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
The Gabelli Convertible and Income Securities Fund Inc.
(Exact name of registrant as specified in charter)
One Corporate Center
Rye, New York 10580-1422
(Address of principal executive offices) (Zip code)
Bruce N. Alpert
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
(Name and address of agent for service)
registrant's telephone number, including area code: 1-800-422-3554
Date of fiscal year end: December 31
Date of reporting period: June 30, 2008
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, 100 F Street, NE,
Washington, DC 20549. 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.
(THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC. LOGO)
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
Semi-Annual Report
June 30, 2008
TO OUR SHAREHOLDERS,
The Gabelli Convertible and Income Securities Fund's (the "Fund") net asset
value ("NAV") total return fell 6.4% during the first half of 2008, compared
with declines of 11.9% and 4.8% for the Standard & Poor's ("S&P") 500 Index and
the Lipper Convertible Securities Fund Average, respectively, and a gain of 1.0%
for the Lehman Brothers Government/Corporate Bond Index. The total return for
the Fund's publicly traded shares declined 1.2% during the first half of the
year. On June 30, 2008, the Fund's NAV per share was $7.00, while the price of
the publicly traded shares closed at $7.17 on the New York Stock Exchange.
Enclosed are the financial statements and the investment portfolio as of
June 30, 2008.
COMPARATIVE RESULTS
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 2008 (a)
Since
Year to Inception
Quarter Date 1 Year 3 Year 5 Year 10 Year 15 Year (07/03/89)
------- ------- ------ ------ ------ ------- ------- ----------
GABELLI CONVERTIBLE AND INCOME SECURITIES FUND
NAV TOTAL RETURN (b)........................... (0.74)% (6.41)% (8.01)% 5.31% 5.11% 4.61% 6.00% 7.14%
INVESTMENT TOTAL RETURN (c).................... 1.14 (1.23) (12.13) (1.27) 1.75 5.24 N/A(d) 6.11(d)
S&P 500 Index..................................... (2.72) (11.90) (13.11) 4.40 7.58 2.88 9.21 9.93(e)
Lehman Brothers Government/Corporate Bond Index... (1.51) 0.98 7.24 3.84 3.58 5.69 6.08 7.12(e)
Lipper Convertible Securities Fund Average........ 1.56 (4.80) (4.59) 6.08 7.41 5.61 8.25 9.26(e)
(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. 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. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE
NOT ANNUALIZED. INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT
OBJECTIVES, RISKS, CHARGES, AND EXPENSES OF THE FUND BEFORE INVESTING. THE
S&P 500 INDEX IS AN UNMANAGED INDICATOR OF STOCK MARKET PERFORMANCE. THE
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX IS AN UNMANAGED MARKET
VALUE WEIGHTED INDEX THAT TRACKS THE TOTAL RETURN PERFORMANCE OF FIXED
RATE, PUBLICLY PLACED, DOLLAR DENOMINATED OBLIGATIONS. THE LIPPER
CONVERTIBLE SECURITIES FUND AVERAGE REFLECTS THE AVERAGE PERFORMANCE OF
OPEN-END MUTUAL FUNDS CLASSIFIED IN THIS PARTICULAR CATEGORY. DIVIDENDS AND
INTEREST INCOME ARE CONSIDERED REINVESTED. YOU CANNOT INVEST DIRECTLY IN AN
INDEX.
(b) TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN THE NAV PER
SHARE, REINVESTMENT OF DISTRIBUTIONS AT NAV ON THE EX-DIVIDEND DATE, AND
ADJUSTMENTS FOR RIGHTS OFFERINGS AND ARE NET OF EXPENSES. SINCE INCEPTION
RETURN IS BASED ON AN INITIAL NAV OF $10.00.
(c) TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN CLOSING MARKET
VALUES ON THE NEW YORK STOCK EXCHANGE, REINVESTMENT OF DISTRIBUTIONS, AND
ADJUSTMENTS FOR RIGHTS OFFERINGS. SINCE INCEPTION RETURN IS BASED ON AN
INITIAL OFFERING PRICE OF $11.25.
(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.
(e) FROM JUNE 30, 1989, THE DATE CLOSEST TO THE FUND'S INCEPTION FOR WHICH DATA
IS AVAILABLE.
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 from the commentary.
Both the commentary and the financial statements, including the portfolio of
investments, will be available on our website at www.gabelli.com/funds.
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 as of June 30, 2008:
LONG POSITIONS
U.S. Government Obligations...................... 31.0%
Energy and Utilities............................. 12.2%
Automotive: Parts and Accessories................ 6.7%
Food and Beverage................................ 5.9%
Financial Services............................... 5.6%
Broadcasting..................................... 5.3%
Health Care...................................... 3.8%
Retail........................................... 3.8%
Communications Equipment......................... 3.6%
Wireless Communications.......................... 3.2%
Diversified Industrial........................... 2.5%
Business Services................................ 2.2%
Computer Software and Services................... 2.1%
Telecommunications............................... 1.8%
Publishing....................................... 1.7%
Computer Hardware................................ 1.4%
Real Estate...................................... 1.3%
Aerospace........................................ 1.3%
Hotels and Gaming................................ 1.2%
Consumer Products................................ 1.1%
Electronics...................................... 0.8%
Cable and Satellite.............................. 0.6%
Transportation................................... 0.6%
Entertainment.................................... 0.1%
Equipment and Supplies .......................... 0.1%
Manufactured Housing and Recreational Vehicles... 0.1%
Agriculture...................................... 0.0%
Automotive....................................... 0.0%
-----
100.0%
=====
THE FUND FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION (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, 2008. 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 SEC'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, procedures, and how the Fund voted proxies
relating to portfolio securities is available without charge, upon request, by
(i) calling 800-GABELLI (800-422-3554); (ii) writing to The Gabelli Funds at One
Corporate Center, Rye, NY 10580-1422; or (iii) visiting the SEC's website at
www.sec.gov.
SHAREHOLDER MEETING - MAY 19, 2008 - FINAL RESULTS
The Fund's Annual Meeting of Shareholders was held on May 19, 2008 at the
Greenwich Library in Greenwich, Connecticut. At that meeting, common and
preferred shareholders, voting together as a single class, elected Anthonie C.
van Ekris and Salvatore J. Zizza as Directors of the Fund. A total of 10,563,816
votes and 10,575,822 votes were cast in favor of each Director and a total of
407,548 votes and 395,542 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. A total of 922,047 votes were cast in
favor of this Director and 9,676 votes were withheld for this Director.
Mario J. Gabelli, E. Val Cerutti, Dugald A. Fletcher, 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, 2008 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
----------- ------------- -------------
CONVERTIBLE CORPORATE BONDS -- 23.6%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 5.0%
$ 6,000,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 .................................. $ 5,598,786 $ 5,745,000
------------- -------------
BROADCASTING -- 4.6%
1,400,000 Sinclair Broadcast Group Inc.,
Cv. (STEP),
4.875%, 07/15/18 .................................. 1,292,616 1,265,250
4,500,000 Sinclair Broadcast Group Inc.,
Sub. Deb. Cv.,
6.000%, 09/15/12 .................................. 3,894,400 4,055,625
------------- -------------
5,187,016 5,320,875
------------- -------------
BUSINESS SERVICES -- 0.0%
900,000 BBN Corp., Sub. Deb. Cv.,
6.000%, 04/01/12+ (a) ............................. 882,893 0
------------- -------------
CABLE AND SATELLITE -- 0.0%
400,000 Adelphia Communications Corp.,
Sub. Deb. Cv.,
3.250%, 05/01/21+ (a) ............................. 127,000 0
------------- -------------
COMMUNICATIONS EQUIPMENT -- 2.6%
3,000,000 Agere Systems Inc.,
Sub. Deb. Cv.,
6.500%, 12/15/09 .................................. 2,999,912 3,060,000
------------- -------------
CONSUMER PRODUCTS -- 0.1%
100,000 Church & Dwight Co. Inc.,
Deb. Cv.,
5.250%, 08/15/33 (b). ............................. 100,000 149,284
1,500,000 Pillowtex Corp., Sub. Deb. Cv.,
9.000%, 12/15/08+ (a) ............................. 0 0
------------- -------------
100,000 149,284
------------- -------------
DIVERSIFIED INDUSTRIAL -- 1.0%
1,400,000 Roper Industries Inc.,
Cv. (STEP),
1.481%, 01/15/34 .................................. 706,122 1,158,500
50,000 Trinity Industries Inc.,
Sub. Deb. Cv.,
3.875%, 06/01/36 .................................. 44,672 48,000
------------- -------------
750,794 1,206,500
------------- -------------
ELECTRONICS -- 0.1%
10,000 Artesyn Technologies Inc.,
Sub. Deb. Cv.,
5.500%, 08/15/10 (b). ............................. 10,096 13,691
100,000 CTS Corp., Sub. Deb. Cv.,
2.125%, 05/01/24 .................................. 95,067 94,750
------------- -------------
105,163 108,441
------------- -------------
PRINCIPAL MARKET
AMOUNT COST VALUE
----------- ------------- -------------
ENERGY AND UTILITIES -- 1.1%
$ 500,000 Devon Energy Corp., Deb. Cv.,
4.950%, 08/15/08 .................................. $ 499,988 $ 931,250
400,000 Unisource Energy Corp., Cv.,
4.500%, 03/01/35 (b) .............................. 400,565 389,500
------------- -------------
900,553 1,320,750
------------- -------------
EQUIPMENT AND SUPPLIES -- 0.0%
10,000 Regal-Beloit Corp., Sub. Deb. Cv.,
2.750%, 03/15/24 .................................. 12,541 16,738
------------- -------------
FINANCIAL SERVICES -- 1.2%
500,000 Conseco Inc., Cv. (STEP),
3.500%, 09/30/35 (b) .............................. 504,946 407,500
1,000,000 PrivateBancorp Inc., Cv.,
3.625%, 03/15/27 .................................. 1,001,765 967,500
------------- -------------
1,506,711 1,375,000
------------- -------------
HEALTH CARE -- 0.8%
900,000 Advanced Medical Optics Inc.,
Sub. Deb. Cv.,
3.250%, 08/01/26 .................................. 748,529 660,375
100,000 Chemed Corp., Cv.,
1.875%, 05/15/14 .................................. 76,311 75,750
100,000 Millipore Corp., Cv.,
3.750%, 06/01/26 .................................. 106,671 101,125
150,000 Sabratek Corp., Sub. Deb. Cv.,
6.000%, 04/15/09+ (a) ............................. 84,763 0
150,000 Thoratec Corp., Sub. Deb. Cv.
(STEP),
1.380%, 05/16/34 .................................. 98,621 94,687
------------- -------------
1,114,895 931,937
------------- -------------
MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 0.1%
100,000 Fleetwood Enterprises Inc.,
Sub. Deb. Cv.,
5.000%, 12/15/23 (b) .............................. 100,000 95,625
------------- -------------
PUBLISHING -- 1.7%
2,000,000 Gannett Co. Inc., Cv.,
2.241%, 07/15/37 (c) .............................. 1,990,046 2,007,740
------------- -------------
REAL ESTATE -- 1.3%
2,500,000 Palm Harbor Homes Inc., Cv.,
3.250%, 05/15/24 .................................. 2,395,443 1,487,500
------------- -------------
RETAIL -- 2.6%
60,000 Costco Wholesale Corp.,
Sub. Deb. Cv.,
Zero Coupon, 08/19/17 ............................. 49,727 95,850
100,000 Pier 1 Imports Inc., Cv. (STEP),
6.375%, 02/15/36 .................................. 95,402 78,250
See accompanying notes to financial statements.
3
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2008 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
----------- ------------- -------------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
RETAIL (CONTINUED)
$ 3,000,000 The Great Atlantic & Pacific
Tea Co. Inc., Cv.,
5.125%, 06/15/11 .................................. $ 3,000,000 $ 2,816,250
------------- -------------
3,145,129 2,990,350
------------- -------------
TELECOMMUNICATIONS -- 0.1%
50,000 Commonwealth Telephone
Enterprises Inc., Ser. A, Cv.,
3.250%, 07/15/23 (a). ............................. 49,696 52,257
------------- -------------
WIRELESS COMMUNICATIONS -- 1.3%
1,500,000 Nextel Communications Inc., Cv.,
5.250%, 01/15/10 .................................. 1,348,105 1,455,000
------------- -------------
TOTAL CONVERTIBLE CORPORATE BONDS 28,314,683 27,322,997
------------- -------------
SHARES
-----------
CONVERTIBLE PREFERRED STOCKS -- 3.3%
AGRICULTURE -- 0.0%
1,000 Archer-Daniels-Midland Co.,
6.250% Cv. Pfd. ................................... 42,520 43,840
------------- -------------
AUTOMOTIVE -- 0.0%
1,000 General Motors Corp.,
6.250% Cv. Pfd., Ser. C ........................... 22,940 13,260
------------- -------------
BUSINESS SERVICES -- 0.0%
15,143 Interep National Radio Sales Inc.,
4.000% Cv. Pfd.,
Ser. A (a)(b)(d)+ ................................. 1,347,184 0
20,000 Key3Media Group Inc. (STEP),
5.500% Cv. Pfd.,
Ser. B+ (a) ....................................... 499,993 117
------------- -------------
1,847,177 117
------------- -------------
COMMUNICATIONS EQUIPMENT -- 0.4%
600 Lucent Technologies
Capital Trust I,
7.750% Cv. Pfd .................................... 356,750 456,000
------------- -------------
ENERGY AND UTILITIES -- 1.0%
6,000 AES Trust III,
6.750% Cv. Pfd. ................................... 229,530 291,000
500 El Paso Corp.,
4.990% Cv. Pfd. (b). .............................. 479,192 863,292
300 El Paso Energy Capital Trust I,
4.750% Cv. Pfd. ................................... 11,460 12,300
------------- -------------
720,182 1,166,592
------------- -------------
MARKET
SHARES COST VALUE
----------- ------------- -------------
ENTERTAINMENT -- 0.1%
17,000 Six Flags Inc.,
7.250% Cv. Pfd. ................................... $ 345,910 $ 158,950
------------- -------------
FINANCIAL SERVICES -- 0.7%
100 Alleghany Corp.,
5.750% Cv. Pfd. ................................... 27,010 30,884
20,000 Federal National Mortgage
Association, 8.750%,
Cv. Pfd., Ser. 08-1 ............................... 1,000,000 766,000
------------- -------------
1,027,010 796,884
------------- -------------
HEALTH CARE -- 0.1%
100 Elite Pharmaceuticals Inc.,
$2.32 Cv. Pfd.
Ser. C (a)(d)+ .................................... 91,465 100,000
------------- -------------
TELECOMMUNICATIONS -- 0.5%
14,000 Cincinnati Bell Inc.,
6.750% Cv. Pfd., Ser. B ........................... 398,212 562,800
------------- -------------
TRANSPORTATION -- 0.5%
2,500 GATX Corp., $2.50 Cv. Pfd. ........................... 360,275 567,500
------------- -------------
TOTAL CONVERTIBLE
PREFERRED STOCKS 5,212,441 3,865,943
------------- -------------
COMMON STOCKS -- 41.3%
AEROSPACE -- 1.3%
10,000 Kaman Corp. 229,904 227,600
11,844 Northrop Grumman Corp. ............................... 757,333 792,364
2,000 Rockwell Automation Inc. ............................. 87,441 87,460
52,500 Rolls-Royce Group plc+ ............................... 500,804 357,111
4,704,000 Rolls-Royce Group plc,
Cl. B ............................................. 9,343 9,369
------------- -------------
1,584,825 1,473,904
------------- -------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.7%
50,000 Genuine Parts Co. .................................... 1,991,223 1,984,000
------------- -------------
BROADCASTING -- 0.7%
20,000 Clear Channel
Communications Inc. ............................... 766,360 704,000
14,000 Emmis Communications Corp.,
Cl. A+ ............................................ 95,021 35,280
------------- -------------
861,381 739,280
------------- -------------
BUSINESS SERVICES -- 2.2%
30,000 ChoicePoint Inc.+ .................................... 1,450,800 1,446,000
318,000 Trans-Lux Corp.+ (e) ................................. 2,321,454 1,144,800
------------- -------------
3,772,254 2,590,800
------------- -------------
See accompanying notes to financial statements.
4
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2008 (UNAUDITED)
MARKET
SHARES COST VALUE
----------- ------------- -------------
COMMON STOCKS (CONTINUED)
CABLE AND SATELLITE -- 0.6%
493,409 Adelphia
Recovery Trust+ (a). .............................. $ 0 $ 0
29,000 Cablevision Systems Corp.,
Cl. A+ ............................................ 774,121 655,400
2,000 Rogers Communications Inc.,
Cl. B ............................................. 28,913 77,320
------------- -------------
803,034 732,720
------------- -------------
COMMUNICATIONS EQUIPMENT -- 0.6%
30,000 Corning Inc. ......................................... 366,667 691,500
------------- -------------
COMPUTER HARDWARE -- 1.4%
14,000 International Business
Machines Corp. .................................... 1,122,403 1,659,420
------------- -------------
COMPUTER SOFTWARE AND SERVICES -- 2.1%
15,000 Diebold Inc. ......................................... 555,270 533,700
60,000 Electronic Data
Systems Corp. ..................................... 1,475,000 1,478,400
47,000 Furmanite Corp.+ ..................................... 181,064 375,060
2,000 Microsoft Corp. ...................................... 51,660 55,020
------------- -------------
2,262,994 2,442,180
------------- -------------
CONSUMER PRODUCTS -- 1.0%
2,000 Avon Products Inc. ................................... 55,032 72,040
50,000 Swedish Match AB ..................................... 903,010 1,025,330
------------- -------------
958,042 1,097,370
------------- -------------
DIVERSIFIED INDUSTRIAL -- 1.1%
46,000 General Electric Co. ................................. 1,559,242 1,227,740
37,000 WHX Corp.+. .......................................... 350,838 55,130
------------- -------------
1,910,080 1,282,870
------------- -------------
ELECTRONICS -- 0.4%
22,000 Intel Corp. .......................................... 443,773 472,560
------------- -------------
ENERGY AND UTILITIES -- 10.0%
6,000 Anadarko Petroleum Corp. ............................. 203,993 449,040
10,000 BP plc, ADR .......................................... 665,900 695,700
2,000 Cameron
International Corp.+ .............................. 29,116 110,700
4,060 CH Energy Group Inc. ................................. 120,850 144,414
14,000 Chevron Corp. ........................................ 856,710 1,387,820
5,000 ConocoPhillips ....................................... 312,250 471,950
2,000 Devon Energy Corp. ................................... 127,485 240,320
10,000 Energy East Corp. .................................... 234,962 247,200
18,000 Exxon Mobil Corp. .................................... 1,064,257 1,586,340
10,100 FPL Group Inc. ....................................... 571,056 662,358
22,000 Great Plains Energy Inc. ............................. 650,758 556,160
MARKET
SHARES COST VALUE
----------- ------------- -------------
18,000 Halliburton Co. ...................................... $ 538,244 $ 955,260
41,000 Mirant Corp.+. ....................................... 599,231 1,605,150
1,200,000 Mirant Corp., Escrow+ (a) ............................ 0 0
7,000 National Fuel Gas Co. ................................ 273,710 416,360
15,000 Northeast Utilities .................................. 247,982 382,950
10,000 Progress Energy Inc.,
CVO+ (a) .......................................... 5,200 3,300
16,000 Royal Dutch Shell plc,
Cl. A, ADR ........................................ 1,014,367 1,307,360
7,000 SJW Corp. ............................................ 149,930 184,800
10,000 Xcel Energy Inc. ..................................... 183,300 200,700
------------- -------------
7,849,301 11,607,882
------------- -------------
EQUIPMENT AND SUPPLIES -- 0.1%
3,000 Mueller Industries Inc. .............................. 98,955 96,600
------------- -------------
FINANCIAL SERVICES -- 3.7%
2,000 AllianceBernstein Holding LP. ........................ 122,180 109,360
35,000 American Express Co. ................................. 1,653,334 1,318,450
37,000 Citigroup Inc. ....................................... 1,634,384 620,120
5,000 Federal National Mortgage Association ................ 140,737 97,550
10,000 Marsh & McLennan Companies Inc. ...................... 290,880 265,500
10,000 SAFECO Corp. ......................................... 672,498 671,600
52,000 Wells Fargo & Co. .................................... 1,551,368 1,235,000
------------- -------------
6,065,381 4,317,580
------------- -------------
FOOD AND BEVERAGE -- 5.9%
8,000 Anheuser-Busch Companies Inc. ........................ 390,070 496,960
14,080 Cadbury plc, ADR ..................................... 800,579 708,506
10,560 Dr. Pepper Snapple Group Inc.+ ....................... 326,997 221,549
21,000 General Mills Inc. ................................... 1,045,562 1,276,170
213,860 Parmalat SpA, GDR (b)(d) ............................. 917,160 559,329
1,000 Pernod-Ricard SA ..................................... 110,717 102,733
30,000 The Coca-Cola Co. .................................... 1,311,355 1,559,400
25,000 Wm. Wrigley Jr. Co. .................................. 1,940,571 1,944,500
------------- -------------
6,843,011 6,869,147
------------- -------------
HEALTH CARE -- 2.9%
24,000 Eli Lilly & Co. ...................................... 1,314,205 1,107,840
4,340 Elite Pharmaceuticals Inc.,
Cl. A+ ............................................ 5,290 2,300
4,500 Johnson & Johnson .................................... 289,443 289,530
2,000 Merck & Co. Inc. ..................................... 56,160 75,380
90,000 Pfizer Inc. .......................................... 2,392,783 1,572,300
12,000 UnitedHealth Group Inc. .............................. 492,449 315,000
------------- -------------
4,550,330 3,362,350
------------- -------------
See accompanying notes to financial statements.
5
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2008 (UNAUDITED)
MARKET
SHARES COST VALUE
----------- ------------- -------------
COMMON STOCKS (CONTINUED)
HOTELS AND GAMING -- 1.2%
260,037 Ladbrokes plc ........................................ $ 1,591,567 $ 1,329,838
------------- -------------
PUBLISHING -- 0.0%
2,000 PRIMEDIA Inc. ........................................ 14,430 9,320
------------- -------------
RETAIL -- 1.2%
4,000 Costco Wholesale Corp. ............................... 203,879 280,560
13,000 Wal-Mart Stores Inc. ................................. 592,810 730,600
10,000 Walgreen Co. ......................................... 380,830 325,100
------------- -------------
1,177,519 1,336,260
------------- -------------
TELECOMMUNICATIONS -- 1.2%
509 FairPoint Communications Inc. ........................ 4,964 3,670
7,000 Philippine Long Distance Telephone Co., ADR .......... 178,067 373,940
27,000 Verizon Communications Inc. .......................... 987,783 955,800
------------- -------------
1,170,814 1,333,410
------------- -------------
TRANSPORTATION -- 0.1%
2,000 GATX Corp. ........................................... 71,574 88,660
------------- -------------
WIRELESS COMMUNICATIONS -- 1.9%
50,100 Rural Cellular Corp., Cl. A+ ......................... 2,169,979 2,229,951
49 Winstar Communications Inc.+ (a) ..................... 438 0
------------- -------------
2,170,417 2,229,951
------------- -------------
TOTAL
COMMON STOCKS ..................................... 47,679,975 47,747,602
------------- -------------
PREFERRED STOCKS -- 0.0%
TELECOMMUNICATIONS -- 0.0%
3,679 PTV Inc.,
10.000% Pfd., Ser. A .............................. 0 1,876
------------- -------------
PRINCIPAL
AMOUNT
-----------
CORPORATE BONDS -- 0.8%
DIVERSIFIED INDUSTRIAL -- 0.4%
$ 486,300 GP Strategies Corp., Sub. Deb.,
6.000%, 08/14/08 (a)(d) ........................... 490,583 490,583
------------- -------------
ELECTRONICS -- 0.3%
300,000 Stoneridge Inc.,
11.500%, 05/01/12 ................................. 310,028 312,375
------------- -------------
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- ------------- -------------
ENERGY AND UTILITIES -- 0.1%
$ 100,000 Texas Competitive Electric
Holdings Co. LLC,
10.250%, 11/01/15 (b) ............................. $ 98,110 $ 98,500
------------- -------------
TELECOMMUNICATIONS -- 0.0%
AMNEX Inc., Sub. Deb.,
30,000 8.500%, 09/25/49+ (a)(b) .......................... 22,971 0
50,000 8.500%, 09/25/49+ (a)(b)(d) ....................... 48,801 0
------------- -------------
71,772 0
------------- -------------
TOTAL CORPORATE BONDS ................................ 970,493 901,458
------------- -------------
SHARES
-----------
WARRANTS -- 0.0%
CONSUMER PRODUCTS -- 0.0%
4,331 Pillowtex Corp.,
expire 11/24/09+ (a) .............................. 120,955 1
------------- -------------
DIVERSIFIED INDUSTRIAL -- 0.0%
379,703 National Patent Development Corp.,
expire 08/14/08+ (a)(d) ........................... 0 14
------------- -------------
FOOD AND BEVERAGE -- 0.0%
1,300 Parmalat SpA, GDR,
expire 12/31/15+ (a)(b)(d) ........................ 0 2,150
------------- -------------
HEALTH CARE -- 0.0%
12,930 Elite Pharmaceuticals Inc.,
expire 04/24/12+ (a)(d) ........................... 8,535 3,747
------------- -------------
TOTAL WARRANTS 129,490 5,912
------------- -------------
PRINCIPAL
AMOUNT
-----------
U.S. GOVERNMENT OBLIGATIONS -- 31.0%
U.S. TREASURY BILLS -- 28.2%
$32,776,000 U.S. Treasury Bills,
1.132% to 2.033%++,
09/18/08 to 10/09/08 .............................. 32,647,475 32,622,593
------------- -------------
U.S. TREASURY NOTES -- 2.8%
3,302,000 U.S. Treasury Note,
5.000%, 07/31/08 .................................. 3,309,783 3,309,783
------------- -------------
TOTAL U.S. GOVERNMENT OBLIGATIONS .................... 35,957,258 35,932,376
------------- -------------
TOTAL INVESTMENTS -- 100.0% ...................................... $ 118,264,340 115,778,164
=============
See accompanying notes to financial statements.
6
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2008 (UNAUDITED)
MARKET
VALUE
-------------
OTHER ASSETS AND LIABILITIES (NET) ................... $ (1,540,275)
PREFERRED STOCK
(990,800 preferred shares outstanding) ............ (24,770,000)
-------------
NET ASSETS -- COMMON STOCK
(12,786,965 common shares outstanding) ............ $ 89,467,889
=============
NET ASSET VALUE PER COMMON SHARE
($89,467,889 / 12,786,965 shares outstanding) ..... $ 7.00
=============
----------
(a) Security fair valued under procedures established by the Board of
Directors. The procedures may include reviewing available financial
information about the company and reviewing the valuation of comparable
securities and other factors on a regular basis. At June 30, 2008, the
market value of fair valued securities amounted to $652,169 or 0.56% 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,
2008, the market value of Rule 144A securities amounted to $2,578,871 or
2.23% of total investments. Except as noted in (d), these securities are
liquid.
(c) Floating rate security. The rate disclosed is that in effect at June 30,
2008.
(d) At June 30, 2008, the Fund held investments in restricted and illiquid
securities amounting to $1,155,823 or 1.00% of total investments, which
were valued under methods approved by the Board of Directors as follows:
ACQUISITION 06/30/08
SHARES/ CARRYING
PRINCIPAL ACQUISITION ACQUISITION VALUE
AMOUNT ISSUER DATE COST PER UNIT
----------- ---------------------------------------- ----------- ------------- -------------
$ 50,000 Amnex Inc., Sub. Deb., Cv.,
8.500%, 09/25/49 .................... 09/15/97 $ 48,801 --
100 Elite Pharmaceuticals Inc.,
$2.32 Cv. Pfd. Ser C ................ 04/25/07 91,465 $ 1,000.0000
12,930 Elite Pharmaceuticals Inc.
Warrants expire 04/24/12 ............ 04/25/07 8,535 0.2898
$486,300 GP Strategies Corp., Sub. Deb.,
6.000%, 08/14/08 .................... 08/14/03 338,548 100.8807
15,143 Interep National Radio Sales Inc.,
4.000% Cv. Pfd., Ser. A ............. 05/03/02 1,347,184 --
379,703 National Patent Development Corp.
Warrants expire 08/14/08 ............ 11/24/04 -- 0.0000
213,860 Pamalat SpA, GDR ....................... 04/10/03 917,160 2.6154
1,300 Pamalat SpA, GDR,
Warrants expire 12/31/15 ............ 11/09/05 -- 1.6538
(e) Security considered an affiliated holding because the Fund owns at least 5%
of its outstanding shares.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR American Depositary Receipt
CVO Contingent Value Obligation
GDR Global Depositary Receipt
STEP Step coupon bond. The rate disclosed is that in effect at June 30, 2008.
See accompanying notes to financial statements.
7
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS:
Investments, at value (cost $115,942,886) ........... $ 114,633,364
Investments in affiliates, at value
(cost $2,321,454) ................................ 1,144,800
Cash ................................................ 9,550
Receivable for investments sold ..................... 238,816
Dividends and interest receivable ................... 518,466
Deferred offering expense ........................... 12,255
Prepaid expense ..................................... 2,365
-------------
TOTAL ASSETS ........................................ 116,559,616
-------------
LIABILITIES:
Payable for investments purchased ................... 1,932,813
Distributions payable ............................... 20,642
Payable for investment advisory fees ................ 75,555
Payable for payroll expenses ........................ 115,560
Payable for accounting fees ......................... 3,751
Unrealized depreciation on swap contracts ........... 26,710
Other accrued expenses .............................. 146,696
-------------
TOTAL LIABILITIES ................................... 2,321,727
-------------
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
-------------
NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS ...... $ 89,467,889
=============
NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
CONSIST OF:
Paid-in capital, at $0.001 par value ................ $ 93,078,699
Accumulated distributions in excess of net
investment income ................................ (62,668)
Accumulated distributions in excess of net realized
gain on investments, swap contracts, and
foreign currency transactions .................... (1,035,259)
Net unrealized depreciation on investments .......... (2,486,176)
Net unrealized depreciation on swap contracts ....... (26,710)
Net unrealized appreciation on foreign currency
translations ..................................... 3
-------------
TOTAL NET ASSETS .................................... $ 89,467,889
=============
NET ASSET VALUE PER COMMON SHARE
($89,467,889 / 12,786,965 shares outstanding;
998,000,000 shares authorized) ...................... $ 7.00
=============
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign taxes of $15,844) .......... $ 680,372
Interest ............................................. 1,845,991
-------------
TOTAL INVESTMENT INCOME .............................. 2,526,363
-------------
EXPENSES:
Investment advisory fees ............................. 712,759
Payroll expenses ..................................... 93,592
Shareholder communications expenses .................. 59,502
Legal and audit fees ................................. 34,704
Directors' fees ...................................... 32,688
Auction agent fees ................................... 31,200
Shareholder services fees ............................ 23,915
Accounting fees ...................................... 22,500
Custodian fees ....................................... 21,829
Interest expense ..................................... 777
Miscellaneous expenses ............................... 38,981
-------------
TOTAL EXPENSES ....................................... 1,072,447
-------------
Less:
Advisory fee reduction ............................... (243,392)
Custodian fee credits ................................ (499)
-------------
NET EXPENSES ......................................... 828,556
-------------
NET INVESTMENT INCOME ................................ 1,697,807
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
SWAP CONTRACTS, AND FOREIGN CURRENCY:
Net realized loss on investments - unaffiliated ...... (606,183)
Net realized loss on investments - affiliated ........ (21,833)
Net realized loss swap contracts ..................... (32,752)
Net realized loss on foreign currency transactions ... (1,190)
-------------
Net realized loss on investments, swap contracts,
and foreign currency transactions ................. (661,958)
-------------
Net change in unrealized appreciation/depreciation:
on investments .................................... (6,213,344)
on swap contracts ................................. (26,710)
on foreign currency translations .................. 3
-------------
Net change in unrealized appreciation/depreciation
on investments, swap contracts, and foreign
currency translations ............................. (6,240,051)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, SWAP CONTRACTS, AND FOREIGN
CURRENCY ............................................. (6,902,009)
-------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ...................................... (5,204,202)
-------------
Total Distributions to Preferred Shareholders .......... (1,213,934)
-------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON
STOCK SHAREHOLDERS RESULTING FROM OPERATIONS ......... $ (6,418,136)
=============
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, 2008 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2007
---------------- -----------------
OPERATIONS:
Net investment income ...................................... $ 1,697,807 $ 5,094,411
Net realized gain (loss) on investments, swap
contracts, and foreign currency transactions ............ (661,958) 5,441,824
Net change in unrealized appreciation/depreciation on
investments, swap contracts, and foreign currency
translations ............................................ (6,240,051) (2,914,987)
---------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS .............................................. (5,204,202) 7,621,248
---------------- -----------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
Net investment income ...................................... (1,213,934)* (1,370,499)
Net realized short-term gain on investments, swap
contracts, and foreign currency transactions ............ -- (341,482)
Net realized long-term gain on investments, swap
contracts, and foreign currency transactions ............ -- (1,099,213)
---------------- -----------------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS .............. (1,213,934) (2,811,194)
---------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO
COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS ............................... (6,418,136) 4,810,054
---------------- -----------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income ...................................... (483,873)* (3,807,029)
Net realized short-term gain on investments, swap
contracts, and foreign currency transactions ............ -- (942,693)
Net realized long-term gain on investments, swap
contracts, and foreign currency transactions ............ -- (3,043,674)
Return of capital .......................................... (4,574,497)* (2,153,250)
---------------- -----------------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS ................. (5,058,370) (9,946,646)
---------------- -----------------
FUND SHARE TRANSACTIONS:
Net increase in net assets from common shares issued
upon reinvestment of dividends and distributions ........ 1,354,713 2,337,964
---------------- -----------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS .... 1,354,713 2,337,964
---------------- -----------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON
SHAREHOLDERS ............................................ (10,121,793) (2,798,628)
NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Beginning of period ........................................ 99,589,682 102,388,310
---------------- -----------------
End of period (including undistributed net investment
income of $0 and $0, respectively) ...................... $ 89,467,889 $ 99,589,682
================ =================
----------
* Based on fiscal year to date book income. 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.
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
SELECTED DATA FOR A COMMON SHARE JUNE 30, 2008 -----------------------------------------------------
OUTSTANDING THROUGHOUT EACH PERIOD: (UNAUDITED) 2007 2006 2005 2004 2003
----------------------------------- ---------------- -------- -------- -------- -------- --------
OPERATING PERFORMANCE:
Net asset value, beginning of period ................ $ 7.90 $ 8.31 $ 7.95 $ 8.32 $ 8.90 $ 8.44
------ ------ ------ ------ ------ ------
Net investment income ............................... 0.14 0.42 0.45 0.40 0.34 0.31
Net realized and unrealized gain (loss) on
investments ...................................... (0.54) 0.20 0.92 0.20 0.01 1.19
------ ------ ------ ------ ------ ------
Total from investment operations .................... (0.40) 0.62 1.37 0.60 0.35 1.50
------ ------ ------ ------ ------ ------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS: (a)
Net investment income ............................... (0.10)* (0.11) (0.09) (0.14) (0.16) (0.11)
Net realized gain on investments .................... -- (0.12) (0.13) (0.05) -- (0.03)
------ ------ ------ ------ ------ ------
Total distributions to preferred shareholders ....... (0.10) (0.23) (0.22) (0.19) (0.16) (0.14)
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE
TO COMMON SHAREHOLDERS RESULTING FROM
OPERATIONS ....................................... (0.50) 0.39 1.15 0.41 0.19 1.36
------ ------ ------ ------ ------ ------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income ............................... (0.04)* (0.31) (0.34) (0.25) (0.18) (0.17)
Net realized gain on investments .................... -- (0.32) (0.46) (0.29) -- (0.03)
Paid-in capital ..................................... (0.36)* (0.17) -- (0.26) (0.62) (0.60)
------ ------ ------ ------ ------ ------
Total distributions to common shareholders .......... (0.40) (0.80) (0.80) (0.80) (0.80) (0.80)
------ ------ ------ ------ ------ ------
FUND SHARE TRANSACTIONS:
Increase in net asset value from common share
transactions ..................................... (0.00)(f) 0.00(f) 0.01 0.02 0.03 0.02
Increase in net asset value from repurchase of
preferred shares ................................. -- -- -- -- 0.00(f) --
Offering costs for preferred shares charged to
paid-in capital .................................. -- -- -- (0.00)(f) 0.00(f) (0.12)
------ ------ ------ ------ ------ ------
Total fund share transactions ....................... (0.00)(f) 0.00(f) 0.01 0.02 0.03 (0.10)
------ ------ ------ ------ ------ ------
NET ASSET VALUE ATTRIBUTABLE TO COMMON SHAREHOLDERS,
END OF PERIOD .................................... $ 7.00 $ 7.90 $ 8.31 $ 7.95 $ 8.32 $ 8.90
====== ====== ====== ====== ====== ======
NAV total return + .................................. (6.38)% 4.44% 14.80% 4.40% 1.50% 14.50%
====== ====== ====== ====== ====== ======
Market value, end of period ......................... $ 7.17 $ 7.67 $ 8.95 $ 8.83 $ 9.24 $10.54
====== ====== ====== ====== ====== ======
Investment total return ++ .......................... (1.23)% (5.85)% 11.32% 4.50% (4.80)% 33.90%
====== ====== ====== ====== ====== ======
See accompanying notes to financial statements.
10
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
SELECTED DATA FOR A COMMON SHARE JUNE 30, 2008 ----------------------------------------------------
OUTSTANDING THROUGHOUT EACH PERIOD: (UNAUDITED) 2007 2006 2005 2004 2003
----------------------------------- ---------------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net assets including liquidation value of preferred
shares, end of period (in 000's) .................. $114,238 $149,360 $152,158 $145,324 $147,202 $151,658
Net assets attributable to common shares,
end of period (in 000's) .......................... $ 89,468 $ 99,590 $102,388 $ 95,554 $ 97,432 $101,658
Ratio of net investment income to average net assets
attributable to common shares before preferred
share distributions ............................... 3.62%(g) 4.90% 5.51% 4.93% 4.41% 3.47%
Ratio of operating expenses to average net assets
attributable to common stock before fees waived ... 2.29%(g) 2.23% -- -- -- --
Ratio of operating expenses to average net assets
attributable to common shares net of advisory fee
reduction, if any (b)(c) .......................... 1.77%(g) 1.75% 2.07% 1.92% 1.61% 1.93%
Ratio of operating expenses to average net assets
including liquidation value of preferred shares
before fees waived ................................ 1.50%(g) 1.51% -- -- -- --
Ratio of operating expenses to average net assets
including liquidation value of preferred shares
net of advisory fee reduction, if any (b)(c) ...... 1.16%(g) 1.18% 1.37% 1.27% 1.07% 1.37%
Portfolio turnover rate +++ .......................... 30% 61% 51% 32% 57% 39%
PREFERRED STOCK:
6.00% SERIES B CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) .......... $ 24,770 $ 24,770 $ 24,770 $ 24,770 $ 24,770 $ 25,000
Total shares outstanding (in 000's) .................. 991 991 991 991 991 1,000
Liquidation preference per share ..................... $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00
Average market value (d) ............................. $ 24.08 $ 24.07 $ 24.10 $ 25.14 $ 24.90 $ 25.33
Asset coverage per share ............................. $ 115.30 $ 75.02 $ 76.43 $ 73.00 $ 73.93 $ 75.83
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) .......... -- $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
Total shares outstanding (in 000's) .................. -- 1 1 1 1 1
Liquidation preference per share ..................... -- $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
Average market value (d) ............................. -- $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
Asset coverage per share ............................. -- $ 75,025 $ 76,431 $ 72,998 $ 73,941 $ 75,829
ASSET COVERAGE (e) ................................... 461% 300% 306% 292% 296% 303%
----------
+ Based on net asset value per share, adjusted for reinvestment of
distributions at prices dependent under the Fund's dividend reinvestment
plan, including the effect of shares issued pursuant to the 2002 rights
offering, assuming full subscription by shareholder. Total return for a
period of less than one year is not annualized.
++ Based on market value per share, adjusted for reinvestment of distributions
at prices dependent under the Fund's dividend reinvestment plan, including
the effect of shares issued pursuant to the 2002 rights offering, assuming
full subscription by shareholder. Total return for a period of less than
one year is not annualized.
+++ Effective in 2008, a change in accounting policy was adopted with regard to
the calculation of the portfolio turnover rate. Had this policy been
adopted retroactively, the portfolio turnover rate for the fiscal years
ended December 31, 2007, 2006, 2005, 2004, and 2003 would have been 98%,
65%, 59%, 72%, and 56%, respectively.
* Based on fiscal year to date book income. Amounts are subject to change and
recharacterization at fiscal year end.
(a) Calculated based upon average common shares outstanding on the record dates
throughout the periods.
(b) The ratios do not include a reduction of expenses for custodian fee credits
on cash balances maintained with the custodian. Including such custodian
fee credits for the fiscal years ended December 31, 2007 and December 31,
2006, the ratios of operating expenses to average net assets attributable
to common shares net of advisory fee reduction would have been 1.74% and
2.05%, respectively, and the ratios of operating expenses to average net
assets including liquidation value of preferred shares would have been
1.17% and 1.37%, respectively. For the six months ended June 30, 2008 and
the fiscal year ended December 31, 2005, the effect of the custodian fee
credits was minimal.
(c) The Fund incurred dividend expense on securities sold short for the fiscal
year ended December 31, 2006. If dividend expense had not been incurred,
the ratio of operating expenses to average net assets attributable to
common shares would have been 2.06% and the ratio of operating expenses to
average net assets including liquidation value of preferred shares would
have been 1.37%. For the fiscal year ended December 31, 2007, the effect of
the dividend expense on securities sold short was minimal.
(d) Based on weekly prices.
(e) Asset coverage is calculated by combining all series of preferred stock.
(f) Amount represents less than $0.005 per share.
(g) Annualized.
See accompanying notes to financial statements.
11
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 a diversified open-end 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 United States ("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 a foreign market are generally
valued at the preceding closing values of such securities on the relevant
market, but may be fair valued pursuant to procedures established by the Board
if market conditions change significantly after the close of the foreign market
but prior to the close of business on the day the securities are being valued.
Debt instruments with remaining maturities of 60 days or less that are not
credit impaired 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 fair valued 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 average of the latest 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 fair valued as determined by the Board. Fair valuation methodologies and
procedures may include, but are not limited to: analysis and review of available
financial and non-financial information about the company; comparisons to the
valuation and changes in valuation of similar
12
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
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.
On January 1, 2008, the Fund adopted Statement of Financial Accounting
Standard No. 157, "Fair Value Measurements" ("SFAS 157") that clarifies the
definition of fair value for financial reporting, establishes a framework for
measuring fair value, and requires additional disclosures about the use of fair
value measurements. The three levels of the fair value hierarchy under SFAS 157
are described below:
- Level 1 - quoted prices in active markets for identical securities;
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, etc.); and
- Level 3 - significant unobservable inputs (including the Fund's
determinations as to the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities. The
summary of inputs used to value the Fund's net assets as of June 30, 2008 is as
follows:
INVESTMENTS IN OTHER FINANCIAL
SECURITIES INSTRUMENTS (UNREALIZED
VALUATION INPUTS (MARKET VALUE) APPRECIATION/DEPRECIATION)*
---------------- -------------- ---------------------------
Level 1 - Quoted Prices .......................... $ 57,257,003 --
Level 2 - Other Significant Observable Inputs .... 57,927,160 $(26,710)
Level 3 - Significant Unobservable Inputs ........ 594,001 --
------------ --------
Total ............................................ $115,778,164 $(26,710)
============ ========
----------
* Other financial instruments are derivative instruments not reflected in the
Schedule of Investments, such as futures, forwards, and swaps which are
valued at the unrealized appreciation/depreciation on the investment.
The following is a reconciliation of Level 3 investments for which
significant unobservable inputs were used to determine fair value:
INVESTMENTS
IN SECURITIES
MARKET VALUE
-------------
BALANCE AS OF 12/31/07 ........................... $437,162
Accrued discounts/premiums ....................... 21,270
Realized gain (loss) ............................. --
Change in unrealized appreciation/depreciation ... 135,569
Net purchases (sales) ............................ --
Transfers in and/or out of Level 3 ............... --
--------
BALANCE AS OF 06/30/08 ........................... $594,001
========
In March 2008, The Financial Accounting Standards Board (The "FASB") issued
Statement of Financial Accounting Standard No. 161, "Disclosures about
Derivative Instruments and Hedging Activities" ("SFAS 161") that is effective
for fiscal years beginning after November 15, 2008. SFAS 161 is intended to
improve financial reporting for derivative instruments by requiring enhanced
disclosure that enables investors to understand how and why an entity uses
derivatives, how derivatives are accounted for, and how derivative instruments
affect an entity's results of operations and financial position. Management is
currently evaluating the implications of SFAS 161 on the Fund's financial
statement disclosures.
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
13
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
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. At June 30,
2008, there were no open repurchase agreements.
SWAP AGREEMENTS. The Fund may enter into equity and contract for difference
swap transactions. The use of swaps and caps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio transactions. In a swap, a set of future cash flows are
exchanged between two counterparties. One of these cash flow streams will
typically be based on a reference interest rate combined with the performance of
a notional value of shares of a stock. The other will be based on the
performance of the shares of a stock. There is no assurance that the swap
contract counterparties will be able to meet their obligations pursuant to a
swap contract 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 a swap
contract. 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. In addition, at the time the a swap 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.
The use of derivative instruments involves, to varying degrees, elements of
market and counterparty risk in excess of the amount recognized below.
Unrealized gains related to swaps are reported as an asset and unrealized
losses are reported as a liability in 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.
The Fund has entered into a contract for difference swap agreement with
Bear, Stearns International Limited. Details of the swap at June 30, 2008 are as
follows:
NOTIONAL EQUITY SECURITY INTEREST RATE/ TERMINATION NET UNREALIZED
AMOUNT RECEIVED EQUITY SECURITY PAID DATE DEPRECIATION
------------------------- --------------------- -------------------------------- ----------- --------------
Market Value Overnight LIBOR plus 40 bps plus
Appreciation on: Market Value Depreciation on:
$349,417 (47,500 Shares) Rolls-Royce Group plc Rolls-Royce Group plc 12/15/08 $(26,710)
FUTURES CONTRACTS. The Fund may engage in futures contracts for the purpose
of hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a futures
contract, the
14
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
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 fluctuations in the value
of the contract, which are included in unrealized appreciation/depreciation on
investments and futures contracts. The Fund recognizes a realized gain or loss
when the contract is closed.
There are several risks in connection with the use of futures contracts as
a hedging instrument. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in value of the hedged investments. In addition, there
is the risk that the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market. At June 30, 2008, there were no open
futures contracts.
SECURITIES SOLD SHORT. The Fund may enter into short sale transactions.
Short selling involves selling securities that may or may not be owned and, at
times, borrowing the same securities for delivery to the purchaser, with an
obligation to replace such borrowed securities at a later date. The proceeds
received from short sales are recorded as liabilities and the Fund records an
unrealized gain or loss to the extent of the difference between the proceeds
received and the value of an open short position on the day of determination.
The Fund records a realized gain or loss when the short position is closed out.
By entering into a short sale, the Fund bears the market risk of an unfavorable
change in the price of the security sold short. Dividends on short sales are
recorded as an expense by the Fund on the ex-dividend date and interest expense
is recorded on the accrual basis. The Fund did not hold any short positions as
of June 30, 2008.
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 translations. 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. 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, 2008, there were no open forward foreign
exchange contracts.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are
maintained in U.S. dollars. Foreign currencies, investments, and other assets
and liabilities are translated into U.S. dollars at the current exchange rates.
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 that 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.
15
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
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.
FOREIGN TAXES. The Fund may be subject to foreign taxes on income, gains on
investments, or currency repatriation, a portion of which may be recoverable.
The Fund will accrue such taxes and recoveries as applicable, based upon its
current interpretation of tax rules and regulations that exist in the markets in
which it invests.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its
net assets in securities for which the markets are illiquid. Illiquid securities
include securities the disposition of which is subject to substantial legal or
contractual restrictions. The sale of illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Securities freely saleable among qualified
institutional investors under special rules adopted by the SEC may be treated as
liquid if they satisfy liquidity standards established by the Board. The
continued liquidity of such securities is not as well assured as that of
publicly traded securities, and accordingly the Board will monitor their
liquidity.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded on the accrual
basis. Premiums and discounts on debt securities are amortized using the
effective yield to maturity method. Dividend income is recorded on the
ex-dividend date except for certain dividends which are recorded as soon as the
Fund is informed of the dividend.
CUSTODIAN FEE CREDITS AND INTEREST EXPENSE. When cash balances are
maintained in the custody account, the Fund receives credits which are used to
offset custodian fees. The gross expenses paid under the custody arrangement are
included in custodian fees in the Statement of Operations with the corresponding
expense offset, if any, shown as "custodian fee credits." When cash balances are
overdrawn, the Fund is charged an overdraft fee of 2.00% above the federal funds
rate on outstanding balances. This amount, if any, would be shown as "interest
expense" in the Statement of Operations.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions to common shareholders are
recorded on the ex-dividend date. Distributions to shareholders are based on
income and capital gains as determined in accordance with federal income tax
regulations, which may differ from income and capital gains as determined under
U.S. generally accepted accounting principles. These differences are primarily
due to differing treatments of income and gains on various investment securities
and foreign currency transactions held by the Fund, timing differences, and
differing characterizations of distributions made by the Fund. Distributions
from net investment income include net realized gains on foreign currency
transactions. These book/tax differences are either temporary or permanent in
nature. To the extent these differences are permanent, adjustments are made to
the appropriate capital accounts in the period when the differences arise. These
reclassifications have no impact on the NAV of 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.
16
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
The tax character of distributions paid during the fiscal year ended
December 31, 2007 was as follows:
COMMON PREFERRED
---------- ----------
DISTRIBUTIONS PAID FROM:
Ordinary income
(inclusive of short-term capital gains) .... $5,549,933 $2,001,944
Net long-term capital gains ................... 2,243,463 809,250
Return of capital ............................. 2,153,250 --
---------- ----------
Total distributions paid ...................... $9,946,646 $2,811,194
========== ==========
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 policy of the Fund 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, 2007, the components of accumulated earnings/(losses) on
a tax basis were as follows:
Net unrealized appreciation on investments ... $3,806,277
Other temporary differences* ................. (515,078)
----------
Total ........................................ $3,291,199
==========
----------
* Other temporary differences are primarily due to conversion premiums, basis
adjustments from partnerships, and five year qualified tax gain.
The following summarizes the tax cost of investments and the related
unrealized appreciation/(depreciation) at June 30, 2008:
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
COST APPRECIATION DEPRECIATION DEPRECIATION
------------ ------------ ------------ --------------
Investments ...... $118,575,687 $8,718,275 $(11,515,798) $(2,797,523)
Swap contracts ... -- -- (26,710) (26,710)
------------ ---------- ------------ -----------
$118,575,687 $8,718,275 $(11,542,508) $(2,824,233)
============ ========== ============ ===========
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109" (the "Interpretation") established a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether the Fund is taxable in
a particular jurisdiction) and required certain expanded tax disclosures.
For the six months ended June 30, 2008, the Fund did not have any liability
for any unrecognized tax benefits. The Fund recognizes interest and penalties,
if any, related to unrecognized tax benefits as income tax expenses in the
Statement of Operations. The Fund is not subject to examination by U.S. federal
tax authorities for tax years before 2004 and by state tax authorities for tax
years before 2003.
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 daily and paid
monthly, equal on an annual basis to 1.00% of the value of the Fund's average
daily net assets including the 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 NAV of the common shares of the Fund,
including distributions and advisory fee subject to reduction, does not exceed
the stated dividend rate or corresponding swap rate of each particular series of
the Cumulative Preferred Stock for the fiscal year.
17
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
The Fund's total return on the NAV of the Common Shares is monitored on a
monthly basis to assess whether the total return on the NAV of the Common Shares
exceeds the stated dividend rate or corresponding swap rate of each particular
series of Cumulative Preferred Stock for the period. For the six months ended
June 30, 2008, the Fund's total return on the NAV of the Common Shares did not
exceed the stated dividend rate or net swap expense on any outstanding Preferred
Stock. Thus, management fees with respect to the liquidation value of the
preferred stock assets were reduced by $243,392.
During the six months ended June 30, 2008, the Fund paid brokerage
commissions on security trades of $15,159 to Gabelli & Company, Inc. ("Gabelli &
Company"), an affiliate of the Adviser.
The cost of calculating the Fund's NAV per share is a Fund expense pursuant
to the Advisory Agreement between the Fund and the Adviser. During the six
months ended June 30, 2008, the Fund paid or accrued $22,500 to the Adviser in
connection with the cost of computing the Fund's NAV.
As per the approval of the Board, the Fund compensates officers of the
Fund, who are employed by the Fund and are not employed by the Adviser (although
the officers may receive incentive based variable compensation from affiliates
of the Adviser, and pays its allocated portion of the cost of the Fund's Chief
Compliance Officer). For the six months ended June 30, 2008, the Fund paid or
accrued $93,592, which is included in payroll expenses in the Statement of
Operations.
The Fund pays each Director who is not considered to be an affiliated
person an annual retainer of $5,000 plus $750 for each Board meeting attended
and they are reimbursed for any out of pocket expenses incurred in attending
meetings. All Board committee members receive $500 per meeting attended. In
addition, the Audit Committee Chairman receives an annual fee of $3,000, the
Nominating Committee Chairman receives an annual fee of $2,000, and the Lead
Director receives an annual fee of $1,000. Directors who are directors or
employees of the Adviser or an affiliated company receive no compensation or
expense reimbursement from the Fund.
4. PORTFOLIO SECURITIES. Purchases and proceeds from the sales of securities for
the six months ended June 30, 2008, other than short-term securities and U.S.
Government obligations, aggregated $22,899,174 and $20,526,113, respectively.
Purchases and proceeds from the sales of U.S. Government obligations for
the six months ended June 30, 2008, other than short-term obligations,
aggregated $3,347,403 and $15,448,000, respectively.
5. CAPITAL. The charter permits the Fund to issue 998,000,000 shares of common
stock (par value $0.001). The Board has authorized the repurchase of up to
500,000 common 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 NAV of the shares. During the six months ended June
30, 2008, the Fund did not repurchase any shares of its common stock in the open
market.
Transactions in common stock were as follows:
SIX MONTHS ENDED
JUNE 30, 2008 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2007
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- ----------- ------- ----------
Net increase from shares issued upon
reinvestment of distributions ... 188,567 $1,354,713 275,924 $2,337,964
18
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
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 6.00% Series B and Series C Auction Rate Cumulative Preferred Stock at
redemption prices 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.
At the Fund's February 19, 2008 Board meeting, the Board approved the
filing of a shelf registration with the SEC. The shelf offering went effective
June 12, 2008 and gives the Fund the ability to offer additional preferred
shares and promissory notes.
On March 18, 2003, the Fund received net proceeds of $23,994,241 after
underwriting discounts of $787,500 and offering expenses of $218,259 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 at any time. The Board has authorized the repurchase on the
open market at prices less than the $25 liquidation value of the Cumulative
Preferred Stock. During the six months ended June 30, 2008, the Fund did not
repurchase any shares of 6.00% Series B Cumulative Preferred Stock. At June 30,
2008, 990,800 shares of 6.00% Series B Cumulative Preferred Stock were
outstanding and accrued dividends amounted to $20,642.
On March 18, 2003, the Fund received net proceeds of $24,531,741 after
underwriting discounts of $250,000 and offering expenses of $218,259 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 seven days, is expected to vary with short-term interest rates. If the
number of Series C Auction Rate Cumulative Preferred Stock subject to bid orders
by potential holders is less than the number of Series C Auction Rate Cumulative
Preferred Stock subject to sell orders, then the auction is considered to be a
failed auction, and the dividend rate will be the maximum rate. In that event,
holders that have submitted sell orders may not be able to sell any or all of
the Series C Auction Rate Cumulative Preferred Stock for which they have
submitted sell orders. On June 25, 2008, the Fund, as authorized by the Board,
redeemed 100% (1,000 shares) of its Series C Auction Rate Cumulative Preferred
Stock (the "Series C Preferred Stock"). Shareholders of the Series C Preferred
Stock received the redemption price of $25,000 per share, which was equal to the
liquidation preference of the Series C Preferred Stock, together with any
accumulated and unpaid dividends, for each of his or her shares of Series C
Preferred Stock redeemed.
The holders of Cumulative Preferred Stock generally are entitled to one
vote per share held on each matter submitted to a vote of shareholders of the
Fund and will vote together with holders of common stock as a single class. The
holders of Cumulative Preferred Stock voting together as a single class also
have the right currently to elect two Directors and under certain circumstances
are entitled to elect a majority of the Board of Directors. In addition, the
affirmative vote of a majority of the votes entitled to be cast by holders of
all outstanding shares of the preferred stock, voting as a single class, will be
required to approve any plan of reorganization adversely affecting the preferred
stock, and the approval of two-thirds of each
19
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
class, voting separately, of the Fund's outstanding voting stock must approve
the conversion of the Fund from a closed-end to an open-end investment company.
The approval of a majority (as defined in the 1940 Act) of the outstanding
preferred stock and a majority (as defined in the 1940 Act) of the Fund's
outstanding voting securities are required to approve certain other actions,
including changes in the Fund's investment objectives or fundamental investment
policies.
6. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS. The 1940 Act defines
affiliated issuers as those in which the Fund's holdings of an issuer represent
5% or more of the outstanding voting securities of the issuer. A summary of the
Fund's transactions in the securities of this issuer during the six months ended
June 30, 2008 is set forth below:
NET CHANGE PERCENT
IN OWNED OF
BEGINNING SHARES ENDING UNREALIZED VALUE AT SHARES
SHARES SOLD SHARES DEPRECIATION JUNE 30, 2008 OUTSTANDING
--------- ------ ------- ------------ ------------- -----------
Trans-Lux Corp. ... 324,000 6,000 318,000 $(905,520) $1,144,800 15.74%
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.
8. OTHER MATTERS. On April 24, 2008, the Adviser entered into an administrative
settlement with the SEC to resolve the SEC's inquiry regarding prior frequent
trading activity in shares of the GAMCO Global Growth Fund (the "Global Growth
Fund") by one investor who was banned from the Global Growth Fund in August
2002. In the settlement, the SEC found that the Adviser had violated Section
206(2) of the Investment Advisers Act, Section 17(d) of the 1940 Act and Rule
17d-1 thereunder, and had aided and abetted and caused violations of Section
12(d)(1)(B)(i) of the 1940 Act. Under the terms of the settlement, the Adviser,
while neither admitting nor denying the SEC's findings and allegations, agreed,
among other things, to pay the previously reserved total of $16 million
(including a $5 million penalty), of which at least $11 million will be
distributed to shareholders of the Global Growth Fund in accordance with a plan
to be developed by an independent distribution consultant and approved by the
independent directors of the Global Growth Fund and the staff of the SEC, and to
cease and desist from future violations of the above referenced federal
securities laws. The settlement will not have a material adverse impact on the
Adviser or its ability to fulfill its obligations under the Advisory Agreement.
On the same day, the SEC filed a civil action against the Executive Vice
President and Chief Operating Officer of the Adviser, alleging violations of
certain federal securities laws arising from the same matter. The officer is
also an officer of the Global Growth Fund and other funds in the Gabelli/GAMCO
fund complex. The officer denies the allegations and is continuing in his
positions with the Adviser and the funds. The Adviser currently expects that any
resolution of the action against the officer will not have a material adverse
impact on the Adviser or its ability to fulfill its obligations under the
Advisory Agreement.
On a separate matter, in August 2008, the Adviser made an offer to the
staff of the SEC to settle a previously disclosed matter concerning compliance
with Section 19(a) and Rule 19a-1 of the 1940 Act by two closed-end funds
managed by the Adviser. These provisions require registered investment companies
to provide written statements to shareholders when a distribution is made in the
nature of a dividend from a source other than net investment income. While the
two funds sent annual statements and provided other materials containing this
information, the funds did not send the notices required by Rule 19a-1 to
shareholders with each distribution in 2002 and 2003. The Adviser believes that
the funds have been in compliance with Rule 19a-1 since that time. The Adviser
believes that the settlement would have no effect on the funds or any material
adverse effect on the Adviser or its ability to manage the funds. This offer of
settlement is subject to final agreement regarding the specific language of the
SEC's administrative order and other settlement documents and approval by the
SEC.
20
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
COMMON SHARES
CUSIP: 36240B109
We are pleased to report the payment of a distribution in the amount of $0.20
per share payable on June 24, 2008 to shareholders of record on June 16, 2008.
As of the record date, $0.017 per share of the distribution is derived from net
investment income and the remainder of the distribution, or $0.183 per share, is
deemed a return of capital. These estimates are based on earnings as of the
record date. After giving effect to the distribution, the aggregate of the
undistributed net realized losses on the sale of securities and net unrealized
depreciation of portfolio securities is $1,144,111, of which $414,648 represents
net unrealized depreciation of portfolio securities. Prior distributions within
2008 would have similar characterizations. The actual composition of the
distribution may change based on the Fund's investment activity through December
31, 2008. Shareholders will be notified regarding the components of all
distributions for the year and the related tax treatment via Form 1099-DIV in
early 2009.
21
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
BOARD CONSIDERATION AND RE-APPROVAL OF INVESTMENT ADVISORY CONTRACT (UNAUDITED)
At its meeting on May 22, 2008, the Board of Directors ("Board") of the Fund
approved the continuation of the investment advisory contract with the Adviser
for the Fund on the basis of the recommendation by the directors who are not
"interested persons" of the Fund (the "Independent Board Members"). The
following paragraphs summarize the material information and factors considered
by the Independent Board Members as well as their conclusions relative to such
factors.
NATURE, EXTENT AND QUALITY OF SERVICES. The Independent Board Members considered
information regarding the 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 Board Members noted the experience, length of service, and
reputation of the portfolio manager.
INVESTMENT PERFORMANCE. The Independent Board Members reviewed the short,
medium, and longer-term performance of the Fund against a peer group of
convertible securities and income/preferred stock closed-end funds. The
Independent Board Members noted that the Fund's short, medium, and long-term
comparative performance was in the top quintile to the top half, which was
reasonable particularly in light of the Fund's conservative stance.
PROFITABILITY. The Independent Board Members reviewed summary data regarding the
profitability of the Fund to the Adviser and found the profitability to be
normal. The Independent Board Members also noted that a substantial portion of
the Fund's portfolio transactions were executed by an affiliated broker, and
that the affiliated broker received distribution fees and commissions from the
Fund. The Adviser received a moderate amount of soft dollar benefits (but no
third party research services) from unaffiliated brokers through the Fund's
portfolio brokerage.
ECONOMIES OF SCALE. The Independent Board Members discussed the major elements
of the Adviser's cost structure and the relationship of those elements to
potential economies of scale. The Independent Board Members noted that the Fund
was a closed-end fund and unlikely to realize any economies of scale potentially
available through growth.
SHARING OF ECONOMIES OF SCALE. The Independent Board Members noted that the
investment management fee schedule for the Fund does not take into account any
potential economies of scale.
SERVICE AND COST COMPARISONS. The Independent Board Members compared the expense
ratios of the investment advisory fee, other expenses, and total expenses of the
Fund with similar expense ratios of the peer group of closed-end funds and noted
that the advisory fee includes substantially all administrative services of the
Fund as well as investment advisory services of the Adviser. The Independent
Board Members noted that the Fund's expense ratios were above average and the
Fund's size was below average within the group. The Independent Board Members
were presented with, but did not consider to be material to their decision,
various information comparing the advisory fee with the fee for other types of
accounts managed by the Adviser.
CONCLUSIONS. The Independent Board Members concluded that the Fund enjoyed
highly experienced portfolio management services, good ancillary services, and a
reasonable performance record within its conservative stance. The Independent
Board Members also concluded that the Fund's expense ratios were reasonable in
light of the Fund's size, and that, in part due to the Fund's structure as a
closed-end fund, economies of scale were not a significant factor in their
thinking. The Independent Board Members 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 Board Members determined to recommend continuation of the investment
management agreement to the full Board.
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,
GAMCO INVESTORS, 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.
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT,
PROFESSOR EMERITUS, PACE UNIVERSITY
Werner J. Roeder, MD
MEDICAL DIRECTOR,
LAWRENCE HOSPITAL
Anthonie C. van Ekris
CHAIRMAN, BALMAC INTERNATIONAL, INC.
Salvatore J. Zizza
CHAIRMAN, ZIZZA & CO., LTD.
OFFICERS
Bruce N. Alpert
PRESIDENT
Peter D. Goldstein
CHIEF COMPLIANCE OFFICER
Laurissa M. Martire
VICE PRESIDENT & OMBUDSMAN
Agnes Mullady
TREASURER AND SECRETARY
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
Computershare Trust Company, N.A.
STOCK EXCHANGE LISTING
6.00%
Common Preferred
---------- ---------
NYSE-Symbol: GCV GCV PrB
Shares Outstanding: 12,786,965 990,800
The Net Asset Value per share appears in the Publicly Traded Funds column, under
the heading "Convertible Securities Funds," 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 per share may be obtained each day by calling (914) 921-5070
or visiting www.gabelli.com.
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 Fund may, from time to time, purchase
shares of its common stock in the open market when the Fund's shares are trading
at a discount of 10% or more from the net asset value of the shares. The Fund
may also, from time to time, purchase shares of its preferred stock in the open
market when the preferred shares are trading at a discount to the liquidation
value.
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, 2008
GCV Q2/2008
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. INVESTMENTS.
(a) 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.
(b) Not applicable.
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.
There has been no change, as of the date of this filing, in any of the portfolio
managers identified in response to paragraph (a)(1) of this Item in the
registrant's most recently filed annual report on Form N-CSR.
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 YET
SHARES (OR UNITS) (B) AVERAGE PRICE PAID PUBLICLY ANNOUNCED PLANS BE PURCHASED UNDER THE PLANS
PERIOD PURCHASED PER SHARE (OR UNIT) OR PROGRAMS OR PROGRAMS
=============================================================================================================================
=============================================================================================================================
Month #1 Common - N/A Common - N/A Common - N/A Common - 12,598,396
01/01/08
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
01/31/08
=============================================================================================================================
Month #2 Common - N/A Common - N/A Common - N/A Common - 12,598,396
02/01/08
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
02/28/08
=============================================================================================================================
Month #3 Common - N/A Common - N/A Common - N/A Common - 12,693,456
03/01/08
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
03/31/08
=============================================================================================================================
Month #4 Common - N/A Common - N/A Common - N/A Common - 12,693,456
04/01/08
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
04/30/08
=============================================================================================================================
Month #5 Common - N/A Common - N/A Common - N/A Common - 12,693,456
05/01/08
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
05/31/08
=============================================================================================================================
Month #6 Common - N/A Common - N/A Common - N/A Common - 12,786,964
06/01/08
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
06/30/08
=============================================================================================================================
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 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) 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.
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By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert, Principal Executive Officer
Date 9/3/08
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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
Date 9/3/08
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By (Signature and Title)* /s/ Agnes Mullady
-------------------------------------------------------
Agnes Mullady,
Principal Financial Officer and Treasurer
Date 9/3/08
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* Print the name and title of each signing officer under his or her signature.