THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE>
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.
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TO OUR SHAREHOLDERS,
As hybrids, convertible securities prices are influenced by the
performance of underlying equities and the prevailing trend in corporate bond
prices. In the fourth quarter of 1998, stocks came roaring back and the S&P 500
Index closed the year with a 28.7% gain, recording its fourth consecutive year
of double digit gains. Mid and small cap stocks also rebounded, but materially
lagged the big cap market indices, with the S&P Mid-Cap Index posting a modest
gain in 1998 and the Russell 2000 Index closing the year with a loss. Corporate
bonds recovered from third quarter lows, while Treasury bond prices retreated
from 30 year highs as investors migrated back to stocks.
INVESTMENT PERFORMANCE
For the quarter ended December 31, 1998, The Gabelli Convertible
Securities Fund, Inc.'s ("Convertible Securities Fund") net asset value
increased 7.4% ending the quarter at $11.45 after adjusting for the $0.32 per
share distribution paid on December 28, 1998. This compares to an increase of
10.9% for the Lipper Analytical Services, Inc. Convertible Securities Fund
Index. For the twelve months ended December 31, 1998, the Fund increased 8.3%.
This compares to an increase of 4.4% for the Lipper Convertible Securities Fund
Index over this period.
The three- and five-year average annual returns of the Convertible
Securities Fund were 10.0% and 8.9%, respectively. Since inception on July 3,
1989 through December 31, 1998, the Convertible Securities Fund achieved a
148.0% total return which represents an average annual return of 10.0%.
The Fund's common shares on the New York Stock Exchange ended the quarter
at $11.25, up 13.5% for the quarter, up 18.4% for the past twelve months and up
41.8% from its initial price of $11.25 on March 31, 1995 after adjusting for the
reinvestment of dividends totaling $3.765 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 4% 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.
[GRAPHIC OMITTED]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
<PAGE>
INVESTMENT RESULTS (a)(c)
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<TABLE>
<CAPTION>
QUARTER
-----------------------------------------
1ST 2ND 3RD 4TH YEAR
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
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%
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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%
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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%
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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%
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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)%
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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%
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1992: Net Asset Value ........................... $11.29 $11.52 $11.90 $11.45 $11.45
Total Return .............................. 3.5% 2.0% 3.3% 3.6% 13.0%
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1991: Net Asset Value ........................... $11.06 $11.27 $11.57 $10.91 $10.91
Total Return .............................. 5.6% 1.9% 2.7% 1.8% 12.5%
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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%
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1989: Net Asset Value ........................... __ __ $10.54 $10.51 $10.51
Total Return .............................. __ __ 5.4%(b) 0.8% 6.3%(b)
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</TABLE>
AVERAGE ANNUAL RETURNS - DECEMBER 31, 1998 (A)
----------------------------------------------
1 Year ........................................ 8.3%
5 Year ........................................ 8.9%
Life of Fund (b) .............................. 10.0%
(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
- ------------ -------------- ------------------
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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2
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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 [GRAPHIC OMITTED]
has seen us through both good and bad markets over the last
9 years at The Gabelli Convertible Securities Fund and for
over 20 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
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Our strategy incorporates the purchase of convertible securities which are
trading at a premium above parity with the common stock but which generally
provide a higher yield and, over time, capital appreciation. We will also seek
out "busted" converts, where the underlying common stock has dropped
significantly and the values of both the conversion privilege and the convert
are down. Such securities will provide both high yields and long-term capital
appreciation potential.
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.
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 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.
4
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OUTLOOK FOR 1999
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 Roundtable. For our
shareholders who prefer to view the entire interview, the complete text is
available on the Internet at www.barrons.com.
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January 18, 1999 BARRON'S l Roundtable'99
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[GRAPHIC OMITTED]
BARRON'S ("Q"): A NEW YEAR, A NEW MARKET ENVIRONMENT? MEANING, ARE INVESTORS
GOING TO HAVE TO GRAPPLE WITH SEISMIC ECONOMIC SHIFTS AS WELL AS IMPEACHMENT AND
Y2K?
GABELLI ("G"): Let's focus on the U.S. economy. I'm in the camp that argues that
consumers are going to get another tailwind. There is going to be a major tax
cut that is going to be very stimulative to the consumer. If I'm a consumer
today, I feel good. I'm working. Gasoline, I just went and bought a tankful. I
paid 20 cents a gallon less than it cost me the last time I filled up.
Q: YOU OBVIOUSLY DON'T DO IT OFTEN.
G: What I mean is that on 500 gallons of gas, I save 100 bucks. That's two bucks
a week. That's terrific. There are 50 million vehicles on the road. At two bucks
a week, that's $100 million a week, that's around $5 billion annually going back
into consumers' pockets. I just refinanced my mortgage. I got a jumbo $240,000
loan at 67/8%. I'm saving 1%, that's $2,400, that's another $45 or so a week and
I'm going to get a tax cut. And I own Internet stocks. I think this is terrific.
Q: BUT YOU COULD SEE LONG-TERM INTEREST RATES GOING UP SOON BECAUSE JAPAN MAY BE
ASKING FOR THEIR SAVINGS BACK.
G: Well, they have gone up to 5.3%, but still, I just refinanced my house, so I
feel good. You can talk about long-term rates, but my mortgage is what I look at
as a consumer. Besides, looking at the redressing of imbalances, one of the
concerns we had was that the dollar was too strong. Now if you look at the
dollar versus the euro, this morning it was 114, and versus the yen it was 107.
So when translating Euroland earnings into U.S. dollars, companies that are
operating there could get a terrific tailwind. Reported S&P earnings, I think,
could be a lot better than people expect, because they've forgotten the currency
factor. Especially if I have 2% real growth in Euroland and I have companies
that are now rationalizing and getting the benefit of synergies. The companies I
talk to in the U.S. that have big operations in Europe are all saying, "Hey, in
the last couple of months, we are getting a big benefit from currency." That
could continue for the next half. So the U.S. economy is reasonably good.
Earnings and cash flow for the companies I follow should be up 5%, 7%, 8% in
1999. I think the U.S. portion of non-U.S. earnings could translate better. So I
can't make anything but an optimistic case, let's put it that way, for corporate
profits. The other element in 1999 that I have to factor in is that some of the
companies I'm talking to and listening to say they are worried about a Y2K
problem. So the fourth quarter of 1999 will likely have a big inventory bulge.
That is certainly a plus, from what I see, for shipments.
Let me give you one other element on earnings: A lot of corporate controllers
and a lot of CFOs squirreled away earnings in the first and second quarters of
last year. Then the accounting problems of Cendant and others emerged. So now
you will not squirrel away earnings in that fourth quarter or in the first half
anymore. You are not going to play that game -- as much. I can see reported
earnings doing better than economic earnings over the next couple of quarters,
just
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5
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because you are not going to use the other side of your pencil or whatever they
use nowadays.
Another item to consider is that virtually every country in Europe now has a
socialist government. The Italians probably have a Communist government. I mean,
how are they going to sit back and not undo what they've done? They've
constrained, they constrained, until they could introduce their single economic
unit. Now, why not do the reverse of that? Why don't you factor that into your
thinking?
Q: IT MAY BE BULLISH FOR THOSE ECONOMIES. BUT IT MEANS REFLATION, IT MEANS
HIGHER INTEREST RATES, LOWER P/E RATIOS.
G:: Oh, yes. That's what I'm saying. It's the reflationary theme.
Changing gears to the manufacturing sector of the economy -- people are asking,
"Where is it?" It is being transported outside of the United States.
Machine-tool orders in November were $440 million, down from $532 million.
You see it in the farm-equipment industry, the domestic construction equipment
industry; and manufacturing jobs are disappearing, probably. When Cuba opens up,
labor rates will go from $1 an hour to $1 a day, if you are looking at Mexico
versus Cuba.
Q: BUT IS THIS A HOLLOWING-OUT OF THE ECONOMY? OR IS THIS A TRANSITION TO THE
BRAVE NEW INTERNET AGE?
G: Adam Smith is alive and well.
I have to stay with the bullish interpretation of all these dynamics. The
notion of globalization of the economy and the movement of capital around to the
lowest cost . . . every country, as long as you have free trade, is going to
contribute to global wealth at some point. What's more, the Japanese, as they
come out of their problems, eventually will be going from seeking share of
market on a global basis to seeking share of profits. That has to be good for
corporate profitability around the world.
Q: WHAT IS YOUR CONCLUSION ON THE MARKET?
G: Let me give you some numbers on the flow of funds. Cash into the market from
stock buybacks in 1998 was $207 billion, up from $181 billion. Mutual-fund
inflow was $176 billion, down from $232 billion. IPOs, which hit a big air
pocket, are starting to accelerate again but were $108 billion last year, down
from $118 billion. Other elements were foreign purchases of U.S. stocks and U.S.
purchases of non-stock assets. But the big element that makes those flows look
tiny was that deals in the U.S. alone amounted to $1.6 trillion. Now, for you
cynics who'd argue how much was in cash, the cash portion was $672 billion, up
from $414 billion last year. So money moving from savers into the stock market
wasn't as dynamic a flow-of-funds element as how much came into the market being
recycled from transactions. Again, incrementally in 1998 an unprecedented $250
billion came into the market from the cash portion of deals, that's 11/2 times
the amount that came in via mutual funds -- U.S. only, not globally. It is just
a phenomenon that has to be constantly hammered away at.
Q: [SOME OF THE BIGGEST CAP STOCKS ARE UP OVER 100%. SUCH MOVES ARE CLEARLY
UNSUSTAINABLE.]
G: Some of that is part of the migration of money into indexing -- which is
mindlessly buying stocks based on their index weightings. It's just
self-reinforcing. I don't know the numbers for 1998, but the trend has been more
mutual-fund purchases of index funds. More defined-benefit plans going into the
index funds. And those funds have to, by definition, buy mindlessly based on
capitalization. And that is going to continue.
Q: UNTIL YOU GET TO THE LAST GUY.
G: I will tell you a story. I'm creating this. But in 1973, it was conventional
wisdom that McDonald's had a market capitalization greater than all of the steel
industry's, and that we were going to become a nation of hamburger flippers --
indeed, that the world was going that way. Every cycle has the same thing. You
know, somebody sits up and says AOL and Amazon.com have caps greater than the
steel industry's. But that is what Schumpeter said, creative destruction is one
of the great virtues of capitalism. It's very positive.
Q: [HOW ABOUT WHAT IS GOING ON IN WASHINGTON?]
G: Going back to interest rates, I think there's plenty of margin of flexibility
on the short end. Real rates are much too high here. They should migrate down.
The dollar -- I don't know how Greenspan handles it. It is a challenge. The
balance-of-payments deficit is going to go way up. I believe, based on last
month's deficit, the run rate was about $180 billion. But $250 billion sounds
like a reasonable number. That has got to, with a new currency bloc in Europe,
create all sorts of question marks that I don't have an answer to. Those are
moving parts. We don't invest that way. We just think about these things.
Q: DOESN'T ANYONE FIND ALL THIS BLIND FAITH IN GREENSPAN AND RUBIN "DOING THE
RIGHT THING" A MITE DISCOMFORTING?
G: The concern isn't that they won't do the right thing, but that Rubin and
Greenspan retire like Mantle and Maris.
Q: BUT IN GENERAL, YOU ARE BULLISH?
G: On the world economy.
Q: AND ON EQUITIES?
G: No, not on equities. There is no margin of safety in stocks. Absolutely none.
But I do think Adam Smith is alive and well. Once you can start migrating
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6
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labor and goods to the highest efficiency, you create incredible opportunities
on a global scale. We don't have those efficiencies baked into the system. But
there are enormous birthing pains. You saw these birthing pains in Southeast
Asia. But I don't think that's a big depressive because the sunshine in the
valley is that we'll come out in a world in which profits are the driver. That
is pretty interesting.
Q: BUT MARIO, WHERE WILL RATES GO?
G: Like 53/4%-6%. Long rates have already started up. But I see short rates
coming down.
Q: IF ED HYMAN IS RIGHT AND THERE ISN'T MUCH NOMINAL GROWTH IN THE ECONOMY,
WON'T THAT MAKE IT DIFFICULT FOR SMALL COMPANIES?
G: The comment I want to make -- this is very important -- is that the business
people I talk to really were shocked by the virtual shutdown of the capital
markets following the [John] Meriwether debacle. Not only did the spreads widen,
but the market started closing on them. That is creating a backlash in terms of
either selling out -- the option which I happen to be fond of -- and also in
terms of bringing back a margin of safety to their balance sheets and their
perspectives on how to run their businesses. From the market's point of view,
looking out over the next five years, I still think we are in a world in which
corporate profits can rise -- not return on equity, where I can't see much
improvement, not return on sales, where I can't see much improvement from here.
But I can see maintaining some of these levels. I see these global synergies,
the Exxon-Mobils, adding to profitability. There won't necessarily be revenue
synergies in some of these, but there will certainly be margin synergies,
capital synergies, and efficiency elements. So I still see a 6%-8% secular
growth rate over the next five years in corporate profits. For 1999 I am in the
camp that has S&P earnings up, because over one-third of the earnings mix in the
S&P is non-U.S. Now, that's leaving Brazil aside, because it is part of my wall
of worry -- I have my A-B-C-D issues: Asia, Brazil, Clinton and the Dollar are
the things I worry about. But in terms of my model, where I have interest rates
backing up, and earnings at that level, the market has absolutely no margin of
safety. So we could see it up 3%, down 20%. Probably somewhere in-between at the
end of the year. With much more volatility. I think volatility is increased by
the new generation of traders. Individuals now come in to work and trade. Or
they don't even come in to work. There is nothing between them and a buy/sell
decision except their finger on a mouse. There is no broker who has a boss
asking, "Hey, is he churning? Is he overinvesting?" There is nothing there. So
the volatility you saw from July through the beginning of January I think is
just the way the world's going to be. As long as you are treating stocks like
commodities, you have to expect that to continue. And they are trading stocks
like they are soybeans.
Q: SO THE STOCK MARKET WILL BE THE PITS?
G: There will be great opportunities to make a lot of money if you short. If you
go long, then it's just going to be a terrific eclectic market.
Q: WHAT WILL MAKE THE SMALL-FRY GO UP, ESPECIALLY IF THE S&P SELLS OFF AND THE
ECONOMY IS NO GREAT SHAKES?
G: Forcing transactions, by managements, that narrow the spreads between their
intrinsic values and the stock prices.
Q: IT LOOKS LIKE MARIO WANTS TO TALK TULIPS NEXT.
G: Our goal always has been to make 10% real by picking stocks that we hope,
after taxes, after inflation, accomplish that. So we try to find companies at a
significant margin of safety to intrinsic value. The second part of our strategy
is to try to buy things for the long term, because it's not only what you make,
but what you keep. We'd rather pay 20% long-term capital-gains taxes than 40% on
ordinary income from trading. But we're here in January of 1999, and even 25%
looks awfully dull when you make that in one week -- 50%, in Amazon. So I have
succumbed and I am going to recommend only stocks that have grown to the sky --
Excite, uBid, eBay, Amazon and that's it. Nothing else! You can also have my
tulips, Arthur. Don't say I never gave you anything. They're starting to wilt --
ART SAMBERG: Am I allowed to eat them?
G: Do anything you like. Charles MacKay wrote about all this in 1841, in
EXTRAORDINARY POPULAR DELUSIONS AND THE MADNESS OF CROWDS.
Anyway, when we look at stocks, we also look for a catalyst. Forcing
transactions. That is, a management, if they are alert and sensitive, can do
things like buying back stock, like LBOs or financial engineering. One of the
dynamics that have been in place for the last four years is deals. Deals will
continue in 1999 -- a year in which the Exxons and the Mobils are driving values
by becoming global, further reinforcing their positions. There are a lot of
areas where that's happening.
Q: THANKS, MARIO. n
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7
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COMMENTARY
Meaningful commentary on the convertible securities market demands a
review of the macroeconomic forces impacting stocks and corporate bonds.
YEAR END REVIEW
For the fourth quarter of 1998, rather than repeating the economic and
market dynamics that we discussed in our third quarter report to shareholders,
we invite our shareholders to review these comments from the third quarter
report. The report is available on our website at www.gabelli.com.
THE ECONOMY AND MARKET: "IT'S DEJA' VU ALL OVER AGAIN"
Our title quote from the former New York Yankee catching great and
Baseball Hall of Famer Yogi Berra aptly describes our current perspective on the
economy and stock market. We began 1998 with a relatively positive outlook for
inflation, interest rates, the U.S. economy and corporate profits. We expected
the market to continue to benefit from a strong flow of funds into equities and
ongoing merger and acquisition activity. Our primary concern was that high
equity valuations increased the potential for a sharp market decline should
something happen here or abroad to disrupt this comfortable economic scenario.
In the first half of 1998, the economy behaved much as we anticipated. We
were pleasantly surprised by the strong gains in the market, but became even
more discomforted by inflated equity valuations. Then, in the third quarter,
more than a few somethings happened. Southeast Asian economic problems proved
far more serious than initially expected. Japan went into recession. The ruble
collapsed, threatening Russia's embryonic free market economy. Latin American
currencies came under pressure. And, the two M's, Monica and Meriwether (the
head of Long Term Capital Management), surfaced to further muddy the market
waters.
Stock markets worldwide experienced a sharp correction. We saw a silver
lining in this ominous cloud, the return of Ben Graham's "margin of safety" to
the market. It did not last for long. Three Federal Reserve interest rate cuts
made investors forget all about the world's economic problems and the market
indices returned to record territory.
Now, we are back to square one. There are still economic "gremlins" to
worry about. Southeast Asia remains sluggish, the Japanese giant still sleeps,
as does Russia's Boris Yeltsin, who only briefly left his hospital bed to fire
all his top aides. Brazil has failed to pass the austerity measures required for
additional funding from the International Monetary Fund. The House Judiciary
Committee passed two bills of impeachment. The Long Term Capital Management
debacle is no longer front page news, but there are still many unregulated and
unaccountable hedge funds in operation--we call them "the card counters in the
global economic casino". Who knows what mischief they may be up to?
On the plus side, we believe inflation will remain dormant and that
interest rates may trend down even farther. We think the U.S. economy will slow,
but avoid recession. Corporate profit growth will be uneven, but should make
modest progress in 1999. Investors, who were once again rewarded for holding
and/or buying on market dips, will likely continue to pour money into equities.
Deal activity should remain strong and perhaps get even stronger with aggressive
European corporations taking aim at undervalued American companies.
8
<PAGE>
This brings us back to equity valuations. We believe sectors of the market
are significantly overvalued, most notably the mega cap growth companies that
have such a disproportionate impact on the performance of the S&P 500. These are
generally exceptional companies, but the tailwind provided by indexing and
foreign investment in U.S. household names has stretched valuations to the
snapping point. If we experience any more seriously unpleasant economic
surprises here or abroad, the market favorites would appear to be most
vulnerable.
As you know, we are the most reluctant of market forecasters. If backed
into a corner today, we would opine that we will not see a fifth consecutive
year of double digit gains from the S&P 500 in 1999. That is not to say that
there are not attractive investment opportunities for value oriented stock
pickers. We remain committed to identifying and investing in quality companies
selling at a discount to our thorough appraisal of their "real world" economic
value. We believe this strategy leads to rewards regardless of what "Mr. Market"
has in store in 1999.
CORPORATE BONDS
Corporate bond prices followed equities lower in the third quarter as investors
began worrying about the impact of global economic turmoil on the American
economy, corporate cash flows and earnings. In the fourth quarter, corporate
bonds bounced back with equities. However, even after the recovery, corporate
bond yields remain historically high relative to Treasuries. With Treasury bonds
now offering relatively modest nominal yields and the U.S. economy continuing to
advance, income oriented investors may move back into corporates more
aggressively in the year ahead. We believe yields on convertible securities will
also prove attractive to investors seeking income and relative safety of
principal.
BARRON'S CLOSED-END FUND SECTION
The net asset value of the Gabelli Convertible Securities Fund appears in
Monday's THE WALL STREET JOURNAL, in Sunday's THE NEW YORK TIMES in the
Closed-End Funds section under the heading "Convertible Securities Funds", and
in BARRON'S Mutual Funds/Closed-End Funds section under the heading "Convertible
Securities Funds". You may also call 1-(800)-GABELLI (1-800-422-3554) to obtain
daily NAVs.
The following chart appeared in BARRON'S on January 25, 1999. To review
what is presented, the first column lists the fund name and its trading symbol,
with the second column indicating the exchange on which it trades. In our case
the Convertible Securities Fund trades on the New York Stock Exchange under the
symbol "GCV".
The "NAV" column illustrates what the actual portfolio value is worth per
share - total assets minus the liabilities divided by the number of shares
outstanding. The market price is simply the price at which the fund is trading
on the exchange. Closed-end funds have a limited number of shares outstanding.
To buy or sell shares investors use the NYSE to complete their transactions.
9
<PAGE>
Concerning the market price, closed-end funds can either trade at a
premium or a discount to the NAV. The "Prem/Disc" column illustrates the
percentage difference the market price varies from the NAV. As of the close on
Friday, January 22, 1999, the Convertible Securities Fund's last trade was at
NAV. The final column indicates the total return (change in market value plus an
adjustment for reinvestment of dividends and distributions) of the fund over the
twelve months ending January 22, 1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
52 WEEK
STOCK MARKET PREM MARKET
FUND NAME (SYMBOL) EXCH NAV PRICE /DISC RETURN
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bancroft Conv (BCV) A 26.38 227/8 -13.3 1.7
Castle Conv (CVF) A 26.28 221/4 -15.3 -5.0
Ellsworth Conv (ECF) A 11.22 95/8 -14.2 10.6
GABELLI CONVERTIBLE SECURITIES (GCV) N 11.63 115/8 0.0 18.1
Lincoln Conv (LNV)-c N 16.96 1413/16 -12.7 -8.3
Putnam Conv Opp (PCV) N 23.35 223/4 -2.6 -3.3
Putnam Hi Inc Cv (PCF) N 8.51 91/4 +8.7 -8.5
TCW Conv Secs (CVT) N 9.65 93/4 +1.0 10.6
VK Conv Sec (VXS) N 24.50 201/2 -16.3 5.1
SOURCE: BARRON'S
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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 stock repurchase programs and
distribution policies, both of which we have instituted.
STOCK REPURCHASE PLAN - Q & A
Q: WHAT IS A 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.
Q: WHEN DID THE CONVERTIBLE SECURITIES FUND IMPLEMENT A STOCK REPURCHASE PLAN?
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%.
The Convertible Securities Fund may from time to time purchase shares of
its capital stock in the open
10
<PAGE>
market when the shares are trading at a discount of 10% or more from the net
asset value of the shares. In total, through December 31, 1998, 171,400 shares
were repurchased in the open market.
Similarly, an affiliated closed-end fund, The Gabelli Equity Trust, was
the first company on the New York Stock Exchange to implement a stock buyback
program on October 19, 1987, after the market crash. At the time, the Equity
Trust was trading at a discount to net asset value and represented an excellent
value for the Trust to acquire its own shares. This stock repurchase plan
resulted in the purchase of 800,000 shares in the open market from 1987 to 1988.
Q: WHAT IS THE BENEFIT OF A STOCK REPURCHASE PLAN?
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.
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.
DISTRIBUTION POLICY - Q & A
Q: WHAT IS A DISTRIBUTION POLICY?
A fund with a distribution policy is a fund which establishes a fixed
payment each year to its shareholders as a percentage of net assets or a
specific dollar amount. For example, a fund with a 10% distribution policy will
pay out 10% of its average net assets every year, either on an annual,
semi-annual or quarterly basis.
Q: WHAT IS THE BENEFIT OF A 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.
Q: WHY DID THE CONVERTIBLE SECURITIES FUND INSTITUTE AN 8% ANNUAL DISTRIBUTION
POLICY?
WHAT ARE THE "MECHANICS?"
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. This distribution
policy is similar in structure to the Gabelli Equity Trust, which has employed a
10% annual distribution policy since August of 1988.
11
<PAGE>
To illustrate, the Gabelli Equity Trust currently pays out 10% of its
average net asset value per share. The Fund's normal policy is to make quarterly
distributions of $0.27 per share at the end of each of the first three calendar
quarters of each year. The Fund's distribution in December for each calendar
year is an adjusting distribution. The amount is equal to the greater of 10% of
the average of the net asset value per share of the Fund as of the last day of
the four preceding calendar quarters or the minimum distribution requirements of
the Internal Revenue Code.
In the case of the Gabelli Convertible Securities Fund, the Fund will pay
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 $0.32
per share on December 28, 1998 in line with this 8% annual distribution policy.
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
$26.5625 on December 31, 1998.
How would Preferred Shares benefit Common Shareholders? Through December
31, 1998, 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.
12
<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.
AIRTOUCH COMMUNICATIONS INC. (ATI) (6.00% CV. PFD., CL. B; 4.25% CV. PFD., CL.
C), based in San Francisco, is the world's largest wireless communications
provider. With more than 35 million total venture customers in 13 countries,
AirTouch and its partners serve more than ten percent of the world's wireless
subscribers. AirTouch will offer satellite communications in the future through
its interest in the Globalstar satellite system. Cash flow increased by
approximately 25% in 1998. In April, the company completed the acquisition of
MediaOne Group's (formerly US West Media Group) U.S. wireless interests in a
deal valued at almost $6 billion. On January 15, Vodafone Group plc (VOD -
$161.125 - NYSE) and AirTouch signed a definitive merger agreement whereby
Vodafone would acquire ATI for $97 per ATI share. Vodafone's bid successfully
topped Bell Atlantic's (BEL - $53.00 - NYSE) $45 billion bid for AirTouch.
AMERICAN BANKERS INSURANCE GROUP INC. (ABI) ($3.125 CV. PFD., SER. B), based in
Miami, is a leading provider of credit insurance and credit-related insurance
products both in the U.S. and abroad. Founded in 1949, ABI now has $3.3 billion
in assets and should collect $2.8 billion in gross premiums in 1998. ABI has a
heavy emphasis on contingent commission and captive reinsurance plans, which
help to preserve the company's margins, mitigate volatility and ensure highly
visible earnings. Because of such plans, ABI is not so much an insurer but a
distribution company servicing an insurance product. Since the termination of
its agreement to be acquired by Cendant Corp., ABI has focused on closing new
business in its pipeline. As such, top line growth is expected to improve in the
near future and return to a more normal 10% to 12% growth rate in 1999.
CENDANT CORP. (1.30% CV. PFD., 7.50% CV. PFD.), based in Parsippany, NJ, was
formed in 1997 as a result of the merger between CUC International and HSF.
Cendant operates in the membership, travel, real estate and alliance marketing
segments and is the master franchisor of such leading brands as Century 21,
Coldwell Banker, Ramada and Avis. Accounting irregularities at CUC
International, uncovered subsequent to the merger, have been resolved. Cendant
has changed its strategy from growth through acquisition to internal growth in
its core segments. Cendant is expected to have generated $2 billion in operating
cash flow in 1998.
CITIZENS UTILITIES CO. (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 - $8.1875 - Nasdaq) and has a significant
investment in Centennial Cellular Corp. (CYCLD - $41.00 - Nasdaq). In May,
management authorized the separation of Citizen's telecommunications businesses
and public services businesses into two stand-alone, publicly traded companies.
Upon separation, the new company's telecommunications business will include
Citizen's stake in Electric Lightwave, as well as its interest in Centennial
Cellular, D&E Communications, Hungarian Telephone & Cable, cable television and
other telecom businesses. The company's public services businesses, consisting
of natural gas distribution, electric distribution, water distribution and
wastewater treatment facilities in 10 states, will continue to trade as Citizens
Utilities. This restructuring will be facilitated by the $215 million in cash
the company should receive from its 16% stake in Centennial Cellular Corp. when
Centennial's planned sale to Welsh, Carson, Anderson & Stowe VIII, L.P. is
concluded.
13
<PAGE>
HILTON HOTELS CORP. (SUB. DEB. CV., 5.00%, 05/15/06) is now a major lodging
company. Based on the number of hotel rooms, it is the nation's seventh largest
hotel company. Throughout the United States, Hilton owns and manages 23 hotels,
manages 40 hotels owned by others and franchises the Hilton name to hotel
operators for 160 properties. Hilton's hotels include the Waldorf-Astoria (New
York) (owned), the Beverly Hilton (Los Angeles) (franchise), the Chicago Hilton
(franchise) and a 50% interest in Hilton Hawaiian Village. Hilton's
international hotel business is operated under the Conrad name. (Hotels bearing
the "Hilton" name outside the U.S. are properties of the British company
Ladbroke Group plc). Hilton's gaming properties have been spun-off into a new
company, Park Place Entertainment.
SEALED AIR CORP. ($2.00 CV. PFD., SER. A) is a global manufacturer and
distributor of a wide range of protective and specialty packaging materials and
systems for industrial, food and consumer products. In March 1998, the company
merged its operations with CRYOVAC, the specialty packaging division of W.R.
Grace & Co. As a result of the merger, Sealed Air's business mix is now 60% food
packaging and 40% protective packaging. Furthermore, the merger provided Sealed
Air with more stability and predictability in sales and earnings. Sealed Air is
a strong cash generator which is expected to be used to pay down debt.
SPRINT CORP. ($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. The
company has a promising national personal communications services ("PCS") and
wireless joint venture with three major cable operators: Tele-Communications
Inc., Comcast and Cox Communications. Sprint faces risks from prospective new
entrants in its long distance business which may be offset by the PCS venture
and its own pursuit of the $100 billion local telephone market.
THOMAS NELSON INC. (SUB. DEB. CV., 5.75%, 11/30/99), based in Nashville,
Tennessee, publishes, produces and distributes Christian oriented books. It also
designs, manufactures and markets a broad line of gift and stationary products.
The company is the largest publisher of Bibles and inspirational books in the
English language. All its products are designed to appeal to the growing
Christian and family-oriented lifestyle segments of our nation's population.
WHX CORP. (6.50% CV. PFD., SER. A; $3.75 CV. PFD., SER. B) is a holding company
for wholly-owned subsidiary Wheeling-Pittsburgh Steel, America's ninth largest
integrated steel producer. Wheeling-Pittsburgh develops, processes and
fabricates steel (hot/cold rolled sheets and coated products) and steel products
(roof deck, form deck, culvert, steel framing and related products). In April,
WHX completed its acquisition of Handy & Harman, a diversified industrial
manufacturing company, for a total consideration of $604 million including
assumption of $186 million in debt.
DIVIDENDS
The Fund recently distributed a dividend of $0.32 per share to Common
Shareholders on December 28, 1998 in line with the Fund's 8% annual distribution
policy. For the twelve months ended December 31, 1998, 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 December 28, 1998. For the twelve months
ended December 31, 1998, the Preferred Shareholders received a total
distribution of $2.00 per share, which is the annual dividend rate on the
Preferred Shares.
14
<PAGE>
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].
IN CONCLUSION
Despite extreme stock and corporate bond market volatility, the Fund
delivered respectable returns in 1998. Convertible securities demonstrated their
defensive characteristics during the sharp stock market correction in the third
quarter and regained some momentum as equities and corporate bonds rallied in
the fourth quarter. We continue to believe that convertible securities are ideal
vehicles for risk averse investors seeking income and long term capital growth
potential.
Sincerely,
/s/ MARIO J. GABELLI
--------------------------
MARIO J. GABELLI
President and
Chief Investment Officer
January 29, 1999
- --------------------------------------------------------------------------------
TOP TEN CONVERTIBLE HOLDINGS
DECEMBER 31, 1998
-----------------
Sprint ($1.50 Cv. Pfd., Ser. 1; $1.50 Cv. Pfd., Ser. 2; 8.25%, Cv. Pfd.)
AirTouch Communications (6.00%, Cv. Pfd., Cl. B; 4.25%, Cv. Pfd., Cl. C)
WHX Corp. (6.50% Cv. Pfd., Ser. A; $3.75 Cv. Pfd., Ser. B)
Sealed Air Corp. ($2.00 Cv. Pfd., Ser. A)
Thomas Nelson Inc. (Sub. Deb. Cv., 5.75%, 11/30/99)
Fieldcrest Cannon Inc. (Sub. Deb. Cv., 6.00%, 03/15/12)
Citizens Utilities (5.00% Cv. Pfd.)
Cendant Corp. (1.30% Cv. Pfd., 7.50% Cv. Pfd.)
Hilton Hotels Corp. (Sub. Deb. Cv., 5.00%, 05/15/06)
Sequa Corporation ($5.00 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.
15
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1998
================================================================================
PRINCIPAL MARKET
AMOUNT COST VALUE
-------- ---- -------
CONVERTIBLE CORPORATE BONDS -- 18.57%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.27%
Exide Corp. Sub. Deb. Cv.
$ 500,000 2.90%, 12/15/05 ......... $ 340,517 $ 295,000
50,000 2.90%, 12/15/05 (b) ..... 23,460 29,500
----------- -----------
363,977 324,500
----------- -----------
AVIATION: PARTS AND SERVICES -- 0.90%
1,062,000 Kaman Corp. Sub. Deb. Cv.
6.00%, 03/15/12 ........ 985,469 1,083,240
----------- -----------
BUSINESS SERVICES -- 0.84%
900,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12 (a) .... 879,741 870,750
850,000 Builders Transport Inc.
Sub. Deb. Cv.
6.50%, 05/01/11+ ....... 359,891 144,500
----------- -----------
1,239,632 1,015,250
----------- -----------
CABLE -- 0.63%
Rogers Communications Inc.
Sub. Deb. Cv.
200,000 2.00%, 11/26/05 ......... 125,189 110,500
1,000,000 7.50%, 09/01/99 ......... 689,629 652,694
----------- -----------
814,818 763,194
----------- -----------
CONSUMER PRODUCTS -- 2.77%
3,500,000 Fieldcrest Cannon Inc.
Sub. Deb. Cv.
6.00%, 03/15/12 ........ 2,523,190 2,800,000
750,000 Standard Commercial Corp.
Sub. Deb. Cv.
7.25%, 03/31/07 ........ 610,118 547,500
----------- -----------
3,133,308 3,347,500
----------- -----------
CONSUMER SERVICES -- 0.04%
50,000 Ogden Corp. Sub. Deb. Cv.
6.00%, 06/01/02 ........ 50,242 48,250
----------- -----------
ELECTRONIC EQUIPMENT -- 0.64%
ASM Lithography
Holding Cv.
40,000 2.50%, 04/09/05 ......... 17,869 18,118
10,000 2.50%, 04/09/05 (b) ..... 4,423 4,529
800,000 Trans-Lux Corp.
Sub. Deb. Cv.
7.50%, 12/01/06 ........ 766,006 755,000
----------- -----------
788,298 777,647
----------- -----------
ENERGY AND UTILITIES -- 0.83%
1,100,000 Moran Energy Inc.
Sub. Deb. Cv.
8.75%, 01/15/08 ........ 757,843 999,243
----------- -----------
ENTERTAINMENT -- 0.87%
200,000 Kushner-Locke Co.
Sub. Deb. Cv.
8.00%, 12/15/00 (a) .... 163,545 254,280
800,000 Savoy Pictures
Entertainment Inc.
Sub. Deb. Cv.
7.00%, 07/01/03 ........ 740,908 797,000
----------- -----------
904,453 1,051,280
----------- -----------
EQUIPMENT AND SUPPLIES -- 1.93%
1,285,000 Intermagnetics General Corp.
Sub. Deb. Cv.
5.75%, 09/15/03 (b) .... 1,257,982 963,750
1,136,000 Kollmorgen Corp.
Sub. Deb. Cv.
8.75%, 05/01/09 ........ 887,146 1,172,920
200,000 Robbins & Myers Inc.
Sub. Deb. Cv.
6.50%, 09/01/03 ........ 198,517 193,000
----------- -----------
2,343,645 2,329,670
----------- -----------
FOOD AND BEVERAGE -- 1.59%
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 ........ 96,461 90,500
Chock Full o' Nuts Corp.
Sub. Deb. Cv.
1,000,000 7.00%, 04/01/12 ......... 768,459 953,750
865,000 8.00%, 09/15/06 ......... 861,111 865,000
----------- -----------
1,740,112 1,914,750
----------- -----------
HEALTH CARE -- 0.59%
750,000 Ivax Corp. Deb. Cv.
6.50%, 11/15/01 ........ 667,285 712,500
----------- -----------
HOTELS AND GAMING -- 2.20%
2,900,000 Hilton Hotels Corp.
Sub. Deb. Cv.
5.00%, 05/15/06 ........ 2,696,207 2,660,750
----------- -----------
METALS AND MINING -- 0.27%
500,000 Coeur d'Alene Mines Corp.
Sub. Deb. Cv.
6.00%, 06/10/02 ........ 459,147 320,000
----------- -----------
PAPER AND FOREST PRODUCTS -- 0.19%
200,000 Riverwood International Corp.
Sub. Deb. Cv.
6.75%, 09/15/03 ........ 199,748 230,800
----------- -----------
PUBLISHING -- 3.21%
700,000 News America Holdings Inc.
Sub. Deb. Cv.
Zero Cpn., 03/31/02 .... 546,964 760,816
3,000,000 Thomas Nelson Inc.
Sub. Deb. Cv.
5.75%, 11/30/99 (b) .... 2,998,497 3,030,000
50,000(c) United News & Media plc
Sub. Deb. Cv.
6.125%, 12/03/03 ....... 86,770 83,606
----------- -----------
3,632,231 3,874,422
----------- -----------
REAL ESTATE AND DEVELOPMENT -- 0.08%
125,000 Rockefeller Center Properties Inc.
Sub. Deb. Cv.
Zero Cpn., 12/31/00 .... 98,217 96,875
----------- -----------
RETAIL -- 0.24%
60,000 Costco Companies Inc.
Sub. Deb. Cv.
Zero Cpn., 08/19/17 .... 41,046 49,950
100,000 JumboSports Inc.
Sub. Deb. Cv.
4.25%, 11/01/00+ ....... 38,804 5,500
300,000 Nine West Group Inc.
Sub. Deb. Cv.
5.50%, 07/15/03 ........ 223,352 236,625
----------- -----------
303,202 292,075
----------- -----------
See accompanying notes to financial statements.
16
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)-- DECEMBER 31, 1998
================================================================================
PRINCIPAL MARKET
AMOUNT COST VALUE
-------- ---- -------
TELECOMMUNICATIONS -- 0.09%
Amnex Inc. Sub. Deb. Cv.
$ 30,000 8.50%, 09/25/02 ............ $ 19,343 $ 12,900
50,000 8.50%, 09/25/02 (b) ........ 50,000 21,500
50,000 Telefonica Europe BV
Sub. Deb. Cv.
2.00%, 07/15/02 (b) ....... 50,000 75,250
----------- -----------
119,343 109,650
----------- -----------
TRANSPORTATION -- 0.39%
440,000 Greyhound Lines Inc.
Sub. Deb. Cv.
8.50%, 03/31/07 ........... 270,121 445,500
140,000 WorldCorp Inc.
Sub. Deb. Cv.
7.00%, 05/15/04+ .......... 131,280 21,525
----------- -----------
401,401 467,025
----------- -----------
TOTAL CONVERTIBLE
CORPORATE BONDS ............. 21,698,578 22,418,621
----------- -----------
SHARES
------
CONVERTIBLE PREFERRED STOCKS -- 29.81%
AVIATION: PARTS AND SERVICES -- 1.45%
Coltec Capital Trust
23,000 5.25% Cv. Pfd. ............. 943,875 1,006,250
17,000 5.25% Cv. Pfd. (b) ......... 802,500 743,750
----------- -----------
1,746,375 1,750,000
----------- -----------
BROADCASTING -- 0.18%
6,500 Granite Broadcasting Corp.
$1.938 Cv. Pfd. ........... 291,520 221,000
----------- -----------
CABLE -- 2.39% 4,000 CSC Holdings, Inc.
8.50% Cv. Pfd. Ser. 1 ..... 97,463 301,500
18,000 MediaOne Group
4.50% Cv. Pfd. Ser. D ..... 915,084 1,710,000
4,000 TCI Communications Inc.
4.25% Cv. Pfd. Ser. A ..... 177,465 452,000
1,500 TCI Pacific
Communications Inc.
5.00% Cv. Pfd. ............ 134,838 423,000
----------- -----------
1,324,850 2,886,500
----------- -----------
CONSUMER SERVICES -- 2.65%
Cendant Corp.
95,000 1.30% Cv. Pfd. ............. 2,651,880 2,505,625
5,000 7.50% Cv. Pfd. ............. 147,750 166,875
52,300 Loewen Group Inc.
6.00% Cv. Pfd. Ser. C ..... 639,379 534,597
----------- -----------
3,439,009 3,207,097
----------- -----------
DIVERSIFIED INDUSTRIAL -- 0.20%
1,300 GATX Corp.
$2.50 Cv. Pfd. ............ 116,515 240,500
----------- -----------
ENERGY AND UTILITIES -- 1.54%
6,000 Atlantic Richfield Co.
$2.80 Cv. Pfd. ............ 1,600,963 1,860,000
----------- -----------
ENTERTAINMENT -- 0.10%
4,500 Metromedia International
Group Inc.
7.25% Cv. Pfd. ............ 170,031 119,250
----------- -----------
EQUIPMENT AND SUPPLIES -- 1.97%
25,000 Sequa Corp.
$5.00 Cv. Pfd. ............ 1,927,692 2,375,000
----------- -----------
MARKET
SHARES COST VALUE
-------- ---- -------
FINANCIAL SERVICES -- 1.41%
17,000 American Bankers Insurance
$3.125 Cv. Pfd. Ser. B .... $ 1,946,581 $ 1,700,000
----------- -----------
HOTELS AND GAMING -- 0.10%
3,000 Station Casinos Inc.
7.00% Cv. Pfd. ............ 107,038 119,250
----------- -----------
IRON/STEEL -- 2.89% WHX Corp.
45,000 6.50% Cv. Pfd. Ser. A ...... 2,176,019 1,797,187
45,500 $3.75 Cv. Pfd. Ser. B ...... 1,982,918 1,689,188
----------- -----------
4,158,937 3,486,375
----------- -----------
PAPER AND FOREST PRODUCTS -- 2.58%
60,000 Sealed Air Corp.
$2.00 Cv. Pfd. Ser. A ..... 2,586,930 3,112,500
----------- -----------
PUBLISHING -- 0.32%
15,000 Reader's Digest
$1.9336 Cv. Pfd. .......... 382,588 390,000
----------- -----------
TELECOMMUNICATIONS -- 8.94%
65,000 Citizens Utilities Co.
5.00% Cv. Pfd. ............ 3,138,586 2,770,625
7,500 Philippine Long Distance
$3.50 Cv. Pfd. Ser. III ... 349,744 356,250
Sprint Corp.
3,000 $1.50 Cv. Pfd. Ser. 1 ...... 301,100 840,000
2,200 $1.50 Cv. Pfd. Ser. 2 ...... 187,510 638,000
75,000 8.25% Cv. Pfd. ............. 2,862,056 6,187,500
----------- -----------
6,838,996 10,792,375
----------- -----------
WIRELESS COMMUNICATIONS -- 3.09%
AirTouch Communications Inc.
12,000 4.25% Cv. Pfd. Cl. C ....... 560,930 1,236,000
42,000 6.00% Cv. Pfd. Cl. B ....... 1,202,662 2,499,000
----------- -----------
1,763,592 3,735,000
----------- -----------
TOTAL CONVERTIBLE
PREFERRED STOCKS ............ 28,401,617 35,994,847
----------- -----------
COMMON STOCKS -- 11.98%
AVIATION: PARTS AND SERVICES -- 0.24%
18,000 Kaman Corp. ................. 181,321 289,125
----------- -----------
BUILDING AND CONSTRUCTION -- 0.02%
17 Holderbank Financiere
Glarus AG ................. 12,693 20,125
----------- -----------
DIVERSIFIED INDUSTRIAL -- 0.47%
15,000 GATX Corp. .................. 343,375 568,125
----------- -----------
ENERGY AND UTILITIES -- 3.61%
10,000 AGL Resources Inc. .......... 183,885 230,625
8,000 Central Hudson Gas and
Electric Corp. ............ 345,763 358,000
16,000 Cilcorp Inc. ................ 976,413 979,000
8,000 Commonwealth Energy
System .................... 317,210 324,000
4,000 New England Electric
System .................... 192,325 192,500
30,000 Orange & Rockland
Utilities ................. 1,612,814 1,710,000
2,000 Santa Fe Energy
Resources Inc.+ ........... 14,959 14,750
20,000 Southwest Gas Corp. ......... 530,942 537,500
----------- -----------
4,174,311 4,346,375
----------- -----------
See accompanying notes to financial statements.
17
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)-- DECEMBER 31, 1998
================================================================================
PRINCIPAL MARKET
AMOUNT COST VALUE
-------- ---- -------
EQUIPMENT AND SUPPLIES-- 1.00%
50,000 Fedders Corp. Cl. A ........ $ 310,916 $ 262,500
25,000 Kuhlman Corp. .............. 941,250 946,875
----------- -----------
1,252,166 1,209,375
----------- -----------
FINANCIAL SERVICES -- 3.27%
35,000 American Bankers
Insurance Group .......... 2,088,955 1,693,125
10,000 Argonaut Group Inc. ........ 271,875 245,000
100,000 BA Merchant
Services Inc.+ ........... 2,001,810 2,012,500
----------- -----------
4,362,640 3,950,625
----------- -----------
HEALTH CARE -- 0.99%
15,000 Genentech Inc.+ ............ 719,239 1,195,313
----------- -----------
PUBLISHING -- 1.40%
50,000 Petersen Cos.+ ............. 1,680,625 1,693,750
----------- -----------
RETAIL -- 0.35%
40,000 Food Lion Inc. Cl. A ....... 320,246 425,000
----------- -----------
SATELLITE -- 0.07%
6,000 U.S. Satellite
Broadcasting Co.+ ........ 74,734 82,500
----------- -----------
SPECIALTY CHEMICALS-- 0.56%
20,000 LeaRonal Inc. .............. 678,500 677,500
----------- -----------
TOTAL COMMON STOCKS ........ 13,799,850 14,457,813
----------- -----------
PREFERRED STOCKS -- 0.02%
CABLE -- 0.02%
1,000 MediaOne Financing
Trust II Pfd. ............ 26,800 26,063
----------- -----------
PRINCIPAL
AMOUNT
--------
CORPORATE BONDS -- 0.09%
ENTERTAINMENT-- 0.09%
$ 100,000 Viacom Inc.
8.00%, 07/07/06 .......... 99,552 104,250
----------- -----------
U.S. GOVERNMENT OBLIGATIONS -- 33.78%
40,891,000 U.S. Treasury Bills,
4.02% to 4.47%++, due
01/07/99 to 02/04/99 ..... 40,783,940 40,780,492
----------- -----------
MARKET
COST VALUE
---- -------
TOTAL INVESTMENTS-- 94.25% $104,810,337 $113,782,086
===========
OTHER ASSETS, LIABILITIES AND
LIQUIDATION VALUE OF CUMULATIVE
PREFERRED STOCK-- (19.10)% ........................... (23,056,274)
-----------
NET ASSETS -- COMMON STOCK -- 75.15%
(7,921,545 common
shares outstanding) .................................. 90,725,812
-----------
NET ASSETS -- CUMULATIVE
PREFERRED STOCK -- 24.85%
(1,200,000 preferred
shares outstanding) .................................. 30,000,000
-----------
TOTAL NET ASSETS-- 100.00% ............................ $120,725,812
============
NET ASSET VALUE PER COMMON SHARE
($90,725,812 / 7,921,545
shares outstanding) .................................. $11.45
======
- ----------
FOR FEDERAL TAX PURPOSES:
AGGREGATE COST ....................................... $105,091,558
============
Gross unrealized appreciation ........................ $ 12,235,001
Gross unrealized depreciation ........................ (3,544,473)
-----------
Net unrealized appreciation .......................... $ 8,690,528
============
- ----------
(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 December 31,
1998, the market value of rule 144A securities amounted to $4,868,279 or
4.0% 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.
See accompanying notes to financial statements.
18
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
================================================================================
ASSETS:
Investments, at value
(Cost $104,810,337) ................................ $113,782,086
Cash and foreign currency, at value
(Cost $5,724) ...................................... 5,732
Receivable for investments sold ..................... 8,359,250
Dividends and interest receivable ................... 585,802
----------
TOTAL ASSETS ..................................... 122,732,870
----------
LIABILITIES:
Payable for investments purchased ................... 34,125
Payable for dividends ............................... 1,459,291
Payable for investment advisory fees ................ 376,391
Other accrued expenses .............................. 137,251
..................................................... ----------
TOTAL LIABILITIES ................................ 2,007,058
----------
NET ASSETS ....................................... $120,725,812
============
NET ASSET VALUE PER COMMON SHARE
($90,725,812 / 7,921,545 shares issued
and outstanding; 100,000,000 shares
authorized of $0.001 par value) ..................... $ 11.45
============
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 ......................... 7,922
Additional paid-in capital .......................... 82,126,976
Accumulated distributions in excess of
net investment income .............................. (99,688)
Accumulated distributions in excess of
net realized gain on investments and
foreign currency transactions ...................... (281,221)
Net unrealized appreciation on
investments and foreign currency
transactions ....................................... 8,971,823
------------
TOTAL NET ASSETS ................................. $120,725,812
============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
================================================================================
INCOME:
Dividends (net of foreign taxes of $4,675) .......... $1,273,272
Interest ............................................ 4,568,674
----------
TOTAL INVESTMENT INCOME ............................ 5,841,946
----------
EXPENSES:
Investment advisory fees ............................ 1,218,262
Shareholder services fees ........................... 138,207
Directors' fees ..................................... 83,014
Legal and audit fees ................................ 71,397
Shareholder report expenses ......................... 69,260
Custodian fees ...................................... 36,642
Miscellaneous expenses .............................. 59,693
----------
TOTAL EXPENSES ..................................... 1,676,475
----------
NET INVESTMENT INCOME .............................. 4,165,471
----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments and
foreign currency transactions ...................... 5,408,607
Net change in unrealized appreciation
on investments and foreign
currency transactions .............................. (277,461)
----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS ........................................ 5,131,146
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... $9,296,617
==========
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,165,471 $ 3,922,377
Net realized gain on investments and foreign currency transactions 5,408,607 5,481,192
Net realized loss on futures -- (91,050)
Net change in unrealized appreciation of investments and
foreign currency transactions (277,461) 4,526,049
------------ ------------
Net increase in net assets resulting from operations 9,296,617 13,838,568
------------ ------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
Net investment income (1,008,552) (623,599)
Net realized gains (1,391,448) (883,043)
------------ ------------
TOTAL DISTRIBUTIONS (2,400,000) (1,506,642)
------------ ------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income (3,004,493) (3,206,103)
Net realized gains (3,927,271) (4,507,099)
Distributions in excess of net investment income (68,292) --
Distributions in excess of net realized gains (312,617) (29,138)
------------ ------------
TOTAL DISTRIBUTIONS (7,312,673) (7,742,340)
------------ ------------
CAPITAL SHARE TRANSACTIONS - NET: (1,240,142) (459,867)
------------ ------------
NET PROCEEDS FROM THE ISSUANCE OF PREFERRED STOCK: -- 28,593,000
------------ ------------
Net increase / (decrease) in net assets (1,656,198) 32,722,719
NET ASSETS
Beginning of Year 122,382,010 89,659,291
------------ ------------
End of Year $120,725,812 $122,382,010
============ ============
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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 securites 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.
20
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the Fund's portfolio securities, but it
does establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that might
result should the value of the currency increase. In addition, the Fund could be
exposed to risks if the counterparties to the contracts are unable to meet the
terms of their contracts. At December 31, 1998, 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 December 31, 1998, 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.
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.
For the year ended December 31, 1998, the following reclassifications were
made to decrease distributions in excess of net investment income for $31,396
and increase distributions in excess of net realized gain on investments for
$31,396.
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.
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
21
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 December 31, 1998, the
1,200,000 shares of 8% Cumulative Preferred Stock outstanding accrued dividends
in the amount of $26,301. 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 year ended
December 31, 1998, the Fund repurchased 126,800 shares at a cost of $1,240,142
and at an average discount of 11.2%. During the fiscal year ended December 31,
1997, the Fund repurchased 44,600 shares at a cost of $459,866 and at an average
discount of 13.3%.
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
year ended December 31, 1998, the Fund has achieved a total return in excess of
the stated dividend rate and, thus, management fees were earned.
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the year ended
December 31, 1998, other than short-term securities, aggregated $101,194,530 and
$97,600,213, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the year ended, December 31, 1998, the
Fund paid brokerage commissions of $61,610 to Gabelli & Company, Inc. and its
affiliates.
7. BANK LOAN. The Fund has access to an unsecured line of credit up to
$25,000,000 from the custodian for temporary borrowing purposes. Borrowings
under this arrangement bear interest at 0.75% above the Federal Funds rate on
outstanding balances. There were no borrowings outstanding at December 31, 1998.
8. SUBSEQUENT EVENT. On February 9, 1999, the Adviser reorganized its
operations and corporate structure by transferring a portion of its assets and
liabilities to a successor adviser, Gabelli Funds, LLC, which is wholly owned by
Gabelli Asset Management Inc., a newly formed publicly traded company that is
80% owned by the former Adviser. Counsel to the former Adviser has concluded
that the ownership change does not constitute an assignment as defined by the
Investment Company Act of 1940, as amended.
22
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year $ 11.48 $ 11.08 $ 11.01 $ 10.60 $ 11.52
------- ------- ------- ------- -------
Net investment income 0.53 0.49 0.49 0.53 0.69
Net realized and unrealized gain (loss) on securities 0.65 1.23 0.31 1.03 (0.71)
------- ------- ------ ------ ------
Total from investment operations 1.18 1.72 0.80 1.56 (0.02)
------- ------- ------ ------ ------
REASE 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 (0.13) (0.08) -- -- --
Distributions from net realized gain on investments (0.17) (0.11) -- -- --
COMMON SHARES
Distributions from net investment income (0.38) (0.40) (0.49) (0.53) (0.69)
Distributions from net realized gain on investments (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 (0.03) -- -- (0.01) --
Distributions from paid-in capital -- -- -- (0.03) --
------- -------- ------ ------ ------
Total distributions (1.22) (1.15) (0.73) (1.15) (0.90)
------- -------- ------ ------ ------
NET ASSET VALUE END OF YEAR $ 11.45 $ 11.48 $ 11.08 $ 11.01 $ 10.60
======== ======== ======= ======= =======
MARKET VALUE, END OF PERIOD $ 11.25 $ 10.31 $ 9.25 $ 10.75 --
======== ======== ======== ======= =======
Total Net Asset Value Return + (a) 8.3% 13.5% 8.4% 15.0% (0.2)%
Total Investment Return + (b) 18.4% 22.2% (7.3)% 12.3% --
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net Assets, end of period (in 000's) $120,726 $122,382 $89,659 $89,137 $112,090
Net Assets attributable to common shares,
end of period (in 000's) $ 90,726 $ 92,382 $89,659 $89,137 $112,090
Ratio of net investment income to average
net assets attributable to common stock 4.54% 4.23% 4.33% 4.60% 4.77%
Ratio of operating expenses to average
net assets attributable to common stock (c) 1.83% 1.68% 1.45% 1.56% 1.31%
Ratio of operating expenses to
average total net assets 1.38% 1.39% 1.45% 1.56% 1.31%
Portfolio Turnover Rate 149% 243% 114% 140% 67%
PREFERRED STOCK:
Liquidation value (in 000's) 30,000 30,000 -- -- --
Total shares outstanding (in 000's) 1,200 1,200 -- -- --
Asset coverage per share 402% 408% -- -- --
Liquidation preference per share $ 25.00 $ 25.00 -- -- --
Average market value per share (d) $ 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.
(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) Based on weekly prices.
See accompanying notes to financial statements.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Convertible Securities
Fund, Inc. (the "Fund") at December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 25, 1998
24
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
CALENDAR YEAR 1998
CASH DIVIDENDS AND DISTRIBUTIONS
<TABLE>
<CAPTION>
TOTAL AMOUNT ORDINARY LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT CAPITAL REINVESTMENT
DATE DATE PER SHARE INCOME GAINS PRICE
---- ---- --------- ------- ----- ----
<S> <C> <C> <C> <C> <C>
COMMON SHARES
03/26/98 03/17/98 $0.2000 $0.1365 $0.0635 $11.10
06/26/98 06/18/98 0.2000 0.1365 0.0635 11.02
09/28/98 09/18/98 0.2000 0.1365 0.0635 10.52
12/28/98 12/17/98 0.3200 0.2184 0.1016 11.49
------- ------- -------
Total Common Stock $0.9200 $0.6279 $0.2921
------- ------- -------
PREFERRED SHARES
03/26/98 03/18/98 $0.5000 $0.3413 $0.1587
06/26/98 06/19/98 0.5000 0.3413 0.1587
09/28/98 09/21/98 0.5000 0.3413 0.1587
12/28/98 12/18/98 0.5000 0.3413 0.1587
------- ------- -------
Total Preferred Stock $2.0000 $1.3651 $0.6349
------- ------- -------
</TABLE>
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 1998 tax returns. Ordinary income distributions include net investment
income and realized net short-term capital gains. 100% of the long term capital
gains paid by the Convertible Securities Fund in 1998 was classified as "20%
Rate Gains" subject to a maximum tax rate of 20% (or 10% depending on an
individual's tax bracket). Capital gain distributions are reported in box 2a of
Form 1099-DIV.
RETURN OF CAPITAL
The amount received as a non-taxable (return of capital) distribution
should be applied to reduce the tax cost of shares. There was no return of
capital in 1998.
CORPORATE DIVIDENDS RECEIVED DEDUCTION AND U.S. TREASURY SECURITIES INCOME
The Fund paid to common shareholders ordinary income dividends of $0.1365
per share on March 26, 1998, June 26, 1998, September 28, 1998 and $0.2184 per
share on December 28, 1998. The Fund paid to preferred shareholders ordinary
income dividends of $0.3413 per share on March 26, 1998, June 26, 1998,
September 28, 1998, and December 28, 1998. For 1998, 15.56% of the ordinary
income dividend qualifies for the dividend received deduction available to
corporations. The percentage of ordinary income dividends paid by the Fund
during 1998 derived from U.S. Treasury Securities was 39.89%. However, it should
be noted that the Convertible Securities Fund did not hold more than 50% of its
assets in U.S.
Treasury Securities at the end of each calendar quarter during 1998.
<TABLE>
<CAPTION>
HISTORICAL DISTRIBUTION SUMMARY
SHORT-TERM LONG-TERM ADJUSTMENT
INVESTMENT CAPITAL CAPITAL RETURN OF TOTAL TO
INCOME (A) GAINS (A) GAINS CAPITAL (B) DISTRIBUTIONS COST BASIS
--------- -------- ----- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
COMMON SHARES
1998 $0.3866 $0.2413 $0.2921 -- $0.9200 --
1997 0.3969 0.2285 0.3346 -- 0.9600 --
1996 0.4900 0.1416 0.1034 -- 0.7350 --
1995 0.5574 0.2041 0.3595 0.0290 1.1500 0.0290-
1994 0.5730 0.1150 0.2120 -- 0.9000 --
1993 0.5610 0.2000 0.6640 -- 1.4250 --
1992 0.6540 0.0900 0.1320 -- 0.8760 --
1991 0.7060 0.1120 0.0470 -- 0.8650 --
1990 0.6900 -- -- -- 0.6900 --
1989 0.1150 -- -- -- 0.1150 --
PREFERRED SHARES
1998 $0.8405 $0.5246 $0.6349 -- $2.0000 --
1997 0.5082 0.2926 0.4270 -- 1.2278 --
</TABLE>
- --------------
(a) Taxable as ordinary income for Federal tax purposes.
(b) Non-taxable.
- - Decrease in cost basis.
25
<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
26
<PAGE>
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.
---------------------------------------------------------------------------
The Annual Meeting of the Convertible Securities Fund's stockholders
will be held at 8:30 A.M. on Monday, May 17, 1999, at the Greenwich
Hyatt, 1800 East Putnam Avenue in Greenwich, Connecticut.
---------------------------------------------------------------------------
27
<PAGE>
[This page intentionally left blank]
28
<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
-------- ---------------
NYSE-Symbol: GCV GCV Pr
Shares Outstanding: 7,921,545 1,200,000
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Sunday's The New York Times and in
Monday's The Wall Street Journal.
It is also listed in Barron's Mutual Funds/Closed End Funds section under the
heading "Convertible Securities Funds".
The Net Asset Value may be obtained each day by calling (914) 921-5071.
-----------------------------------------------------------
For general information about the Gabelli Funds,
call 1-800-GABELLI (1-800-422-3554), fax us
at 914-921-5118, visit our Internet homepage at:
HTTP://WWW.GABELLI.COM, or e-mail us at:
[email protected]
-----------------------------------------------------------
- --------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Convertible Securities Fund may
from time to time purchase shares of its capital stock in the open market
when the Convertible Securities Fund shares are trading at a discount of 10%
or more from the net asset value of the shares
- --------------------------------------------------------------------------------
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
PHONE: 1-800-GABELLI (1-800-422-3554)
FAX 1-914-921-5118 Internet:www.gabelli.com
e-mail: [email protected] GBFCS-AR-99
