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CONVERTIBLE
SECURITIES
FUND, INC.
THIRD QUARTER REPORT
SEPTEMBER 30, 2000
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Our cover icon represents the underpinnings of Gabelli. The Teton mountains in
Wyoming represent what we believe in in America -- that creativity, ingenuity,
hard work and a global uniqueness provide enduring values. They also stand out
in an increasingly complex, interconnected and interdependent economic world.
INVESTMENT OBJECTIVE:
The Gabelli Convertible Securities Fund, Inc. is a closed-end, diversified
management investment company whose primary objective is to seek a high level of
total return through a combination of current income and capital appreciation by
investing in convertible securities.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
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TO OUR SHAREHOLDERS,
Declining market interest rate`s (bond yields), a quiescent Federal
Reserve, and reasonable second quarter earnings spawned a late summer rally,
temporarily putting the Standard & Poor's 500 and Nasdaq Composite Indices into
positive performance territory for the year. However, stocks retreated in
September as higher oil prices, the plummeting Euro, and third quarter earnings
jitters eroded investor confidence. The Dow Jones Industrial Average ("DJIA")
managed a slight gain for the third quarter, but the S&P 500 and Nasdaq
Composite Indices closed with losses.
INVESTMENT PERFORMANCE
For the third quarter ended September 30, 2000, The Gabelli Convertible
Securities Fund's (the "Fund") net asset value ("NAV") slipped 0.07% after
adjusting for the $0.20 per share distribution paid on September 25, 2000. The
Standard & Poor's ("S&P") 500 Index declined 0.97% while the Lipper Convertible
Securities Fund Average rose 2.60% over the same period. The S&P 500 Index is an
unmanaged indicator of stock market performance, while the Lipper Average
reflects the average performance of mutual funds classified in this particular
category.
The Fund was up 3.61% over the trailing twelve-month period after adjusting
for the $1.03 per share in distributions paid during this period. The S&P 500
Index and the Lipper Convertible Securities Fund Average rose 13.27% and 30.89%,
respectively, over the same twelve-month period.
For the five-year period ended September 30, 2000, the Fund's total return
averaged 8.45% annually versus average annual returns of 21.68% and 15.62% for
the S&P 500 Index and the Lipper Convertible Securities Fund Average,
respectively. Since inception on July 3, 1989 through September 30, 2000, the
Fund had a cumulative total return of 176.34%, which equates to an average
annual total return of 9.45%.
The Convertible Securities Fund's common shares ended the third quarter at
$9.8125 per share on the New York Stock Exchange, up 2.68% for the third
quarter, up 1.56% for the past twelve months and up 44.38% from its initial
price of $11.25 on March 31, 1995 after adjusting for the reinvestment of
dividends totaling $5.395 per share which were paid during this period.
OUR OBJECTIVE
Our mandate is to preserve and enhance our shareholders' wealth through a
conservative and disciplined approach to convertible securities investing. Our
goal is to generate profitable returns in strong markets and protect principal
in weak markets by taking advantage of the unique characteristics of convertible
securities.
Our Fund is managed with 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 recognized for and
we anticipate will continue in the future. Of course, there are no guarantees.
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INVESTMENT RESULTS (a)(c)
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<TABLE>
<CAPTION>
Quarter
------------------------------------------
1st 2nd 3rd 4th Year
------ ------ ------- ------ ----
<S> <C> <C> <C> <C> <C>
2000: Net Asset Value ........................ $11.32 $11.16 $10.93 -- --
Total Return ........................... 1.3% 0.6% (0.1)% -- --
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1999: Net Asset Value ........................ $11.45 $12.13 $11.67 $11.40 $11.40
Total Return ........................... 1.8% 7.8% (2.0)% 1.7% 9.4%
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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>
Dividend History - Common Stock
--------------------------------------------------
Payment Date Rate Per Share Reinvestment Price
------------ -------------- ------------------
September 25, 2000 $0.200 $ 9.85
June 26, 2000 $0.200 $ 9.98
March 27, 2000 $0.200 $ 9.71
December 27, 1999 $0.430 $10.38
September 27, 1999 $0.200 $10.86
June 28, 1999 $0.200 $11.38
March 29, 1999 $0.200 $11.04
December 28, 1998 $0.320 $11.49
September 28, 1998 $0.200 $10.52
June 26, 1998 $0.200 $11.02
March 26, 1998 $0.200 $11.10
December 26, 1997 $0.600 $10.49
September 26, 1997 $0.120 $10.44
June 27, 1997 $0.120 $ 9.96
March 27, 1997 $0.120 $ 9.63
December 27, 1996 $0.375 $ 9.51
September 23, 1996 $0.120 $ 9.73
June 24, 1996 $0.120 $10.17
March 25, 1996 $0.120 $10.41
December 27, 1995 $0.750 $10.95
September 27, 1995 $0.200 $11.10
June 27, 1995 $0.200 $11.21
December 31, 1994 $0.900 $10.60
December 31, 1993 $1.425 $11.52
December 31, 1992 $0.876 $11.45
December 31, 1991 $0.865 $10.91
December 31, 1990 $0.490 $10.47
June 28, 1990 $0.100 $10.68
March 29, 1990 $0.100 $10.55
December 29, 1989 $0.115 $10.51
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Average Annual Returns - September 30, 2000 (a)
-----------------------------------------------
1 Year ........................................ 3.61%
5 Year ........................................ 8.45%
10 Year ....................................... 9.77%
Life of Fund (b) .............................. 9.45%
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(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.
2
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Over the past few months the Fund's shares have traded at an average
discount to net asset value of approximately 12%. At these price levels, the
Fund is an ideal opportunity for investors to add to their positions. Our cash
purchase program provides an easy way for registered shareholders to acquire
additional shares at the current market price. Please find the details of our
Voluntary Cash Purchase Plan at the end of this report.
WHAT WE DO
The success of momentum investing in recent years and investors' desire for
instant gratification have combined to make value investing appear dull. At the
risk of being dull, we will once again describe the "boring" value approach that
has seen us through both good and bad markets over the last 11 years at The
Gabelli Convertible Securities Fund and for over 23 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.
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PYRAMID TEXT AS FOLLOWS:
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
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
3
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different issuer within a particular period of time at a specified price or
formula. Converts are "hybrid" securities that combine the capital appreciation
potential of equities with the higher yield of fixed income instruments. Our
strategy incorporates the purchase of convertible securities that are trading at
a premium above parity with the common stock but which generally provide a
higher yield and, over time, capital appreciation. We will also seek out
"busted" converts, where the underlying common stock has dropped significantly
and the values of both the conversion privilege and the convert are down. Such
securities will provide both high yields and long-term capital appreciation
potential.
COMMENTARY
THE FIVE E'S
In the third quarter of 2000, investors focused on the five E's--Energy,
the Euro, the Economy, Earnings, and the Election. We will share our perspective
on the five E's and offer an opinion on how they may impact the market going
forward.
ENERGY
The price of oil hit a ten-year high in the third quarter. Gasoline prices
exceeded $2.00 per gallon in many areas of the country this summer and home
heating costs are expected to rise by 50% this winter. Rising oil prices have
already sparked demonstrations in Europe and energy has become a political issue
in the U.S. as well. Although OPEC has increased production and is publicly
targeting a $25 to $28 per barrel price, global inventories are still tight and
the price of oil remains well over $30 per barrel. The U.S. is attempting to
influence the world energy market by dipping into its strategic oil reserves.
However, this is not likely to have a meaningful near term impact on oil prices.
Treasury Secretary Lawrence Summers recently characterized high oil prices as
"the biggest cloud in the relatively blue sky" of a fundamentally sound global
economy. We agree.
We do not anticipate a repeat of the 1973-74 oil shock, which sent the
global economy into recession and sparked the last great bear market in stocks.
After the Gulf War, we doubt Middle East oil producers, particularly the
Saudi's, would risk alienating their protectors. Only in our worst nightmares do
we consider the impact that $50 per barrel of oil would have on today's equity
markets. Our best guess is that oil prices will decline from their peaks, but
remain high enough to keep pressure on global economies.
4
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THE EURO
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EURO VS. U.S. DOLLAR
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
1999 2000
------ ------
Jan 1.1874 1.0155
1.1761 1.0309
1.1637 1.0335
1.1675 1.0324
1.1556 1.0294
1.1535 1.0252
1.1555 1.0322
1.1698 1.0281
1.1687 1.0270
1.1592 1.0128
1.1603 1.0121
1.1604 1.0115
1.1574 1.0133
1.1578 1.0100
1.1583 1.0019
1.1568 1.0041
1.1575 1.0011
1.1478 0.9890
1.1393 0.9765
1.1374 0.9757
Feb 1.1303 0.9731
1.1328 0.9768
1.1338 0.9887
1.1308 0.9760
1.1283 0.9783
1.1297 0.9862
1.1303 0.9914
1.1330 0.9865
1.1303 0.9847
1.1283 0.9783
1.1247 0.9834
1.1191 0.9842
1.1231 0.9863
1.1223 0.9850
1.1072 1.0060
1.1037 1.0017
1.0994 0.9931
1.0975 0.9763
1.1069 0.9669
1.0993 0.9643
1.0891 0.9700
Mar 1.0929 0.9619
1.0887 0.9618
1.0825 0.9603
1.0843 0.9560
1.0901 0.9576
1.0873 0.9684
1.0961 0.9659
1.0917 0.9648
1.0948 0.9644
1.0930 0.9696
1.0916 0.9710
1.1017 0.9694
1.0993 0.9710
1.0925 0.9703
1.0918 0.9608
1.0919 0.9691
1.0924 0.9724
1.0872 0.9645
1.0745 0.9614
1.0718 0.9524
1.0734 0.9594
1.0809 0.9574
1.0780 0.9560
Apr 1.0707 0.9588
1.0842 0.9647
1.0785 0.9580
1.0842 0.9590
1.0785 0.9588
1.0843 0.9591
1.0780 0.9551
1.0780 0.9524
1.0718 0.9564
1.0690 0.9550
1.0610 0.9477
1.0631 0.9369
1.0614 0.9376
1.0599 0.9379
1.0633 0.9396
1.0590 0.9265
1.0649 0.9217
1.0618 0.9083
1.0597 0.9089
1.0566 0.9120
1.0570 0.9068
1.0594 0.8891
May 1.0725 0.8907
1.0779 0.8953
1.0785 0.8950
1.0790 0.9023
1.0723 0.9097
1.0667 0.9021
1.0624 0.9080
1.0652 0.9138
1.0672 0.9053
1.0672 0.8921
1.0643 0.8952
1.0632 0.8946
1.0575 0.9036
1.0589 0.9032
1.0469 0.9096
1.0439 0.9072
1.0426 0.9310
1.0436 0.9314
1.0446 0.9328
1.0360 0.9307
1.0347 0.9432
1.0330 0.9471
Jun 1.0298 0.9570
1.0442 0.9600
1.0451 0.9548
1.0479 0.9526
1.0519 0.9544
1.0418 0.9619
1.0420 0.9590
1.0303 0.9530
1.0329 0.9648
1.0368 0.9622
1.0324 0.9557
1.0322 0.9455
1.0320 0.9398
1.0371 0.9358
1.0443 0.9382
1.0372 0.9444
1.0339 0.9444
1.0300 0.9515
1.0248 0.9545
1.0224 0.9526
1.0252 0.9548
1.0221 0.9527
Jul 1.0200 0.9484
1.0187 0.9521
1.0138 0.9497
1.0179 0.9401
1.0216 0.9339
1.0221 0.9374
1.0204 0.9351
1.0204 0.9322
1.0418 0.9237
1.0526 0.9292
1.0509 0.9343
1.0501 0.9314
1.0653 0.9391
1.0628 0.9413
1.0645 0.9331
1.0716 0.9246
1.0696 0.9266
1.0680 0.9228
1.0769 0.9137
1.0794 0.9042
1.0771 0.9075
1.0712 0.9105
Aug 1.0752 0.9019
1.0664 0.8991
1.0635 0.9077
1.0570 0.9046
1.0559 0.9037
1.0524 0.9135
1.0508 0.9143
1.0644 0.9152
1.0655 0.9068
1.0553 0.9027
1.0502 0.8965
1.0468 0.8967
1.0440 0.9028
1.0464 0.9024
1.0449 0.9002
1.0581 0.8966
1.0583 0.8924
1.0691 0.8878
1.0607 0.8993
1.0582 0.8876
1.0591 0.8702
1.0541 0.8740
Sep 1.0401 0.8664
1.0401 0.8624
1.0404 0.8596
1.0388 0.8640
1.0417 0.8617
1.0401 0.8572
1.0409 0.8527
1.0462 0.8514
1.0503 0.8463
1.0416 0.8559
1.0469 0.8794
1.0432 0.8738
1.0513 0.8813
1.0616 0.8807
1.0642 0.8830
1.0717 0.8842
1.0704 0.8788
1.0692 0.8745
1.0703 0.8727
1.0722 0.8691
1.0633 0.8686
Oct 1.0737 0.8682
1.0761 0.8716
1.0803 0.8644
1.0888 0.8567
1.0864 0.8491
1.0833 0.8509
1.0764 0.8391
1.0808 0.8412
1.0679 0.8406
1.0668 0.8364
1.0578 0.8365
1.0533 0.8274
1.0519 0.8273
1.0519 0.8408
1.0495 0.8433
1.0507 0.8485
1.0487 0.8588
1.0439 0.8579
1.0402 0.8619
1.0362 0.8585
1.0402 0.8585
Nov 1.0444 0.8554
1.0315 0.8574
1.0316 0.8624
1.0319 0.8574
1.0403 0.8571
1.0306 0.8534
1.0315 0.8517
1.0329 0.8487
1.0262 0.8460
1.0177 0.8424
1.0199 0.8401
1.0138 0.8383
1.0103 0.8503
1.0077 0.8545
1.0068 0.8577
1.0026 0.8694
1.0016 0.8768
Dec 1.0253 0.8876
1.0223 0.8803
1.0262
1.0165
1.0161
1.0122
1.0068
1.0066
1.0169
1.0089
1.0068
1.0097
1.0080
1.0164
1.0132
1.0046
1.0029
1.0064
1.0070
In January 1999, the Euro was introduced with great fanfare. Originally
expected to be a strong international currency, the Euro has declined against
the Japanese yen and plummeted against the U.S. dollar.
The plunging Euro presents a threat to the U.S. economy and stock market.
Europe is by far the largest market for U.S. exports. As the dollar strengthens
against the Euro, our exports become more expensive for European and other
global consumers. Conversely, European imports become cheaper for American
consumers as well as Latin American and Asian purchasers. This is making the
already troublesome balance of trade deficit even more problematic for the U.S.
Eventually, the dollar will have to be contained. While this will help on the
balance of trade front, it may have the adverse affect of reducing foreign
investment in U.S. capital markets. This is a long-term quandary without any
easy solutions.
A secondary effect of the weak Euro--but one with a more immediate impact
on U.S. stocks--is that the earnings for U.S. multi-national companies that do a
significant amount of business in Europe are being penalized significantly as
Euro denominated revenues and profits are translated back into dollars for
reporting purposes. This results in earnings shortfalls for some of the U.S.
market's "bellwether" stocks.
THE ECONOMY
Prior to the rapid increase in oil prices and the collapse of the Euro, the
global economic picture looked relatively bright. Asia had recovered, Europe was
gaining momentum, and after six Federal Reserve interest rate hikes, the U.S.
economy appeared headed for a soft landing. Now, this comfortable economic
scenario is threatened. Will we have a "hard landing?"
5
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EARNINGS
The potential for slower economic growth in the U.S. has investors
questioning whether third and fourth quarter corporate 2000 earnings will meet
what may now be optimistic expectations.
Relatively high equity evaluations do not leave much room for earnings
disappointments. The most richly valued sectors of the market (technology in
particular) are well above Benjamin Graham's "safety net". To wit, technology
bellwether Intel lost approximately 20% of its market value in after hours
trading following its announcement that third quarter revenues and earnings
would fall modestly short of consensus Wall Street expectations. After a sharp
decline on the opening bell the next day, stocks rebounded and ended the day
mixed. We question whether stocks will continue to be so resilient if we see
more widespread disappointments during the upcoming 2000 earnings reporting
seasons.
THE ELECTION
After this summer's relatively quiet campaigning, the political rhetoric is
heating up as we approach the November election. There are very clear
differences in the Republicans' and Democrats' positions on a number of economic
issues, in particular, what to do with the growing Federal Government budget
surplus. The Republicans favor large tax cuts. The Democrats are advocating
using the surplus to continue to reduce government debt and plug some holes in
the social safety net. The Republicans tend to view consolidation as an integral
part of global economic evolution. The Democrats are concerned that
consolidation will reduce competition, leaving consumers vulnerable. The
Republicans do not want to interfere in the energy markets. The Democrats are
calling for action. As we write, it appears the election is up for grabs,
creating even more uncertainty in an already uncertain economic and market
environment.
OUR ADVICE
Our stock selection process is based on a "bottoms up" approach. We review
relevant economic and market issues--a list of our current hopes and fears--and
offer carefully considered opinions on their short-term investment implications.
This is a courtesy to shareholders that want to know what we are thinking. It
does not influence our investment strategy. We strive to identify and invest in
undervalued companies with favorable long-term business prospects. Over the
short term, these stocks will be impacted by broad market trends. Over the long
term, they will be judged on their own individual merit. So, our advice to
shareholders is simply to be patient and have faith that selected businesses
purchased at reasonable prices to intrinsic value will produce long-term
rewards.
INVESTMENT SCOREBOARD
Utility investments Southwest Gas Corp., CH Energy Group, and AGL
Resources, which recently closed on its acquisition of Virginia Natural Gas, all
performed very well for the quarter. GATX Corp. and Coltec Capital Trust were
the top performing convertible stocks in the Fund, and convertible bond Mark IV
Industries also posted a solid gain.
Cendant Corp. and Sealed Air Corp. were the biggest disappointments in the
Fund. Telecommunications investments Sprint Corp. and Citizen Communications
also declined during the quarter.
6
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CONVERTIBLE MARKET OVERVIEW
As of September 30, 2000, the U.S. convertible market totaled $169 billion.
The average convertible security was rated BB, had a current yield of 4.1%, and
a conversion premium of 31.2%. The third quarter was marked by volatility and
credit quality concerns. Volatility was exasperated by uncertainty surrounding
the five E's. In the broad convertible market, monthly performance varied
widely. Convertibles rose 7.5% in August, the third best performance in twelve
years as optimism grew over the ability of the Federal Reserve to engineer a
soft landing for the economy, while July and September were the ninth and eighth
worst performing months, falling 3.8% and 3.7%, respectively.
Telecommunications was the worst performing convertible sector during the
quarter, falling 11.5%. The sector, which is poised to see its worst performance
since 1988 after a 121% gain last year, was pressured by price competition and
fears over capital spending requirements. Basic Industry and Cyclical
Non-Durable convertibles also performed poorly because of rising material costs
and currency volatility. Conservative sectors such as Health Care, Real Estate,
and Utilities performed best, with the latter gaining 37%.
During the third quarter, profit warnings gave rise to credit quality
concerns. In the corporate bond market, a flight to quality caused spreads on
investment grade credits to tighten slightly while high yield spreads widened by
nearly forty basis points. With the ratio of credit downgrades to upgrades at
2.5 times, investment grade convertibles have handily outperformed speculative
grade issues this year, gaining 3.9% versus a decline of 8.7%, respectively.
Finally, turbulence in the high yield market has actually benefited
issuance in the convertible market as companies seek an alternative to high
coupon debt financing. Year to date, convertible new issue activity reached
$46.3 billion, surpassing last year's record total of $44.8 billion.
Nevertheless, the overall size of the market remains relatively constant at $169
billion as redemptions and conversions outpace new issuance.
GOOD THINGS COME TO THOSE WHO WAIT
The critical element to our success in the equity 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 workouts) when
appropriate. We purchased 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 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 lower risk transactions.
Simply stated, risk arbitrage is investing in a merger or acquisition
target after the deal has been announced and pocketing the spread between the
trading price of the target company following the announcement and the deal
price upon closing. This spread is usually relatively narrow, offering a
somewhat modest nominal total return. However, since deals generally close in
much less than a year's time, this modest total return translates into a much
more attractive annualized return.
7
<PAGE>
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, a sampling of our
convertible securities has been called by their issuers and we either received
cash or stock. Our portfolio turnover rate reflects this activity, as well as
our investments in "event" driven situations that 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.
LET'S TALK CONVERTS
The following are specifics on selected holdings of our Fund. Favorable
earnings prospects do not necessarily translate into higher prices, but they do
express a positive trend which we believe will develop over time.
CITIZENS COMMUNICATIONS CO. (CZN) (5.00% CV. PFD.), will soon become the
country's largest independent local exchange carrier once it completes several
acquisitions of over 2 million access lines for $6.5 billion. Upon completion of
these transactions, accompanied by divestitures of its utilities operations, CZN
will reposition itself as a pure telecommunications company. CZN also owns 81%
of a competitive carrier, Electric Lightwave (ELIX - $8.50 - Nasdaq), with fiber
optic networks covering the Western part of the U.S.
KAMAN CORP. (SUB. DEB. CV., 6.00%, 03/15/12), founded in 1945, is a pioneer in
the helicopter industry. Aircraft manufacturing remains the core of the
business. Kaman serves both commercial and governmental markets with helicopters
and aircraft components. The company also produces specialized, high-value niche
market products and services, which tend to be technological leaders in their
markets. Kaman is a major, national distributor of original equipment, repair
and replacement products and value-added services to nearly every sector of
North American industry. The company also manufactures and distributes musical
instruments (Ovation guitars) and accessories to independent retailers.
MARK IV INDUSTRIES INC. (SUB. DEB. CV., 4.75%, 11/01/04) is a diversified
manufacturer of a broad range of proprietary and other power and fluid transfer
products and systems that primarily serve industrial and automotive markets. The
company classifies its operations into two business segments. Mark IV Industrial
includes the design, manufacture and distribution of power and fluid management
systems and components for industrial original equipment manufacturers ("OEM")
and distribution markets worldwide. Mark IV Automotive includes the design,
manufacture and distribution of power transmission, fuel, and fluid handling
systems and components, and filters and filtration systems, for the global
automotive aftermarket and OEM market. On September 14, Mark IV announced the
8
<PAGE>
completion of the merger with MIV Acquisition Corp., an entity controlled by
funds advised by BC Partners, a leading European private equity firm. As a
result of the merger, Mark IV 4.75% are now convertible solely into the cash
merger consideration of $23.00 per share.
SEAGRAM CO. (7.50% CV. PFD.) operates two global businesses: beverages and
entertainment. The beverage group's major brands include Chivas Regal, Martell,
Mumm, Crown Royal and Seagram's Gin. With its $10.4 billion December acquisition
of Polygram, Seagram has created the world's leading music company, the
Universal Music Group. Seagram's entertainment business includes the Universal
Motion Pictures Group, the Universal Studios Recreation Group and a 46% interest
in USA Networks (USAI - $21.9375 - Nasdaq). On June 20th, Seagram agreed to
merge with French companies Vivendi and Canal Plus, creating a fully integrated
global media and communications company for the wired and wireless world.
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. The company is well
positioned to benefit from case-ready packaging and electronic commerce. Sealed
Air is a strong free cash flow generator, which will be used to pay down debt,
make niche acquisitions, and buy back stock.
SEQUA CORP. ($5.00 CV. PFD.) is a diversified company with businesses in
aerospace, pre-paint metal, specialty chemical and printing, and cannery
equipment. Chromalloy Gas Turbine, Sequa's aerospace business, is the largest
independent supplier of overhaul and repair to jet and industrial gas turbine
engines. We believe this business would be attractive to original equipment
engine manufacturers who are looking to grow their replacement parts business.
With roughly $800 million in revenues, Chromalloy is an extremely valuable
asset.
STANDARD MOTOR PRODUCTS INC. (SMP) (SUB. DEB. CV., 6.75%, 07/15/09),
headquartered in Long Island City, New York, supplies functional replacement
parts for the engine management, electrical and climate control systems of cars,
trucks and buses. The company services all makes and models, both new and old
cars, imported and domestic. SMP has two primary divisions--engine management
and temperature control--and believes it is the number one supplier to the North
American aftermarket in each of these lines.
U.S. CELLULAR CORP. (USM) (SUB. DEB. CV., ZERO CPN., 06/15/15) is a 81% owned
subsidiary of Telephone & Data Systems Inc. (TDS - $110.70 - AMEX) and is a
wireless carrier with cellular licenses covering over 25 million people
primarily in rural and suburban markets. USM currently serves over 2.8 million
subscribers and is an important roaming partner for national wireless carriers
such as ATT Wireless (AWE - $20.875 - NYSE), Verizon Wireless (VZ - $48.4375 -
NYSE), and Sprint PCS (PCS - $35.125 - NYSE).
USA NETWORKS INC. (SUB. DEB. CV., 7.00%, 07/01/03), through its subsidiaries,
engages in diversified media and electronic commerce businesses that include
electronic retailing, ticketing operations and television broadcasting. Chairman
and CEO Barry Diller has brought together under one umbrella the USA Network,
the Sci-Fi Channel, USA Networks Studios, USA Broadcasting, The Home Shopping
Network and the Ticketmaster Group. The plan is to integrate these assets,
leveraging programming, production capabilities and electronic commerce across
this strong distribution platform.
9
<PAGE>
VOICESTREAM WIRELESS CORP. (VSTR) (7.00% CV. PFD.) is one of the remaining two
U.S. independent national wireless service providers with PCS licenses covering
over 220 million people. VSTR was spun-off of Western Wireless about 18 months
ago and is the only national carrier utilizing GSM (Global System for Mobile
Communication) technology, a dominant standard in Europe. VSTR is in the process
of being acquired by Deutsche Telecom (DT - $34.25 - NYSE), a former German
phone monopoly, for 3.2 DT shares plus $30 in cash per VSTR share. The merger is
pending regulatory approval and is expected to close in 2001. DT ownership will
provide VSTR with significant financial resources and allow it to aggressively
build out its licensed territory and gain market share in the growing domestic
wireless industry.
STOCK REPURCHASE PLAN
The Gabelli Convertible Securities Fund is authorized to repurchase up to
500,000 shares of the Convertible Securities Fund's outstanding common shares.
Pursuant to this stock repurchase plan, the Convertible Securities Fund may from
time to time purchase shares of its capital stock in the open market when the
shares are trading at a discount of 10% or more from the net asset value of the
shares. In total, through September 30, 2000, 289,400 shares have been
repurchased in the open market under this stock repurchase plan.
COMMON STOCK 8% DISTRIBUTION POLICY
The Convertible Securities Fund continues to maintain its 8% Distribution
Policy whereby the Convertible Securities Fund pays out to common stock
shareholders 8% of its average net assets each year. Pursuant to this policy,
the Convertible Securities Fund distributed $0.20 per share on September 25,
2000. The next distribution is scheduled for December 2000.
8.00% CUMULATIVE PREFERRED STOCK - DIVIDENDS
The Convertible Securities Fund's 8.00% Cumulative Preferred Stock paid a
cash distribution on September 26, 2000 of $0.50 per share. For the
twelve-months ended September 30, 2000, Preferred Stock shareholders received
distributions totaling $2.00, the annual dividend rate per share on the
Preferred Stock. The next distribution is scheduled for December 2000.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage at http://www.gabelli.com
contains information about Gabelli Asset Management Inc., the Gabelli Mutual
Funds, IRAs, 401(k)s, quarterly reports, closing prices and other current news.
You can send us e-mail at [email protected].
10
<PAGE>
IN CONCLUSION
The stock market has behaved like a swimmer in distress in the third
quarter of 2000. Every time stocks struggled to the surface, they were pulled
back under the waves. As we write, stocks are sinking under the weight of higher
oil prices, the weak Euro, and third quarter earnings uncertainties. Moderation
in oil prices, a firmer Euro, and solid third quarter earnings would provide a
lifeline for stocks.
Convertible securities struggled to make progress in the midst of the
slumping stock and bond markets. We are encouraged by indications that the
economy is slowing and that interest rates may stabilize or trend lower. This
would provide a better background for stocks, bonds, and convertible securities.
We continue to focus on the convertible securities of quality companies trading
at opportunistic prices. We believe this should translate into attractive
long-term returns.
Sincerely,
/S/ SIGNATURE
MARIO J. GABELLI
President and Chief Investment Officer
November 14, 2000
--------------------------------------------------------------------------------
TOP TEN CONVERTIBLE HOLDINGS
SEPTEMBER 30, 2000
------------------
Mark IV Industries Inc. (Sub. Deb. Cv., 4.75%, 11/01/04)
Standard Motor Products (Sub. Deb. Cv., 6.75%, 07/15/09)
Citizens Communications Co. (5.00% Cv. Pfd.)
Hilton Hotels Corp. (Sub. Deb. Cv., 5.00%, 05/15/06)
Kaman Corp. (Sub. Deb. Cv., 6.00%, 03/15/12)
Coltec Capital Trust (5.25% Cv. Pfd.)
Sequa Corp. ($5.00 Cv. Pfd.)
News America Holdings (Sub. Deb. Cv., Zero Cpn., 03/31/02)
Sealed Air Corp. ($2.00 Cv. Pfd., Ser. A)
Trans-Lux Corp. (Sub. Deb. Cv., 7.50%, 12/01/06)
--------------------------------------------------------------------------------
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.
11
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
CONVERTIBLE CORPORATE BONDS -- 34.2%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 4.5%
$ 700,000 Exide Corp. Sub. Deb. Cv.
2.90%, 12/15/05 (b) ............... $ 332,937
350,000 Pep Boys - Manny, Moe & Jack
Sub. Deb. Cv., Zero Cpn., 09/20/11 206,062
9,000,000 Standard Motor Products Inc.
Sub. Deb. Cv.
6.75%, 07/15/09 ................... 4,635,000
-----------
5,173,999
-----------
AVIATION: PARTS AND SERVICES -- 3.2%
4,199,000 Kaman Corp. Sub. Deb. Cv.
6.00%, 03/15/12 ................... 3,663,627
-----------
BUSINESS SERVICES -- 2.0%
900,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12 (a) ............... 870,750
1,770,000 Trans-Lux Corp. Sub. Deb. Cv.
7.50%, 12/01/06 ................... 1,385,025
-----------
2,255,775
-----------
COMPUTER SOFTWARE AND SERVICES -- 0.1%
400,000 QuadraMed Corp. Sub. Deb. Cv.
5.25%, 05/01/05 ................... 138,500
-----------
CONSUMER PRODUCTS -- 0.5%
1,450,000 Pillowtex Corp. Sub. Deb. Cv.
6.00%, 03/15/12 ................... 130,500
750,000 Standard Commercial Corp. Sub. Deb. Cv.
7.25%, 03/31/07 ................... 474,375
-----------
604,875
-----------
CONSUMER SERVICES -- 0.4%
500,000 Ogden Corp. Sub. Deb. Cv.
6.00%, 06/01/02 ................... 432,500
-----------
ELECTRONIC EQUIPMENT -- 0.0%
ASM Lithography Holding Cv.
50,000 2.50%, 04/09/05 (d) ............... 31,033
50,000 2.50%, 04/09/05 (b) (d) ........... 7,758
-----------
38,791
-----------
ENERGY AND UTILITIES -- 1.2%
50,000 Devon Energy Corp. Sub. Deb. Cv.
4.95%, 08/15/08 ................... 48,625
200,000 Friede Goldman Halter Inc.
Sub. Deb. Cv.
4.50%, 09/15/04 ................... 112,500
1,100,000 Moran Energy Inc. Sub. Deb. Cv.
8.75%, 01/15/08 ................... 990,000
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
$ 200,000 Texaco Capital Inc. Cv.
3.50%, 08/05/04 ................... $ 189,661
-----------
1,340,786
-----------
ENTERTAINMENT -- 0.7%
800,000 USA Networks Inc. Sub. Deb. Cv.
7.00%, 07/01/03 ................... 799,000
-----------
ENVIRONMENTAL SERVICES -- 0.9%
1,100,000 Waste Management Inc. Sub. Deb. Cv.
4.00%, 02/01/02 ................... 1,027,125
-----------
EQUIPMENT AND SUPPLIES -- 12.0%
39,000 Intermagnetics General Corp.
5.75%, 09/15/03 ................... 71,370
13,000,000 Mark IV Industries Inc. Sub. Deb. Cv.
4.75%, 11/01/04 ................... 12,935,000
800,000 Robbins & Myers Inc.
Sub. Deb. Cv.
6.50%, 09/01/03 ................... 790,000
-----------
13,796,370
-----------
FOOD AND BEVERAGE -- 0.1%
110,000 Boston Chicken Inc.
Sub. Deb. Cv.
7.75%, 05/01/04+ .................. 687
150,000 Chiquita Brands International Inc. Cv.
7.00%, 03/28/01 ................... 129,000
-----------
129,687
-----------
HEALTH CARE -- 0.1%
10,000 Inhale Therapeutic Systems
Sub. Deb. Cv.
6.75%, 10/13/06 (b) ............... 35,187
150,000 Sabratek Corp. Sub. Deb. Cv.
6.00%, 04/15/05+ .................. 37,500
10,000 Veterinary Centers of America Inc.
Sub. Deb. Cv.
5.25%, 05/01/06 ................... 10,250
-----------
82,937
-----------
HOTELS AND GAMING -- 3.6%
5,000,000 Hilton Hotels Corp. Sub. Deb. Cv.
5.00%, 05/15/06 ................... 4,218,750
-----------
PAPER AND FOREST PRODUCTS -- 1.1%
200,000 Riverwood International Corp.
Sub. Deb. Cv.
6.75%, 09/15/03 ................... 230,890
1,200,000 Thermo Fibertek Inc. Cv.
4.50%, 07/15/04 (b) ............... 1,011,000
-----------
1,241,890
-----------
12
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2000 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
PUBLISHING -- 1.5%
$ 650,000 News America Holdings Inc.
Sub. Deb. Cv., Zero Cpn., 03/31/02 $ 1,564,063
200,000 Times Mirror Ltd. Sub. Deb. Cv.
Zero Cpn., 04/15/17 ............... 131,250
50,000 United News & Media plc
Sub. Deb. Cv.
6.13%, 12/03/03 (c) ............... 83,443
-----------
1,778,756
-----------
REAL ESTATE AND DEVELOPMENT -- 0.1%
125,000 Rockefeller Center Properties Inc.
Sub. Deb. Cv.
Zero Cpn., 12/31/00 ............... 108,125
-----------
RETAIL -- 0.1%
60,000 Costco Companies Inc.
Sub. Deb. Cv.
Zero Cpn., 08/19/17 ............... 51,675
100,000 JumboSports Inc. Sub. Deb. Cv.
4.25%, 11/01/00+ .................. 5,500
50,000 Rite Aid Corp. Sub. Deb Cv.
5.25%, 09/15/02 ................... 18,125
-----------
75,300
-----------
SPECIALTY CHEMICALS -- 1.1%
900,000 IVAX Corp. Sub. Deb. Cv.
6.00%, 05/15/07 (b) .............. 1,312,875
-----------
TECHNOLOGY -- 0.3%
400,000 Thermo Electron Corp.
Sub. Deb. Cv.
4.25%, 01/01/03 (b) ............... 381,500
-----------
TELECOMMUNICATIONS -- 0.4%
80,000 Amnex Inc. Sub. Deb. Cv.
8.50%, 09/25/02 (b) ............... 3,592
90,000 Bell Atlantic Corp. Cv.
4.25%, 09/15/05 (b) ............... 97,425
500,000 Rogers Communications Inc.
Sub. Deb. Cv.
2.00%, 11/26/05 ................... 425,000
-----------
526,017
-----------
WIRELESS COMMUNICATIONS -- 0.3%
550,000 U.S. Cellular Corp.
Sub. Deb. Cv.
Zero Cpn., 06/15/15 ............... 376,750
-----------
TOTAL CONVERTIBLE
CORPORATE BONDS 39,503,935
-----------
MARKET
SHARES VALUE
--------- ------
CONVERTIBLE PREFERRED STOCKS -- 13.4%
AGRICULTURE -- 0.2%
4,200 Monsanto Co. 6.50% Cv. Pfd. ......... $ 219,975
-----------
AVIATION: PARTS AND SERVICES -- 1.9%
Coltec Capital Trust
25,000 5.25% Cv. Pfd. .................... 1,200,000
21,000 5.25% Cv. Pfd. (b) ................ 1,008,000
-----------
2,208,000
-----------
BUSINESS SERVICES -- 1.0%
Cendant Corp.
66,000 1.30% Cv. Pfd. .................... 1,031,250
5,000 7.50% Cv. Pfd. .................... 81,875
-----------
1,113,125
-----------
CABLE -- 0.1%
1,000 MediaOne Group Inc.
4.50% Cv. Pfd. Ser. D+ ............ 25,188
3,000 UnitedGlobalCom Inc.
7.00% Cv. Pfd. (a) ................ 125,625
-----------
150,813
-----------
DIVERSIFIED INDUSTRIAL -- 0.6%
2,000 GATX Corp. $2.50 Cv. Pfd. ........... 430,000
42,000 WHX Corp. 6.50% Cv. Pfd. Ser. A ..... 275,625
-----------
705,625
-----------
ENTERTAINMENT -- 0.3%
4,500 Metromedia International Group Inc.
7.25% Cv. Pfd. .................... 102,375
5,000 Seagram Co.
7.50% Cv. Pfd. .................... 260,625
-----------
363,000
-----------
EQUIPMENT AND SUPPLIES -- 1.8%
26,600 Sequa Corp.
$5.00 Cv. Pfd. .................... 2,048,200
-----------
PAPER AND FOREST PRODUCTS -- 1.4%
34,500 Sealed Air Corp.
$2.00 Cv. Pfd. Ser. A ............. 1,552,500
-----------
PUBLISHING -- 0.5%
15,000 Reader's Digest Association Inc.
$1.9336 Cv. Pfd. 465,000
5,000 Tribune Co. 6.25% Cv. Pfd. .......... 70,000
-----------
535,000
-----------
RETAIL -- 0.2%
3,000 CVS Corp.
6.00% Cv. Pfd. .................... 243,750
-----------
13
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2000 (UNAUDITED)
MARKET
SHARES VALUE
--------- ------
CONVERTIBLE PREFERRED
STOCKS (CONTINUED)
SPECIALTY CHEMICALS -- 0.0%
2,000 Merrill Lynch & Co. (IMC Global)
6.25% Cv. Pfd. .................... $ 29,375
-----------
TELECOMMUNICATIONS -- 4.5%
6,000 BroadWing Inc.
6.75% Cv. Pfd. Ser. B ............. 279,750
80,000 Citizens Communications Co.
5.00% Cv. Pfd. .................... 4,340,000
8,000 Philippine Long Distance Telephone Co.
$3.50 Cv. Pfd. Ser. III ........... 289,000
RSL Communications Ltd.
1,000 7.50% Cv. Pfd. .................... 4,875
1,177 7.50% Cv. Pfd. (b) ................ 5,738
1,500 TCI Pacific Communications Inc.
5.00% Cv. Pfd. .................... 270,000
-----------
5,189,363
-----------
WIRELESS COMMUNICATIONS -- 0.9%
6,500 VoiceStream Wireless Corp.
7.00% Cv. Pfd. .................... 1,086,313
-----------
TOTAL CONVERTIBLE
PREFERRED STOCKS .................. 15,445,039
-----------
COMMON STOCKS -- 14.3%
AVIATION: PARTS AND SERVICES -- 0.2%
18,000 Kaman Corp., Cl. A .................. 227,250
-----------
BROADCASTING -- 0.2%
40,000 Granite Broadcasting Corp.+ ......... 183,750
-----------
ENERGY AND UTILITIES -- 7.7%
20,000 AGL Resources Inc. .................. 401,250
23,000 BP Amoco plc, ADR ................... 1,219,000
20,000 CH Energy Group Inc. ................ 797,500
10,000 Columbia Energy Group ............... 710,000
12,400 E'Town Corp. ........................ 829,250
10,000 Eastern Enterprises ................. 638,125
6,500 EnergyNorth Inc. .................... 394,469
MARKET
SHARES VALUE
--------- ------
10,000 Florida Progress Corp. .............. $ 529,375
50,000 LG&E Energy Corp. ................... 1,221,875
20,000 MCN Energy Group Inc. ............... 512,500
5,000 Northeast Utilities ................. 108,438
2,000 SJW Corp. ........................... 237,500
62,000 Southwest Gas Corp. ................. 1,298,125
-----------
8,897,407
-----------
EQUIPMENT AND SUPPLIES -- 0.1%
50,000 Fedders Corp., Cl. A ...................... 165,625
-----------
FINANCIAL SERVICES -- 1.7%
25,000 Argonaut Group Inc. ....................... 437,500
17,000 Donaldson, Lufkin & Jenrette Inc. ......... 1,520,437
-----------
1,957,937
-----------
FOOD AND BEVERAGE -- 3.4%
35,000 Bestfoods Inc. ...................... 2,546,250
25,000 Nabisco Holdings Corp., Cl. A ....... 1,343,750
-----------
3,890,000
-----------
RETAIL -- 0.1%
5,000 AutoNation Inc.+ .................... 30,000
8,471 Delhaize America Inc., Cl. A ........ 147,713
-----------
177,713
-----------
TELECOMMUNICATIONS -- 0.5%
15,776 Sprint Corp.+ ....................... 553,146
-----------
WIRELESS COMMUNICATIONS -- 0.4%
15,000 Sprint Corp. (PCS Group)+ ........... 439,688
-----------
TOTAL COMMON STOCKS ................. 16,492,516
-----------
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT OBLIGATIONS -- 37.9%
$43,933,000 U.S. Treasury Bills,
6.03% to 6.27%++,
due 10/12/00 to 12/28/00 .......... 43,677,204
-----------
14
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2000 (UNAUDITED)
MARKET
VALUE
------
TOTAL INVESTMENTS -- 99.8%
(Cost $116,623,783) ............................ $115,118,694
============
OTHER ASSETS, LIABILITIES
AND LIQUIDATION
VALUE OF CUMULATIVE
PREFERRED STOCK -- (25.8)% ..................... (29,790,592)
------------
NET ASSETS - COMMON STOCK -- 74.0%
(7,803,545 common shares outstanding) .......... 85,328,102
------------
NET ASSETS - CUMULATIVE
PREFERRED STOCK -- 26.0%
(1,235,700 preferred shares outstanding) ....... 30,000,000
------------
TOTAL NET ASSETS -- 100.0% $115,328,102
============
NET ASSET VALUE PER COMMON SHARE
($85,328,102 (DIVIDE) 7,803,545
common shares outstanding) ..................... $10.93
======
MARKET
SHARES PROCEEDS VALUE
------ -------- ------
SECURITIES SOLD SHORT
8,000 IVAX Corp. .................. (355,240) (368,000)
MARKET
VALUE
------
-------------
For Federal tax purposes:
Aggregate cost ............................... $116,623,783
============
Gross unrealized appreciation ................ $ 6,656,210
Gross unrealized depreciation ................ (8,161,299)
------------
Net unrealized depreciation .................. $ (1,505,089)
============
-------------
(a) Security fair valued under procedures established by the
Board of Directors.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
September 30, 2000, the market value of Rule 144A securities amounted to
$4,196,012
or 3.6% of total net assets.
(c) Principal amount denoted in British Pounds.
(d) Principal amount denoted in Euros.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt
15
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the Policy of The Gabelli Convertible Securities Fund, Inc.
("Convertible Securities Fund") to automatically reinvest dividends. As a
"registered" shareholder you automatically become a participant in the
Convertible Securities Fund's Automatic Dividend Reinvestment Plan (the "Plan").
The Plan authorizes the Convertible Securities Fund to issue shares to
participants upon an income dividend or a capital gains distribution regardless
of whether the shares are trading at a discount or a premium to net asset value.
All distributions to shareholders whose shares are registered in their own names
will be automatically reinvested pursuant to the Plan in additional shares of
the Convertible Securities Fund. Plan participants may send their stock
certificates to State Street Bank and Trust Company ("State Street") to be held
in their dividend reinvestment account. Registered shareholders wishing to
receive their distribution in cash must submit this request in writing to:
The Gabelli Convertible Securities Fund, Inc.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan or requesting a copy of the terms of the
Plan may contact State Street at 1 (800) 336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at State Street
Bank must do so in writing or by telephone. Please submit your request to the
above mentioned address or telephone number. Include in your request your name,
address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such transactions. If
your shares are held in the name of a broker, bank or nominee, you should
contact such institution.
If such institution is not participating in the Plan, your account will be
credited with a cash dividend. In order to participate in the Plan through such
institution, it may be necessary for you to have your shares taken out of
"street name" and re-registered in your own name. Once registered in your own
name your dividends will be automatically reinvested. Certain brokers
participate in the Plan. Shareholders holding shares in "street name" at
participating institutions will have dividends automatically reinvested.
Shareholders wishing a cash dividend at such institution must contact their
broker to make this change.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of cash dividends is determined in the following manner. Under the
Plan, whenever the market price of the Convertible Securities Fund's Common
Stock is equal to or exceeds net asset value at the time shares are valued for
purposes of determining the number of shares equivalent to the cash dividends or
capital gains distribution, participants are issued shares of Common Stock
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Convertible Securities Fund's
Common Stock. The valuation date is the dividend or distribution payment date
or, if that date is not a New York Stock Exchange trading day, the next trading
day. If the net asset value of the Common Stock at the time of valuation exceeds
the market price of the Common Stock, participants will receive shares from the
Convertible Securities Fund valued at market price. If the Convertible
Securities Fund should declare a dividend or capital gains distribution payable
only in cash, State Street will buy Common Stock in the open market, or on the
New York Stock Exchange or elsewhere, for the participants' accounts, except
that State Street will endeavor to terminate purchases in the open market and
cause the Convertible Securities Fund to issue shares at net asset value if,
following the commencement of such purchases, the market value of the Common
Stock exceeds the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Convertible Securities Fund reserves the right to amend or terminate
the Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the members
of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by State Street on at
least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Convertible Securities Fund. In
order to participate in the Voluntary Cash Purchase Plan, shareholders must have
their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street Bank and Trust Company for investments
in the Convertible Securities Fund shares at the then current market price.
Shareholders may send an amount from $250 to $10,000. State Street Bank and
Trust Company will use these funds to purchase shares in the open market on or
about the 1st and 15th of each month. State Street Bank and Trust Company will
charge each shareholder who participates $0.75, plus a pro rata share of the
brokerage commissions. Brokerage charges for such purchases are expected to be
less than the usual brokerage charge for such transactions. It is suggested that
any voluntary cash payments be sent to State Street Bank and Trust Company, P.O.
Box 8200, Boston, MA 02266-8200 such that State Street receives such payments
approximately 10 days before the investment date. Funds not received at least
five days before the investment date shall be held for investment until the next
purchase date. A payment may be withdrawn without charge if notice is received
by State Street Bank and Trust Company at least 48 hours before such payment is
to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Convertible Securities Fund.
16
<PAGE>
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN & CHIEF INVESTMENT OFFICER,
GABELLI ASSET MANAGEMENT INC.
E. Val Cerutti
CHIEF EXECUTIVE OFFICER,
CERUTTI CONSULTANTS, INC.
Felix J. Christiana
FORMER SENIOR VICE PRESIDENT,
DOLLAR DRY DOCK SAVINGS BANK
Anthony J. Colavita
ATTORNEY-AT-LAW,
ANTHONY J. COLAVITA, P.C.
Dugald A. Fletcher
PRESIDENT, FLETCHER & COMPANY, INC.
Karl Otto Pohl
FORMER PRESIDENT, DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT
PROFESSOR, 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
COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
STOCK EXCHANGE LISTING
Common 8.00% Preferred
--------- ---------------
NYSE-Symbol: GCV GCV Pr
Shares Outstanding: 7,803,545 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.
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For general information about the Gabelli Funds,
call 1-800-GABELLI (1-800-422-3554), fax us at
914-921-5118, visit Gabelli Funds' Internet homepage at:
HTTP://WWW.GABELLI.COM,
or e-mail us at: [email protected]
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Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Convertible Securities Fund may from
time to time purchase shares of its common stock in the open market when the
Convertible Securities Fund shares are trading at a discount of 10% or more from
the net asset value of the shares. The Convertible Securities Fund may also,
from time to time, purchase shares of its Cumulative Preferred Stock in the open
market when the shares are trading at a discount to the Liquidation Value of
$25.00.
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<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER
RYE, NY 10580-1434
(914) 921-5070
HTTP://WWW.GABELLI.COM
THIRD QUARTER REPORT
SEPTEMBER 30, 2000
GBFCS 09/00
