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THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
THIRD QUARTER REPORT
SEPTEMBER 30, 2001
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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.
TO OUR SHAREHOLDERS,
Although last quarter the U.S. economy appeared poised for recovery, the
terrorist attacks in September have thrown the timing and extent of any rebound
into doubt. Markets reacted accordingly. Global equities fell, the dollar
weakened, credit spreads widened, and Treasury bonds rallied. The markets have
priced in additional uncertainty and risk. These events were offset by
aggressive interest rate cuts and sizable fiscal spending packages. Although
meaningful, these remedies will take time to work. In the meantime, we remain
focused on companies with strong balance sheets, franchise value, and healthy
cash flow. These companies will be able to weather the storm and gain market
share once the recovery takes hold.
[PHOTO OF MARIO GABELLI OMITTED]
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THE GABELLI
CONVERTIBLE
SECURITIES
FUND, INC.
INVESTMENT PERFORMANCE
For the third quarter ended September 30, 2001, The Gabelli Convertible
Securities Fund's (the "Fund") net asset value ("NAV") total return fell 3.74%
after adjusting for the reinvestment of the $0.20 per share distribution paid on
September 24, 2001. The Standard & Poor's ("S&P") 500 Index and the Lipper
Convertible Securities Fund Average fell 14.67% and 11.89%, respectively, over
the same period. The S&P 500 Index is an unmanaged indicator of stock market
performance, while the Lipper Average reflects the average performance of
open-end mutual funds classified in this particular category. The Fund rose
2.01% over the trailing twelve-month period after adjusting for the reinvestment
of the $1.30 per share in distributions. The S&P 500 Index and Lipper
Convertible Securities Fund Average declined 26.61% and 23.34%, respectively,
over the same twelve-month period.
For the three-year period ended September 30, 2001, the Fund's total
return averaged 6.86% annually, including reinvestments of $3.25 per share in
distributions. The S&P 500 Index and Lipper Convertible Securities Fund Average
had average annual total returns of 2.03% and 7.58%, respectively, over the same
three-year period. For the five-year period ended September 30, 2001, the Fund's
total return averaged 7.46% annually, including reinvestments of $5.185 per
share in distributions, versus average annual total returns of 10.23% and 7.59%
for the S&P 500 Index and Lipper Convertible Securities Fund Average,
respectively.
Since inception on July 3, 1989 through September 30, 2001, the Fund had a
cumulative total return of 181.90%, including adjustments of $11.566 per share
for distributions, which equates to an average annual total return of 8.82%.
The Fund's common shares ended the third quarter at $11.00 per share on
the New York Stock Exchange, a premium to the net asset value of 12.02% and a
total return of 4.31% for the third quarter. The Fund's common shares rose
27.28% over the trailing twelve-month period after adjusting for all
distributions.
CORPORATE GOVERNANCE - GCV TRADING AT A PREMIUM!
In past reports, we have outlined several management initiatives that the
Board of Directors has taken to increase the Fund's public market price to a
level equal to or exceeding the Fund's net asset value. These initiatives
included a stock repurchase plan, a managed 8% Distribution Policy, and the
issuance of preferred stock.
Additionally, when the Fund converted to closed-end status in March 1995, we
expressed our intent to have the Fund's common shares track the Fund's net asset
value.
We are happy to report to you that the public market price continues to be
at a premium to the net asset value. As of the writing of this shareholder
letter (October 31, 2001), the Fund's shares were trading at a premium of 8.61%
to the Fund's net asset value. This is a testament to our pro-active shareholder
initiatives and the consistency of our performance over time.
INVESTMENT RESULTS (a)(c)
--------------------------------------------------------------------------------
QUARTER
----------------------------------
1ST 2ND 3RD 4TH YEAR
--- --- --- --- ----
2001: Net Asset Value ........... $10.16 $10.40 $9.82 -- --
Total Return .............. 3.4% 4.3% (3.7)% -- --
-----------------------------------------------------------------------------------------
2000: Net Asset Value ........... $11.32 $11.16 $10.93 $10.02 $10.02
Total Return .............. 1.3% 0.6% (0.1)% (1.8)% 0.0%
-----------------------------------------------------------------------------------------
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%
-----------------------------------------------------------------------------------------
1998: Net Asset Value ........... $11.87 $11.66 $10.96 $11.45 $11.45
Total Return .............. 5.3% 0.0% (4.2)% 7.4% 8.3%
-----------------------------------------------------------------------------------------
1997: Net Asset Value ........... $11.13 $11.38 $11.81 $11.48 $11.48
Total Return .............. 1.7% 3.5% 5.0% 2.8% 13.5%
-----------------------------------------------------------------------------------------
1996: Net Asset Value ........... $11.28 $11.33 $11.23 $11.08 $11.08
Total Return .............. 3.6% 1.6% 0.3% 2.6% 8.4%
-----------------------------------------------------------------------------------------
1995: Net Asset Value ........... $11.14 $11.51 $11.64 $11.01 $11.01
Total Return .............. 5.1% 5.2% 3.0% 1.1% 15.0%
-----------------------------------------------------------------------------------------
1994: Net Asset Value ........... $11.54 $11.39 $11.60 $10.60 $10.60
Total Return .............. 0.2% (1.3)% 1.8% (0.9)% (0.2)%
-----------------------------------------------------------------------------------------
1993: Net Asset Value ........... $12.07 $12.36 $12.75 $11.52 $11.52
Total Return .............. 5.4% 2.4% 3.2% 1.5% 13.1%
-----------------------------------------------------------------------------------------
1992: Net Asset Value ........... $11.29 $11.52 $11.90 $11.45 $11.45
Total Return .............. 3.5% 2.0% 3.3% 3.6% 13.0%
-----------------------------------------------------------------------------------------
1991: Net Asset Value ........... $11.06 $11.27 $11.57 $10.91 $10.91
Total Return .............. 5.6% 1.9% 2.7% 1.8% 12.5%
-----------------------------------------------------------------------------------------
1990: Net Asset Value ........... $10.56 $10.68 $10.56 $10.47 $10.47
Total Return .............. 1.5% 2.1% (1.1)% 3.8% 6.3%
-----------------------------------------------------------------------------------------
1989: Net Asset Value ........... -- -- $10.54 $10.51 $10.51
Total Return .............. -- -- 5.4%(b) 0.8% 6.3%(b)
-----------------------------------------------------------------------------------------
Average Annual Returns - September 30, 2001 (a)
--------------------------------------------------------------------------------
1 Year ........................................ 2.01%
5 Year ........................................ 7.46%
10 Year ....................................... 8.49%
Life of Fund (b) .............................. 8.82%
--------------------------------------------------------------------------------
(a) Based on initial net asset value of $10.00. Total returns and average annual
returns reflect changes in net asset value and reinvestment of distributions 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 investment operations on July 3, 1989.
(c) The Fund converted to closed-end status on March 31, 1995.
--------------------------------------------------------------------------------
2
OUR OBJECTIVE
Our mandate is to preserve and enhance our shareholders' wealth through a
conservative and disciplined approach to convertible securities investing. Our
goal is to generate profitable returns in strong markets and protect principal
in weak markets by taking advantage of the unique characteristics of convertible
securities.
Our Fund is managed with a goal of achieving a 600-800 basis point spread
above long-term Treasury yields. We hope to generate these returns over the
long-term. This is the type of performance that our Fund has been recognized for
and we anticipate will continue in the future. Of course, there are no
guarantees.
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 12 years at The
Gabelli Convertible Securities Fund and for over 24 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 TRIANGLE OMITTED]
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
Our focus is on free cash flow: earnings before interest, taxes,
depreciation and amortization ("EBITDA") minus the capital expenditures
necessary to grow the business. We believe free cash flow is the best barometer
of a business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value ("PMV") estimates.
Finally, we look for a catalyst: something happening in the company's
industry or indigenous to the company itself that will surface value. In the
case of the independent telephone stocks, the catalyst is a regulatory change.
In the agricultural equipment business, it is the increasing world-wide demand
for American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
3
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 that are trading at a
premium above parity with the common stock but which generally provide a higher
yield and, over time, capital appreciation. We will also seek out "busted"
converts, where the underlying common stock has dropped significantly and the
values of both the conversion privilege and the convert are down. Such
securities will provide both high yields and long-term capital appreciation
potential.
CONVERTIBLE MARKET OVERVIEW
The convertible market, as measured by the Merrill Lynch All Convertible
Index, fell 8.9% during the third quarter reflecting the decline in the equity
markets caused by the terrorist attacks on September 11th. This compared to a
14.7% decline in the S&P 500. Year to date, convertibles have demonstrated their
defensive qualities by falling 10.7% versus a decline of 20.4% by the S&P 500.
The average convertible now has a conversion premium of 78% (up from 37% at the
start of the year), a current yield of 4.0% (versus 4.5%) and a credit rating of
BBB- (versus BB+). Ironically, current yield has fallen even as the conversion
premium has risen because of the rapid rise of zero-coupon contingent conversion
convertibles. These issues are typically investment grade, which explains why
the average credit quality of the market has also improved. Zeros now make up
34% of the domestic convertible market versus 23% at the beginning of the year.
In the wake of the attacks, the market acted accordingly. Equity prices
fell, credit spreads widened and Treasuries rallied. This trend was also
reflected in the convertible market. Investment grade convertibles did well
slipping by only 4.5% in the quarter while speculative grade convertibles fell
13.9% as credit spreads widened by over 100 basis points in the single-B credit
range.
Price depreciation and a frozen new issue calendar caused the size of the
market to fall from $190 billion in August to $180 billion at the end of the
quarter. The U.S. market remains the largest in the world constituting 41.1% of
the total global capitalization of $425 billion. Domestic new issuance is up 60%
this year to $75 billion while redemptions are about half of last year's pace at
$29 billion. Redemptions are expected to accelerate over the next twelve-months
as many zeros approach their put dates.
The best performing sector in the convertible market during the third
quarter was Consumer Staples (+ 6.7%), while Utilities were the worst performing
(-19.35%). Other negative sectors included Media (-15.8%), Transportation
(-13.7%), and Technology (-13.1%). Year to date, four out of twelve sectors
remain positive. Materials (+17.21) led on by the Precious Metals Group
(+44.2%), Consumer Staples (+10.9%), Consumer Discretionary (+7.93%), and
Industrials (+4.9%).
4
COMMENTARY
UP FROM GROUND ZERO
As we prepare this letter, we are working diligently to assess all the
economic and investment ramifications of the tragic events of September 11 and
America's new war against terrorism. We can already make some general
observations. First, the economy will very likely dip into recession in the
coming quarters. Second, a corporate profit recovery will be postponed. Third,
the stock market will rapidly discount all the bad news resulting from this
crisis and find a bottom faster than it might have if the economy had simply
continued to limp along.
Prior to September 11, the economy had been struggling, supported only by
the American consumer. With consumer confidence plummeting following the
terrorist attacks, the economy will very probably go into recession. However, we
believe the Federal Reserve's response to this crisis along with fiscal stimulus
from a unified Congress will put a floor under the economy and lay the
groundwork for a recovery in the latter half of 2002. The corporate profit
recovery, which we anticipated would begin in first half 2002, may be pushed
back several quarters as well.
Where does this leave the equities market? Over the short-term, probably
in limbo. Before the terrorist attacks, we were already well into a bear market,
sparked initially by excessive equities valuations in the technology sector and
compounded by a decline in capital spending that eroded earnings in a wider
variety of industries. Now, the economic uncertainty and lack of earning
visibility that has plagued the market has been supplanted by fear - ironically,
the most necessary ingredient for a bear market bottom. Have we hit bottom yet?
Perhaps. However, we will be surprised (certainly pleasantly) if the strong
gains in the last week of September hold. We suspect the market to retest the
lows made in the week following the terrorist attacks before stabilizing. At
this point, the market should have a solid base to build upon.
The corporate bond market (remember as hybrid securities, convertible
prices are influenced by trends in the equities and corporate bond markets) has
also been under pressure due to concern that a recession would have a negative
impact on credit quality. As aforementioned, we believe the Federal Reserve and
a cooperative Congress will work diligently to prevent a serious or prolonged
recession. If this proves to be the case, most American corporations will have
sufficient cash flow to honor their debt obligations, and corporate bonds will
be poised for a recovery.
INVESTMENT SCORECARD
Leading telecommunications companies, namely Sprint Corp. and Bell
Atlantic, generated respectable returns this quarter. The securities of two
portfolio companies in the final stages of being acquired, Ralston Purina and
RGS Energy, also performed well. Not surprisingly, our investment in defense
contractor Northrop Grumman was rewarded. Leading garbage hauler Waste
Management also closed the quarter with a modest gain. Finally, our substantial
cash reserves helped cushion performance.
5
Investments in media companies, including Times Mirror, Metromedia
International Group, News America Holdings, and Granite Broadcasting, were among
the portfolio's biggest casualties, as investors began anticipating a sharp
decline in advertising spending. Wireless communications service providers
Nextel and U.S. Cellular also declined sharply, due in part to the fact that
cellular telephone systems were not as reliable as wireline systems during the
crisis.
GOOD THINGS COME TO THOSE WHO WAIT
The critical element to our success in the equity and convertible
securities markets has been patience in both the selection process and in
waiting for the values of portfolio positions to be recognized. We will continue
to be patient and opportunistic in selecting converts for the Fund and will
invest in short-term instruments (including time sensitive workouts) when
appropriate. We purchased mostly short-term U.S. Treasury obligations in the
past. However, the U.S. financial system has improved significantly and we now
take advantage of other short-term alternatives. In this regard, the Fund at
times engages in risk arbitrage to generate returns. By risk arbitrage we mean
investing in "event" driven situations, primarily, but not exclusively, in
announced mergers, acquisitions, reorganizations and other "workout"
opportunities. In order to avoid overall market risk in these opportunities, the
Fund will concentrate on lower risk transactions.
Simply stated, risk arbitrage is investing in a merger or acquisition
target after the deal has been announced and pocketing the spread between the
trading price of the target company following the announcement and the deal
price upon closing. This spread is usually relatively narrow, offering a
somewhat modest nominal total return. However, since deals generally close in
much less than a year's time, this modest total return translates into a much
more attractive annualized return.
We borrow a quote from Warren Buffet to explain our occasional use of risk
arbitrage in the Fund; "Our subsidiaries sometimes engage in arbitrage as an
alternative to holding short-term cash equivalents. We prefer, of course, to
make major long-term commitments. But we often have more cash than good ideas.
At such times arbitrage sometimes promises much greater returns than Treasury
Bills and, equally important, cools any temptation we may have to relax our
standards for long-term investments."
In short, the high cash position in the Fund does not reflect any effort
on our part to time the convertible securities market. It is rather a
consequence of our value-oriented discipline. At the same time, a sampling of
our convertible securities has been called by their issuers and we either
receive cash or stock. Our portfolio turnover rate reflects this activity, as
well as our investments in "event" driven situations that were consummated
during the year. We are always hard at work evaluating opportunities and
identifying fundamental bargains to progress to a more fully invested posture.
However, we will not stretch our fundamental parameters and introduce greater
market risk to the portfolio.
6
LET'S TALK CONVERTS
The following are specifics on selected holdings of our Fund. Favorable
earnings prospects do not necessarily translate into higher prices, but they do
express a positive trend that we believe will develop over time.
CITIZENS COMMUNICATIONS CO. (5.00% CV. PFD.) will soon become the country's
largest independent local exchange carrier with about 3 million access lines
once it completes several acquisitions of over 2 million lines for $6.5 billion.
Upon completion of these transactions, accompanied by divestitures of its
utilities operations, the company will reposition itself as a pure
telecommunications company. Citizens also owns 81% of a competitive carrier,
Electric Lightwave (ELIX - $0.46 - Nasdaq), with fiber optic networks covering
the Western part of the U.S.
HILTON HOTELS CORP. (HLT) (SUB. DEB. CV., 5.00%, 05/15/06) is recognized as one
of the world's preeminent hospitality companies. Hilton develops, owns, manages
and franchises hotels, resorts and vacation ownership properties. Based on the
number of hotel rooms, Hilton is the nation's third largest lodging company.
Hilton's hotel system includes approximately 1,965 properties totaling over
325,000 rooms worldwide. Of such properties, the Company owned an interest in
and operated 138 hotels, managed 206 hotels owned by others, leased 21 hotels,
owned 25 timeshare properties, and franchised 1,575 hotels owned and operated by
third parties. All of these hotels are located in the United States, with the
exception of 10 hotels in which the Company owns an interest and/or manages and
33 hotels franchised by the Company. The Company's hotel brands include Hilton,
Hilton Garden Inn, Doubletree, Embassy Suites, Hampton, Homewood Suites by
Hilton, Red Lion, Conrad and Harrison Conference Centers. Flagship properties
include the Waldorf-Astoria, the Hilton Chicago, the Hilton Hawaiian Village
Beach Resort & Spa and the Palmer House Hilton. HLT formalized a marketing
alliance with British company, Hilton Group plc (HG - $2.69 - London Stock
Exchange) (owner of Hilton International), in January 1997 to reunite the Hilton
name worldwide for the first time in over 30 years. Hilton's casino gaming
properties were spun-off into a new company, Park Place Entertainment (PPE -
$7.33 - NYSE), on December 31, 1998.
KAMAN CORP. (SUB. DEB. CV., 6.00%, 03/15/12), founded in 1945, is a pioneer in
the helicopter industry. Aircraft manufacturing remains the core of the
business. Kaman serves both commercial and governmental markets with helicopters
and aircraft components. The company also produces specialized, high-value niche
market products and services that tend to be technological leaders in their
markets. Kaman is a major, national distributor of original equipment, repair
and replacement products and value-added services to nearly every sector of
North American industry. The company also manufactures and distributes musical
instruments (Ovation guitars) and accessories to independent retailers.
ROBBINS & MYERS INC. (SUB. DEB. CV., 6.50%, 09/01/03) is an international
manufacturer of industrial mixing equipment, glass-lined vessels, industrial
pumps and corrosion resistant products serving the process industries such as
specialty chemicals, pharmaceuticals, water treatment, oil and gas, and food and
beverage. In August 2001, the company completed the acquisition of Romaco, a
$150 million manufacturer of packaging, printing and processing of
pharmaceutical products. Romaco provides horizontal integration to Robbins'
mixer and vessel businesses and the acquisition is expected to be accretive to
earnings in fiscal 2002 ending August 30. With Romaco, 40% of Robbins & Myers
revenues are in the pharmaceutical market that is generally stable, with an
average 6-8% rate of growth. The company's remaining businesses are in specialty
chemical (26%), energy (20%), water and wastewater (4%) and other industries.
The energy business continues to remain strong with higher oil and natural gas
prices but specialty
7
chemicals are still weak due to lower industrial demand. A turnaround in the
chemical market and management's wise use of its strong cash flow makes Robbins
& Myers an attractive investment.
SEALED AIR CORP. ($2.00 CV. PFD., SER. A) is a global manufacturer and
distributor of a wide range of protective and specialty packaging materials and
systems for industrial, food and consumer products. Sealed Air is a strong free
cash flow generator, which will be used to pay down debt, make niche
acquisitions, and buy back stocks.
SEQUA CORP. ($5.00 CV. PFD.) is a diversified company with businesses in
aerospace, pre-paint metal, specialty chemical and printing and cannery
equipment. Chromalloy Gas Turbine, Sequa's aerospace business, is the largest
independent supplier of overhaul and repair to jet and industrial gas turbine
engines. We believe this business is attractive to original equipment engine
manufacturers like General Electric and Pratt & Whitney who are looking to grow
their replacement parts business. With roughly $800 million in revenues, we
estimate Chromalloy's private market value to be near the entire public value of
Sequa.
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.
USA NETWORKS INC. (SUB. DEB. CV., 7.00%, 07/01/03), through its subsidiaries,
engages in diversified media and electronic commerce businesses that include
electronic retailing, ticketing operations and cable television. Chairman and
CEO Barry Diller has brought together under one umbrella the USA Network, the
Sci-Fi Channel, USA Networks Studios, The Home Shopping Network and the
Ticketmaster Group. The strategy is to integrate these assets, leveraging
programming, production capabilities and electronic commerce across the entire
distribution platform. As media, advertising and direct selling converge, USA
stands to be a major player. USA recently announced a deal to purchase the
majority of Expedia Inc. (EXPE - $24.29 - Nasdaq), a travel oriented website,
from Microsoft (MSFT - $51.17 - Nasdaq).
WASTE MANAGEMENT INC. (SUB. DEB. CV., 4.00%, 02/01/02) merged with USA Waste in
1998, and is now the largest solid waste company in North America. The company
provides a number of services, including collection, transfer, landfill, and
recycling services for a diverse customer base, notably the municipal,
residential, commercial, and industrial markets. Services are provided
throughout the United States as well as in Canada, Mexico, and Puerto Rico.
Internationally, the company operates in Europe, the Pacific Rim, and in South
America. In addition, Waste Management is a leading developer, operator, and
owner of waste-to-energy facilities in the U.S.
STOCK REPURCHASE PLAN
The Gabelli Convertible Securities Fund is authorized to repurchase up to
500,000 shares of the Fund's outstanding common shares. Pursuant to this stock
repurchase plan, the 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. Through September 30, 2001, a total
of 305,200 shares have been repurchased in the open market under this stock
repurchase plan.
8
COMMON STOCK 8% DISTRIBUTION POLICY
The Convertible Securities Fund continues to maintain its 8% Distribution
Policy whereby the Fund pays out to common stock shareholders 8% of its average
net assets each year. Pursuant to this policy, the Convertible Securities Fund
distributed $0.20 per share on September 24, 2001. The next distribution is
scheduled for December 2001.
8.00% CUMULATIVE PREFERRED STOCK - DIVIDENDS
The Convertible Securities Fund's 8.00% Cumulative Preferred Stock paid a
cash distribution on September 26, 2001 of $0.50 per share. For the
twelve-months ended September 30, 2001, Preferred Stock shareholders received
distributions totaling $2.00, the annual dividend rate per share of Preferred
Stock. The next distribution is scheduled for December 2001.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage at http://www.gabelli.com
contains information about Gabelli Asset Management Inc., the Gabelli Mutual
Funds, IRAs, 401(k)s, quarterly reports, closing prices and other current news.
You can send us e-mail at info@gabelli.com.
In our efforts to bring our shareholders more timely portfolio
information, Gabelli Fund's portfolio managers regularly participate in chat
sessions at www.gabelli.com as reflected below.
WHO WHEN
---
Special Chats: Mario J. Gabelli First Monday of each month
Howard Ward First Tuesday of each month
In addition, every Wednesday will feature a different portfolio manager.
The upcoming Wednesday chat schedule is as follows:
NOVEMBER DECEMBER JANUARY
-------- -------- -------
1st Wednesday Linda Calkin Caesar Bryan Walter Walsh
2nd Wednesday Walter Walsh Ivan Arteaga Linda Calkin
3rd Wednesday Laura Linehan Tim O'Brien Tim O'Brien
4th Wednesday Barbara Marcin Barbara Marcin Caesar Bryan
5th Wednesday Barbara Marcin
All chat sessions start at 4:15 ET. Please arrive early, as participation
is limited.
You may sign up for our HIGHLIGHTS email newsletter at www.gabelli.com and
receive early notice of chat sessions, closing mutual fund prices, news events
and media sightings.
9
IN CONCLUSION
The mettle of the financial markets was severely tested during crisis
conditions resulting from the spread of terrorism to our shores. They passed
with flying colors. The resolve of the American people and our elected
officials, and the resilience of the economy, will be tested in the months
ahead. They will prove themselves as well. We believe investors, who have
displayed courage and patience during these trying times, will also prosper.
Sincerely,
/S/ MARIO J. GABELLI
MARIO J. GABELLI, CFA
Portfolio Manager and Chief Investment Officer
October 31, 2001
DIVIDEND HISTORY - COMMON STOCK
--------------------------------------------------------------------------------
PAYMENT DATE RATE PER SHARE REINVESTMENT PRICE
------------ -------------- ------------------
September 24, 2001 $0.200 $10.31
June 25, 2001 $0.200 $10.33
March 26, 2001 $0.200 $10.10
--------------------------------------------------------------------------------
December 26, 2000 $0.700 $ 9.80
September 25, 2000 $0.200 $ 9.85
June 26, 2000 $0.200 $ 9.98
March 27, 2000 $0.200 $ 9.71
--------------------------------------------------------------------------------
December 27, 1999 $0.430 $10.38
September 27, 1999 $0.200 $10.86
June 28, 1999 $0.200 $11.38
March 29, 1999 $0.200 $11.04
--------------------------------------------------------------------------------
December 28, 1998 $0.320 $11.49
September 28, 1998 $0.200 $10.52
June 26, 1998 $0.200 $11.02
March 26, 1998 $0.200 $11.10
--------------------------------------------------------------------------------
December 26, 1997 $0.600 $10.49
September 26, 1997 $0.120 $10.44
June 27, 1997 $0.120 $ 9.96
PAYMENT DATE RATE PER SHARE REINVESTMENT PRICE
------------ -------------- ------------------
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
--------------------------------------------------------------------------------
TOP TEN CONVERTIBLE HOLDINGS
SEPTEMBER 30, 2001
-----------------------------
Waste Management Inc. (Sub. Deb. Cv., 4.00%, 02/01/02)
Standard Motor Products Inc. (Sub. Deb. Cv., 6.75%, 07/15/09)
Hilton Hotels Corp. (Sub. Deb. Cv., 5.00%, 05/15/06)
Kaman Corp. (Sub. Deb. Cv., 6.00%, 03/15/12)
CUC International Inc. (Sub. Deb. Cv., 3.00%, 02/15/02)
Citizens Communications Co. (5.00% Cv. Pfd.)
Sealed Air Corp. ($2.00 Cv. Pfd., Ser. A)
Sequa Corp. ($5.00 Cv. Pfd.)
Thermo Electron Corp. (Sub. Deb. Cv., 4.25%, 01/01/03)
Robbins & Myers Inc. (Sub. Deb. Cv., 6.50%, 09/01/03)
--------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
10
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2001 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
CONVERTIBLE CORPORATE BONDS -- 42.1%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 6.0%
$ 800,000 Exide Corp., Sub. Deb. Cv.
2.90%, 12/15/05 (b) ........................ $ 384,000
9,000,000 Standard Motor Products Inc.,
Sub. Deb. Cv.
6.75%, 07/15/09 ............................ 6,097,500
------------
6,481,500
------------
AVIATION: PARTS AND SERVICES -- 4.0%
4,711,000 Kaman Corp., Sub. Deb. Cv.
6.00%, 03/15/12 ............................ 4,316,454
------------
BROADCASTING -- 0.0%
15,000 Granite Broadcasting Corp.,
Sub. Deb. Cv.
8.88%, 05/15/08 ............................ 10,275
------------
BUILDING AND CONSTRUCTION -- 0.0%
40,000 Foster Wheeler Ltd.,
Sub. Deb. Cv.
6.50%, 06/01/07 (b) ........................ 28,213
------------
BUSINESS SERVICES -- 2.1%
900,000 BBN Corp., Sub. Deb. Cv.
6.00%, 04/01/12 (a) ........................ 870,750
10,000 First Data Corp., Sub. Deb. Cv.
2.00%, 03/01/08 ............................ 9,962
1,800,000 Trans-Lux Corp., Sub. Deb. Cv.
7.50%, 12/01/06 ............................ 1,372,500
------------
2,253,212
------------
COMPUTER SOFTWARE AND SERVICES -- 0.2%
400,000 Exodus Communications Inc.,
Sub. Deb. Cv.
5.25%, 02/15/08 (e) ........................ 10,000
350,000 QuadraMed Corp., Sub. Deb. Cv.
5.25%, 05/01/05 ............................ 243,250
------------
253,250
------------
CONSUMER PRODUCTS -- 0.6%
1,500,000 Pillowtex Corp., Sub. Deb. Cv.
6.00%, 03/15/12+ (e) ....................... 0
750,000 Standard Commercial Corp., Sub. Deb. Cv.
7.25%, 03/31/07 ............................ 682,500
------------
682,500
------------
CONSUMER SERVICES -- 4.7%
4,000,000 CUC International Inc., Sub. Deb. Cv.
3.00%, 02/15/02 ............................ 3,960,000
1,100,000 Ogden Corp., Sub. Deb. Cv.
6.00%, 06/01/02 ............................ 1,091,750
------------
5,051,750
------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
ELECTRONICS -- 2.3%
ASM Lithography
Holding, Cv.
$ 40,000(d) 2.50%, 04/09/05 ............................ $ 13,867
10,000(d) 2.50%, 04/09/05 (b) ........................ 3,467
200,000 Oak Industries Inc.,
Sub. Deb. Cv.
4.88%, 03/01/08 ............................ 180,000
2,400,000 Thermo Electron Corp.,
Sub. Deb. Cv.
4.25%, 01/01/03 (b) ........................ 2,292,000
------------
2,489,334
------------
ENERGY AND UTILITIES -- 1.2%
200,000 Devon Energy Corp.,
Sub. Deb. Cv.
4.95%, 08/15/08 ............................ 203,000
200,000 Friede Goldman Halter Inc.,
Sub. Deb. Cv.
4.50%, 09/15/04 ............................ 39,000
1,100,000 Moran Energy Inc.,
Sub. Deb. Cv.
8.75%, 01/15/08 ............................ 988,625
------------
1,230,625
------------
ENTERTAINMENT -- 0.8%
800,000 USA Networks Inc.,
Sub. Deb. Cv.
7.00%, 07/01/03 ............................ 796,000
------------
ENVIRONMENTAL SERVICES -- 7.0%
7,500,000 Waste Management Inc.,
Sub. Deb. Cv.
4.00%, 02/01/02 ............................ 7,537,500
------------
EQUIPMENT AND SUPPLIES -- 1.9%
1,950,000 Robbins & Myers Inc.,
Sub. Deb. Cv.
6.50%, 09/01/03 2,049,937
------------
FOOD AND BEVERAGE -- 0.0%
110,000 Boston Chicken Inc.,
Sub. Deb. Cv.
7.75%, 05/01/04+ (e) ....................... 0
150,000 Chiquita Brands
International Inc., Cv.
7.00%, 03/28/01+ (e) ....................... 41,250
------------
41,250
------------
HEALTH CARE -- 0.0%
10,000 Inhale Therapeutic Systems,
Sub. Deb. Cv.
6.75%, 10/13/06 (b) ........................ 8,712
11
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2001 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
HEALTH CARE (CONTINUED)
$ 10,000 Invitrogen Corp., Sub. Deb. Cv.
5.50%, 03/01/07 ............................ $ 10,737
150,000 Sabratek Corp.,
Sub. Deb. Cv.
Zero Cpn., 04/15/05+ (e) ................... 0
------------
19,449
------------
HOTELS AND GAMING -- 4.2%
5,500,000 Hilton Hotels Corp.,
Sub. Deb. Cv.
5.00%, 05/15/06 ............................ 4,475,625
------------
PAPER AND FOREST PRODUCTS -- 1.4%
200,000 Riverwood International Corp.,
Sub. Deb. Cv.
6.75%, 09/15/03 ............................ 230,890
1,400,000 Thermo Fibertek Inc., Cv.
4.50%, 07/15/04 (b) ........................ 1,291,500
------------
1,522,390
------------
PUBLISHING -- 1.0%
650,000 News America Holdings Inc.,
Sub. Deb. Cv.
Zero Cpn., 03/31/02 ........................ 862,445
200,000 Times Mirror Ltd.,
Sub. Deb. Cv.
Zero Cpn., 04/15/17 ........................ 104,000
50,000 United News & Media plc,
Sub. Deb. Cv.
6.13%, 12/03/03 (c) ........................ 71,292
------------
1,037,737
------------
RETAIL -- 0.3%
60,000 Costco Companies Inc.,
Sub. Deb. Cv.
Zero Cpn., 08/19/17 ........................ 48,150
300,000 Rite Aid Corp., Sub. Deb. Cv.
5.25%, 09/15/02 ............................ 288,375
------------
336,525
------------
SPECIALTY CHEMICALS -- 1.9%
IVAX Corp.,
Sub. Deb. Cv.
750,000 5.50%, 05/15/07 ............................ 783,750
400,000 4.50%, 05/15/08 (b) ........................ 340,500
1,000,000 Thermo Instrument Systems Inc.,
Sub. Deb. Cv.
4.50%, 10/15/03 (b) ........................ 966,250
------------
2,090,500
------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
TELECOMMUNICATIONS -- 1.0%
$ 80,000 Amnex Inc., Sub. Deb. Cv.
8.50%, 09/25/02+ (b) (e) ................... $ 0
Bell Atlantic Corp., Cv.
90,000 4.25%, 09/15/05 ............................ 90,787
210,000 4.25%, 09/15/05 (b) ........................ 212,363
1,200,000 NTL Inc., Sub. Deb. Cv.
5.75%, 12/15/09 ............................ 214,500
500,000 Rogers Communications Inc.,
Sub. Deb. Cv.
2.00%, 11/26/05 ............................ 382,500
200,000 Williams Communications Group Inc.
10.88%, 10/01/09 ........................... 84,000
250,000 XO Communications Inc.,
Sub. Deb. Cv.
5.75%, 01/15/09 (b) ........................ 38,125
------------
1,022,275
------------
WIRELESS COMMUNICATIONS -- 1.5%
600,000 Nextel Communications Inc., Cv.
6.00%, 06/01/11 (b) ........................ 361,500
Nextel Communications Inc.,
Sub. Deb. Cv.
50,000 4.75%, 07/01/07 ............................ 31,813
1,500,000 5.25%, 01/15/10 ............................ 770,625
1,000,000 United States Cellular Corp.,
Sub. Deb. Cv.
Zero Cpn., 06/15/15 ........................ 468,750
------------
1,632,688
------------
TOTAL CONVERTIBLE
CORPORATE BONDS ............................ 45,358,989
------------
SHARES
--------
CONVERTIBLE PREFERRED STOCKS -- 12.2%
AEROSPACE -- 1.2%
10,800 Northrop Grumman Corp.,
7.00% Cv. Pfd., Ser. B ..................... 1,336,500
------------
AVIATION: PARTS AND SERVICES -- 1.3%
Coltec Capital Trust,
25,000 5.25% Cv. Pfd. ............................. 785,950
21,000 5.25% Cv. Pfd. (b) ......................... 650,509
------------
1,436,459
------------
CABLE -- 0.2%
1,000 MediaOne Group Inc.,
4.50% Cv. Pfd., Ser. D ..................... 24,800
UnitedGlobalCom Inc.,
2,000 7.00% Cv. Pfd. (b) ......................... 15,750
17,000 7.00% Cv. Pfd., Ser. C ..................... 133,875
------------
174,425
------------
12
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2001 (UNAUDITED)
MARKET
SHARES VALUE
------ ------
CONVERTIBLE PREFERRED STOCK S (CONTINUED)
DIVERSIFIED INDUSTRIAL -- 0.5%
2,000 GATX Corp.,
$2.50 Cv. Pfd. ............................. $ 341,000
25,000 WHX Corp.,
6.50% Cv. Pfd., Ser. A ..................... 132,500
6,100 WHX Corp.,
$3.75 Cv. Pfd., Ser. B ..................... 24,705
------------
498,205
------------
ENERGY AND UTILITIES -- 0.2%
200 KCS Energy Inc.,
5.00% Cv. Pfd., Ser. A ..................... 235,333
2,000 Semco Capital Trust II,
11.00% Cv. Pfd. ............................ 23,700
------------
259,033
------------
ENTERTAINMENT -- 0.1%
2,500 Metromedia International Group Inc.,
7.25% Cv. Pfd. ............................. 20,625
3,000 Six Flags Inc.,
7.25% Cv. Pfd. ............................. 61,650
------------
82,275
------------
EQUIPMENT AND SUPPLIES -- 2.3%
31,000 Sequa Corp.,
$5.00 Cv. Pfd. ............................. 2,449,000
------------
PAPER AND FOREST PRODUCTS -- 2.4%
65,000 Sealed Air Corp.,
$2.00 Cv. Pfd., Ser. A ..................... 2,567,500
------------
TELECOMMUNICATIONS -- 4.0%
12,000 BroadWing Inc.,
6.75% Cv. Pfd., Ser. B ..................... 479,880
74,500 Citizens Communications Co.,
5.00% Cv. Pfd. ............................. 3,243,730
12,000 Philippine Long Distance
Telephone Co.,
$3.50 Cv. Pfd., Ser. III ................... 286,200
1,500 TCI Pacific Communications Inc.,
5.00% Cv. Pfd. ............................. 252,563
------------
4,262,373
------------
WIRELESS COMMUNICATIONS -- 0.0%
3,000 Loral Space & Communications Ltd.,
6.00% Cv. Pfd., Ser. D ..................... 25,875
------------
TOTAL CONVERTIBLE
PREFERRED STOCKS ........................... 13,091,645
------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 6.3%
AVIATION: PARTS AND SERVICES -- 0.2%
18,000 Kaman Corp., Cl. A ........................... $ 238,320
------------
BROADCASTING -- 0.0%
38,500 Granite Broadcasting Corp.+ .................. 53,900
------------
CONSUMER PRODUCTS -- 0.3%
10,000 Ralston Purina Co. ........................... 328,000
------------
ENERGY AND UTILITIES -- 2.6%
9,000 AGL Resources Inc. ........................... 179,730
7,000 BP plc, ADR .................................. 344,190
18,000 CH Energy Group Inc. ......................... 730,800
10,000 Conectiv Inc. ................................ 235,000
756 KCS Energy Inc. .............................. 2,669
10,000 NiSource Inc.+ ............................... 21,200
40,000 Northeast Utilities .......................... 749,200
10,000 Progress Energy Inc. ......................... 3,000
10,000 RGS Energy Group Inc. ........................ 387,000
2,200 SJW Corp. .................................... 180,180
------------
2,832,969
------------
EQUIPMENT AND SUPPLIES -- 0.2%
50,000 Fedders Corp., Cl. A ......................... 167,000
------------
FINANCIAL SERVICES -- 2.5%
29,000 Argonaut Group Inc. .......................... 475,310
30,000 Heller Financial Inc., Cl. A ................. 1,583,100
20,000 Liberty Financial Companies Inc. ............. 635,000
------------
2,693,410
------------
TELECOMMUNICATIONS -- 0.2%
1,000 Philippine Long Distance
Telephone Co., ADR ......................... 9,450
10,000 Sprint FON Group ............................. 240,100
------------
249,550
------------
WIRELESS COMMUNICATIONS -- 0.3%
10,000 Sprint PCS Group+ ............................ 262,900
49 Winstar Communications Inc.+ ................. 3
------------
262,903
------------
TOTAL COMMON STOCKS .......................... 6,826,052
------------
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT OBLIGATIONS -- 39.5%
$42,672,000 U.S. Treasury Bills,
1.83% to 3.63%++,
due 10/04/01 to 12/13/01 ................... 42,599,866
------------
13
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2001 (UNAUDITED)
MARKET
VALUE
------
TOTAL INVESTMENTS -- 100.1%
(Cost $112,112,587) ..................................... $107,876,552
============
OTHER ASSETS, LIABILITIES AND
LIQUIDATION VALUE OF
CUMULATIVE PREFERRED STOCK -- (27.9)% ................... (30,040,026)
------------
NET ASSETS -- COMMON STOCK -- 72.2%
(7,924,938 common shares outstanding) ................... 77,836,526
------------
NET ASSETS -- PREFERRED STOCK -- 27.8%
(1,200,000 preferred shares outstanding) ................ 30,000,000
------------
TOTAL NET ASSETS -- 100.0% ................................ $107,836,526
============
NET ASSET VALUE PER COMMON SHARE
(77,836,526 / 7,924,938 shares outstanding) ............. $9.82
=====
MARKET
SHARES PROCEEDS VALUE
------ --------
SECURITIES SOLD SHORT
50,000 KCS Energy Inc. ................. $(476,483) $ (176,000)
===========
-----------------------------
For Federal tax purposes:
Aggregate cost ............................... $112,112,587
===========
Gross unrealized appreciation ................ $ 2,178,351
Gross unrealized depreciation ................ (6,414,386)
-----------
Net unrealized depreciation .................. $(4,236,035)
===========
-----------------------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At
September 30, 2001, the market value of Rule 144A securities amounted to
$6,592,889 or 6.1% of total net assets.
(c) Principal amount denoted in British Pounds.
(d) Principal amount denoted in Euros.
(e) Bond in default.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
14
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,
15
except that State Street will endeavor to terminate purchases in the open market
and cause the Convertible Securities Fund to issue shares at net asset value if,
following the commencement of such purchases, the market value of the Common
Stock exceeds the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions will
not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Convertible Securities Fund reserves the right to amend or terminate the
Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the members
of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by State Street on at
least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders
to increase their investment in the Convertible Securities Fund. In order to
participate in the Voluntary Cash Purchase Plan, shareholders must have their
shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street Bank and Trust Company for investments
in the Convertible Securities Fund shares at the then current market price.
Shareholders may send an amount from $250 to $10,000. State Street Bank and
Trust Company will use these funds to purchase shares in the open market on or
about the 1st and 15th of each month. State Street Bank and Trust Company will
charge each shareholder who participates $0.75, plus a pro rata share of the
brokerage commissions. Brokerage charges for such purchases are expected to be
less than the usual brokerage charge for such transactions. It is suggested that
any voluntary cash payments be sent to State Street Bank and Trust Company, P.O.
Box 8200, Boston, MA 02266-8200 such that State Street receives such payments
approximately 10 days before the investment date. Funds not received at least
five days before the investment date shall be held for investment until the next
purchase date. A payment may be withdrawn without charge if notice is received
by State Street Bank and Trust Company at least 48 hours before such payment is
to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Convertible Securities Fund.
16
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.
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 AND PORTFOLIO MANAGERS
Mario J. Gabelli, CFA
PRESIDENT & CHIEF INVESTMENT OFFICER
Bruce N. Alpert
VICE PRESIDENT & TREASURER
Peter W. Latartara
VICE PRESIDENT
A. Hartswell Woodson, III
ASSOCIATE PORTFOLIO MANAGER
James E. McKee
SECRETARY
INVESTMENT ADVISOR
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1434
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
STOCK EXCHANGE LISTING
Common 8.00% Preferred
-------- ---------------
NYSE-Symbol: GCV GCV Pr
Shares Outstanding: 7,924,938 1,200,000
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Sunday's The New York Times and in
Monday's The Wall Street Journal. It is also listed in Barron's Mutual
Funds/Closed End Funds section under the heading "Convertible Securities Funds."
The Net Asset Value may be obtained each day by calling (914) 921-5071.
--------------------------------------------------------------------------------
For general information about the Gabelli Funds, call 1-800-GABELLI
(1-800-422-3554), fax us at 914-921-5118, visit Gabelli Funds' Internet homepage
at: HTTP://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 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.
--------------------------------------------------------------------------------
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ONE CORPORATE CENTER
RYE, NY 10580-1434
(914) 921-5070
HTTP://WWW.GABELLI.COM
THIRD QUARTER REPORT
SEPTEMBER 30, 2001
GBFCS 09/01