[Mountain graphic omitted]
THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1999
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[logo omitted]
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
Our cover icon represents the underpinnings of Gabelli.
The Teton mountains in Wyoming represent what we believe in in America -- that
creativity, ingenuity, hard work and a global uniqueness provide enduring
values. They also stand out in an increasingly complex, interconnected and
interdependent economic world.
INVESTMENT OBJECTIVE:
The Gabelli Convertible Securities Fund, Inc. is a closed-end, diversified
management investment company whose primary objective is to seek a high level of
total return through a combination of current income and capital appreciation by
investing in convertible securities.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
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TO OUR SHAREHOLDERS,
A narrow stock market advance combined with a weak bond market presented a
formidable challenge to convertible securities investors in 1999. Although the
leading stock market indices posted good gains, performance was driven by a
relative handful of stocks that everyone wanted to own. Technology stocks were
by far the most sought after. As evidenced by the 3.7% decline in the Value Line
Composite Index, most stocks languished. With inflation fears mounting, the bond
market experienced its second worst year this century. Consequently, yield did
not provide much support for convertible securities prices.
[Photo of Mario J. Gabelli omitted]
[The Gabelli Convertible Securities Fund logo omitted]
INVESTMENT PERFORMANCE
For the fourth quarter ended December 31, 1999, The Gabelli Convertible
Securities Fund, Inc.'s ("Convertible Securities Fund") net asset value (NAV)
per share increased 1.73% to $11.40, after adjusting for the $0.43 per share
distribution paid on December 27, 1999. This compares to an increase of 20.52%
for the Lipper Inc. Convertible Securities Fund Average over the same period.
The Lipper average is an unmanaged indicator of investment performance. For the
twelve months ended December 31, 1999, the Fund increased 9.40% versus an
increase of 31.14% for the Lipper Inc. Convertible Securities Fund Average over
this period.
The three- and five-year average annual returns of the Convertible
Securities Fund were 10.38% and 10.88%, respectively. Since inception on July 3,
1989 through December 31, 1999, the Convertible Securities Fund achieved a
171.35% total return which represents an average annual return of 9.97%.
The Fund's common shares on the New York Stock Exchange ended the quarter
at $10.5625, up 2.93% for the quarter, up 3.17% for the past twelve months and
up 46.32% from its initial price of $11.25 on March 31, 1995 after adjusting for
the reinvestment of dividends totaling $4.795 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 9% to the net asset value. 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 10 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.
[Graphic of pyramid omitted--text as follows]
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
[End of Pyramid text]
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
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INVESTMENT RESULTS (a)(c)
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Quarter
-------------------------------------
1st 2nd 3rd 4th Year
-- --- --- --- ----
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%
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
1995: Net Asset Value ...... $11.14 $11.51 $11.64 $11.01 $11.01
Total Return ......... 5.1% 5.2% 3.0% 1.1% 15.0%
- --------------------------------------------------------------------------------
1994: Net Asset Value ...... $11.54 $11.39 $11.60 $10.60 $10.60
Total Return ......... 0.2% (1.3)% 1.8% (0.9)% (0.2)%
- --------------------------------------------------------------------------------
1993: Net Asset Value ...... $12.07 $12.36 $12.75 $11.52 $11.52
Total Return ......... 5.4% 2.4% 3.2% 1.5% 13.1%
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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)
- --------------------------------------------------------------------------------
- ----------------------------------------------
Average Annual Returns - December 31, 1999 (a)
- ----------------------------------------------
1 Year ........................... 9.40%
5 Year ........................... 10.88%
Life of Fund (b) ................. 9.97%
- ----------------------------------------------
(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 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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share trends. Unlike Wall Street's ubiquitous earnings momentum players, we do
not try to forecast earnings with accounting precision and then trade stocks
based on quarterly expectations and realities. We simply try to position
ourselves in front of long-term earnings uptrends. In addition, we analyze on
and off balance sheet assets and liabilities such as plant and equipment,
inventories, receivables, and legal, environmental and health care issues. We
want to know everything and anything that will add to or detract from our
private market value (PMV) estimates. Finally, we look for a catalyst: something
happening in the company's industry or indigenous to the company itself that
will surface value. In the case of the independent telephone stocks, the
catalyst is a regulatory change. In the agricultural equipment business, it is
the increasing world-wide demand for American food and feed crops. In other
instances, it may be a change in management, sale or spin-off of a division or
the development of a profitable new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
CONVERTIBLE SECURITIES ARE "HYBRIDS"
It is important to understand our stock selection discipline because price
movement in the underlying equity will generally have the greatest impact on
convertible securities pricing. The convertible securities market consists of
bonds, debentures, corporate notes, preferred stocks and warrants or other
similar securities which may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula.
Converts are "hybrid" securities that combine the capital appreciation potential
of equities with the higher yield of fixed income instruments.
Our strategy incorporates the purchase of convertible securities which are
trading at a premium above parity with the common stock but which generally
provide a higher yield and, over time, capital appreciation. We will also seek
out "busted" converts, where the underlying common stock has dropped
significantly and the values of both the conversion privilege and the convert
are down. Such securities will provide both high yields and long-term capital
appreciation potential.
OUR INVESTMENT OBJECTIVES
Our mandate is to preserve and enhance our shareholders' wealth through a
conservative, disciplined approach to convertible securities investing. Our goal
is to generate profitable returns in strong markets and protect principal in
weak markets by taking advantage of the unique characteristics of convertible
securities.
COMMENTARY
1999'S HAVE AND HAVE NOT MARKET
At year-end 1999, many investors were left pondering how and why their
individual stock and/or mutual fund portfolios performed so poorly in a year in
which all the leading stock market indices posted strong gains. The answer is
simple. A relative handful of increasingly popular technology and
Internet-related stocks propelled the capitalization-weighted market indices
higher, while the majority of stocks languished. If you owned these types of
companies you were a winner. If you owned index funds, you earned respectable
returns. If you owned most anything else, especially value stocks and most value
oriented funds; you had a "dull year".
This pattern was clearly demonstrated in our portfolio. We had very
limited exposure to technology company convertibles. Fortunately, we did have
substantial commitments to telecommunications and media company converts, which
were major contributors to performance this year. And, of course, we benefited
from financial engineering - particularly deals, as merger and acquisition
activity was at an all time high.
3
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FLOW OF FUNDS ($ Billions)
<TABLE>
<CAPTION>
Sources 1994 1995 1996 1997 1998 1999(E)
- ------- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Deals $ 340 $ 511 $ 652 $ 919 $1,620 $1,745
Stock Buybacks 47 99 176 181 207 178
Equity Mutual Funds (Net) 119 128 222 232 157 188
Dividends 182 254 298 334 349 367
----- ----- ------ ------ ------ ------
TOTAL SOURCES: 687 992 1,348 1,666 2,333 2,478
----- ----- ------ ------ ------ ------
Uses
- ----
IPOs 29 30 50 43 37 69
U.S./International Equity Capital Flow
U.S. Purchases of Non-U.S. Equities (net) 48 50 59 41 (6) 22
International Purchases of U.S. Equities (net) 1 11 12 70 50 73
----- ----- ------ ------ ------ ------
Net Flow: 47 39 47 (29) (56) (51)
----- ----- ------ ------ ------ ------
TOTAL USES: 76 69 97 14 (19) 18
----- ----- ------ ------ ------ ------
NET FLOW OF FUNDS: $ 612 $ 923 $1,251 $1,652 $2,352 $2,460
===== ===== ====== ====== ====== ======
</TABLE>
SOURCES: SECURITIES DATA CORP, INVESTMENT COMPANY INSTITUTE, BIRINYI ASSOCIATES,
FEDERAL RESERVE BOARD (SAAR-DIV.) (C)2000 GABELLI ASSET MANAGEMENT INC.
- --------------------------------------------------------------------------------
However, our positions in value oriented industrial company converts were
a drag on performance. Convertible securities were also negatively impacted by
rising interest rates. In stable interest rate environments, convertible
securities are supported by their higher yields. However, when interest rates
are rising, yield is devalued, and convertible securities' bond values decline.
Consequently, interest rate sensitive "busted" convertibles, which trade purely
on bond values, were generally poor performers.
THE ECONOMY AND THE MARKET: INFLATION, INTEREST RATES AND CORPORATE PROFITS
Convertible securities are influenced by stock and bond market trends. So,
let's take a look at the economic factors impacting stocks and bonds. Inflation,
interest rates, and corporate profits represent an economic trifecta for stocks.
Through most of this historic eighteen-year bull market, we have enjoyed low
inflation, declining interest rates, and strong corporate profit growth. Over
the last two years the market has managed to advance despite one or another of
these economic horses breaking stride. In 1998, the market shrugged off
lackluster corporate earnings growth. This year, the market delivered
double-digit returns despite higher inflation and materially higher interest
rates. Looking ahead, we suspect the market will not be able to maintain its
pace if one or more of these horses pull up lame.
We believe corporate earnings will continue to run strong. The global
economic recovery improves the profit picture for many American companies. But
the Asian and European economies continue to advance and we see synchronized
global growth in the year 2000 providing corporate profits with a tailwind that
will result in earnings that may be even better than current Wall Street
estimates. The wild card is the American consumer. At present, consumer
confidence remains strong. Everyone who wants a job has one and wages are
rising. However, it now costs more to gas up the car and heat our homes.
Variable rate mortgage payments will soon be higher and the days of raising
spending money by refinancing your home at lower fixed rates are over for the
time being. Also, with dollar strong versus the yen, all of the Japanese cars,
televisions, stereos, and video games that the American consumer loves will be
more expensive. Will all this be enough to cause the American consumer to
tighten the purse strings? Or will the "wealth effect" of a rising stock market
and a significant tax cut--the Republicans are running on the "3 Fs" (Faith,
Finances, and Family)--provide a bonus for Americans to spend?
Inflation, as measured by the Consumer Price Index ("CPI"), is currently
running around 2.7%--about a percentage point higher than last year, but still
in the comfort zone. Can we expect inflation to stabilize at present levels or
will it trend materially higher, eventually disrupting the economy and stock
market? This depends on
4
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two things: (1) whether the Federal Reserve will succeed in cooling the economy
and (2) whether improving productivity will continue to offset rising wages in
today's tight labor market. Nobody (and that includes us) seems to have a good
handle on these two issues and, consequently, the short term outlook for
inflation remains cloudy. Longer term, we see the Internet as a disinflationary
force. E-commerce is taking the middleman out of the picture and in the process
eliminating an entire level of cost in the economic system. It is also
heightening price competition. If E-commerce approaches its growth potential, we
believe inflation will remain in check.
Without a clear reading on the inflation front, making near term interest
rate forecasts is an even greater folly than usual. We note that although stocks
advanced while bonds declined from January through April, they eventually
stalled as bonds continued to drift lower. When bonds rallied briefly in late
October, stocks took off shortly thereafter. At year-end, bonds were once again
sinking, but stocks moved steadily higher. If bonds continue to decline and
market interest rates continue to rise, it will eventually take the wind out of
the stock market's sail.
GREENSPEAK
The following is excerpted from Federal Reserve Board Chairman Alan
Greenspan's speech, given before the Economic Club of New York on January 13,
2000. Greenspan ponders the impending arrival of the U.S. economy at its longest
peacetime expansion of this half-century, reflecting on the "New Economy" and
where we will go from here:
"WE ARE WITHIN WEEKS OF ESTABLISHING A RECORD FOR THE LONGEST ECONOMIC
EXPANSION IN THIS NATION'S HISTORY. THE 106-MONTH EXPANSION OF THE 1960S, WHICH
WAS ELONGATED BY THE VIETNAM WAR, WILL BE SURPASSED IN FEBRUARY. NONETHELESS,
THERE REMAIN FEW EVIDENT SIGNS OF GERIATRIC STRAIN THAT TYPICALLY PRESAGE AN
IMMINENT ECONOMIC DOWNTURN...
WHAT SHOULD BE INDISPUTABLE IS THAT A NUMBER OF NEW TECHNOLOGIES THAT
EVOLVED LARGELY FROM THE CUMULATIVE INNOVATIONS OF THE PAST HALF-CENTURY HAVE
NOW BEGUN TO BRING ABOUT AWESOME CHANGES IN THE WAY GOODS AND SERVICES ARE
PRODUCED AND, ESPECIALLY, IN THE WAY THEY ARE DISTRIBUTED TO FINAL USERS...
CAPITAL MARKETS, NOT COMFORTABLE WITH DISCONTINUOUS SHIFTS IN ECONOMIC
STRUCTURE, ARE GROPING FOR SENSIBLE EVALUATIONS OF [INNOVATIVE INTERNET STARTUP
FIRMS]... ONE RESULT OF THE MORE-RAPID PACE OF IT INNOVATION HAS BEEN A VISIBLE
ACCELERATION OF THE PROCESS OF "CREATIVE DESTRUCTION," A SHIFTING OF CAPITAL
FROM FAILING TECHNOLOGIES INTO THOSE TECHNOLOGIES AT THE CUTTING EDGE...
INDEED, THESE DEVELOPMENTS EMPHASIZE THE ESSENCE OF INFORMATION
TECHNOLOGY--THE EXPANSION OF KNOWLEDGE AND ITS OBVERSE, THE REDUCTION IN
UNCERTAINTY. AS A CONSEQUENCE, RISK PREMIUMS THAT WERE ASSOCIATED WITH ALL FORMS
OF BUSINESS ACTIVITIES HAVE DECLINED... THE RELATIONSHIP BETWEEN BUSINESSES AND
CONSUMERS ALREADY IS BEING CHANGED BY THE EXPANDING OPPORTUNITIES FOR
E-COMMERCE. THE FORCES UNLEASHED BY THE INTERNET ARE ALMOST SURELY TO BE EVEN
MORE POTENT WITHIN AND AMONG BUSINESSES, WHERE UNCERTAINTIES ARE BEING REDUCED
BY IMPROVING THE QUANTITY, THE RELIABILITY, AND THE TIMELINESS OF INFORMATION.
THIS IS THE CASE IN MANY RECENT INITIATIVES, ESPECIALLY AMONG OUR MORE SEASONED
COMPANIES, TO CONSOLIDATE AND RATIONALIZE THEIR SUPPLY CHAINS USING THE
INTERNET...
AN ABILITY TO REORGANIZE PRODUCTION AND DISTRIBUTION PROCESSES IS
ESSENTIAL TO TAKE ADVANTAGE OF NEWER TECHNOLOGIES. INDEED, THE COMBINATION OF A
MARKED SURGE IN MERGERS AND ACQUISITIONS, AND ESPECIALLY THE VAST INCREASE IN
STRATEGIC ALLIANCES, INCLUDING ACROSS BORDERS, IS DRAMATICALLY ALTERING BUSINESS
STRUCTURES TO CONFORM TO THE IMPERATIVES OF THE NEWER TECHNOLOGIES.
TO BE SURE, INCREASES IN WAGES IN EXCESS OF PRODUCTIVITY GROWTH MAY NOT BE
INFLATIONARY, AND DESTRUCTIVE OF ECONOMIC GROWTH, IF OFFSET BY DECREASES IN
OTHER COSTS OR DECLINING PROFIT MARGINS. A PROTRACTED DECLINE IN MARGINS,
HOWEVER, IS A RECIPE FOR RECESSION. THUS, IF OUR OBJECTIVE OF MAXIMUM
SUSTAINABLE ECONOMIC GROWTH IS TO BE ACHIEVED, THE POOL OF AVAILABLE WORKERS
CANNOT SHRINK INDEFINITELY...IF A TREND CANNOT CONTINUE, IT WILL STOP. WHAT WILL
STOP THE WEALTH-INDUCED EXCESS OF DEMAND OVER PRODUCTIVITY-EXPANDED SUPPLY IS
LARGELY DEVELOPMENTS IN FINANCIAL MARKETS...
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WE ARE IN A PERIOD OF DRAMATIC GAINS IN INNOVATION AND TECHNICAL CHANGE
THAT CHALLENGE ALL OF US, AS OWNERS OF CAPITAL, AS SUPPLIERS OF LABOR, AS VOTERS
AND POLICYMAKERS. HOW WELL POLICY CAN BE FASHIONED TO ALLOW THE PRIVATE SECTOR
TO MAXIMIZE THE BENEFITS OF INNOVATIONS THAT WE CURRENTLY ENJOY, AND TO CONTAIN
THE IMBALANCES THEY CREATE, WILL SHAPE THE ECONOMIC CONFIGURATION OF THE FIRST
PART OF THE NEW CENTURY."
MARKET VALUATIONS--TWO VERY DIFFERENT PERSPECTIVES
Is the stock market overvalued? That depends on which stock market we are
talking about. One market consists of a relative handful of stocks in just a few
industry groups that everyone wants to own. The other market is a vast wasteland
that includes many good companies in good businesses that no one seems to care
for. In the first market, price/earnings ratios have expanded much faster than
earnings growth rates and are now at historically high levels. In the second
market, price/earnings ratios have contracted even as earnings have advanced, in
many cases, at very attractive rates. This second market is more than reasonably
priced.
What will it take to shift investor interest from the few beauty queens at
the dance to the many good looking wallflowers? Probably some high profile
disappointments. With expectations so high for such a small number of stocks,
disappointments are bound to happen. These disappointments will be magnified in
the performance of the cap-weighted market indices. Ironically this could lead
to a mirror image of this year's market--very sharp declines in a small
percentage of stocks taking the indices lower, while the majority of issues post
better absolute and relative performance. This would have favorable implications
for portfolio positions in convertible securities of quality companies that the
market has shunned, and many of the past year's disappointments may be next
year's pleasant surprises.
THIS YEAR'S SCORECARD
As aforementioned, our convertible holdings in telecommunications
companies (Rogers Communications, U.S. Cellular, Sprint, Telefonica Europa, and
Bell Atlantic) were among our best performers in 1999. Media company positions
(News America Holdings, United News and Times Mirror) also contributed to
performance. Financial service giant American Express excelled and Citizens
Utilities posted a good gain.
Our positions in Sealed Air and WHX Corp. declined and other cyclical
holdings (Exide, Fedders, GATX, and Monsanto) also retreated.
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."
6
<PAGE>
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.
8% DISTRIBUTION POLICY
The Convertible Securities Fund continues to maintain its 8% Distribution
Policy whereby the Fund pays out 8% of its average net assets each year. The
method is to pay $0.20 per share in each of the first three quarters of the year
and a distribution in the fourth quarter of a sufficient amount to pay 8% of the
average net assets of the Fund or to satisfy the minimum distribution
requirements of the Internal Revenue Code. The Fund recently distributed $0.43
per share on December 27, 1999 in line with this 8% annual distribution policy.
STOCK REPURCHASE PLAN
The Gabelli Convertible Securities Fund is authorized to repurchase up to
250,000 shares of the Convertible Securities Fund's outstanding shares. Pursuant
to this stock repurchase plan, the Convertible Securities Fund may from time to
time purchase shares of its capital stock in the open market when the shares are
trading at a discount of 10% or more from the net asset value of the shares. In
total, through December 31, 1999, 180,300 shares were repurchased in the open
market since the inception of this stock repurchase plan. Since the discount to
net asset value has narrowed and remained under 10% throughout most of last
year, the Fund has been unable to aggressively purchase shares.
LET'S TALK CONVERTS
The following are specifics on selected holdings of our Fund. Favorable
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
prospects do not necessarily translate into higher prices, but they do express a
positive trend which we believe will develop over time.
AMERICAN EXPRESS CO. (AXP) (SUB. DEB. CV., 1.125%, 12/19/03) and its
subsidiaries provide travel-related services, financial advisory services and
international banking services throughout the world. Founded in 1850, the
company operates in 160 countries. Best known for its "green" charge card and
its travel-related services, including travelers checks, American Express also
offers financial planning, brokerage services, mutual funds, insurance and other
investment products. Harvey Golub, Chairman and CEO, has focused AXP on its core
charge card and investment management businesses. The company is expanding the
competitive reach of its credit card operations, which should benefit if the
U.S. Department of Justice prevails in its antitrust suit against the Visa and
MasterCard associations.
CITIZENS UTILITIES CO. (CZN) (5.00% CV. PFD.) provides telecommunications
services and public services to approximately 1.8 million customers in 21
states. Citizens owns 83% of Electric Lightwave (ELIX - $18.75 - Nasdaq), a
competitive local exchange carrier ("CLEC") serving primarily the western U.S.
Last year, management authorized the separation of Citizens' telecommunications
businesses and public services businesses into two stand-alone, publicly traded
companies. Recently, CZN announced agreements to acquire about 900,000 rural
access lines in 11 states for $2.8 billion. CZN intends to finance the
transactions by divesting its public services operations. It has already
announced the sale of its water operations to American Water Resources for $835
million. The company has sold its 16% stake in Centennial Cellular Corp. for
approximately $205 million. Citizens has monetized its ownership of Century
Communications' (CTYA - $45.625 - Nasdaq) stock and cable operations through a
sale to Adelphia Communications for approximately $220 million.
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KAMAN CORP. (SUB. DEB. CV., 6.00%, 03/15/12), founded in 1945, is a pioneer in
the helicopter industry. Aircraft manufacturing remains the core of the
business. Kaman services both commercial and government markets with helicopters
and aircraft components. The company also produces specialized, high-value niche
market products and services which tend to be technological leaders in their
markets. Kaman Industrial Technologies, located in Windsor, Connecticut is one
of the largest industrial distributors of replacement parts, including bearings,
power transmission, motion control and materials handling components to nearly
every section of industry in North America. Kaman Music, headquartered in
Bloomfield, Connecticut, is one of the largest distributors of music instruments
in the world, distributing more than 13,000 items, including violins, horns,
guitars, drums and accessories to music retailers throughout North America.
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 serve primarily 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 OEM (original equipment manufacturers) 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.
MEDIAONE GROUP INC. (UMG) (4.50% CV. PFD., SER. D) is one of the nation's
leading broadband services companies. UMG provides more than five million
subscribers in 17 states with basic and premium cable television services and
has recently introduced high speed Internet access, telephone services and
digital television in some of its service areas. MediaOne was created from the
1996 union of telecommunications company MediaOne Group (formerly US West Media
Group) and Continental Cablevision. Headquartered in Englewood, Colorado, the
company is conducting a national upgrade of its hybrid fiber optic/coaxial cable
("HFC") network to broadband technology, which improves traditional cable
service and enables next-generation products and services. UMG's investment
interests include 25% of Time Warner Entertainment (which includes Warner
Brothers Studio and Home Box Office), 24% of PCS Prime Co. and almost 27% of
TeleWest plc. The number three U.S. cable television provider recently agreed to
be acquired by AT&T Corp. (T - $50.8125 - NYSE) for $54 billion.
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.
SPRINT CORP. (FON) ($1.50 CV. PFD., SER 1; $1.50 CV. PFD., SER 2; 8.25% CV.
PFD.) is the third largest long distance carrier and the second largest
independent local telephone company in the U.S. Sprint has positioned itself
globally through a joint venture called GlobalOne. Its joint venture partners,
France Telecom and Deutsche Telekom, also have a direct 20% stake in Sprint. FON
faces risks from prospective new entrants in its long distance business which
may be offset by the "ION" high bandwith network that the company is developing,
and by other new services. On October 5, 1999, MCI WorldCom announced plans to
acquire Sprint for $125 billion in stock and cash. The transaction is expected
to close in about 12 months upon regulatory approval. Sprint PCS group is the
leading all digital personal communications services ("PCS") carrier in the U.S.
with over four million customers and licenses covering over 230 million people.
Sprint PCS will be acquired as part of MCI WorldCom's (WCOM - $53.0625 - Nasdaq)
acquisition of Sprint Corp.
DIVIDENDS
The Fund recently distributed a dividend of $0.43 per share to Common
Shareholders on December 27, 1999 in line with the Fund's 8% annual distribution
policy. For the twelve months ended December 31, 1999, the Fund distributed a
total of $1.03 per share to Common Shareholders. Our Preferred Shareholders were
paid a dividend of $0.50 per share on December 27, 1999. For the twelve months
ended December 31, 1999, the Preferred Shareholders received a total
distribution of $2.00 per share, which is the annual dividend rate on the
Preferred Shares.
8
<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 applaud Nasdaq's efforts in making closed-end funds'
NAVs available on a daily basis.
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
Considering our value bias and substantial commitments to bond-like
"busted" convertibles, we are relatively pleased with the Fund's 1999 returns.
The outlook for the stock and bond markets, and, therefore convertible
securities, remains cloudy. However, we believe our portfolio of quality
companies represents good value in an otherwise richly priced market.
Sincerely,
/s/ signature
MARIO J. GABELLI
President and
Chief Investment Officer
January 31, 2000
- --------------------------------------------------------------------------------
TOP TEN CONVERTIBLE HOLDINGS
DECEMBER 31, 1999
-----------------
<TABLE>
<CAPTION>
<S> <C>
Sprint ($1.50 Cv. Pfd., Ser. 1; $1.50 Cv. Pfd., Ser. 2; 8.25% Cv. Pfd.) Hilton Hotels Corp. (Sub. Deb. Cv., 5.00%, 05/15/06)
Kaman Corp. (Sub. Deb. Cv., 6.00%, 03/15/12) Atlantic Richfield Co. ($2.80 Cv. Pfd.)
Citizens Utilities (5.00% Cv. Pfd.) Cendant Corp. (1.30% Cv. Pfd., 7.50% Cv. Pfd.)
Mark IV Industries (Sub. Deb. Cv., 4.75%, 11/01/04) Sequa Corp. ($5.00 Cv. Pfd.)
Standard Motor Products (Sub. Deb. Cv., 6.75%, 07/15/09) Sealed Air Corp. ($2.00 Cv. Pfd., Ser. A)
</TABLE>
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
9
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- ------
CONVERTIBLE CORPORATE BONDS -- 23.5%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.2%
$ 700,000 Exide Corp. Sub. Deb. Cv.
2.90%, 12/15/05 (b) ......... $ 468,366 $ 362,250
250,000 Pep Boys - Manny, Moe & Jack
Sub. Deb. Cv.
Zero Cpn., 09/20/11 ......... 134,326 132,500
4,200,000 Standard Motor Products Inc.
Sub. Deb. Cv.
6.75%, 07/15/09 ............. 4,165,856 3,352,125
------------ ------------
4,768,548 3,846,875
------------ ------------
AVIATION: PARTS AND SERVICES-- 3.5%
4,450,000 Kaman Corp. Sub. Deb. Cv.
6.00%, 03/15/12 ............. 4,232,611 4,183,000
------------ ------------
BUSINESS SERVICES-- 2.0%
900,000 BBN Corp. Sub. Deb. Cv.
6.00%, 04/01/12 (a) ......... 880,558 870,750
1,720,000 Trans-Lux Corp.
Sub. Deb. Cv.
7.50%, 12/01/06 ............. 1,653,491 1,479,200
------------ ------------
2,534,049 2,349,950
------------ ------------
COMPUTER SOFTWARE AND SERVICES -- 0.1%
400,000 QuadraMed Corp.
Sub. Deb. Cv.
5.25%, 05/01/05 ............. 242,836 184,500
------------ ------------
CONSUMER PRODUCTS-- 0.7%
1,500,000 Pillowtex Corp. Sub. Deb. Cv.
6.00%, 03/15/12 ............. 710,075 540,000
750,000 Standard Commercial Corp.
Sub. Deb. Cv.
7.25%, 03/31/07 ............. 624,044 361,875
------------ ------------
1,334,119 901,875
------------ ------------
CONSUMER SERVICES-- 0.2%
250,000 Ogden Corp. Sub. Deb. Cv.
6.00%, 06/01/02 ............. 237,838 218,750
------------ ------------
DIVERSIFIED INDUSTRIAL -- 0.1%
120,000 WMX Technologies Inc.
Sub. Deb. Cv.
2.00%, 01/24/05 ............. 98,760 99,900
------------ ------------
ELECTRONIC EQUIPMENT -- 0.1%
ASM Lithography
Holding Cv.
40,000 2.50%, 04/09/05 ............. 18,242 76,551
10,000 2.50%, 04/09/05 (b) ......... 4,561 19,138
------------ ------------
22,803 95,689
------------ ------------
ENERGY AND UTILITIES-- 1.0%
100,000 Friede Goldman Halter Inc.
Sub. Deb. Cv.
4.50%, 09/15/04 ............. 59,010 62,000
1,100,000 Moran Energy Inc.
Sub. Deb. Cv.
8.75%, 01/15/08 ............. 757,842 1,051,875
100,000 Texaco Capital Inc. Cv.
3.50%, 08/05/04 ............. 100,422 95,500
------------ ------------
917,274 1,209,375
------------ ------------
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- ------
ENTERTAINMENT -- 0.7%
$ 800,000 USA Networks Inc.
Sub. Deb. Cv.
7.00%, 07/01/03 ............. $ 752,580 $ 832,000
------------ ------------
EQUIPMENT AND SUPPLIES-- 5.5%
1,310,000 Intermagnetics General Corp.
Sub. Deb. Cv.
5.75%, 09/15/03 (b) ......... 1,280,762 1,126,600
1,602,000 Kollmorgen Corp.
Sub. Deb. Cv.
8.75%, 05/01/09 ............. 1,364,113 1,616,017
4,400,000 Mark IV Industries Inc.
Sub. Deb. Cv.
4.75%, 11/01/04 ............. 3,841,180 3,591,500
240,000 Robbins & Myers Inc.
Sub. Deb. Cv.
6.50%, 09/01/03 ............. 234,243 234,900
------------ ------------
6,720,298 6,569,017
------------ ------------
FINANCIAL SERVICES-- 0.1%
75,000 American Express Co.
Sub. Deb. Cv.
1.125%, 02/19/03 ............ 99,089 107,812
------------ ------------
FOOD AND BEVERAGE-- 0.1%
110,000 Boston Chicken Inc.
Sub. Deb. Cv.
7.75%, 05/01/04+ ............ 23,438 1,100
150,000 Chiquita Brands
International Inc. Cv.
7.00%, 03/28/01 ............. 136,024 106,500
------------ ------------
159,462 107,600
------------ ------------
HEALTH CARE -- 0.7%
10,000 Inhale Therapeutic Systems
Sub. Deb. Cv.
6.75%, 10/13/06 (b) ......... 10,439 14,450
750,000 Ivax Corp. Deb. Cv.
6.50%, 11/15/01 ............. 694,604 733,125
150,000 Sabratek Corp.
Sub. Deb. Cv.
6.00%, 04/15/05+ ............ 67,692 58,500
------------ ------------
772,735 806,075
------------ ------------
HOTELS AND GAMING-- 2.3%
3,595,000 Hilton Hotels Corp.
Sub. Deb. Cv.
5.00%, 05/15/06 ............. 3,262,307 2,723,212
------------ ------------
METALS AND MINING -- 0.3%
500,000 Coeur d'Alene Mines Corp.
Sub. Deb. Cv.
6.00%, 06/10/02 ............. 470,079 307,500
------------ ------------
PAPER AND FOREST PRODUCTS-- 0.9%
200,000 Riverwood International Corp.
Sub. Deb. Cv.
6.75%, 09/15/03 ............. 199,772 230,890
1,100,000 Thermo Fibertek Inc. Cv.
4.50%, 07/15/04 (b) ......... 909,462 891,000
------------ ------------
1,109,234 1,121,890
------------ ------------
See accompanying notes to financial statements.
10
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- ------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
PUBLISHING -- 1.1%
$ 700,000 News America Holdings Inc.
Sub. Deb. Cv.
Zero Cpn., 03/31/02 ......... $ 590,204 $ 1,155,000
200,000 Times Mirror Ltd.
Sub. Deb. Cv.
Zero Cpn., 04/15/17 ......... 98,125 97,750
50,000 United News & Media plc
Sub. Deb. Cv.
6.125%, 12/03/03 (c) ........ 86,363 93,437
------------ ------------
774,692 1,346,187
------------ ------------
REAL ESTATE AND DEVELOPMENT-- 0.1%
125,000 Rockefeller Center Properties Inc.
Sub. Deb. Cv.
Zero Cpn., 12/31/00 ......... 110,921 103,125
------------ ------------
RETAIL-- 0.0%
60,000 Costco Companies Inc.
Sub. Deb. Cv.
Zero Cpn., 08/19/17 ......... 41,959 63,900
100,000 JumboSports Inc.
Sub. Deb. Cv.
4.25%, 11/01/00+ ............ 62,376 5,500
------------ ------------
104,335 69,400
------------ ------------
TECHNOLOGY-- 0.2%
300,000 Thermo Electron Corp.
Sub. Deb. Cv.
4.25%, 01/01/03 (b) ......... 267,096 255,000
------------ ------------
TELECOMMUNICATIONS-- 0.5%
80,000 Amnex Inc. Sub. Deb. Cv.
8.50%, 09/25/02 (b) ......... 71,773 3,592
90,000 Bell Atlantic Corp.
Sub. Deb. Cv.
4.25%, 09/15/05 ............. 99,853 111,712
500,000 Rogers Communications Inc.
Sub. Deb. Cv.
2.00%, 11/26/05 ............. 345,401 435,600
50,000 Telefonica Europe BV
Sub. Deb. Cv.
2.00%, 07/15/02 ............. 50,000 127,375
------------ ------------
567,027 678,279
------------ ------------
WIRELESS COMMUNICATIONS-- 0.1%
100,000 U.S. Cellular Corp.
Sub. Deb. Cv.
Zero Cpn., 06/15/15 ......... 98,205 96,375
------------ ------------
TOTAL CONVERTIBLE
CORPORATE BONDS ........................ 29,656,898 28,213,386
------------ ------------
SHARES
--------
CONVERTIBLE PREFERRED STOCKS -- 23.6%
AGRICULTURE -- 0.1%
4,000 Monsanto Co.
6.50% Cv. Pfd. .............. 174,637 132,500
------------ ------------
MARKET
SHARES COST VALUE
-------- ---- ------
AVIATION: PARTS AND SERVICES -- 1.5%
Coltec Capital Trust
25,000 5.25% Cv. Pfd. .............. $ 1,032,875 $ 1,206,250
17,000 5.25% Cv. Pfd. (b) .......... 802,500 624,750
------------ ------------
1,835,375 1,831,000
------------ ------------
BUSINESS SERVICES -- 2.0%
Cendant Corp.
5,000 7.50% Cv. Pfd. .............. 147,750 186,875
66,000 1.30% Cv. Pfd. .............. 1,704,187 2,239,875
------------ ------------
1,851,937 2,426,750
------------ ------------
CABLE -- 0.1%
1,000 MediaOne Group Inc.
4.50% Cv. Pfd. Ser. D ....... 26,800 25,125
1,300 UnitedGlobalCom Inc.
7.00% Cv. Pfd. .............. 98,800 116,025
------------ ------------
125,600 141,150
------------ ------------
DIVERSIFIED INDUSTRIAL -- 1.3%
1,400 GATX Corp.
$2.50 Cv. Pfd. .............. 136,020 238,000
40,000 WHX Corp.,
6.50% Cv. Pfd. Ser. A ....... 1,881,450 1,297,500
------------ ------------
2,017,470 1,535,500
------------ ------------
ENERGY AND UTILITIES-- 2.2%
6,000 Atlantic Richfield Co.
$2.80 Cv. Pfd. .............. 1,600,962 2,487,000
1,000 Houston Industries Inc.
7.00% Cv. Pfd. .............. 106,050 120,500
------------ ------------
1,707,012 2,607,500
------------ ------------
ENTERTAINMENT -- 0.1%
4,500 Metromedia International
Group Inc.
7.25% Cv. Pfd. .............. 170,031 135,000
------------ ------------
EQUIPMENT AND SUPPLIES -- 1.9%
25,000 Sequa Corp.
$5.00 Cv. Pfd. .............. 1,927,692 2,250,000
------------ ------------
FOOD AND BEVERAGE -- 0.2%
5,000 Seagram Co.
7.50% Cv. Pfd. .............. 250,625 225,000
------------ ------------
PAPER AND FOREST PRODUCTS -- 1.5%
34,500 Sealed Air Corp.
$2.00 Cv. Pfd. Ser. A ....... 1,435,100 1,742,250
------------ ------------
PUBLISHING -- 0.4%
15,000 Reader's Digest
Association Inc.
$1.9336 Cv. Pfd. ............ 382,588 406,875
5,000 Tribune Co.
6.25% Cv. Pfd. .............. 92,750 88,125
------------ ------------
475,338 495,000
------------ ------------
RETAIL -- 0.2%
2,000 Automatic Common
Exchange Security Trust II
6.50% Cv. Pfd. .............. 30,556 19,125
3,000 CVS Corp.
6.00% Cv. Pfd. .............. 269,650 213,750
------------ ------------
300,206 232,875
------------ ------------
See accompanying notes to financial statements.
11
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
MARKET
SHARES COST VALUE
-------- ---- ------
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
SPECIALTY CHEMICALS -- 0.0%
2,000 Merrill Lynch & Co.
(IMC Global)
6.25% Cv. Pfd. .............. $ 41,038 $ 35,750
------------ ------------
TELECOMMUNICATIONS -- 11.0%
2,000 Broadwing Inc.
6.75% Cv. Pfd. Ser. B ....... 108,100 118,500
70,000 Citizens Utilities Co.
5.00% Cv. Pfd. .............. 3,386,783 3,946,250
8,000 Philippine Long Distance
Telephone Co.
$3.50 Cv. Pfd. Ser. III ..... 374,069 381,000
Sprint Corp.
3,000 $1.50 Cv. Pfd. Ser. 1 ....... 301,100 1,680,000
2,200 $1.50 Cv. Pfd. Ser. 2 ....... 187,510 1,254,000
72,900 8.25% Cv. Pfd. .............. 2,783,858 5,412,825
1,500 TCI Pacific
Communications Inc.
5.00% Cv. Pfd. .............. 134,837 462,429
------------ ------------
7,276,257 13,255,004
------------ ------------
WIRELESS COMMUNICATIONS -- 1.1%
7,000 Omnipoint Corp.
7.00% Cv. Pfd. .............. 208,790 1,282,750
------------ ------------
TOTAL CONVERTIBLE
PREFERRED STOCK ........................ 19,797,108 28,328,029
------------ ------------
COMMON STOCKS -- 9.8%
AVIATION: PARTS AND SERVICES-- 0.2%
18,000 Kaman Corp., Cl. A ........... 181,321 231,750
------------ ------------
BROADCASTING -- 0.4%
40,000 Granite Broadcasting Corp.+ .. 314,287 405,000
------------ ------------
BUSINESS SERVICES -- 0.2%
11,300 Amway Asia
Pacific Ltd. ................ 202,896 202,694
------------ ------------
CABLE -- 1.6%
25,000 MediaOne Group Inc.+ ......... 660,252 1,920,340
------------ ------------
ENERGY AND UTILITIES-- 5.8%
20,000 AGL Resources Inc. ........... 361,010 340,000
30,000 Aquarion Co. ................. 1,091,937 1,110,000
14,000 CH Energy Group Inc. ......... 555,138 462,000
2,000 E'Town Corp. ................. 124,475 124,500
5,000 Eastern Enterprises .......... 282,750 287,188
15,000 MCN Energy Group Inc. ........ 363,563 356,250
20,000 MidAmerican Energy
Holdings Co.+ ............... 670,250 673,750
5,000 New England Electric
System ...................... 244,187 258,750
4,000 NStar ........................ 150,566 162,000
60,000 Southwest Gas Corp. .......... 1,583,223 1,380,000
20,000 United Water
Resources Inc. .............. 664,750 683,750
40,000 Wicor Inc. ................... 1,185,564 1,167,500
------------ ------------
7,277,413 7,005,688
------------ ------------
ENTERTAINMENT -- 0.0%
10,000 Kushner-Locke Co. ............ 53,544 43,438
------------ ------------
MARKET
SHARES COST VALUE
-------- ---- ------
EQUIPMENT AND SUPPLIES-- 0.2%
50,000 Fedders Corp., Cl. A ......... $ 310,916 $ 256,250
------------ ------------
FINANCIAL SERVICES -- 0.3%
20,000 Argonaut Group Inc. .......... 533,139 397,500
------------ ------------
RETAIL -- 0.4%
12,000 Delhaize America Inc. ........ 275,298 243,750
3,000 Hannaford Bros. Co. .......... 210,963 207,938
------------ ------------
486,261 451,688
------------ ------------
TELECOMMUNICATIONS -- 0.7%
35,000 Rogers Communications
Inc., Cl. B+ ................ 493,805 855,906
------------ ------------
TOTAL COMMON STOCKS 10,513,834 11,770,254
------------ ------------
PRINCIPAL
AMOUNT
-----------
U.S. GOVERNMENT OBLIGATIONS -- 43.5%
$52,421,000 U.S. Treasury Bills
5.08% to 5.48%++,
due 01/13/00 to 03/23/00 .... 52,284,393 52,284,490
------------ ------------
TOTAL INVESTMENTS-- 100.4% ............... $112,252,233 120,596,159
============
OTHER ASSETS, LIABILITIES
AND LIQUIDATION
VALUE OF CUMULATIVE
PREFERRED STOCK-- (25.4)% ............................ (30,416,977)
------------
NET ASSETS - COMMON STOCK -- 75.0%
(7,912,645 common shares outstanding) ................ 90,179,182
------------
NET ASSETS - CUMULATIVE
PREFERRED STOCK -- 25.0%
(1,200,000 preferred shares outstanding) ............. 30,000,000
------------
TOTAL NET ASSETS-- 100.0% .............................. $120,179,182
============
NET ASSET VALUE PER COMMON SHARE
($90,179,182 / 7,912,645 common shares outstanding) .. $11.40
======
--------------------
For Federal tax purposes:
Aggregate cost ................................... $112,520,305
============
Gross unrealized appreciation .................... $ 12,599,359
Gross unrealized depreciation .................... (4,523,505)
------------
Net unrealized appreciation ...................... $ 8,075,854
============
--------------------
(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, 1999, the market value of Rule 144A securities amounted to $3,296,780
or 2.7% of total net assets.
(c) Principal amount denoted in British Pounds.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS:
Investments, at value (Cost $112,252,233) . $120,596,159
Foreign currency, at value (Cost $25,277) . 24,778
Dividends and interest receivable ......... 656,511
Receivable for investments sold ........... 814,233
------------
TOTAL ASSETS ............................. 122,091,681
------------
LIABILITIES:
Payable for investments purchased ......... 26,619
Dividends payable ......................... 1,280,206
Payable for investment advisory fee ....... 364,845
Payable to custodian ...................... 118,173
Accrued expenses and other payables ....... 122,656
------------
TOTAL LIABILITIES ........................ 1,912,499
------------
NET ASSETS ............................... $120,179,182
============
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 ............... 7,913
Additional paid-in capital ................ 82,030,770
Accumulated distributions in excess of
net investment income .................... (13,350)
Accumulated distributions in excess of
net realized gain on investments and
foreign currency transactions ............ (189,556)
Net unrealized appreciation on investments
and foreign currency transactions ........ 8,343,405
------------
TOTAL NET ASSETS ......................... $120,179,182
============
NET ASSET VALUE PER COMMON SHARE
($90,179,182 / 7,912,645 shares issued
and outstanding; 100,000,000 shares
authorized of $0.001 par value) ........ $11.40
======
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME:
Dividends (net of foreign taxes of $496) .. $ 1,764,585
Interest .................................. 3,975,313
-----------
TOTAL INVESTMENT INCOME ................... 5,739,898
-----------
EXPENSES:
Investment advisory fees .................. 1,224,337
Legal and audit fees ...................... 104,366
Shareholder communications ................ 96,868
Shareholder services fees ................. 90,468
Payroll ................................... 71,000
Directors' fees ........................... 47,856
Custodian fees ............................ 17,889
Miscellaneous expenses .................... 28,766
-----------
TOTAL EXPENSES ............................ 1,681,550
-----------
NET INVESTMENT INCOME ..................... 4,058,348
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments and
foreign currency transactions ............ 6,671,304
Net change in unrealized appreciation
on investments and foreign currency
transactions ............................ (628,418)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS ....... 6,042,886
-----------
Net Increase in Net Assets Resulting
from Operations ......................... $10,101,234
===========
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................................................ $ 4,058,348 $ 4,165,471
Net realized gain on investments and foreign currency transactions ........... 6,671,304 5,408,607
Net change in unrealized appreciation of investments
and foreign currency transactions .......................................... (628,418) (277,461)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................... 10,101,234 9,296,617
------------ ------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
Net investment income ........................................................ (908,491) (1,008,552)
Net realized gains ........................................................... (1,491,509) (1,391,448)
------------ ------------
TOTAL DISTRIBUTIONS ........................................................ (2,400,000) (2,400,000)
------------ ------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income ........................................................ (3,050,169) (3,004,493)
Net realized gains ........................................................... (4,898,574) (3,927,271)
Distributions in excess of net investment income ............................. (22,920) (68,292)
Distributions in excess of net realized gains ................................ (179,986) (312,617)
------------ ------------
TOTAL DISTRIBUTIONS ........................................................ (8,151,649) (7,312,673)
------------ ------------
CAPITAL SHARE TRANSACTIONS-- NET: ................................................ (96,215) (1,240,142)
------------ ------------
NET DECREASE IN NET ASSETS ................................................. (546,630) (1,656,198)
NET ASSETS:
Beginning of period .......................................................... 120,725,812 122,382,010
------------ ------------
End of period ................................................................ $120,179,182 $120,725,812
============ ============
</TABLE>
See accompanying notes to financial statements.
13
<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 securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by the Adviser.
Securities and assets for which market quotations are not readily available are
valued at their fair market 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. Debt instruments having a
greater maturity are valued at the highest bid price obtained from a dealer
maintaining an active market in those securities. Options are valued at the last
sale price on the exchange on which they are listed. If no sales of such options
have taken place that day, they will be valued at the mean between their closing
bid and asked prices.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
government securities dealers recognized by the Federal Reserve Board, with
member banks of the Federal Reserve System or with other brokers or dealers that
meet credit guidelines established by the Directors. Under the terms of a
typical repurchase agreement, the Fund takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. The Fund will always receive and
maintain securities as collateral whose market value, including accrued
interest, will be at least equal to 100% of the dollar amount invested by the
Fund in each agreement. The Fund will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer of the collateral to
the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to maintain the adequacy of the collateral. If the seller defaults
and the value of the collateral declines or if bankruptcy proceedings are
commenced with respect to the seller of the security, realization of the
collateral by the Fund may be delayed or limited.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. Forward foreign currency contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
recorded by the Fund as an unrealized gain or loss. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed.
The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the Fund's portfolio securities, but it
does establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that 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, 1999, the Fund held no forward foreign
currency contracts.
14
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1999, there were no open futures contracts.
There are several risks in connection with the use of futures contracts as
a hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
SHORT SALES. The Fund is authorized to engage in short sales, which
obligate the Fund to replace the security borrowed by purchasing the security at
the current market value sometime in the future. The Fund would incur a loss if
the price of the security increases between the date of the short sale and the
date on which the Fund replaces the borrowed security. The Fund would realize a
gain if the price of the security declines between those dates. Until the Fund
replaces the borrowed security, the Fund will maintain a segregated account with
cash and/or U.S. Government securities sufficient to cover its short position on
a daily basis.
FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in United States (U.S.) dollars. Foreign currencies, investments and
other assets and liabilities are translated into U.S. dollars at the exchange
rates prevailing at the end of the period, and purchases and sales of investment
securities, income and expenses are translated at the exchange rate prevailing
on the respective dates of such transactions. Unrealized gains and losses, which
result from changes in foreign exchange rates and/or changes in market prices of
securities, have been included in unrealized appreciation/depreciation on
investments. Net realized foreign currency gains and losses resulting from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, foreign
currency transactions and the difference between the amounts of interest and
dividends recorded on the books of the Fund and the amounts actually received.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial trade date and subsequent sale trade date is
included in realized gain/(loss) on investments.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
to shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatment of income and gains
on various investments securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund. Distributions to
shareholders of Cumulative Preferred Stock are accrued on a daily basis and are
determined as described in Note 3.
For the year ended December 31, 1999, reclassifications were made to
increase accumulated distributions in excess of net investment income for $9,570
with an offsetting adjustment to accumulated distributions in excess of net
realized gain on investments and foreign currency transactions.
PROVISION FOR INCOME TAXES. The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. As a result, a Federal income tax provision is not required.
3. 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. Dividends on shares of the Cumulative
Preferred Stock are cumulative. The Fund is required to meet certain asset
coverage tests with respect to the Cumulative Preferred Stock. If the Fund fails
to meet these requirements and does not correct such failure, the Fund may be
required to redeem, in part or in full, the Cumulative Preferred Stock at a
redemption price of $25.00 per share plus an amount
15
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1999, the 1,200,000 shares of 8% Cumulative Preferred Stock outstanding
accrued dividends in the amount of $33,333. The income received on the Fund's
assets may vary in a manner unrelated to the fixed rate, which could have either
a beneficial or detrimental impact on net investment income and gains available
to Common Shareholders.
The Fund shall not declare dividends or make other distributions on 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, as amended, 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 Common 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, 1999, the Fund repurchased 8,900 shares at a cost of $96,215
and at an average discount of 10.36%. During the fiscal 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%. All shares repurchased have been retired.
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, 1999, the Fund has achieved a total return in excess of
the stated dividend rate and, thus, such management fees were earned.
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the year ended
December 31, 1999, other than short-term securities, aggregated $138,796,014 and
$144,365,819, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1999, the
Fund paid brokerage commissions of $86,465 to Gabelli & Company, Inc. and its
affiliates.
16
<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,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ............. $11.45 $11.48 $11.08 $11.01 $10.60
------ ------ ------ ------ ------
Net investment income ............................ 0.51 0.53 0.49 0.49 0.53
Net realized and unrealized gain
on investments ................................. 0.77 0.65 1.23 0.31 1.03
------ ------ ------ ------ ------
Total from investment operations ................. 1.28 1.18 1.72 0.80 1.56
------ ------ ------ ------ ------
Increase in net assets from capital
share transactions ............................. -- 0.01 0.01 -- --
------ ------ ------ ------ ------
Offering expenses charged to additional
paid-in capital ................................ -- -- (0.18) -- --
------ ------ ------ ------ ------
DISTRIBUTIONS:
PREFERRED SHARES
Distributions from net investment income ......... (0.11) (0.13) (0.08) -- --
Distributions from net realized gains
on investments ................................. (0.19) (0.17) (0.11) -- --
COMMON SHARES
Distributions from net investment income ......... (0.39) (0.38) (0.40) (0.49) (0.53)
Distributions from net realized gains
on investments ................................. (0.62) (0.50) (0.56) (0.24) (0.56)
Distributions in excess of net investment income . (0.00)(e) (0.01) -- -- (0.02)
Distributions in excess of net realized gains .... (0.02) (0.03) -- -- (0.01)
Distributions from paid-in capital ............... -- -- -- -- (0.03)
------ ------ ------ ------ ------
Total distributions .............................. (1.33) (1.22) (1.15) (0.73) (1.15)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR ..................... $11.40 $11.45 $11.48 $11.08 $11.01
====== ====== ====== ====== ======
Market value, end of year ........................ $10.56 $11.25 $10.31 $ 9.25 $10.75
====== ====== ====== ====== ======
Total Net Asset Value Return+ (a) ................ 9.4% 8.3% 13.5% 8.4% 15.0%
Total Investment Return+ (b) ..................... 3.2% 18.4% 22.2% (7.3)% 12.3%
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .............$120,179 $120,726 $122,382 $89,659 $89,137
Net assets attributable to common shares,
end of period (in 000's) .......................$ 90,179 $ 90,726 $ 92,382 $89,659 $89,137
Ratio of net investment income to average
net assets attributable to common stock ........ 4.35% 4.54% 4.23% 4.33% 4.60%
Ratio of operating expenses to average
net assets attributable to common stock (c) .... 1.80% 1.83% 1.68% 1.45% 1.56%
Ratio of operating expenses to average
total net assets ............................... 1.36% 1.38% 1.39% 1.45% 1.56%
Portfolio turnover rate .......................... 175% 149% 243% 114% 140%
PREFERRED STOCK:
Liquidation value (in 000's) .....................$ 30,000 $ 30,000 $ 30,000 -- --
Total shares outstanding (in 000's) .............. 1,200 1,200 1,200 -- --
Asset coverage per share ......................... 401% 402% 408% -- --
Liquidation preference per share .................$ 25.00 $ 25.00 $ 25.00 -- --
Average market value per share (d) ...............$ 25.36 $ 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.
(e) Amount represents less than $0.005 per share.
See accompanying notes to financial statements.
17
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
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, 1999, 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 accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 11, 2000
18
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
INCOME TAX INFORMATION (UNAUDITED)
DECEMBER 31, 1999
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> <C>
COMMON SHARES
03/29/99 03/19/99 $0.2000 $0.1623 $0.0377 $11.0367
06/28/99 06/18/99 0.2000 0.1623 0.0377 11.3847
09/27/99 09/17/99 0.2000 0.1623 0.0377 10.8616
12/27/99 12/17/99 0.4300 0.3489 0.0811 10.3764
------- ------- -------
Total Common Stock $1.0300 $0.8358 $0.1942
PREFERRED SHARES
03/29/99 03/22/99 $0.5000 $0.4057 $0.0943
06/28/99 06/21/99 0.5000 0.4057 0.0943
09/27/99 09/20/99 0.5000 0.4057 0.0943
12/27/99 12/20/99 0.5000 0.4057 0.0943
------- ------- -------
Total Preferred Stock $2.0000 $1.6228 $0.3772
</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 1999 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 1999 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
1999.
CORPORATE DIVIDENDS RECEIVED DEDUCTION AND U.S. TREASURY SECURITIES INCOME
The Fund paid to common shareholders ordinary income dividends of $0.1623
per share on March 29, 1999, June 28, 1999, September 27, 1999 and $0.3489 per
share on December 27, 1999. The Fund paid to preferred shareholders ordinary
income dividends of $0.4057 per share on March 29, 1999, June 28, 1999,
September 27, 1999, and December 27, 1999. For 1999, 18.69% 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 1999 derived from U.S. Treasury Securities was 19.24%. 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
1999.
HISTORICAL DISTRIBUTION SUMMARY -- COMMON STOCK
<TABLE>
<CAPTION>
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>
1999 $0.3899 $0.4459 $0.1942 -- $1.0300 --
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 --
HISTORICAL DISTRIBUTION SUMMARY -- PREFERRED STOCK
1999 $0.7571 $0.8657 $0.3772 -- $2.0000 --
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.
19
<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.
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The Annual Meeting of the Convertible Securities Fund, Inc.'s stockholders will
be held at 8:30 A.M. on Monday, May 15, 2000, at the Greenwich Public Library,
101 West Putnam Avenue, in Greenwich, Connecticut.
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20
<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, 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: 7,912,645 1,200,000
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Sunday's The New York Times and in
Monday's The Wall Street Journal.
It is also listed in Barron's Mutual Funds/Closed End Funds section under the
heading "Convertible Securities Funds".
The Net Asset Value may be obtained each day by calling (914) 921-5071.
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For general information about the Gabelli Funds,
call 1-800-GABELLI (1-800-422-3554), fax us
at 914-921-5118, visit our Internet homepage at:
HTTP://WWW.GABELLI.COM, or e-mail us at:
[email protected]
- -------------------------------------------------------
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Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Convertible Securities Fund may from
time to time purchase shares of its Common Stock in the open market when the
Convertible Securities Fund shares are trading at a discount of 10% or more from
the net asset value of the shares. The Convertible Securities Fund may also,
from time to time, purchase shares of its Cumulative Preferred Stock in the open
market when the shares are trading at a discount to the Liquidation Value of
$25.00.
- --------------------------------------------------------------------------------
<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
