UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05715
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The Gabelli Convertible and Income Securities Fund Inc.
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(Exact name of registrant as specified in charter)
One Corporate Center
Rye, New York 10580-1422
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(Address of principal executive offices) (Zip code)
Bruce N. Alpert
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
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(Name and address of agent for service)
registrant's telephone number, including area code: 1-800-422-3554
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Date of fiscal year end: December 31
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Date of reporting period: June 30, 2005
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Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
[LOGO OMITTED]
THE GABELLI
CONVERTIBLE AND
INCOME SECURITIES
FUND INC.
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
Semi-Annual Report
June 30, 2005
TO OUR SHAREHOLDERS,
During the second quarter of 2005, the Gabelli Convertible and Income
Securities Fund's (the "Fund") total return rose 1.9% on a net asset value
("NAV") basis while the Standard & Poor's ("S&P") 500 Index and the Lipper
Convertible Securities Fund Average rose 1.4% and 1.1%, respectively. For the
six month period ended June 30, 2005, the Fund's NAV total return was up 2.0%
versus declines of 0.8% and 2.7% for the S&P 500 Index and the Lipper
Convertible Securities Fund Average, respectively. The Fund's market price rose
10.5% and 12.3% during the second quarter and the six month period ended June
30, 2005, respectively. TheFund's market price on June 30, 2005 was $9.93, which
equated to a 22.9% premium to its NAV of $8.08.
Enclosed are the financial statements and the investment portfolio as of
June 30, 2005.
COMPARATIVE RESULTS
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 2005 (A)
------------------------------------------------
Since
Year to Inception
Quarter Date 1 Year 3 Year 5 Year 10 Year 15 Year (7/3/89)
------- ---- ------ ------ ------ ------- ------- ---------
GABELLI CONV. & INC. SEC. FUND NAV RETURN (B) ..... 1.88% 1.96% 4.58% 5.65% 3.44% 5.91% 7.32% 7.49%
GABELLI CONV. & INC. SEC. FUND INV. RETURN (C) 10.45 12.34 8.06 7.17 10.15 8.52 N/A(D) 5.29(D)
S&P 500 Index ..................................... 1.37 (0.81) 6.32 8.28 (2.37) 9.94 10.64 11.00
Lipper Convertible Securities Fund Average ........ 1.08 (2.66) 3.30 9.36 1.33 8.48 9.76 9.52
(a) RETURNS 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. DIVIDENDS ARE CONSIDERED REINVESTED. PERFORMANCE RETURNS FOR PERIODS
LESS THAN ONE YEAR ARE NOT ANNUALIZED. CURRENT PERFORMANCE MAY BE LOWER OR
HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR
PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD
CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND CHARGES AND EXPENSES OF THE
FUND CAREFULLY BEFORE INVESTING. THE S&P 500 INDEX IS AN UNMANAGED
INDICATOR OF STOCK MARKET PERFORMANCE, WHILE THE LIPPER AVERAGE REFLECTS
THE AVERAGE PERFORMANCE OF OPEN-END MUTUAL FUNDS CLASSIFIED IN THIS
PARTICULAR CATEGORY.
(b) TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN NET ASSET VALUE
("NAV"), REINVESTMENT OF DISTRIBUTIONS AT NAV ON THE EX-DIVIDEND DATE AND
ADJUSTMENTS FOR RIGHTS OFFERINGS, AND ARE NET OF EXPENSES. SINCE INCEPTION
RETURN BASED ON INITIAL NET ASSET VALUE OF $10.00.
(c) TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN CLOSING MARKET
VALUES ON THE NEW YORK STOCK EXCHANGE AND REINVESTMENT OF DISTRIBUTIONS.
SINCE INCEPTION RETURN BASED ON AN INITIAL OFFERING PRICE OF $11.25 AS OF
MARCH 31, 1995. SEE (D).
(d) THE FUND CONVERTED TO CLOSED-END STATUS ON MARCH 31, 1995 AND HAD NO
OPERATING HISTORY ON THE NEW YORK STOCK EXCHANGE PRIOR TO THAT DATE.
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We have separated the portfolio manager's commentary from the financial
statements and investment portfolio due to corporate governance regulations
stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that
the content of the portfolio manager's commentary is unrestricted. The financial
statements and investment portfolio are mailed separately. Both the commentary
and the financial statements, including the portfolio of investments, will be
available on our website at www.gabelli.com/funds.
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THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED)
The following table presents portfolio holdings as a percent of total
investments:
U.S. Treasury Bills ............................... 19.0%
Energy and Utilities .............................. 11.1%
Automotive: Parts and Accessories ................. 7.9%
Communications Equipment .......................... 7.3%
Food and Beverage ................................. 5.9%
Business Services ................................. 5.4%
Broadcasting ...................................... 5.0%
Financial Services ................................ 4.8%
Aviation: Parts and Services ...................... 4.1%
Aerospace ......................................... 4.0%
Health Care ....................................... 4.0%
Computer Software and Services .................... 3.7%
Telecommunications ................................ 2.6%
Diversified Industrial ............................ 2.4%
Transportation .................................... 2.0%
Hotels and Gaming ................................. 1.3%
Real Estate ....................................... 1.3%
Equipment and Supplies ............................ 1.1%
Wireless Communications ........................... 1.1%
Retail ............................................ 1.0%
Consumer Products ................................. 0.9%
Cable and Satellite ............................... 0.9%
Electronics ....................................... 0.8%
Entertainment ..................................... 0.7%
Metals and Mining ................................. 0.7%
Cable ............................................. 0.6%
Automotive ........................................ 0.1%
Computer Hardware ................................. 0.1%
Manufactured Housing and Recreational Vehicles .... 0.1%
Specialty Chemicals ............................... 0.1%
------
100.0%
======
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC. (THE "FUND") FILES A
COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FIRST AND THIRD
QUARTERS OF EACH FISCAL YEAR ON FORM N-Q, THE LAST OF WHICH WAS FILED FOR THE
QUARTER ENDED MARCH 31, 2005. SHAREHOLDERS MAY OBTAIN THIS INFORMATION AT
WWW.GABELLI.COM OR BY CALLING THE FUND AT 800-GABELLI (800-422-3554). THE FUND'S
FORM N-Q IS AVAILABLE ON THE SEC'S WEBSITE AT WWW.SEC.GOV AND MAY ALSO BE
REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY
CALLING 1-800-SEC-0330.
PROXY VOTING
The Fund files Form N-PX with its complete proxy voting record for the 12
months ended June 30th, no later than August 31st of each year. A description of
the Fund's proxy voting policies and procedures are available without charge,
upon request, (i) by calling 800-GABELLI (800-422-3554); (ii) by writing to the
Gabelli Funds at One Corporate Center, Rye, NY 10580-1422; and (iii) by visiting
the Securities and Exchange Commission's website at www.sec.gov.
SHAREHOLDER MEETING -- MAY 9, 2005 -- FINAL RESULTS
The Annual Meeting of Shareholders was held on May 9, 2005 at the Hyatt
Regency in Old Greenwich, Connecticut. At that meeting, common shareholders and
preferred shareholders voting together as a single class elected Anthonie C. van
Ekris and Salvatore J. Zizza as Directors of the Fund. There were 9,471,667
votes and 9,471,578 votes cast in favor of each Director and 92,653 votes and
92,783 votes were withheld for each Director, respectively. In addition,
Preferred shareholders voting as a separate class elected Anthony J. Colavita as
a Director of the Fund. There were 967,625 votes cast in favor of this Director
and 4,475 votes withheld for this Director.
Mario J. Gabelli, E. Val Cerutti, Dugald A. Fletcher, Karl Otto Pohl,
Anthony R. Pustorino and Werner J. Roeder continue to serve in their capacities
as Directors of the Fund.
We thank you for your participation and appreciate your continued support.
2
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- -------- --------
CONVERTIBLE CORPORATE BONDS -- 38.6%
AEROSPACE -- 3.2%
$ 830,000 GenCorp Inc., Sub. Deb. Cv.,
5.750%, 04/15/07 ....... $ 812,500 $ 919,225
3,692,000 Kaman Corp., Sub. Deb. Cv.,
6.000%, 03/15/12 ....... 3,527,651 3,655,080
------------ ------------
4,340,151 4,574,305
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AUTOMOTIVE: PARTS AND ACCESSORIES -- 6.6%
3,000,000 Pep Boys -
Manny, Moe & Jack, Cv.,
4.250%, 06/01/07 ....... 2,985,154 2,910,000
6,900,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 ....... 5,636,962 6,555,000
------------ ------------
8,622,116 9,465,000
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BROADCASTING -- 4.3%
Sinclair Broadcast Group Inc.,
Sub. Deb. Cv.,
5,000,000 6.000%, 09/15/12 ....... 4,052,505 4,212,500
2,200,000 4.875%, 07/15/18 ....... 2,092,110 2,007,500
------------ ------------
6,144,615 6,220,000
------------ ------------
BUSINESS SERVICES -- 5.2%
900,000 BBN Corp., Sub. Deb. Cv.,
6.000%, 04/01/12+ (a)(c) 882,893 0
3,000,000 Franklin Resources Inc., Cv.,
Zero Coupon, 05/11/31 .. 1,852,685 2,193,750
1,200,000 Navistar Financial Corp.,
Sub. Deb. Cv.,
4.750%, 04/01/09 ....... 1,133,445 1,185,000
Trans-Lux Corp.,
Sub. Deb. Cv.,
2,600,000 8.250%, 03/01/12 ....... 2,512,910 2,613,000
1,500,000 7.500%, 12/01/06 ....... 1,502,484 1,498,125
------------ ------------
7,884,417 7,489,875
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CABLE -- 0.6%
400,000 Adelphia Communications
Corp., Sub. Deb. Cv.,
3.250%, 05/01/21+ (c) .. 127,000 22,000
800,000 Charter Communications Inc., Cv.,
4.750%, 06/01/06 ....... 616,821 800,000
100,000 Mediacom Communications
Corp., Cv.,
5.250%, 07/01/06 ....... 100,000 100,125
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843,821 922,125
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PRINCIPAL MARKET
AMOUNT COST VALUE
---------- -------- --------
COMMUNICATIONS EQUIPMENT -- 6.7%
$ 2,600,000 Agere Systems Inc.,
Sub. Deb. Cv.,
6.500%, 12/15/09 ....... $ 2,668,563 $ 2,632,500
600,000 Corning Inc., Deb. Cv.,
Zero Coupon, 11/08/15 .. 473,133 477,000
2,000,000 Lucent Technologies Inc.,
Sub. Deb. Cv.,
8.000%, 08/01/31 ....... 2,076,716 2,065,000
2,650,000 Nortel Networks Corp., Cv.,
4.250%, 09/01/08 ....... 2,579,487 2,484,375
2,000,000 TriQuint Semiconductor Inc.,
Sub. Deb. Cv.,
4.000%, 03/01/07 ....... 1,954,488 1,952,500
------------ ------------
9,752,387 9,611,375
------------ ------------
COMPUTER SOFTWARE AND SERVICES -- 1.7%
2,500,000 DoubleClick Inc.,
Sub. Deb. Cv.,
Zero Coupon, 07/15/23 .. 2,399,399 2,406,250
------------ ------------
CONSUMER PRODUCTS -- 0.1%
100,000 Church & Dwight Co. Inc.,
Deb. Cv.,
5.250%, 08/15/33 (b) ... 100,000 132,875
------------ ------------
DIVERSIFIED INDUSTRIAL -- 0.7%
300,000 EDO Corp., Sub. Deb. Cv.,
5.250%, 04/15/07 ....... 305,661 310,500
1,400,000 Roper Industries Inc., Cv.,
1.481%, 01/15/34 ....... 681,886 729,750
------------ ------------
987,547 1,040,250
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ELECTRONICS -- 0.8%
10,000 Artesyn Technologies Inc.,
Sub. Deb. Cv.,
5.500%, 08/15/10 (b) ... 10,592 12,563
1,000,000 Oak Industries Inc.,
Sub. Deb. Cv.,
4.875%, 03/01/08 ....... 873,298 1,075,000
------------ ------------
883,890 1,087,563
------------ ------------
ENERGY AND UTILITIES -- 1.6%
500,000 Devon Energy Corp., Deb. Cv.,
4.950%, 08/15/08 ....... 499,796 564,375
1,400,000 Mirant Corp., Deb. Cv.,
2.500%, 06/15/21+ (c) .. 950,976 1,022,000
257,000 Moran Energy Inc.,
Sub. Deb. Cv.,
8.750%, 01/15/08 ....... 184,776 255,715
See accompanying notes to financial statements.
3
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- -------- --------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
ENERGY AND UTILITIES (CONTINUED)
$ 400,000 Unisource Energy Corp., Cv.,
4.500%, 03/01/35 (b). .. $ 404,075 $ 407,500
------------ ------------
2,039,623 2,249,590
------------ ------------
EQUIPMENT AND SUPPLIES -- 1.0%
1,414,000 Robbins & Myers Inc.,
Sub. Deb. Cv.,
8.000%, 01/31/08 ....... 1,430,906 1,456,420
------------ ------------
FOOD AND BEVERAGE -- 0.3%
500,000 Parmalat Capital, Cv.,
Zero Coupon,
12/31/05+ (c) .......... 300,730 124,041
900,000 Parmalat Netherlands BV, Cv.,
Zero Coupon,
06/30/21+ (c) .......... 831,156 337,633
------------ ------------
1,131,886 461,674
------------ ------------
HEALTH CARE -- 0.7%
1,000,000 IVAX Corp., Sub. Deb. Cv.,
4.500%, 05/15/08 ....... 953,370 1,002,500
150,000 Sabratek Corp., Sub. Deb. Cv.,
Zero Coupon,
04/15/06+ (a)(c) ....... 84,763 0
------------ ------------
1,038,133 1,002,500
------------ ------------
HOTELS AND GAMING -- 0.3%
200,000 Hilton Group Finance
Jersey Ltd., Cv.,
3.375%, 10/02/10 ....... 423,539 420,016
10,000 Wynn Resorts Ltd.,
Sub. Deb. Cv.,
6.000%, 07/15/15 (b) ... 10,202 21,775
------------ ------------
433,741 441,791
------------ ------------
MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 0.1%
100,000 Fleetwood Enterprises Inc., Cv.,
5.000%, 12/15/23 (b) ... 100,000 114,250
------------ ------------
METALS AND MINING -- 0.7%
1,000,000 Inco Ltd., Cv.,
Zero Coupon, 03/29/21 .. 1,004,428 1,010,000
------------ ------------
REAL ESTATE -- 1.3%
Palm Harbor Homes Inc., Cv.,
450,000 3.250%, 05/15/24 ....... 388,591 405,562
1,550,000 3.250%, 05/15/24 (b) ... 1,532,171 1,396,938
------------ ------------
1,920,762 1,802,500
------------ ------------
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- -------- --------
RETAIL -- 0.0%
$ 60,000 Costco Wholesale Corp.,
Sub. Deb. Cv.,
Zero Coupon, 08/19/17 .. $ 46,758 $ 61,425
------------ ------------
TELECOMMUNICATIONS -- 0.8%
80,000 AMNEX Inc., Sub. Deb. Cv.,
Zero Coupon,
09/25/49+ (a)(b)(c)(d) 71,772 0
50,000 Commonwealth Telephone
Enterprises Inc., Cv.,
3.250%, 07/15/23 (b) ... 49,653 54,250
1,000,000 Rogers Communications Inc.,
Deb. Cv.,
2.000%, 11/26/05 ....... 982,985 1,128,750
------------ ------------
1,104,410 1,183,000
------------ ------------
TRANSPORTATION -- 0.8%
GATX Corp., Cv.,
500,000 7.500%, 02/01/07 (b) ... 500,000 583,125
500,000 7.500%, 02/01/07 ....... 566,239 583,125
----------- ----------
1,066,239 1,166,250
------------ ------------
WIRELESS COMMUNICATIONS -- 1.1%
1,500,000 Nextel Communications Inc., Cv.,
5.250%, 01/15/10 ....... 1,125,019 1,513,125
------------ ------------
TOTAL CONVERTIBLE
CORPORATE BONDS ........ 54,400,248 55,412,143
------------ ------------
SHARES
------
CONVERTIBLE PREFERRED STOCKS -- 9.3%
AEROSPACE -- 0.7%
8,000 Northrop Grumman Corp.,
7.000% Cv. Pfd., Ser. B 932,160 1,000,000
------------ ------------
AUTOMOTIVE -- 0.1%
2,000 Ford Motor Co. Capital Trust II,
6.500% Cv. Pfd. ........ 92,705 80,660
5,000 General Motors Corp.,
4.500% Cv. Pfd., Ser. A 125,000 121,600
------------ ------------
217,705 202,260
------------ ------------
AVIATION: PARTS AND SERVICES -- 4.1%
49,000 Coltec Capital Trust,
5.250% Cv. Pfd. ........ 2,032,375 2,437,750
35,000 Sequa Corp.,
$5.00 Cv. Pfd. ......... 2,690,370 3,430,000
------------ ------------
4,722,745 5,867,750
------------ ------------
See accompanying notes to financial statements.
4
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
MARKET
SHARES COST VALUE
---------- -------- --------
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
BROADCASTING -- 0.7%
100 Gray Television Inc.,
8.000% Cv. Pfd.,
Ser. C (a)(b)(d) ....... $ 1,000,000 $ 1,020,000
------------ ------------
BUSINESS SERVICES -- 0.2%
15,738 Interep National Radio Sales Inc.,
4.000% Cv. Pfd.,
Ser. A+ (a)(b)(d) ...... 1,514,203 350,202
20,000 Key3Media Group Inc.,
5.500% Cv. Pfd.,
Ser. B+ (a) ............ 500,000 117
------------ ------------
2,014,203 350,319
------------ ------------
COMMUNICATIONS EQUIPMENT -- 0.6%
800 Lucent Technologies
Capital Trust I,
7.750% Cv. Pfd. ........ 556,750 783,700
------------ ------------
DIVERSIFIED INDUSTRIAL -- 0.1%
WHX Corp.,
54,000 $3.75 Cv. Pfd., Ser. B+ 270,123 89,100
28,000 6.500% Cv. Pfd., Ser. A+ 216,762 46,200
----------- ----------
486,885 135,300
------------ ------------
ENERGY AND UTILITIES -- 0.8%
6,000 AES Trust III,
6.750% Cv. Pfd. ........ 229,530 289,800
500 El Paso Corp.,
4.990% Cv. Pfd.+ (b) ... 479,193 531,034
300 El Paso Corp. Capital Trust I,
4.750% Cv. Pfd., Ser. C 11,460 11,415
4,000 FPL Group Inc.,
8.000% Cv. Pfd., Ser. B 247,419 258,440
------------ ------------
967,602 1,090,689
------------ ------------
ENTERTAINMENT -- 0.7%
2,000 Metromedia International
Group Inc.,
7.250% Cv. Pfd.+ ....... 26,611 58,000
45,000 Six Flags Inc.,
7.250% Cv. Pfd., Ser. B 851,255 915,300
------------ ------------
877,866 973,300
------------ ------------
HOTELS AND GAMING -- 0.0%
210 Wyndham International Inc.,
9.750% Cv. Pfd., Ser. A+ 5,987 14,946
------------ ------------
MARKET
SHARES COST VALUE
---------- -------- --------
TELECOMMUNICATIONS -- 1.0%
15,000 Cincinnati Bell Inc.,
6.750% Cv. Pfd., Ser. B $ 427,662 $ 676,500
15,000 Philippine Long Distance
Telephone Co.,
$3.50 Cv. Pfd., Ser. III 627,635 772,500
------------ ------------
1,055,297 1,449,000
------------ ------------
TRANSPORTATION -- 0.3%
2,700 GATX Corp.,
$2.50 Cv. Pfd. ......... 376,585 462,375
------------ ------------
TOTAL CONVERTIBLE
PREFERRED STOCKS ....... 13,213,785 13,349,639
------------ ------------
COMMON STOCKS -- 31.5%
AEROSPACE -- 0.1%
5,000 Kaman Corp., Cl. A ....... 65,268 90,200
------------ ------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.3%
16,000 Dana Corp. ............... 281,988 240,160
40,000 Genuine Parts Co. ........ 1,543,879 1,643,600
------------ ------------
1,825,867 1,883,760
------------ ------------
CABLE AND SATELLITE -- 0.9%
20,000 Cablevision Systems Corp.,
Cl. A+ ................. 301,447 644,000
5,000 DIRECTV Group Inc.+ ...... 89,457 77,500
18,000 EchoStar Communications
Corp., Cl. A ........... 553,293 542,700
19,500 Loral Space &
Communications Ltd.+ ... 3,765 5,655
------------ ------------
947,962 1,269,855
------------ ------------
COMPUTER HARDWARE -- 0.1%
2,000 International Business
Machines Corp. ......... 152,180 148,400
------------ ------------
COMPUTER SOFTWARE AND SERVICES -- 2.0%
28,000 Ask Jeeves Inc.+ ......... 900,815 845,320
55,000 Storage Technology Corp.+ 2,002,330 1,995,950
------------ ------------
2,903,145 2,841,270
------------ ------------
CONSUMER PRODUCTS -- 0.8%
2,000 Avon Products Inc. ....... 73,975 75,700
20,000 Gillette Co. ............. 1,022,250 1,012,600
10,000 Swedish Match AB ......... 117,392 113,610
------------ ------------
1,213,617 1,201,910
------------ ------------
See accompanying notes to financialstatements.
5
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
MARKET
SHARES COST VALUE
---------- -------- --------
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES -- 8.7%
4,000 Anadarko Petroleum Corp. . $ 271,991 $ 328,600
10,000 BP plc, ADR .............. 472,303 623,800
3,000 CH Energy Group Inc. ..... 83,900 145,890
10,000 ConocoPhillips ........... 281,536 574,900
2,000 Cooper Cameron Corp.+ .... 116,464 124,100
25,000 Duke Energy Corp. ........ 472,434 743,250
30,000 Exxon Mobil Corp. ........ 1,171,440 1,724,100
30,448 FPL Group Inc. ........... 981,160 1,280,643
20,000 Great Plains Energy Inc. . 598,719 637,800
33,000 Kaneb Services LLC ....... 1,421,980 1,428,240
1,500 Murphy Oil Corp. ......... 69,018 78,345
4,000 National Fuel Gas Co. .... 107,880 115,640
40,000 Northeast Utilities ...... 722,124 834,400
10,000 Progress Energy Inc., CVO+ 5,200 1,350
15,000 Public Service Enterprise
Group Inc. ............. 752,900 912,300
20,000 Royal Dutch Petroleum Co. 989,253 1,298,000
10,000 SJW Corp. ................ 296,128 470,100
12,000 Unocal Corp. ............. 640,237 780,600
20,000 Xcel Energy Inc. ......... 334,874 390,400
------------ ------------
9,789,541 12,492,458
------------ ------------
EQUIPMENT AND SUPPLIES -- 0.1%
5,000 Mueller Industries Inc. .. 220,747 135,500
3,000 Tomkins plc, ADR ......... 56,900 57,060
------------ ------------
277,647 192,560
------------ ------------
FINANCIAL SERVICES -- 4.8%
32,000 Alliance Capital
Management Holding LP .. 1,076,624 1,495,680
40,000 American Express Co. ..... 2,107,963 2,129,200
4,000 American International
Group Inc. ............. 243,058 232,400
12,000 Argonaut Group Inc.+ ..... 203,647 277,080
60,000 Citigroup Inc. ........... 2,790,063 2,773,800
------------ ------------
6,421,355 6,908,160
------------ ------------
FOOD AND BEVERAGE -- 5.6%
10,000 Allied Domecq plc, ADR ... 373,673 484,700
10,000 Cadbury Schweppes
plc, ADR ............... 344,243 383,300
17,000 Coca-Cola Co. ............ 753,844 709,750
70,000 Dreyer's Grand Ice Cream
Holdings Inc., Cl. A ... 5,483,818 5,698,000
15,000 General Mills Inc. ....... 750,668 701,850
------------ ------------
7,706,246 7,977,600
------------ ------------
MARKET
SHARES COST VALUE
---------- -------- --------
HEALTH CARE -- 3.3%
12,000 Bristol-Myers Squibb Co. . $ 319,665 $ 299,760
17,800 Eli Lilly & Co. .......... 1,038,342 991,638
27,000 Merck & Co. Inc. ......... 939,869 831,600
82,000 Pfizer Inc. .............. 2,438,702 2,261,560
15,000 Schering-Plough Corp. .... 236,353 285,900
------------ ------------
4,972,931 4,670,458
------------ ------------
HOTELS AND GAMING -- 1.0%
20,000 Argosy Gaming Co.+ ....... 930,238 932,200
100,000 Hilton Group plc ......... 479,570 512,873
----------- ----------
1,409,808 1,445,073
----------- ----------
RETAIL -- 1.0%
50,000 Albertson's Inc. ......... 1,165,595 1,034,000
100,000 JumboSports Inc.+ ........ 0 0
20,000 Safeway Inc. ............. 418,380 451,800
------------ ------------
1,583,975 1,485,800
------------ ------------
SPECIALTY CHEMICALS -- 0.1%
5,000 E.I. du Pont de
Nemours and Co. ........ 236,931 215,050
------------ ------------
TELECOMMUNICATIONS -- 0.8%
2,000 ALLTEL Corp. ............. 112,931 124,560
20,000 AT&T Corp. ............... 366,286 380,800
20,000 MCI Inc. ................. 429,810 514,200
5,000 SBC Communications Inc. .. 113,100 118,750
------------ ------------
1,022,127 1,138,310
------------ ------------
TRANSPORTATION -- 0.9%
30,000 Overnite Corp. ........... 1,278,500 1,289,400
------------ ------------
WIRELESS COMMUNICATIONS -- 0.0%
49 Winstar Communications
Inc.+ (a) .............. 438 0
------------ ------------
TOTAL COMMON
STOCKS ................. 41,807,538 45,250,264
------------ ------------
PREFERRED STOCKS -- 0.0%
TELECOMMUNICATIONS -- 0.0%
3,679 PTV Inc., 10.000% Pfd.,
Ser. A ................. 0 9,657
------------ ------------
See accompanying notes to financial statements.
6
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- -------- --------
CORPORATE BONDS -- 1.0%
DIVERSIFIED INDUSTRIAL -- 1.0%
$ 2,000,000 GP Strategies Corp.,
Sub. Deb.,
6.000%, 08/14/08 (a)(d) $ 1,557,958 $ 1,357,143
------------ ------------
SHARES
------
WARRANTS -- 0.6%
CONSUMER PRODUCTS -- 0.0%
4,331 Pillowtex Corp.,
expire 11/24/09+ (a) ... 120,955 0
------------ ------------
DIVERSIFIED INDUSTRIAL -- 0.6%
250,000 GP Strategies Corp.,
expire 08/14/08+ (a)(d) 637,065 819,283
379,703 National Patent Development
Corp., expire
08/14/08+ (a)(d) ....... 0 97,980
------------ ------------
637,065 917,263
------------ ------------
TOTAL WARRANTS 758,020 917,263
------------ ------------
PRINCIPAL
AMOUNT
---------
SHORT-TERM OBLIGATIONS -- 19.0%
U.S. GOVERNMENT OBLIGATIONS -- 19.0%
$27,485,000 U.S. Treasury Bills,
2.718% to 3.221%++,
07/07/05 to 10/20/05 ... 27,292,199 27,291,118
------------ ------------
TOTAL SHORT-TERM
OBLIGATIONS ............ 27,292,199 27,291,118
------------ ------------
TOTAL INVESTMENTS -- 100.0% $139,029,748 143,587,227
============
OTHER ASSETS IN EXCESS OF LIABILITIES .. 2,058,687
------------
PREFERRED STOCK
(991,800 preferred shares outstanding) (49,770,000)
------------
NET ASSETS -- COMMON STOCK
(11,866,695 common shares outstanding) $ 95,875,914
============
NET ASSET VALUE PER COMMON SHARE
($95,875,914 / 11,866,695 shares outstanding) .... $8.08
=====
----------
(a) Securities fair valued under procedures established by the Board of
Directors. The procedures may include reviewing available financial
information about the company and reviewing valuation of comparable
securities and other factors on a regular basis. At June 30, 2005, the
market value of fair valued securities amounted to $3,644,725 or 2.54% of
total investments.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At June 30,
2005, the market value of Rule 144A securities amounted to $4,624,512 or
3.22% of total investments. Except as noted in (d), these securities are
liquid.
(c) Bond in default.
(d) At June 30, 2005, the Fund held investments in restricted and illiquid
securities that were valued under methods approved by the Board as follows:
ACQUISITION
SHARES/ 06/30/05
PRINCIPAL ACQUISITION ACQUISITION CARRYING VALUE
AMOUNT ISSUER DATE COST PER UNIT
----------- ------ ----------- ----------- --------------
80,000 Amnex Inc., 8.500%, 09/25/49. 09/15/97 $ 70,363 $ --
$2,000,000 GP Strategies Corp. 6.000%, 08/14/08 08/14/03 1,362,935 0.6786
250,000 GP Strategies Corp.
Warrants expire 08/14/08 08/08/03 657,065 3.2771
100 Gray Television Inc.,
8.000% Cv. Pfd., Ser. C 04/22/02 1,000,000 10,200.0000
15,738 Interep National Radio Sales Inc.,
4.000% Cv. Pfd., Ser. A . 05/03/02 1,514,203 22.2520
379,703 National Patent Development Corp.
Warrants expire 08/14/08. 11/24/05 -- 0.2580
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR American Depository Receipt
CVO Contingent Value Obligation
See accompanying notes to financial statements.
7
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2005 (UNAUDITED)
ASSETS:
Investments, at value (cost $139,029,748) ........... $143,587,227
Cash ................................................ 213,797
Dividends and interest receivable ................... 959,090
Receivable for investments sold ..................... 660,000
Unrealized appreciation on swap contracts ........... 545,251
Other assets ........................................ 3,722
------------
TOTAL ASSETS ........................................ 145,969,087
------------
LIABILITIES:
Payable for investments purchased ................... 114,809
Payable for investment advisory fees ................ 78,435
Payable for legal and audit fees .................... 27,404
Payable for shareholder communications expenses ..... 26,643
Dividends payable ................................... 21,210
Payable for payroll expenses ........................ 15,805
Payable for shareholder services fees ............... 1,106
Other accrued expenses and liabilities .............. 37,761
------------
TOTAL LIABILITIES ................................... 323,173
------------
PREFERRED STOCK:
Series B Cumulative Preferred Stock (6.00%,
$25 liquidation value, $0.001 par value,
1,995,000 shares authorized with 990,800
shares issued and outstanding) .................... 24,770,000
Series C Cumulative Preferred Stock (Auction
Rate, $25,000 liquidation value, $0.001 par
value, 5,000 shares authorized with 1,000
shares issued and outstanding) .................... 25,000,000
------------
TOTAL PREFERRED STOCK ............................... 49,770,000
------------
NET ASSETS ATTRIBUTABLE TO COMMON
STOCK SHAREHOLDERS ................................ $ 95,875,914
============
NET ASSETS ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS CONSIST OF:
Capital stock, at par value ......................... $ 11,867
Additional paid-in capital .......................... 92,622,902
Accumulated net realized loss on investments,
swap contracts and foreign
currency transactions ............................. (1,861,550)
Net unrealized appreciation on investments
and swap contracts ................................ 5,102,730
Net unrealized depreciation on foreign
currency translations ............................. (35)
------------
NET ASSETS .......................................... $ 95,875,914
============
NET ASSET VALUE PER COMMON SHARE:
($95,875,914 / 11,866,695 shares outstanding;
998,000,000 shares authorized of
$0.001 par value) $8.08
=====
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign taxes of $12,986) ......... $1,076,441
Interest ............................................ 2,088,293
----------
TOTAL INVESTMENT INCOME ............................. 3,164,734
----------
EXPENSES:
Investment advisory fees ............................ 723,364
Shareholder communications expenses ................. 58,311
Payroll expenses .................................... 43,006
Directors' fees ..................................... 32,669
Auction agent fees .................................. 31,200
Legal and audit fees ................................ 31,091
Shareholder services fees ........................... 24,995
Custodian fees ...................................... 21,250
Miscellaneous expenses .............................. 55,972
----------
TOTAL EXPENSES ...................................... 1,021,858
LESS:
Advisory fee reduction ............................ (246,805)
Custodian fee credit .............................. (1,039)
----------
TOTAL REDUCTIONS AND CREDITS ...................... (247,844)
----------
TOTAL NET EXPENSES .................................. 774,014
----------
NET INVESTMENT INCOME ............................... 2,390,720
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, SWAP CONTRACTS AND
FOREIGN CURRENCY:
Net realized loss on investments .................... (261,053)
Net realized loss on swap contracts ................. (62,282)
Net realized gain on foreign currency transactions .. 139,838
----------
Net realized loss on investments, swap contracts
and foreign currency transactions ................. (183,497)
Net change in unrealized appreciation/depreciation
on investments, swap contracts and foreign
currency translations ............................. 696,867
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
SWAP CONTRACTS AND FOREIGN CURRENCY ............... 513,370
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................... 2,904,090
----------
Total Distributions to Preferred
Stock Shareholders ................................ (1,112,867)
----------
NET INCREASE IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS RESULTING
FROM OPERATIONS ................................... $1,791,223
==========
See accompanying notes to financial statements.
8
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
SIX MONTHS ENDED
JUNE 30, 2005 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2004
---------------- -----------------
OPERATIONS:
Net investment income .............................................................. $ 2,390,720 $ 4,383,059
Net realized loss on investments, swap contracts and foreign currency transactions (183,497) (977,009)
Net change in unrealized appreciation/depreciation on investments, swap
contracts and foreign currency translations ...................................... 696,867 615,236
----------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................... 2,904,090 4,021,286
----------- ------------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income .............................................................. (1,112,867)* (1,864,559)
----------- ------------
TOTAL DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS ................................ (1,112,867) (1,864,559)
----------- ------------
NET INCREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS
RESULTING FROM OPERATIONS ........................................................ 1,791,223 2,156,727
----------- ------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income .............................................................. (1,277,853)* (2,086,763)
Return of capital .................................................................. (3,403,466)* (7,136,741)
----------- ------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ................................... (4,681,319) (9,223,504)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets from common shares issued upon reinvestment of
dividends and distributions ...................................................... 1,334,039 2,830,783
Net increase in net assets from repurchase of preferred shares ..................... -- 12,828
Offering costs for preferred shares charged to paid-in capital ..................... -- (3,000)
----------- ------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS ............................ 1,334,039 2,840,611
----------- ------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS ............... (1,556,057) (4,226,166)
NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS:
Beginning of period ................................................................ 97,431,971 101,658,137
----------- ------------
End of period ...................................................................... $95,875,914 $ 97,431,971
=========== ============
----------
*Amounts are subject to change and recharacterization at fiscal year end.
See accompanying notes to financial statements.
9
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION. The Gabelli Convertible and Income Securities Fund Inc. (the
"Fund") is a diversified closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), 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 Fund was incorporated in Maryland on December 19,
1988 as an open-end diversified management investment company and commenced
investment operations on July 3, 1989 as The Gabelli Convertible Securities
Fund, Inc. The Board of Directors (the "Board"), 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.
Effective August 1, 2002, the Fund changed its name to The Gabelli
Convertible and Income Securities Fund Inc. Consistent with its new name, under
normal market conditions, the Fund will invest at least 80% of its net assets in
a combination of convertible securities and income producing securities (the
"80% Policy"). The Fund expects to continue its practice of focusing on
convertible securities to the extent attractive opportunities are available. The
80% Policy may be changed without shareholder approval. However, the Fund has
adopted a policy to provide shareholders with notice at least 60 days prior to
the implementation of any change in the 80% Policy.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with U.S. 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 or traded in the U.S. over-the-counter market for
which market quotations are readily available are valued at the last quoted sale
price or a market's official closing price 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. If no bid or asked prices are quoted on such
day, the security is valued at the most recently available price or, if the
Board so determines, by such other method as the Board shall determine in good
faith, to reflect its fair market value. 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 Gabelli Funds, LLC
(the "Adviser").
Portfolio securities primarily traded on foreign markets are generally
valued at the preceding closing values of such securities on their respective
exchanges or if after the close of the foreign markets, but prior to the close
of business on the day the securities are being valued, market conditions change
significantly, certain foreign securities may be fair valued pursuant to
procedures established by the Board. Debt instruments that are not credit
impaired with remaining maturities of 60 days or less are valued at amortized
cost, unless the Board determines such amount does not reflect the securities'
fair value, in which case these securities will be valued at their fair value as
determined by the Board. Debt instruments having a maturity greater than 60 days
for which market quotations are readily available are valued at the latest
average of the bid and asked prices. If there were no asked prices quoted on
such day, the security is valued using the closing bid price. Futures contracts
are valued at the closing settlement price of the exchange or board of trade on
which the applicable contract is traded.
Securities and assets for which market quotations are not readily available
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board. Fair valuation
methodologies and procedures may include, but are not limited to: analysis and
review of available financial and non-
10
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
financial information about the company; comparisons to the valuation and
changes in valuation of similar securities, including a comparison of foreign
securities to the equivalent U.S. dollar value ADR securities at the close of
the U.S. exchange; and evaluation of any other information that could be
indicative of the value of the security.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
primary 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 Adviser and reviewed by the
Board. 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 102% 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.
SWAP AGREEMENTS. The Fund may enter into interest rate swap or cap
transactions. The use of interest rate swaps and caps is a highly specialized
activity that involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. In an interest rate
swap, the Fund would agree to pay to the other party to the interest rate swap
(which is known as the "counterparty") periodically a fixed rate payment in
exchange for the counterparty agreeing to pay to the Fund periodically a
variable rate payment that is intended to approximate the Fund's variable rate
payment obligation on the Series C Preferred Stock. In an interest rate cap, the
Fund would pay a premium to the counterparty and, to the extent that a specified
variable rate index exceeds a predetermined fixed rate, would receive from the
counterparty payments of the difference based on the notional amount of such
cap. Interest rate swap and cap transactions introduce additional risk because
the Fund would remain obligated to pay preferred stock dividends when due in
accordance with the Articles Supplementary even if the counterparty defaulted.
If there is a default by the counterparty to a swap contract, the Fund will be
limited to contractual remedies pursuant to the agreements related to the
transaction. There is no assurance that the swap contract counterparties will be
able to meet their obligations pursuant to the swap contracts or that, in the
event of default, the Fund will succeed in pursuing contractual remedies. The
Fund thus assumes the risk that it may be delayed in or prevented from obtaining
payments owed to it pursuant to the swap contracts. The creditworthiness of the
swap contract counterparties is closely monitored in order to minimize this
risk. Depending on the general state of short term interest rates and the
returns on the Fund's portfolio securities at that point in time, such a default
could negatively affect the Fund's ability to make dividend payments for the
Series C Preferred Stock. In addition, at the time an interest rate swap or cap
transaction reaches its scheduled termination date, there is a risk that the
Fund will not be able to obtain a replacement transaction or that the terms of
the replacement will not be as favorable as on the expiring transaction. If this
occurs, it could have a negative impact on the Fund's ability to make dividend
payments on the Series C Preferred Stock.
The use of derivative instruments involves, to varying degrees, elements of
market risk in excess of the amount recognized in the Statement of Assets and
Liabilities.
11
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
Unrealized gains related to swaps are reported as an asset and unrealized
losses are reported as a liability on the Statement of Assets and
Liabilities. The change in value of swaps, including the accrual of periodic
amounts of interest to be paid or received on swaps is reported as unrealized
gains or losses in the Statement of Operations. A realized gain or loss is
recorded upon payment or receipt of a periodic payment or termination of swap
agreements. Swap agreements involve, to varying degrees, elements of market and
counterparty risk, and exposure to loss in excess of the related amounts
reflected in the Statement of Assets and Liabilities.
The Fund has entered into one interest rate swap agreement with Citibank
N.A. Under the agreement the Fund receives a variable rate of interest and pays
a respective fixed rate of interest on the nominal value of the swap. Details of
the swap at June 30, 2005 are as follows:
NOTIONAL VARIABLE RATE* TERMINATION UNREALIZED
AMOUNT FIXED RATE (RATE RESET MONTHLY) DATE APPRECIATION
--------- ---------- -------------------- ----------- ------------
$25,000,000 3.145% 3.13% April 2, 2008 $545,251
----------
*Based on Libor (London Interbank Offered Rate).
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. Such investments will only be made
if they are economically appropriate to the reduction of risks involved in the
management of the Fund's investments. 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 included in unrealized
appreciation/depreciation on investments and futures contracts. The Fund
recognizes a realized gain or loss when the contract is closed. At June 30,
2005, 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. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Statement of
Assets and Liabilities. 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.
FORWARD FOREIGN EXCHANGE 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 exchange contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
included in unrealized appreciation/depreciation on investments and foreign
currency transactions. 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 exchange 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 exchange 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. These contracts may involve
market risk in excess of the unrealized gain or loss reflected in the Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risks if
the counterparties to the contracts are unable to meet the terms of their
contracts. At June 30, 2005, there were no open forward foreign exchange
contracts.
12
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
FOREIGN CURRENCY TRANSLATIONS. 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 and foreign currency translations. 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.
FOREIGN SECURITIES. The Fund may directly purchase securities of foreign
issuers. Investing in securities of foreign issuers involves special risks not
typically associated with investing in securities of U.S. issuers. The risks
include possible revaluation of currencies, the ability to repatriate funds,
less complete financial information about companies and possible future adverse
political and economic developments. Moreover, securities of many foreign
issuers and their markets may be less liquid and their prices more volatile than
those of securities of comparable U.S. issuers.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for as of 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. Distributions to common
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with Federal income tax
regulations which may differ from that determined under U.S. generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by the
Fund, timing differences and differing characterizations of distributions made
by the Fund.
Distributions to shareholders of the Fund's 6.00% Series B Cumulative
Preferred Stock and Series C Auction Rate Cumulative Preferred Stock
("Cumulative Preferred Stock") are recorded on a daily basis and are determined
as described in Note 5.
For the year ended December 31, 2004, reclassifications were made to
decrease accumulated net investment income by $416,684 and to decrease
accumulated net realized loss on investments, swap contracts and foreign
currency transactions by $416,684.
The tax character of distributions paid during the year ended December 31,
2004 was as follows:
YEAR ENDED
DECEMBER 31, 2004
-------------------------
COMMON PREFERRED
-------------------------
DISTRIBUTIONS PAID FROM:
Ordinary income
(inclusive of short term capital gains) ..... $2,086,763 $1,864,559
Non-taxable return of capital ................. 7,136,741 --
---------- ----------
Total distributions paid ...................... $9,223,504 $1,864,559
========== ==========
13
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
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 (the "Code"). It is the Fund's policy to comply with the
requirements of the Code applicable to regulated investment companies and to
distribute substantially all of its net investment company taxable income and
net capital gains. Therefore, no provision for Federal income taxes is required.
As of December 31, 2004, the components of accumulated earnings/(losses) on
a tax basis were as follows:
Net unrealized appreciation .............. $2,727,775
Other .................................... (207,793)
----------
Total .................................... $2,519,982
==========
Other is primarily due to dividends payable and defaulted interest.
Differences between amounts reported on a tax basis and those reported on a
book basis are primarily due to timing of recognition of capital gains on
investments held by the Fund.
The following summarizes the tax cost of investments, swap contracts,
foreign currency and related unrealized appreciation/depreciation at June 30,
2005:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
---- ------------ ------------ --------------
Investments ............ $139,815,479 $ 9,666,003 $(5,894,255) $3,771,748
Swap contracts ......... -- 545,251 -- 545,251
Foreign currency ....... -- -- (35) (35)
----------- ----------- ----------
$10,211,254 $(5,894,290) $4,316,964
=========== =========== ==========
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES. 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 weekly and paid
monthly, equal on an annual basis to 1.00% of the value of the Fund's average
weekly net assets including liquidation value of preferred stock. In accordance
with the Advisory Agreement, the Adviser provides a continuous investment
program for the Fund's portfolio and oversees the administration of all aspects
of the Fund's business and affairs. The Adviser has agreed to reduce the
management fee on the incremental assets attributable to the Cumulative
Preferred Stock if the total return of the net asset value of the Common Shares
of the Fund, including distributions and advisory fee subject to reduction, does
not exceed the stated dividend rate or net swap expense of the Cumulative
Preferred Stock for the fiscal year.
The Fund's total return on the net asset value of the Common Shares is
monitored on a monthly basis to assess whether the total return on the net asset
value of the Common Shares exceeds the stated dividend rate of each particular
series of Cumulative Preferred Stock for the period. For the six months ended
June 30, 2005, the Fund's total return on the net asset value of the Common
Shares did not exceed the stated dividend rate or net swap expense of all
outstanding preferred stock. Thus, management fees with respect to the
liquidation value of the preferred stock assets in the amount of $246,805 were
not accrued.
During the six months ended June 30, 2005, Gabelli & Company, Inc.
("Gabelli & Company"), an affiliate of the Adviser, received $34,797 in
brokerage commissions as a result of executing agency transactions in portfolio
securities on behalf of the Fund.
14
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
The cost of calculating the Fund's net asset value per share is a Fund
expense pursuant to the Advisory Agreement. During the six months ended June 30,
2005, the Fund reimbursed the Adviser $22,500 in connection with the cost of
computing the Fund's net asset value, which is included in miscellaneous
expenses in the Statement of Operations.
The Fund is assuming its portion of the allocated cost of the Gabelli
Funds' Chief Compliance Officer in the amount of $2,022 for the period of
January 1, 2005 through June 30, 2005, which is included in payroll expenses in
the Statement of Operations.
4. PORTFOLIO SECURITIES. Costs of purchases and proceeds from the sales of
securities, other than short term securities, for the six months ended June 30,
2005 aggregated $42,622,006 and $11,949,772, respectively.
5. CAPITAL. The charter permits the Fund to issue one billion shares of common
stock (par value $0.001). The Board of the Fund has authorized the repurchase of
up to 500,000 shares on the open market when the shares are trading at a
discount of 10% or more (or such other percentage as the Board may determine
from time to time) from the net asset value of the shares. During the six months
ended June 30, 2005, the Fund did not repurchase any shares of common stock. All
shares of common stock repurchased have been retired.
Transactions in common stock were as follows:
SIX MONTHS ENDED
JUNE 30, 2005 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2004
---------------------- -----------------------
Shares Amount Shares Amount
---------- ---------- --------- ----------
Shares issued upon reinvestment of dividends
and distributions .......................... 149,655 $1,334,039 295,393 $2,830,783
------- ---------- ------- ----------
Net increase ................................. 149,655 $1,334,039 295,393 $2,830,783
======= ========== ======= ==========
The Fund's Articles of Incorporation authorize the issuance of up to
2,000,000 shares of $0.001 par value Cumulative Preferred Stock. The Cumulative
Preferred Stock is senior to the common stock and results in the financial
leveraging of the common stock. Such leveraging tends to magnify both the risks
and opportunities to common shareholders. Dividends on shares of the Cumulative
Preferred Stock are cumulative. The Fund is required by the 1940 Act and by the
Articles Supplementary 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 6% Series B and Series C Auction Rate Cumulative Preferred Stock at a
redemption price of $25.00 and $25,000, respectively, per share plus an amount
equal to the accumulated and unpaid dividends whether or not declared on such
shares in order to meet these requirements. Additionally, failure to meet the
foregoing asset coverage requirements could restrict the Fund's ability to pay
dividends to common shareholders and could lead to sales of portfolio securities
at inopportune times. The income received on the Fund's assets may vary in a
manner unrelated to the fixed and variable rates, which could have either a
beneficial or detrimental impact on net investment income and gains available to
common shareholders.
15
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
On March 18, 2003, the Fund received net proceeds of $23,996,775 (after
underwriting discounts of $787,500 and offering expenses of $215,725) from the
public offering of 1,000,000 shares of 6.00% Series B Cumulative Preferred
Stock. Commencing March 19, 2008 and thereafter, the Fund, at its option, may
redeem the 6.00% Series B Cumulative Preferred Stock in whole or in part at the
redemption price. The Board has authorized the repurchase in the open market at
prices less than the $25 liquidation value of the Cumulative Preferred Stock.
During the six months ended June 30, 2005, the Fund did not repurchase any
shares of 6% Series B Cumulative Preferred Stock. At June 30, 2005, 990,800
shares of the 6% Series B Cumulative Preferred Stock were outstanding and
accrued dividends amounted to $16,513.
On March 18, 2003, the Fund received net proceeds of $24,534,275 (after
underwriting discounts of $250,000 and offering expenses of $215,725) from the
public offering of 1,000 shares of Series C Auction Rate Cumulative Preferred
Stock. The dividend rate, as set by the auction process, which is generally held
every 7 days, is expected to vary with short-term interest rates. The dividend
rates of Series C Auction Rate Cumulative Preferred Stock ranged from 1.77% to
3.33% for the six months ended June 30, 2005. Existing shareholders may submit
an order to hold, bid or sell such shares on each auction date. Series C Auction
Rate Cumulative Preferred Stock shareholders may also trade shares in the
secondary market. The Fund, at its option, may redeem the Series C Auction Rate
Cumulative Preferred Stock in whole or in part at the redemption price at any
time. During the six months ended June 30, 2005, the Fund did not redeem any
shares of Series C Auction Rate Cumulative Preferred Stock. At June 30, 2005,
1,000 shares of the Series C Auction Rate Cumulative Preferred Stock were
outstanding with an annualized dividend rate of 3.33% and accrued dividends
amounted to $4,625.
The holders of Cumulative 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 1940
Act requires that along with approval of a majority of the holders of common
stock, approval of a majority of the holders of any outstanding shares of
Cumulative Preferred Stock, voting separately as a class, would be required to
(a) adopt any plan of reorganization that would adversely affect the Cumulative
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.
6. OTHER MATTERS. The Adviser and/or affiliates have received subpoenas from the
Attorney General of the State of New York and the SEC requesting information on
mutual fund shares trading practices. Gabelli Asset Management Inc., the
Adviser's parent company, is responding to these requests for documents and
testimony. The Fund does not believe that these matters will have a material
adverse effect on the Fund's financial position or the results of its
operations.
7. INDEMNIFICATIONS. The Fund enters into contracts that contain a variety of
indemnifications. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
16
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
OUTSTANDING THROUGHOUT EACH PERIOD: JUNE 30, 2005 -----------------------------------------------------------
(UNAUDITED)(D) 2004(D) 2003(D) 2002 2001 2000
---------------- ---------- --------- -------- -------- ---------
OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $ 8.32 $ 8.90 $ 8.44 $ 9.92 $ 10.02 $ 11.40
------ ------ ------ ------ ------- -------
Net investment income ............................. 0.22 0.34 0.31 0.49 0.68 0.72
Net realized and unrealized gain (loss) on
investments ..................................... 0.02 0.01 1.19 (0.76) 0.32 (0.52)
------ ------ ------ ------ ------- -------
Total from investment operations .................. 0.24 0.35 1.50 (0.27) 1.00 0.20
------ ------ ------ ------ ------- -------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income ............................. (0.09)(g) (0.16) (0.11) (0.28) (0.18) (0.13)
Net realized gain on investments .................. --(g) -- (0.03) -- (0.12) (0.17)
------ ------ ------ ------ ------- -------
Total distributions to preferred stock shareholders (0.09) (0.16) (0.14) (0.28) (0.30) (0.30)
------ ------ ------ ------ ------- -------
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE
TO COMMON STOCK SHAREHOLDERS RESULTING
FROM OPERATIONS ................................. 0.15 0.19 1.36 (0.55) 0.70 (0.10)
------ ------ ------ ------ ------- -------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income ............................. (0.11)(g) (0.18) (0.17) (0.27) (0.48) (0.57)
Net realized gain on investments .................. --(g) -- (0.03) -- (0.33) (0.73)
Paid-in capital ................................... (0.29)(g) (0.62) (0.60) (0.48) -- --
------ ------ ------ ------ ------- -------
Total distributions to common stock shareholders .. (0.40)(g) (0.80) (0.80) (0.75) (0.81) (1.30)
------ ------ ------ ------ ------- -------
CAPITAL SHARE TRANSACTIONS:
Increase in net asset value from common share
transactions .................................... 0.01 0.03 0.02 0.02 0.01 0.02
Decrease in net asset value from shares issued in
rights offering ................................. -- -- -- (0.20) -- --
Increase in net asset value from repurchase of
preferred shares ................................ -- 0.00(a) -- -- -- --
Offering costs for preferred shares charged to
paid-in capital ................................. -- 0.00(a) (0.12) -- -- --
------ ------ ------ ------ ------- -------
Total capital share transactions .................. 0.01 0.03 (0.10) (0.18) 0.01 0.02
------ ------ ------ ------ ------- -------
NET ASSET VALUE ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS, END OF PERIOD ..................... $ 8.08 $ 8.32 $ 8.90 $ 8.44 $ 9.92 $ 10.02
====== ====== ====== ====== ======= =======
Net asset value total return + .................... 2.0% 1.5% 14.5% (7.0)% 7.0% 0.0%
====== ====== ====== ====== ======= =======
Market value, end of period ....................... $ 9.93 $ 9.24 $ 10.54 $ 8.55 $ 10.90 $ 9.13
====== ====== ====== ====== ======= =======
Total investment return ++ ........................ 12.3% (4.8)% 33.9% (14.2)% 29.1% (1.7)%
====== ====== ====== ====== ======= =======
See accompanying notes to financial statements.
17
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR A SHARE OF COMMON STOCK SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
OUTSTANDING THROUGHOUT EACH PERIOD: JUNE 30, 2005 -----------------------------------------------------------
(UNAUDITED)(D) 2004(D) 2003(D) 2002 2001 2000
---------------- ---------- --------- -------- -------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net assets including liquidation value of preferred
shares, end of period (in 000's) ............... $145,646 $147,202 $151,658 $108,774 $110,074 $108,066
Net assets attributable to common shares,
end of period (in 000's) ....................... $ 95,876 $ 97,432 $101,658 $ 93,774 $ 80,074 $ 78,066
Ratio of net investment income to average
net assets attributable to common stock ........ 5.01%(f) 4.41% 3.47% 5.32% 6.58% 6.49%
Ratio of operating expenses to average net assets
attributable to common stock before fee reduction 2.14%(f) 2.12% 1.93% 1.77% 1.83% 1.82%
Ratio of operating expenses to average net assets
attributable to common stock net of fee reduction (e) 1.62%(f) 1.61% 1.93% 1.58% 1.46% 1.48%
Ratio of operating expenses to average net assets
including liquidation value of preferred shares
before fee reduction ........................... 1.41%(f) 1.41% 1.37% 1.30% 1.34% 1.35%
Ratio of operating expenses to average net assets
including liquidation value of preferred shares
net of fee reduction (e) ....................... 1.07%(f) 1.07% 1.37% 1.15% 1.07% 1.10%
Portfolio turnover rate .......................... 11% 57% 39% 56% 59% 169%
PREFERRED STOCK:
8.00% CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ...... -- -- -- $15,000 $30,000 $30,000
Total shares outstanding (in 000's) .............. -- -- -- 600 1,200 1,200
Liquidation preference per share ................. -- -- -- $25.00 $25.00 $25.00
Average market value (b) ......................... -- -- -- $25.83 $25.80 $24.31
Asset coverage per share ......................... -- -- -- $181.29 $91.73 $90.06
6.00% CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ...... $24,770 $24,770 $25,000 -- -- --
Total shares outstanding (in 000's) .............. 991 991 1,000 -- -- --
Liquidation preference per share ................. $25.00 $25.00 $25.00 -- -- --
Average market value (b) ......................... $25.15 $24.90 $25.33 -- -- --
Asset coverage per share ......................... $73.16 $73.94 $75.83 -- -- --
AUCTION RATE CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ...... $25,000 $25,000 $25,000 -- -- --
Total shares outstanding (in 000's) .............. 1 1 1 -- -- --
Liquidation preference per share ................. $25,000 $25,000 $25,000 -- -- --
Average market value (b) ......................... $25,000 $25,000 $25,000 -- -- --
Asset coverage per share ......................... $73,159 $73,941 $75,829 -- -- --
ASSET COVERAGE (C) ............................... 293% 296% 303% 725% 367% 360%
----------
+ Based on net asset value per share, adjusted for reinvestment of
distributions at net asset value on the ex-dividend date. Total return for
the period of less than one year is not annualized.
++ Based on market value per share, adjusted for reinvestment of distributions
on the payment date. Total return for the period of less than one year is
not annualized.
(a) Amount represents less than $0.005 per share.
(b) Based on weekly prices.
(c) Asset coverage is calculated by combining all series of preferred stock.
(d) See Note 2 to Financial Statements (Swap Agreements).
(e) The ratios do not include a reduction of expenses for custodian fee credits
on cash balances maintained with the custodian. For the six months ended
June 30, 2005, the effect of the custodian fee credits was minimal.
(f) Annualized
(g) Amounts are subject to change and recharacterization at fiscal year end.
See accompanying notes to financial statements.
18
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
BOARD CONSIDERATION AND RE-APPROVAL OF MANAGEMENT AGREEMENT
At its meeting on February 16, 2005, the Board of Directors ("Board") of the
Fund approved the continuation of the investment advisory agreement with the
Adviser for the Fund on the basis of the recommendation by the directors (the
"independent directors") who are not "interested persons" of the Fund. The
following paragraphs summarize the material information and factors considered
by the independent directors as well as their conclusions relative to such
factors.
NATURE, EXTENT AND QUALITY OF SERVICES. The independent directors considered
information regarding the Adviser's portfolio manager, the depth of the analyst
pool available to the Adviser and the portfolio manager, the scope of
supervisory, administrative, shareholder and other services supervised or
provided by the Adviser and the absence of significant service problems reported
to the Board. The independent directors noted the experience, length of service
and reputation of the portfolio manager.
INVESTMENT PERFORMANCE. The independent directors reviewed the short, medium and
long-term performance of the Fund since inception against a peer group of
convertible securities and income/preferred stock closed-end funds and equity
closed-end funds. The directors noted that the Fund's performance was poor in
relation to its peer group although understandable in relation to the
conservative position taken by the Fund.
PROFITABILITY. The independent directors reviewed summary data regarding the
profitability of the Fund to the Adviser.
ECONOMIES OF SCALE. The independent directors discussed the major elements of
the Adviser's cost structure and the relationship of those elements to potential
economies of scale. The independent directors noted that the Fund needed
significantly more assets before economies of scale could be realized. The
independent directors agreed that the Adviser should gather and provide them
with information regarding possible ways of measuring potential economies of
scale so that they would be in a position to review this potential issue in
greater detail if the Fund grew substantially.
SHARING OF ECONOMIES OF SCALE. The independent directors noted that the
investment management fee schedule for the Fund does not take into account any
potential economies of scale that may develop or any losses or diminished
profitability to the Adviser in prior years.
SERVICE AND COST COMPARISONS. The independent directors compared the expense
ratios of the investment management fee, other expenses and total expenses of
the Fund to similar expense ratios of the peer group of convertible and
income/preferred stock closed-end funds and noted that the Adviser's management
fee includes substantially all administrative services of the Fund as well as
investment advisory services of the Adviser. The directors noted that the Fund's
expense ratios were above average and the Fund's size was below average within
this group. The directors did not compare the management fee to the fee for
other types of accounts managed by an affiliated adviser.
CONCLUSIONS. The independent directors concluded that the Fund enjoyed highly
experienced portfolio management services, good ancillary services and a
marginal performance record. The independent directors also concluded that the
Fund's expense ratios were reasonable in light of the Fund's size, and that
economies of scale were not a significant factor in their thinking at this time.
The directors did not view the potential profitability of ancillary services as
material to their decision. On the basis of the foregoing and without assigning
particular weight to any single conclusion, the independent directors determined
to recommend continuation of the investment management agreement to the full
Board of Directors.
19
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLANS
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Convertible and Income Securities Fund
Inc. ("Fund") to automatically reinvest dividends payable to common
shareholders. As a "registered" shareholder you automatically become a
participant in the Fund's Automatic Dividend Reinvestment Plan (the "Plan"). The
Plan authorizes the 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 Fund. Plan participants may
send their stock certificates to EquiServe Trust Company ("EquiServe") 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 and Income Securities Fund Inc.
c/o EquiServe
P.O. Box 43010
Providence, RI 02940-3010
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 may contact EquiServe at (800) 336-6983.
Shareholders wishing to liquidate reinvested shares held at EquiServe 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 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 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 Fund valued at market price. If
the Fund should declare a dividend or capital gains distribution payable only in
cash, EquiServe will buy Common Stock in the open market, or on the New York
Stock Exchange or elsewhere, for the participants' accounts, except that
EquiServe will endeavor to terminate purchases in the open market and cause the
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.
21
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 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 EquiServe 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 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 EquiServe for investments in the Fund's shares at
the then current market price. Shareholders may send an amount from $250 to
$10,000. EquiServe will use these funds to purchase shares in the open market on
or about the 1st and 15th of each month. EquiServe 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 EquiServe, P.O. Box 43010, Providence, RI02940-3010 such
that EquiServe 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 EquiServe 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 Fund.
22
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
ONE CORPORATE CENTER, RYE, NY 10580-1422
DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN & CHIEF EXECUTIVE OFFICER,
GABELLI ASSET MANAGEMENT INC.
E. Val Cerutti
CHIEF EXECUTIVE OFFICER,
CERUTTI CONSULTANTS, INC.
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 EMERITUS, PACE UNIVERSITY
Werner J. Roeder, MD
MEDICAL DIRECTOR,
LAWRENCE HOSPITAL
Anthonie C. van Ekris
MANAGING DIRECTOR,
BALMAC INTERNATIONAL, INC.
Salvatore J. Zizza
CHAIRMAN, HALLMARK ELECTRICAL SUPPLIES CORP.
OFFICERS
Bruce N. Alpert
PRESIDENT & TREASURER
Peter D. Goldstein
CHIEF COMPLIANCE OFFICER
Laurissa M. Martire
VICE PRESIDENT AND OMBUDSMAN
James E. McKee
SECRETARY
A. Hartswell Woodson, III
ASSOCIATE PORTFOLIO MANAGER
INVESTMENT ADVISER
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
CUSTODIAN
State Street Bank and Trust Company
COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company
STOCK EXCHANGE LISTING
Common 6.00% Preferred
---------- ---------------
NYSE-Symbol: GCV GCV Pr B
Shares Outstanding: 11,866,695 990,800
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Sunday's The New York Times and in
Monday's The Wall Street Journal. It is also listed in Barron's Mutual
Funds/Closed End Funds section under the heading "Convertible Securities Funds."
The Net Asset Value may be obtained each day by calling (914) 921-5071.
--------------------------------------------------------------------------------
For general information about the Gabelli Funds, call 800-GABELLI
(800-422-3554), fax us at 914-921-5118, visit Gabelli Funds' Internet homepage
at: WWW.GABELLI.COM or e-mail us at: closedend@gabelli.com
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that The Gabelli Convertible and Income
Securities Fund may from time to time purchase shares of its common stock in the
open market when The Gabelli Convertible and Income Securities Fund shares are
trading at a discount of 10% or more from the net asset value of the shares. The
Gabelli Convertible and Income 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.
--------------------------------------------------------------------------------
THE GABELLI CONVERTIBLE AND
INCOME SECURITIES FUND INC.
ONE CORPORATE CENTER
RYE, NY 10580-1422
(914) 921-5070
WWW.GABELLI.COM
SEMI-ANNUAL REPORT
JUNE 30, 2005
GCV-SA-Q2/05
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Schedule of Investments in securities of unaffiliated issuers as of the close
of the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not yet applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
REGISTRANT PURCHASES OF EQUITY SECURITIES
=============================================================================================================================
(C) TOTAL NUMBER OF (D) MAXIMUM NUMBER (OR
SHARES (OR UNITS) APPROXIMATE DOLLAR VALUE) OF
(A) TOTAL NUMBER OF PURCHASED AS PART OF SHARES (OR UNITS) THAT MAY
SHARES (OR UNITS) (B) AVERAGE PRICE PAID PUBLICLY ANNOUNCED YET BE PURCHASED UNDER THE
PERIOD PURCHASED PER SHARE (OR UNIT) PLANS OR PROGRAMS PLANS OR PROGRAMS
=============================================================================================================================
Month #1 Common - N/A Common - N/A Common - N/A Common - 11,717,040
01/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
01/31/05
=============================================================================================================================
Month #2 Common - N/A Common - N/A Common - N/A Common - 11,717,040
02/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
02/28/05
=============================================================================================================================
Month #3 Common - N/A Common - N/A Common - N/A Common - 11,793,001
03/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
03/31/05
=============================================================================================================================
Month #4 Common - N/A Common - N/A Common - N/A Common - 11,793,001
04/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
04/30/05
=============================================================================================================================
Month #5 Common - N/A Common - N/A Common - N/A Common - 11,793,001
05/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
05/31/05
=============================================================================================================================
Month #6 Common - N/A Common - N/A Common - N/A Common - 11,866,695
06/01/05
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
06/30/05
=============================================================================================================================
Total Common - N/A Common - N/A Common - N/A N/A
Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A
=============================================================================================================================
Footnote columns (c) and (d) of the table, by disclosing the following
information in the aggregate for all plans or programs publicly announced:
a. The date each plan or program was announced - The notice of the potential
repurchase of common and preferred shares occurs quarterly in the Fund's
quarterly report in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended.
b. The dollar amount (or share or unit amount) approved - Any or all common
shares outstanding may be repurchased when the Fund's common shares are
trading at a discount of 10% or more from the net asset value of the
shares.
Any or all preferred shares outstanding may be repurchased when the Fund's
preferred shares are trading at a discount to the liquidation value of
$25.00.
c. The expiration date (if any) of each plan or program - The Fund's
repurchase plans are ongoing.
d. Each plan or program that has expired during the period covered by the
table - The Fund's repurchase plans are ongoing.
e. Each plan or program the registrant has determined to terminate prior to
expiration, or under which the registrant does not intend to make further
purchases. - The Fund's repurchase plans are ongoing.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's Board of Directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date
within 90 days of the filing date of the report that includes the
disclosure required by this paragraph, based on their evaluation of
these controls and procedures required by Rule 30a-3(b) under the
1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under
the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b)
or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) The Gabelli Convertible and Income Securities Fund Inc.
---------------------------------------------------------------
By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert, Principal Executive Officer
Date September 7, 2005
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert, Principal Executive Officer &
Principal Financial Officer
Date September 7, 2005
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.