. Deb. Cv.
$30,000 8.50%, 09/25/02 ................ 20,291 $1,347
50,000 8.50%, 09/25/02 (b) . .......... 50,000 2,245
50,000 Telefonica Europe BV
Sub. Deb. Cv.
2.00%, 07/15/02 ................ 50,000 81,875
------------ ------------
120,291 85,467
------------ ------------
TRANSPORTATION -- 0.37%
440,000 Greyhound Lines Inc.
Sub. Deb. Cv.
8.50%, 03/31/07 ................ 272,925 440,000
140,000 WorldCorp Inc.
Sub. Deb. Cv.
7.00%, 05/15/04+ ............... 131,280 21,000
------------ ------------
404,205 461,000
------------ ------------
TOTAL CONVERTIBLE
CORPORATE BONDS ................... 27,003,493 28,344,956
------------ ------------
SHARES
------
CONVERTIBLE PREFERRED STOCKS -- 30.88%
AVIATION: PARTS AND SERVICES -- 1.58%
Coltec Capital Trust
25,000 5.25% Cv. Pfd. ................. 1,032,875 1,187,500
17,000 5.25% Cv. Pfd. (b) ............. 802,500 807,500
------------ ------------
1,835,375 1,995,000
------------ ------------
BROADCASTING -- 0.28%
9,200 Granite Broadcasting Corp.
$1.938 Cv. Pfd. ................ 386,020 347,300
------------ ------------
CABLE -- 2.85%
3,500 CSC Holdings Inc.
8.50% Cv. Pfd. Ser. 1 .......... 84,963 378,000
18,000 MediaOne Group
4.50% Cv. Pfd. Ser. D .......... 915,084 2,696,625
1,500 TCI Pacific Communications Inc.
5.00% Cv. Pfd. ................. 134,838 512,493
------------ ------------
1,134,885 3,587,118
------------ ------------
CONSUMER SERVICES -- 2.22%
Cendant Corp.
90,000 1.30% Cv. Pfd. ................. 2,489,615 2,621,249
5,000 7.50% Cv. Pfd. ................. 147,750 172,188
8,000 Loewen Group Inc.
6.00% Cv. Pfd. Ser. C .......... 80,917 9,189
------------ ------------
2,718,282 2,802,626
------------ ------------
15
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)-- JUNE 30, 1999 (UNAUDITED)
================================================================================
MARKET
SHARES COST VALUE
-------- ------------ ------------
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
DIVERSIFIED INDUSTRIAL -- 0.21%
1,400 GATX Corp.
$2.50 Cv. Pfd. ................. $136,020 $266,000
------------ ------------
ENERGY AND UTILITIES -- 1.91%
6,000 Atlantic Richfield Co.
$2.80 Cv. Pfd. ................. 1,600,963 2,412,750
------------ ------------
ENTERTAINMENT -- 0.12%
4,500 Metromedia International
Group Inc.
7.25% Cv. Pfd. ................. 170,031 156,938
------------ ------------
EQUIPMENT AND SUPPLIES -- 1.91%
25,000 Sequa Corp.
$5.00 Cv. Pfd. ................. 1,927,692 2,412,500
------------ ------------
FINANCIAL SERVICES -- 3.49%
40,000 American Bankers Insurance
$3.125 Cv. Pfd. Ser. B ......... 4,378,825 4,374,999
1,000 Merrill Lynch & Co.
6.25% Cv. Pfd. ................. 24,050 20,438
------------ ------------
4,402,875 4,395,437
------------ ------------
FOOD AND BEVERAGE -- 0.20%
5,000 Seagram Co.
7.50% Cv. Pfd. ................. 250,625 249,688
------------ ------------
IRON/STEEL -- 2.25% WHX Corp.
45,000 $3.75 Cv. Pfd. Ser. B .......... 1,953,443 1,445,625
43,000 6.50% Cv. Pfd. Ser. A .......... 2,071,981 1,384,063
------------ ------------
4,025,424 2,829,688
------------ ------------
PAPER AND FOREST PRODUCTS -- 1.71%
34,500 Sealed Air Corp.
$2.00 Cv. Pfd. Ser. A .......... 1,435,100 2,156,250
------------ ------------
PUBLISHING -- 0.44%
15,000 Reader's Digest
$1.9336 Cv. Pfd. ............... 382,588 555,000
------------ ------------
RETAIL -- 0.21% 2,500 CVS Corp.
6.00% Cv. Pfd. ................. 231,625 227,813
2,000 Republic Industries Inc.
6.50% Cv. Pfd. ................. 30,556 36,000
------------ ------------
262,181 263,813
------------ ------------
SPECIALTY CHEMICALS -- 0.10%
3,000 Monsanto Co.
6.50% Cv. Pfd. ................. $138,838 $120,375
------------ ------------
TELECOMMUNICATIONS -- 9.65%
65,000 Citizens Utilities Co.
5.00% Cv. Pfd. ................. 3,138,586 3,160,625
8,000 Philippine Long Distance
$3.50 Cv. Pfd. Ser. III ........ 374,069 416,000
Sprint Corp.
3,000 $1.50 Cv. Pfd. Ser. 1 .......... 301,100 1,215,000
2,200 $1.50 Cv. Pfd. Ser. 2 .......... 187,510 924,000
74,000 8.25% Cv. Pfd. ................. 2,824,819 6,437,999
------------ ------------
6,826,084 12,153,624
------------ ------------
WIRELESS COMMUNICATIONS -- 1.75%
8,000 Omnipoint Corp.
7.00% Cv. Pfd. ................. 241,080 435,000
12,000 Vodafone AirTouch plc
4.25% Cv. Pfd. Cl. C ........... 560,930 1,772,250
------------ ------------
802,010 2,207,250
------------ ------------
TOTAL CONVERTIBLE
PREFERRED STOCKS 28,434,993 38,911,357
------------ ------------
COMMON STOCKS -- 16.02%
AVIATION: PARTS AND SERVICES-- 0.22%
18,000 Kaman Corp. .................... 181,321 282,375
------------ ------------
BUSINESS SERVICES-- 2.75%
80,000 Paymentech Inc.+ ............... 2,004,000 2,030,000
50,000 Rental Services Corp.+ . ....... 1,430,626 1,431,250
------------ ------------
3,434,626 3,461,250
------------ ------------
DIVERSIFIED INDUSTRIAL-- 0.09%
10,000 Thermo Power Corp.+ ............ 116,325 116,563
------------ ------------
ENERGY AND UTILITIES-- 5.86%
20,000 AGL Resources Inc. ............. 361,010 368,750
12,000 Central Hudson Gas and
Electric Corp. ................. 490,975 504,000
16,500 Cilcorp Inc. ................... 1,004,813 1,031,250
8,000 Commonwealth Energy System ..... 317,210 336,000
4,000 New England Electric System .... 192,325 200,500
55,000 Orange & Rockland Utilities .... 3,065,614 3,214,062
60,000 Southwest Gas Corp. ............ 1,583,223 1,717,500
------------ ------------
7,015,170 7,372,062
------------ ------------
16
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)-- JUNE 30, 1999 (UNAUDITED)
================================================================================
MARKET
SHARES COST VALUE
-------- ------------ ------------
COMMON STOCKS (CONTINUED)
EQUIPMENT AND SUPPLIES -- 0.42%
$ 4,537 Case Corp. ..................... $ 118,644 $ 218,343
50,000 Fedders Corp. Cl. A ............ 310,916 306,250
------------ ------------
429,560 524,593
------------ ------------
FINANCIAL SERVICES -- 2.18%
38,000 American Bankers
Insurance Group ................ 2,244,730 2,068,625
20,000 Argonaut Group Inc. ............ 533,139 480,000
3,000 Republic New York Corp. ........ 204,525 204,563
------------ ------------
2,982,394 2,753,188
------------ ------------
RETAIL -- 0.38%
40,000 Food Lion Inc. Cl. A ........... 320,246 475,000
------------ ------------
SHIPBUILDING -- 0.87%
28,000 Avondale Industries Inc.+ ...... 1,069,740 1,092,000
------------ ------------
TELECOMMUNICATIONS -- 0.61%
48,276 Rogers Communications
Inc. Cl. B+ .................... 681,112 771,412
------------ ------------
WIRELESS COMMUNICATIONS -- 2.65%
16,926 Vodafone AirTouch plc, ADR ..... 1,101,622 3,334,422
------------ ------------
TOTAL COMMON STOCKS ............... 17,332,116 20,182,865
------------ ------------
PREFERRED STOCKS -- 0.02%
CABLE -- 0.02%
1,000 MediaOne Financing
Trust II Pfd. .................. 26,800 26,500
------------ ------------
PRINCIPAL
AMOUNT
--------
CORPORATE BONDS -- 1.97%
ENTERTAINMENT-- 1.97%
$ 2,400,000 Viacom Inc.
8.00%, 07/07/06 ................ 2,403,996 2,481,000
------------ ------------
U.S. GOVERNMENT OBLIGATIONS -- 34.34%
43,607,000 U.S. Treasury Bills,
4.19% to 4.73% ++,
due 07/01/99 to 09/30/99 ....... 43,272,922 43,273,617
------------ ------------
TOTAL INVESTMENTS--105.72% ..................... 118,474,320 133,220,295
============ ------------
OTHER ASSETS, LIABILITIES AND
LIQUIDATION VALUE OF CUMULATIVE
PREFERRED STOCK-- (29.53)% ................... $(37,210,788)
-------------
NET ASSETS -- COMMON STOCK -- 76.19%
(7,916,645 common shares outstanding) ....... 96,009,507
-------------
NET ASSETS - CUMULATIVE PREFERRED
STOCK -- 23.81%
(1,200,000 preferred shares outstanding) ..... 30,000,000
-------------
TOTAL NET ASSETS -- 100.00% .................... $ 126,009,507
=============
NET ASSET VALUE PER COMMON SHARE
($96,009,507 / 7,916,645 shares outstanding) $12.13
======
MARKET
SHARES COST VALUE
-------- ------------ ------------
SHORT POSITIONS
COMMON STOCKS
8,188 Kushner-Locke Co. .............. 105,568 53,222
25,000 Vodafone AirTouch plc, ADR ..... 5,149,973 4,925,000
------------ ------------
$ 5,255,541 $ 4,978,222
============ ============
- ----------
For Federal tax purposes:
Aggregate cost $118,474,320
============
Gross unrealized appreciation - investments $ 17,458,976
Gross unrealized appreciation - short positions 277,319
Gross unrealized depreciation - investments (2,713,001)
------------
Net unrealized appreciation $ 15,023,294
============
(a) Security fair valued as determined 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,
1999, Rule 144A securities amounted to $1,981,912 or 1.6% of net assets.
(c) Principal amount denoted in British Pounds.
+ Non-income producing security.
++ Yields represent the effective yield to maturity on the date of purchase.
ADR - American Depositary Receipt.
See accompanying notes to financial statements.
17
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $118,474,320) .............. $133,220,295
Foreign currency, at value (Cost $3,617) ............... 3,900
Receivable for investments sold ........................ 19,835
Dividends and interest receivable ...................... 703,851
------------
TOTAL ASSETS ........................................ 133,947,881
------------
LIABILITIES:
Payable for investments purchased ...................... 1,758,525
Payable for dividends .................................. 26,667
Payable for investment advisory fees ................... 227,513
Payable to custodian ................................... 766,544
Securities sold short .................................. 4,978,222
Other accrued expenses ................................. 180,903
------------
TOTAL LIABILITIES ................................... 7,938,374
------------
NET ASSETS .......................................... $126,009,507
============
NET ASSET VALUE PER COMMON SHARE
($96,009,507 / 7,916,645 shares issued
and outstanding; 100,000,000 shares
authorized of $0.001 par value) ........................ $12.13
======
NET ASSETS CONSIST OF:
Cumulative Preferred Stock (8.00%,
$25 liquidation value, $0.001 par value,
2,000,000 shares authorized,1,200,000 shares
issued and outstanding) redemption value ............ $ 30,000,000
Capital stock, at par value ............................ 7,917
Additional paid-in capital ............................. 82,073,596
Accumulated distributions in excess of
net investment income ............................... (99,688)
Accumulated distributions in excess of net realized
gain on investments and foreign currency
transactions ........................................ (995,543)
Net unrealized appreciation on investments and
foreign currency transactions ....................... 15,023,225
------------
TOTAL NET ASSETS ............................. $126,009,507
============
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
INCOME:
Dividends .............................................. $ 916,819
Interest ............................................... 1,720,477
------------
TOTAL INVESTMENT INCOME ............................. 2,637,296
------------
EXPENSES:
Investment advisory fees ............................... 610,206
Shareholder services fees .............................. 69,789
Legal and audit fees ................................... 57,747
Shareholder report expenses ............................ 56,820
Directors' fees ........................................ 39,168
Custodian fees ......................................... 19,105
Miscellaneous expenses ................................. 67,202
------------
TOTAL EXPENSES ...................................... 920,037
------------
NET INVESTMENT INCOME ............................... 1,717,259
------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments and
foreign currency transactions ....................... 1,929,392
Net change in unrealized appreciation
on investments and foreign currency
transactions ........................................ 6,051,402
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS ......................................... 7,980,794
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................ $ 9,698,053
------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
--------------- ------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 1,717,259 $ 4,165,471
Net realized gain on investments and foreign currency transactions 1,929,392 5,408,607
Net change in unrealized appreciation of investments and foreign currency transactions 6,051,402 (277,461)
------------ ------------
Net increase in net assets resulting from operations 9,698,053 9,296,617
------------ ------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
Net investment income (408,840) (1,008,552)
Net realized gains (791,160) (1,391,448)
------------ ------------
TOTAL DISTRIBUTIONS (1,200,000) (2,400,000)
------------ ------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income (1,308,419) (3,004,493)
Net realized gains (857,011) (3,927,271)
Distributions in excess of net investment income -- (68,292)
Distributions in excess of net realized gains (995,543) (312,617)
------------ ------------
TOTAL DISTRIBUTIONS (3,160,973) (7,312,673)
------------ ------------
CAPITAL SHARE TRANSACTIONS-- NET: (53,385) (1,240,142)
------------ ------------
Net increase / (decrease) in net assets 5,283,695 (1,656,198)
NET ASSETS
Beginning of Period 120,725,812 122,382,010
------------ ------------
End of Period $126,009,507 $120,725,812
============ ============
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
===============================================================================
1. ORGANIZATION. The Gabelli Convertible Securities Fund, Inc. (the "Fund") is a
closed-end diversified management investment company whose 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 Corporation
was incorporated in Maryland on December 19, 1988 as an open-end diversified
management investment company and commenced operations on July 3, 1989. The
Board of Directors, upon approval at a special meeting of shareholders held on
February 17, 1995, voted to approve the conversion of the Fund to closed-end
status, effective March 31, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund 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). 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. 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 the Adviser. When
market quotations are not readily available, portfolio securities 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 Directors determine such does not reflect the securities' fair
value, in which case these securities will be valued at their fair value as
determined by the Directors. Short term debt instruments having a greater
maturity 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
government securities dealers recognized by the Federal Reserve Board, with
member banks of the Federal Reserve System or with other brokers or dealers that
meet credit guidelines established by the 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. 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.
FORWARD FOREIGN CURRENCY 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 currency contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
recorded by the Fund as an unrealized gain or loss. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed.
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Fund's portfolio securities, but it does establish
a rate of exchange that can be achieved in the future. Although forward foreign
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that
19
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(UNAUDITED)
===============================================================================
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, 1999, the Fund held no forward
foreign currency contracts.
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. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin". Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract. The daily changes in the contract are recorded as
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. At June 30, 1999, 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.
SHORT SALES. The Fund is authorized to engage in short-selling, which obligates
the Fund to replace the security borrowed by purchasing the security at the
current market value sometime in the future. The Fund would incur a loss if the
price of the security increases between the date of the short sale and the date
on which the Fund replaces the borrowed security. The Fund would realize a gain
if the price of the security declines between those dates. Until the Fund
replaces the borrowed security, the Fund will maintain a segregated account with
cash and/or U.S. Government securities sufficient to cover its short position on
a daily 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 changes in foreign exchange rates and/or changes in market prices of
securities, have been included in unrealized appreciation/depreciation on
investments. 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 on 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. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatment of income and gains
on various investments securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund. Distributions to
shareholders of Cumulative Preferred Stock are accrued on a daily basis and are
determined as described in Note 3.
PROVISION FOR INCOME TAXES. The Fund has qualified and 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.
20
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)(UNAUDITED)
===============================================================================
3. CAPITAL. The Articles of Incorporation, dated December 19, 1988, permit the
Fund to issue 100,000,000 shares (par value $0.001) of common stock. 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. On May 15, 1997, the Fund received proceeds
of $28,593,000 (net of offering costs and underwriting discounts of $1,407,000)
from the public offering of 1,200,000 shares of 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. 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,
1999, the 1,200,000 shares of 8% Cumulative Preferred Stock outstanding accrued
dividends in the amount of $19,726. 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 shares of
Common Stock or purchase any such shares if at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
Preferred Stock would be less than 200%.
The holders of Preferred Stock have voting rights 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 Investment Company
Act of 1940 requires that, along with approval of the holders of a majority of
any outstanding common shares, approval of the holders of a majority of any
outstanding preferred shares, voting separately as a class, would be required to
(a) adopt any plan of reorganization that would adversely affect the Preferred
Stock, and (b) take any action requiring a vote of security holders, including,
among other things, changes in the Fund's subclassification as a closed-end
investment company or changes in its fundamental investment restrictions.
The Adviser has been authorized to repurchase on behalf of the Fund up to
250,000 shares of the Fund in the open market, whenever the shares are trading
at a discount to net asset value of ten per cent or more. For the six months
ended June 30, 1999, the Fund repurchased 4,900 shares at a cost of $53,386 and
at an average discount of 10.20%.
4. INVESTMENT ADVISORY AGREEMENT. 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, at
the annual rate of 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, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Directors of the Fund who are its affiliates.
The Adviser has agreed not to accrue the management fee on the incremental net
assets attributable to the liquidation value of the Cumulative Preferred Stock
if the total net asset value return of the common shares of the Fund, including
distributions and the advisory fee subject to reduction, does not exceed the
stated dividend rate of the Cumulative Preferred Stock. During the six months
ended June 30, 1999, the Fund has achieved a total return in excess of the
stated dividend rate and, thus, such management fees were earned.
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the six months
ended June 30, 1999, other than short-term securities, aggregated $77,737,512
and $68,097,908, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the six months ended June 30, 1999, the
Fund paid brokerage commissions of $44,935 to Gabelli & Company, Inc. and its
affiliates.
21
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 ----------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................................. $11.45 $11.48 $11.08 $11.01 $10.60 $11.52
------ ------ ------ ------ ------ ------
Net investment income ........................................... 0.22 0.53 0.49 0.49 0.53 0.69
Net realized and unrealized gain (loss)
on securities ................................................ 1.01 0.65 1.23 0.31 1.03 (0.71)
------ ------ ------ ------ ------ ------
Total from investment operations ................................ 1.23 1.18 1.72 0.80 1.56 (0.02)
------ ------ ------ ------ ------ ------
INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ............. -- 0.01 0.01
------ ------ ------
OFFERING EXPENSES CHARGED TO ADDITIONAL PAID-IN CAPITAL ........... (0.18)
------
DISTRIBUTIONS:
PREFERRED SHARES
Distributions from net investment income ........................ (0.05) (0.13) (0.08) -- -- --
Distributions from net realized gain on investments ............. (0.10) (0.17) (0.11) -- -- --
COMMON SHARES
Distributions from net investment income ........................ (0.17) (0.38) (0.40) (0.49) (0.53) (0.69)
Distributions from net realized gain on investments ............. (0.11) (0.50) (0.56) (0.24) (0.56)
(0.21)
Distributions in excess of net investment income ................ -- (0.01) -- -- (0.02) --
--
Distributions in excess of net realized gains ................... (0.12) (0.03) -- -- (0.01) --
Distributions from paid-in capital .............................. -- -- -- -- (0.03) --
------ ------ ------ ------ ------ ------
Total distributions ............................................. (0.55) (1.22) (1.15) (0.73) (1.15) (0.90)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF YEAR ..................................... $12.13 $11.45 $11.48 $11.08 $11.01 $10.60
====== ====== ====== ====== ====== ======
MARKET VALUE, END OF PERIOD ..................................... $11.31 $11.25 $10.31 $9.25 $10.75 --
====== ====== ====== ====== ====== ======
TOTAL NET ASSET VALUE RETURN + (a) .............................. 9.8% 8.3% 13.5% 8.4% 15.0% (0.2)%
Total Investment Return + (b) ................................... 4.1% 18.4% 22.2% (7.3)% 12.3% --
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net Assets, end of period (in 000's) ............................ $126,010 $120,726 $122,382 $89,659 $89,137 $112,090
Net Assets attributable to common shares,
end of period (in 000's) ..................................... $96,010 $90,726 $92,382 $89,659 $89,137 $112,090
Ratio of net investment income to
average net assets attributable to common stock ................. 3.72%(d) 4.54% 4.23% 4.33% 4.60% 4.77%
Ratio of operating expenses to average net assets
attributable to common stock (c) ................................ 1.99%(d) 1.83% 1.68% 1.45% 1.56% 1.31%
Ratio of operating expenses to average total net assets ............ 1.51%(d) 1.38% 1.39% 1.45% 1.56% 1.31%
Portfolio Turnover Rate ............................................ 151% 149% 243% 114% 140% 67%
PREFERRED STOCK:
Liquidation value (in 000's) .................................... $30,000 $30,000 $30,000 -- -- --
Total shares outstanding (in 000's) ............................. 1,200 1,200 1,200 -- -- --
Asset coverage per share ........................................ 402% 402% 408% -- -- --
Liquidation preference per share ................................ $25.00 $25.00 $25.00 -- -- --
Average market value per share (e) .............................. $26.45 $26.84 $25.69 -- -- --
</TABLE>
- ----------
+ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends. Total return for the period of
less than one year is not annualized.
(a) Based on net asset value per share.
(b) Based on net asset value per share through March 31, 1995, the date of
conversion of the Fund to closed-end status, and market value thereafter.
(c) The ratio of operating expenses to average net assets attributable to
common stock during the fiscal year ended December 31, 1995 includes a
current period expense associated with the conversion of the Fund to
closed-end status. Without the conversion expense, this ratio would have
been 1.28%. 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%.
(d) Annualized.
(e) Based on weekly prices.
See accompanying notes to financial statements.
22
<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.
23
<PAGE>
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Convertible Securities Fund reserves the right to amend or terminate
the Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the members
of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by State Street on at
least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Convertible Securities Fund. In
order to participate in the Voluntary Cash Purchase Plan, shareholders must have
their shares registered in their own name.
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 15th of each month. Beginning June 1, 1999, purchases will be made 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 15th of the month. Funds not received at least
five days before the investment date shall be held for investment in the
following month. A payment may be withdrawn without charge if notice is received
by State Street Bank and Trust Company at least 48 hours before such payment is
to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Convertible Securities Fund.
24
<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
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: 7,916,645 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
capital stock in the open market when the Convertible Securities
Fund shares are trading at a discount of 10% or more from the net
asset value of the shares
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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
Semi-Annual Report
June 30,1999
GBFCS 06/99
