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: December 31, 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.
Annual Report
December 31, 2008
TO OUR SHAREHOLDERS,
The Sarbanes-Oxley Act requires a fund's principal executive and financial
officers to certify the entire contents of the semi-annual and annual
shareholder reports in a filing with the Securities and Exchange Commission on
Form N-CSR. This certification would cover the portfolio manager's commentary
and subjective opinions if they are attached to or a part of the financial
statements. Many of these comments and opinions would be difficult or impossible
to certify.
Because we do not want our portfolio managers to eliminate their opinions
and/or restrict their commentary to historical facts, we have separated their
commentary from the financial statements and investment portfolio and have sent
it to you separately. Both the commentary and the financial statements,
including the portfolio of investments, will be available on our website at
www.gabelli.com.
Enclosed are the audited financial statements and the investment portfolio
as of December 31, 2008.
COMPARATIVE RESULTS
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 2008 (a)
Since
Inception
Quarter 1 Year 3 Year 5 Year 10 Year 15 Year (07/03/89)
------- ------ ------ ------ ------- ------- ----------
GABELLI CONVERTIBLE AND INCOME SECURITIES FUND
NAV TOTAL RETURN (b) ............................ (14.98)% (25.77)% (3.52)% (0.58)% 1.95% 4.06% 5.70%
INVESTMENT TOTAL RETURN (c) ..................... (0.62) (18.02) (4.93) (3.09) 2.53 N/A(d) 4.45(d)
S&P 500 Index ...................................... (21.95) (36.99) (8.36) (2.19) (1.38) 6.46 7.79(e)
Barclays Capital Government/Corporate Bond Index ... 6.42 5.70 5.56 4.64 5.64 6.19 7.19(e)
Lipper Convertible Securities Fund Average ......... (18.76) (33.82) (8.09) (2.75) 1.96 4.85 6.89(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 OF 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
BARCLAYS CAPITAL 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 NET ASSET
VALUE ("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.
Sincerely yours,
/s/ Bruce N. Alpert
Bruce N. Alpert
February 20, 2009 President
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 December 31, 2008:
LONG POSITIONS
U.S. Government Obligations ........................................... 42.6%
Energy and Utilities .................................................. 10.6%
Health Care ........................................................... 5.7%
Financial Services .................................................... 5.1%
Automotive: Parts and Accessories ..................................... 4.1%
Consumer Products ..................................................... 3.8%
Food and Beverage ..................................................... 3.7%
Communications Equipment .............................................. 3.7%
Diversified Industrial ................................................ 3.1%
Broadcasting .......................................................... 3.0%
Retail ................................................................ 2.8%
Telecommunications .................................................... 1.7%
Wireless Communications ............................................... 1.4%
Specialty Chemicals ................................................... 1.4%
Real Estate ........................................................... 1.3%
Computer Hardware ..................................................... 1.2%
Aerospace ............................................................. 1.1%
Electronics ........................................................... 0.8%
Transportation ........................................................ 0.8%
Hotels and Gaming ..................................................... 0.6%
Computer Software and Services ........................................ 0.5%
Cable and Satellite ................................................... 0.3%
Business Services ..................................................... 0.3%
Agriculture ........................................................... 0.2%
Equipment and Supplies ................................................ 0.1%
Manufactured Housing and Recreational Vehicles ........................ 0.1%
Entertainment ......................................................... 0.0%
-----
100.0%
=====
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC. (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 SEPTEMBER 30, 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.
2
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2008
PRINCIPAL MARKET
AMOUNT COST VALUE
------------ -------------- --------------
CONVERTIBLE CORPORATE BONDS -- 19.1%
AEROSPACE -- 0.2%
$ 300,000 GenCorp Inc., Sub. Deb. Cv.,
4.000%, 01/16/24 .................................. $ 205,388 $ 209,250
-------------- --------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 2.1%
2,114,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 .................................. 2,018,399 1,934,310
-------------- --------------
BROADCASTING -- 3.0%
4,500,000 Sinclair Broadcast Group Inc.,
Sub. Deb. Cv.,
6.000%, 09/15/12 .................................. 3,936,117 2,070,000
1,400,000 Sinclair Broadcast Group Inc.,
Sub. Deb. Cv. (STEP),
4.875%, 07/15/18 .................................. 1,296,326 693,000
-------------- --------------
5,232,443 2,763,000
-------------- --------------
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 -- 3.2%
3,000,000 Agere Systems Inc.,
Sub. Deb. Cv.,
6.500%, 12/15/09 .................................. 2,999,942 2,958,750
-------------- --------------
COMPUTER HARDWARE -- 0.3%
600,000 SanDisk Corp., Cv.,
1.000%, 05/15/13 .................................. 259,427 243,000
-------------- --------------
DIVERSIFIED INDUSTRIAL -- 0.9%
100,000 Griffon Corp., Ser. 2ND,
Sub. Deb. Cv.,
4.000%, 07/18/23 .................................. 93,120 87,625
1,400,000 Roper Industries Inc.,
Sub. Deb. Cv. (STEP),
1.481%, 01/15/34 .................................. 710,552 757,750
50,000 Trinity Industries Inc.,
Sub. Deb. Cv.,
3.875%, 06/01/36 .................................. 44,721 23,000
-------------- --------------
848,393 868,375
-------------- --------------
ELECTRONICS -- 0.3%
10,000 Artesyn Technologies Inc.,
Sub. Deb. Cv.,
5.500%, 08/15/10 (b) .............................. 10,000 13,691
300,000 CTS Corp., Sub. Deb. Cv.,
2.125%, 05/01/24 .................................. 283,108 277,125
-------------- --------------
293,108 290,816
-------------- --------------
ENERGY AND UTILITIES -- 0.4%
400,000 Unisource Energy Corp., Cv.,
4.500%, 03/01/35 (b) .............................. 399,925 364,500
-------------- --------------
EQUIPMENT AND SUPPLIES -- 0.0%
10,000 Regal-Beloit Corp., Sub. Deb. Cv.,
2.750%, 03/15/24 .................................. 10,717 14,837
-------------- --------------
PRINCIPAL MARKET
AMOUNT COST VALUE
------------ -------------- --------------
FINANCIAL SERVICES -- 1.3%
$ 500,000 Conseco Inc., Cv. (STEP),
3.500%, 09/30/35 (b) .............................. $ 503,866 $ 243,750
1,000,000 PrivateBancorp Inc., Cv.,
3.625%, 03/15/27 .................................. 1,000,785 968,750
-------------- --------------
1,504,651 1,212,500
-------------- --------------
HEALTH CARE -- 1.6%
Advanced Medical Optics Inc.,
Sub. Deb. Cv.,
1,000,000 2.500%, 07/15/24 .................................. 914,222 815,000
1,000,000 3.250%, 08/01/26 .................................. 816,242 355,000
100,000 Chemed Corp., Cv.,
1.875%, 05/15/14 .................................. 78,001 69,375
100,000 Millipore Corp., Cv.,
3.750%, 06/01/26 .................................. 105,708 87,750
150,000 Thoratec Corp.,
Sub. Deb. Cv. (STEP),
1.380%, 05/16/34 .................................. 99,627 144,188
-------------- --------------
2,013,800 1,471,313
-------------- --------------
REAL ESTATE -- 1.3%
2,500,000 Palm Harbor Homes Inc., Cv.,
3.250%, 05/15/24 .................................. 2,397,795 1,196,875
-------------- --------------
RETAIL -- 1.9%
60,000 Costco Wholesale Corp.,
Sub. Deb. Cv.,
Zero Coupon, 08/19/17 ............................. 50,245 71,700
100,000 Pier 1 Imports Inc., Cv. (STEP),
6.375%, 02/15/36 .................................. 95,431 27,500
3,200,000 The Great Atlantic &
Pacific Tea Co. Inc., Cv.,
5.125%, 06/15/11 .................................. 3,151,305 1,652,000
-------------- --------------
3,296,981 1,751,200
-------------- --------------
SPECIALTY CHEMICALS -- 1.2%
2,200,000 Ferro Corp., Cv.,
6.500%, 08/15/13 .................................. 1,429,822 1,075,250
-------------- --------------
WIRELESS COMMUNICATIONS -- 1.4%
1,500,000 Nextel Communications Inc., Cv.,
5.250%, 01/15/10 .................................. 1,394,568 1,306,875
-------------- --------------
TOTAL CONVERTIBLE CORPORATE BONDS .................... 25,315,252 17,660,851
-------------- --------------
SHARES
------------
CONVERTIBLE PREFERRED STOCKS -- 2.1%
AGRICULTURE -- 0.2%
4,000 Archer-Daniels-Midland Co.,
6.250% Cv. Pfd. ................................... 135,637 151,600
-------------- --------------
BUSINESS SERVICES -- 0.0%
15,143 Interep National Radio Sales Inc.,
4.000% Cv. Pfd.,
Ser. A+ (a)(b)(c) ................................. 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 -- 0.2%
600 Lucent Technologies
Capital Trust I,
7.750% Cv. Pfd. ................................... 356,750 204,000
-------------- --------------
See accompanying notes to financial statements.
3
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2008
MARKET
SHARES COST VALUE
------------ -------------- --------------
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
ENERGY AND UTILITIES -- 0.6%
6,000 AES Trust III,
6.750% Cv. Pfd. ................................... $ 229,530 $ 227,040
500 El Paso Corp.,
4.990% Cv. Pfd. (b) ............................... 479,192 319,515
300 El Paso Energy Capital Trust I,
4.750% Cv. Pfd. ................................... 11,460 7,680
-------------- --------------
720,182 554,235
-------------- --------------
ENTERTAINMENT -- 0.0%
7,000 Six Flags Inc.,
7.250% Cv. Pfd. ................................... 148,400 5,040
-------------- --------------
FINANCIAL SERVICES -- 0.1%
100 Alleghany Corp.,
5.750% Cv. Pfd. ................................... 27,010 24,302
36,000 Federal National Mortgage
Association, 8.750%,
Cv. Pfd., Ser. 08-1 ............................... 146,075 37,800
-------------- --------------
173,085 62,102
-------------- --------------
HEALTH CARE -- 0.0%
100 Elite Pharmaceuticals Inc.,
$2.32 Cv. Pfd. Ser. C+ (a)(c) ..................... 91,465 5,021
-------------- --------------
TELECOMMUNICATIONS -- 0.3%
14,000 Cincinnati Bell Inc.,
6.750% Cv. Pfd., Ser. B ........................... 398,212 322,000
-------------- --------------
TRANSPORTATION -- 0.7%
2,500 GATX Corp., $2.50 Cv. Pfd. ........................... 360,275 643,275
-------------- --------------
TOTAL CONVERTIBLE
PREFERRED STOCKS .................................. 4,231,183 1,947,390
-------------- --------------
COMMON STOCKS -- 35.1%
AEROSPACE -- 0.9%
8,600 Kaman Corp. .......................................... 197,718 155,918
8,000 Northrop Grumman Corp. ............................... 511,539 360,320
3,000 Rockwell Automation Inc. ............................. 112,925 96,720
52,500 Rolls-Royce Group plc+ ............................... 500,804 253,242
3,003,000 Rolls-Royce Group plc,
Cl. C+ ............................................ 4,682 4,318
-------------- --------------
1,327,668 870,518
-------------- --------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 2.0%
50,000 Genuine Parts Co. .................................... 1,991,223 1,893,000
-------------- --------------
BROADCASTING -- 0.0%
12,000 Emmis Communications Corp.,
Cl. A+ ............................................ 71,102 4,200
-------------- --------------
BUSINESS SERVICES -- 0.3%
310,000 Trans-Lux Corp.+ (d) .............................. 2,261,304 238,700
-------------- --------------
CABLE AND SATELLITE -- 0.3%
493,409 Adelphia Recovery Trust+ ............................. 0 0
15,000 Cablevision Systems Corp.,
Cl. A ............................................. 345,010 252,600
2,000 Rogers Communications Inc.,
Cl. B ............................................. 28,913 60,160
-------------- --------------
373,923 312,760
-------------- --------------
MARKET
SHARES COST VALUE
------------ -------------- --------------
COMMUNICATIONS EQUIPMENT -- 0.3%
33,000 Corning Inc. ......................................... $ 390,457 $ 314,490
-------------- --------------
COMPUTER HARDWARE -- 0.9%
10,000 International Business
Machines Corp. .................................... 831,067 841,600
-------------- --------------
COMPUTER SOFTWARE AND SERVICES -- 0.5%
6,000 Diebold Inc. ......................................... 219,360 168,540
40,000 Furmanite Corp.+ ..................................... 156,240 215,600
3,000 Microsoft Corp. ...................................... 74,880 58,320
-------------- --------------
450,480 442,460
-------------- --------------
CONSUMER PRODUCTS -- 3.8%
1,000 Avon Products Inc. ................................... 27,516 24,030
50,000 Swedish Match AB ..................................... 903,010 706,568
40,000 UST Inc. ............................................. 2,744,557 2,775,200
-------------- --------------
3,675,083 3,505,798
-------------- --------------
DIVERSIFIED INDUSTRIAL -- 2.2%
70,000 General Electric Co. ................................. 2,027,663 1,134,000
379,703 National Patent Development
Corp.+ (a)(b) ..................................... 949,258 470,108
56,554 WHX Corp.+ ........................................... 1,090,751 452,432
-------------- --------------
4,067,672 2,056,540
-------------- --------------
ELECTRONICS -- 0.3%
22,000 Intel Corp. .......................................... 443,773 322,520
-------------- --------------
ENERGY AND UTILITIES -- 8.8%
6,000 Anadarko Petroleum Corp. ............................. 203,993 231,300
11,000 BP plc, ADR .......................................... 708,340 514,140
2,000 Cameron International Corp.+ ......................... 29,116 41,000
2,000 CH Energy Group Inc. ................................. 68,966 102,780
14,000 Chevron Corp. ........................................ 856,710 1,035,580
5,000 ConocoPhillips ....................................... 312,250 259,000
2,000 Devon Energy Corp. ................................... 127,485 131,420
18,000 Exxon Mobil Corp. .................................... 1,064,257 1,436,940
12,000 FPL Group Inc. ....................................... 642,267 603,960
22,000 Great Plains Energy Inc. ............................. 650,758 425,260
18,000 Halliburton Co. ...................................... 538,244 327,240
41,000 Mirant Corp.+ ........................................ 599,231 773,670
1,200,000 Mirant Corp., Escrow+ (a) ............................ 0 0
18,000 National Fuel Gas Co. ................................ 769,100 563,940
15,000 Northeast Utilities .................................. 247,983 360,900
10,000 Progress Energy Inc.,
CVO+ (a) .......................................... 5,200 3,300
2,000 Puget Energy Inc. .................................... 54,745 54,540
16,000 Royal Dutch Shell plc,
Cl. A, ADR ........................................ 1,014,367 847,040
7,000 SJW Corp. ............................................ 149,930 209,580
10,000 Xcel Energy Inc. ..................................... 183,300 185,500
-------------- --------------
8,226,242 8,107,090
-------------- --------------
EQUIPMENT AND SUPPLIES -- 0.1%
3,000 Mueller Industries Inc. .............................. 98,955 75,240
-------------- --------------
See accompanying notes to financial statements.
4
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2008
MARKET
SHARES COST VALUE
------------ -------------- --------------
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES -- 3.7%
5,000 AllianceBernstein Holding LP ......................... $ 196,046 $ 103,950
34,000 American Express Co. ................................. 1,599,843 630,700
100,000 Citigroup Inc. ....................................... 2,097,213 671,000
3,000 M&T Bank Corp. ....................................... 205,036 172,230
10,000 Marsh & McLennan
Companies Inc. .................................... 290,880 242,700
3,000 Morgan Stanley ....................................... 48,318 48,120
52,000 Wells Fargo & Co. .................................... 1,551,368 1,532,960
-------------- --------------
5,988,704 3,401,660
-------------- --------------
FOOD AND BEVERAGE -- 3.7%
22,080 Cadbury plc, ADR ..................................... 1,116,240 787,594
10,560 Dr. Pepper Snapple
Group Inc.+ ....................................... 326,997 171,600
9,000 General Mills Inc. ................................... 444,804 546,750
210,000 Parmalat SpA, GDR (b)(c) ............................. 897,621 340,074
2,800 Pernod-Ricard SA ..................................... 273,277 206,166
30,000 The Coca-Cola Co. .................................... 1,311,355 1,358,100
-------------- --------------
4,370,294 3,410,284
-------------- --------------
HEALTH CARE -- 4.1%
25,000 Eli Lilly & Co. ...................................... 1,347,217 1,006,750
27,844 Elite Pharmaceuticals Inc.,
Cl. A+ ............................................ 8,241 1,949
10,000 Johnson & Johnson .................................... 670,622 598,300
2,000 Merck & Co. Inc. ..................................... 56,160 60,800
100,000 Pfizer Inc. .......................................... 2,584,103 1,771,000
13,000 UnitedHealth Group Inc. .............................. 522,560 345,800
-------------- --------------
5,188,903 3,784,599
-------------- --------------
HOTELS AND GAMING -- 0.6%
210,000 Ladbrokes plc ........................................ 1,288,705 558,567
-------------- --------------
MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 0.0%
14,000 Fleetwood Enterprises Inc.+ .......................... 2,000 1,400
-------------- --------------
RETAIL -- 0.9%
8,000 Wal-Mart Stores Inc. ................................. 355,856 448,480
14,000 Walgreen Co. ......................................... 492,696 345,380
-------------- --------------
848,552 793,860
-------------- --------------
SPECIALTY CHEMICALS -- 0.2%
3,000 Rohm and Haas Co. .................................... 208,686 185,370
-------------- --------------
TELECOMMUNICATIONS -- 1.4%
509 FairPoint
Communications Inc. ................................ 4,964 1,670
1,167 Frontier
Communications Corp. ............................... 10,153 10,200
7,000 Philippine Long Distance
Telephone Co., ADR ................................ 178,067 328,650
27,000 Verizon Communications Inc. .......................... 987,783 915,300
-------------- --------------
1,180,967 1,255,820
-------------- --------------
TRANSPORTATION -- 0.1%
2,000 GATX Corp. ........................................... 71,574 61,940
-------------- --------------
MARKET
SHARES COST VALUE
------------ -------------- --------------
WIRELESS COMMUNICATIONS -- 0.0%
49 Winstar
Communications Inc.+ (a) .......................... $ 438 $ 0
-------------- --------------
TOTAL
COMMON STOCKS ..................................... 43,357,772 32,438,416
-------------- --------------
PREFERRED STOCKS -- 0.0%
TELECOMMUNICATIONS -- 0.0%
3,679 PTV Inc., 10.000% Pfd.,
Ser. A ............................................ 0 3,311
-------------- --------------
WARRANTS -- 0.0%
CONSUMER PRODUCTS -- 0.0%
4,331 Pillowtex Corp.,
expire 11/24/09+ (a) .............................. 120,955 0
-------------- --------------
FOOD AND BEVERAGE -- 0.0%
1,300 Parmalat SpA, GDR,
expire 12/31/15+ (a)(b)(c) ........................ 0 231
-------------- --------------
HEALTH CARE -- 0.0%
12,930 Elite Pharmaceuticals Inc.,
expire 04/24/12+ (a)(c) ........................... 8,535 831
-------------- --------------
TOTAL WARRANTS ....................................... 129,490 1,062
-------------- --------------
PRINCIPAL
AMOUNT
------------
CORPORATE BONDS -- 1.1%
CONSUMER PRODUCTS -- 0.0%
$ 1,500,000 Pillowtex Corp., Sub. Deb.,
9.000%, 12/15/09+ (a) ............................. 0 0
-------------- --------------
DIVERSIFIED INDUSTRIAL -- 0.0%
100,000 Park-Ohio Industries Inc.,
Sub. Deb.,
8.375%, 11/15/14 .................................. 51,220 41,500
-------------- --------------
ELECTRONICS -- 0.2%
300,000 Stoneridge Inc.,
11.500%, 05/01/12 ................................. 307,456 217,500
-------------- --------------
ENERGY AND UTILITIES -- 0.8%
1,000,000 Texas Competitive Electric
Holdings Co. LLC (STEP),
10.500%, 11/01/15 (b) ............................. 714,446 715,000
-------------- --------------
HEALTH CARE -- 0.0%
150,000 Sabratek Corp., Sub. Deb.,
Zero Coupon, 04/15/09+ (a) ........................ 84,763 0
-------------- --------------
MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 0.1%
103,000 Fleetwood Enterprises Inc.,
Sub. Deb.,
14.000%, 12/15/11 (a) ............................. 98,001 70,241
-------------- --------------
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)(c) ....................... 48,801 0
-------------- --------------
71,772 0
-------------- --------------
TOTAL
CORPORATE BONDS ................................... 1,327,658 1,044,241
-------------- --------------
See accompanying notes to financial statements.
5
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2008
PRINCIPAL MARKET
AMOUNT COST VALUE
------------ -------------- --------------
U.S. GOVERNMENT OBLIGATIONS -- 42.6%
U.S. TREASURY CASH MANAGEMENT BILLS -- 5.7%
$ 5,220,000 U.S. Treasury Cash Management Bills,
0.112% to 0.137%++,
04/29/09 to 06/24/09 .............................. $ 5,216,684 $ 5,216,297
-------------- --------------
U.S. TREASURY BILLS -- 32.0%
29,660,000 U.S. Treasury Bills,
0.071% to 1.924%++,
01/02/09 to 06/25/09 .............................. 29,637,800 29,615,275
-------------- --------------
U.S. TREASURY NOTES -- 4.9%
4,490,000 4.500%, 04/30/09 .................................. 4,538,276 4,554,898
-------------- --------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS ....................................... 39,392,760 39,386,470
-------------- --------------
TOTAL INVESTMENTS -- 100.0% ......................................... $ 113,754,115 92,481,741
==============
OTHER ASSETS AND LIABILITIES (NET) (699,385)
PREFERRED STOCK
(977,342 preferred shares outstanding) ............................................ (24,433,550)
--------------
NET ASSETS -- COMMON STOCK
(12,968,295 common shares outstanding) ............................................ $ 67,348,806
==============
NET ASSET VALUE PER COMMON SHARE
($67,348,806 / 12,968,295 shares outstanding) ..................................... $ 5.19
==============
----------
(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 December 31, 2008, the
market value of fair valued securities amounted to $549,849 or 0.59% 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 December
31, 2008, the market value of Rule 144A securities amounted to $2,466,869
or 2.67% of total investments. Except as noted in (c), these securities are
liquid.
(c) At December 31, 2008, the Fund held investments in restricted and illiquid
securities amounting to $346,157 or 0.37% of total investments, which were
valued under methods approved by the Board of Directors as follows:
ACQUISITION
SHARES/ 12/31/08
PRINCIPAL ACQUISITION ACQUISITION CARRYING 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 $ 50.2100
12,930 Elite Pharmaceuticals Inc.
Warrants expire 04/24/12 ...... 04/25/07 8,535 0.0643
15,143 Interep National Radio Sales Inc.,
4.000% Cv. Pfd., Ser. A ....... 05/03/02 1,347,184 --
210,000 Parmalat SpA, GDR ................ 04/10/03 897,621 1.6194
1,300 Parmalat SpA, GDR,
Warrants expire 12/31/15 ...... 11/09/05 -- 0.1777
(d) 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 December 31,
2008.
See accompanying notes to financial statements.
6
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2008
ASSETS:
Investments, at value (cost $111,492,811) ...................... $ 92,243,041
Investments in affiliates, at value (cost $2,261,304) .......... 238,700
Receivable for investments sold ................................ 185,000
Dividends and interest receivable .............................. 431,119
Unrealized appreciation on swap contracts ...................... 20,509
Deferred offering expense ...................................... 12,255
Prepaid expense ................................................ 4,911
------------
TOTAL ASSETS ................................................... 93,135,535
------------
LIABILITIES:
Payable to custodian ........................................... 3,271
Payable for investments purchased .............................. 1,102,706
Distributions payable .......................................... 24,434
Payable for Preferred shares repurchased ....................... 3,705
Payable for investment advisory fees ........................... 57,192
Payable for payroll expenses ................................... 32,281
Payable for accounting fees .................................... 7,502
Other accrued expenses ......................................... 122,088
------------
TOTAL LIABILITIES .............................................. 1,353,179
------------
PREFERRED STOCK:
Series B Cumulative Preferred Stock (6.00%, $25 liquidation
value, $0.001 par value, 1,995,000 shares authorized with
977,342 shares issued and outstanding) ...................... 24,433,550
------------
NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS ................. $ 67,348,806
============
NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS CONSIST OF:
Paid-in capital, at $0.001 par value ........................... $ 89,889,539
Accumulated distributions in excess of net investment income ... (77,072)
Accumulated net realized loss on investments, swap contracts,
and foreign currency transactions ........................... (1,211,796)
Net unrealized depreciation on investments ..................... (21,272,374)
Net unrealized appreciation on swap contracts .................. 20,509
------------
TOTAL NET ASSETS ............................................... $ 67,348,806
============
NET ASSET VALUE PER COMMON SHARE
($67,348,806 / 12,968,295 shares outstanding;
998,000,000 shares authorized) .............................. $ 5.19
============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008
INVESTMENT INCOME:
Dividends (net of foreign taxes of $25,261) .................... $ 1,488,217
Interest ....................................................... 3,090,999
------------
TOTAL INVESTMENT INCOME ........................................ 4,579,216
------------
EXPENSES:
Investment advisory fees ....................................... 1,232,070
Payroll expenses ............................................... 135,480
Shareholder communications expenses ............................ 87,073
Directors' fees ................................................ 67,812
Legal and audit fees ........................................... 64,450
Shareholder services fees ...................................... 46,776
Accounting fees ................................................ 45,000
Custodian fees ................................................. 40,989
Auction agent fees ............................................. 9,600
Interest expense ............................................... 878
Miscellaneous expenses ......................................... 55,864
------------
TOTAL EXPENSES ................................................. 1,785,992
Less:
Advisory fee reduction ...................................... (365,706)
Custodian fee credits ....................................... (1,136)
------------
NET EXPENSES ................................................... 1,419,150
------------
NET INVESTMENT INCOME .......................................... 3,160,066
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS,
SWAP CONTRACTS, AND FOREIGN CURRENCY:
Net realized loss on investments - unaffiliated ................ (457,637)
Net realized loss on investments - affiliated .................. (73,914)
Net realized loss on swap contracts ............................ (168,804)
Net realized loss on foreign currency transactions ............. (6,358)
------------
Net realized loss on investments, swap contracts,
and foreign currency transactions ........................... (706,713)
------------
Net change in unrealized appreciation/(depreciation):
on investments .............................................. (24,999,542)
on swap contracts ........................................... 20,509
------------
Net change in unrealized appreciation/(depreciation) on
investments, swap contracts, and foreign
currency translations ....................................... (24,979,033)
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS, SWAP
CONTRACTS, AND FOREIGN CURRENCY ............................. (25,685,746)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... (22,525,680)
------------
Total Distributions to Preferred Shareholders .................. (1,956,253)
------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS ................................... $(24,481,933)
============
See accompanying notes to financial statements.
7
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2008 DECEMBER 31, 2007
----------------- -----------------
OPERATIONS:
Net investment income .......................................... $ 3,160,066 $ 5,094,411
Net realized gain/(loss) on investments, swap contracts, and
foreign currency transactions ............................... (706,713) 5,441,824
Net change in unrealized appreciation/(depreciation) on
investments, swap contracts, and foreign currency
translations ................................................ (24,979,033) (2,914,987)
------------ ------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS .................................................. (22,525,680) 7,621,248
------------ ------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
Net investment income .......................................... (1,818,913) (1,370,499)
Net realized short-term gain ................................... (48,380) (341,482)
Net realized long-term gain .................................... (88,960) (1,099,213)
------------ ------------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS .................. (1,956,253) (2,811,194)
------------ ------------
NET INCREASE/(DECREASE) IN NET ASSETS ATTRIBUTABLE TO COMMON
SHAREHOLDERS RESULTING FROM OPERATIONS ...................... (24,481,933) 4,810,054
------------ ------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income .......................................... (1,225,678) (3,807,029)
Net realized short-term gain ................................... (32,601) (942,693)
Net realized long-term gain .................................... (59,945) (3,043,674)
Return of capital .............................................. (8,866,584) (2,153,250)
------------ ------------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS ..................... (10,184,808) (9,946,646)
------------ ------------
FUND SHARE TRANSACTIONS:
Net increase in net assets from common shares issued upon
reinvestment of dividends and distributions ................. 2,351,910 2,337,964
Net increase in net assets from repurchase of preferred
shares ...................................................... 73,955 --
------------ ------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS ........ 2,425,865 2,337,964
------------ ------------
NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON
SHAREHOLDERS ................................................ (32,240,876) (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) ................................. $ 67,348,806 $ 99,589,682
============ ============
See accompanying notes to financial statements.
8
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A COMMON SHARE
OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED DECEMBER 31,
-------------------------------------------------
2008 2007 2006 2005 2004
------- ------ ------ ------ ------
OPERATING PERFORMANCE:
Net asset value, beginning of period ....................... $ 7.90 $ 8.31 $ 7.95 $ 8.32 $ 8.90
------- ------ ------ ------ ------
Net investment income ...................................... 0.24 0.42 0.45 0.40 0.34
Net realized and unrealized gain/(loss) on investments, swap
contracts, and foreign currency transactions ............ (2.01) 0.20 0.92 0.20 0.01
------- ------ ------ ------ ------
Total from investment operations ........................... (1.77) 0.62 1.37 0.60 0.35
------- ------ ------ ------ ------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS: (A)
Net investment income ...................................... (0.14) (0.11) (0.09) (0.14) (0.16)
Net realized gain .......................................... (0.01) (0.12) (0.13) (0.05) --
------- ------ ------ ------ ------
Total distributions to preferred shareholders .............. (0.15) (0.23) (0.22) (0.19) (0.16)
------- ------ ------ ------ ------
NET INCREASE/(DECREASE) IN NET ASSETS ATTRIBUTABLE TO COMMON
SHAREHOLDERS RESULTING FROM OPERATIONS .................. (1.92) 0.39 1.15 0.41 0.19
------- ------ ------ ------ ------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income ...................................... (0.09) (0.31) (0.34) (0.25) (0.18)
Net realized gain .......................................... (0.01) (0.32) (0.46) (0.29) --
Paid-in capital ............................................ (0.70) (0.17) -- (0.26) (0.62)
------- ------ ------ ------ ------
Total distributions to common shareholders ................. (0.80) (0.80) (0.80) (0.80) (0.80)
------- ------ ------ ------ ------
FUND SHARE TRANSACTIONS:
Increase/(decrease) in net asset value from common share
transactions ............................................ -- 0.00(f) 0.01 0.02 0.03
Increase in net asset value from repurchase of preferred
shares .................................................. 0.01 -- -- -- 0.00(f)
Offering costs for preferred shares charged to paid-in
capital ................................................. -- -- -- (0.00)(f) 0.00(f)
------- ------ ------ ------ ------
Total fund share transactions .............................. 0.01 0.00(f) 0.01 0.02 0.03
------- ------ ------ ------ ------
NET ASSET VALUE ATTRIBUTABLE TO COMMON SHAREHOLDERS, END OF
PERIOD ..................................................... $ 5.19 $ 7.90 $ 8.31 $ 7.95 $ 8.32
======= ====== ====== ====== ======
NAV total return + ......................................... (25.57)% 4.44% 14.80% 4.40% 1.50%
======= ====== ====== ====== ======
Market value, end of period ................................ $ 5.55 $ 7.67 $ 8.95 $ 8.83 $ 9.24
======= ====== ====== ====== ======
Investment total return ++ ................................. (18.02)% (5.85)% 11.32% 4.50% (4.80)%
======= ====== ====== ====== ======
See accompanying notes to financial statements.
9
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2008 2007 2006 2005 2004
------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net assets including liquidation value of preferred shares,
end of period (in 000's) ........................................ $91,782 $149,360 $152,158 $145,324 $147,202
Net assets attributable to common shares,
end of period (in 000's) ........................................ $67,349 $ 99,590 $102,388 $ 95,554 $ 97,432
Ratio of net investment income to average net assets attributable
to common shares before preferred share distributions ........... 3.65% 4.90% 5.51% 4.93% 4.41%
Ratio of operating expenses to average net assets attributable to
common stock before fees waived ................................. 2.06% 2.23% -- -- --
Ratio of operating expenses to average net assets attributable to
common shares net of advisory fee reduction, if any (b)(c) ...... 1.64% 1.75% 2.07% 1.92% 1.61%
Ratio of operating expenses to average net assets including
liquidation value of preferred shares before fees waived ........ 1.45% 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) ........................................ 1.15% 1.18% 1.37% 1.27% 1.07%
Portfolio turnover rate +++ ........................................ 76% 61% 51% 32% 57%
PREFERRED STOCK:
6.000% SERIES B CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ........................ $24,433 $ 24,770 $ 24,770 $ 24,770 $ 24,770
Total shares outstanding (in 000's) ................................ 977 991 991 991 991
Liquidation preference per share ................................... $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00
Average market value (d) ........................................... $ 22.75 $ 24.07 $ 24.10 $ 25.14 $ 24.90
Asset coverage per share ........................................... $ 93.91 $ 75.02 $ 76.43 $ 73.00 $ 73.93
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ........................ -- $ 25,000 $ 25,000 $ 25,000 $ 25,000
Total shares outstanding (in 000's) ................................ -- 1 1 1 1
Liquidation preference per share ................................... -- $ 25,000 $ 25,000 $ 25,000 $ 25,000
Average market value (d) ........................................... -- $ 25,000 $ 25,000 $ 25,000 $ 25,000
Asset coverage per share ........................................... -- $ 75,025 $ 76,431 $ 72,998 $ 73,941
ASSET COVERAGE (e) ................................................. 376% 300% 306% 292% 296%
----------
+ Based on net asset value per share, adjusted for reinvestment of
distributions at prices dependent under the Fund's dividend reinvestment
plan.
++ Based on market value per share, adjusted for reinvestment of distributions
at prices dependent under the Fund's dividend reinvestment plan.
+++ Effective in 2008, a change in accounting policy was adopted with regard to
the calculation of the portfolio turnover rate to include cash proceeds due
to mergers. Had this policy been adopted retroactively, the portfolio
turnover rate for the years ended December 31, 2007, 2006, 2005, and 2004
would have been 98%, 65%, 59%, and 72%, respectively.
(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 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 years ended December 31, 2008 and
December 31, 2005, the effect of the custodian fee credits was minimal.
(c) The Fund incurred dividend expense on securities sold short for the years
ended December 31, 2006 and 2007. 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 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.
See accompanying notes to financial statements.
10
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS
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"), 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 with the
valuation and changes in valuation of similar securities, including a comparison
of foreign securities with 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.
Statement of Financial Accounting Standard No. 157, "Fair Value
Measurements" ("SFAS 157") 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).
11
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 the Fund's investments and other financial instruments, by inputs
used to value the Fund's investments as of December 31, 2008 is, as follows:
OTHER FINANCIAL
INVESTMENTS IN INSTRUMENTS
SECURITIES (UNREALIZED
(MARKET VALUE) APPRECIATION)*
VALUATION INPUTS ASSETS ASSETS
---------------- -------------- ---------------
Level 1 - Quoted Prices $33,906,252 --
Level 2 - Other Significant Observable Inputs 58,496,810 $20,509
Level 3 - Other Significant Unobservable Inputs 78,679 --
----------- -------
Total $92,481,741 $20,509
=========== =======
----------
* 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) 16,987
Realized gain/(loss) --
Change in unrealized appreciation/(depreciation)+ 40,589
Net purchases/(sales) (486,300)
Transfers in and/or out of Level 3 70,241
-----------
BALANCE AS OF 12/31/08 $ 78,679
===========
Net change in unrealized appreciation/(depreciation) during
the period on Level 3 investments held at 12/31/08+ $(1,469,924)
-----------
----------
+ Net change in unrealized appreciation/(depreciation) is included in the
related amounts on investments in the Statement of Operations.
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
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.
It is the policy of the Fund to always receive and maintain securities as
collateral whose market value, including accrued interest, are 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 December 31, 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 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
12
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the Fund's ability to make dividend payments. In addition, at the time 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.
Effective March 16, 2008, Bear, Stearns International Limited entered into
a Guaranty Agreement with JPMorgan Chase & Co., whereby JPMorgan Chase & Co.
unconditionally guarantees the due and punctual payment of certain liabilities
of Bear, Stearns International Limited, including the current liabilities of
Bear, Stearns International Limited to the Fund. As of December 31, 2008, the
Fund held a contract for difference swap with Bear, Stearns International
Limited which is covered by the JPMorgan Chase & Co. Guaranty Agreement as of
the date of the report. Details of the swap at December 31, 2008 are as follows:
NOTIONAL EQUITY SECURITY INTEREST RATE/ TERMINATION NET UNREALIZED
AMOUNT RECEIVED EQUITY SECURITY PAID DATE APPRECIATION
------------------------ --------------------- ------------------------ ----------- --------------
Overnight LIBOR plus
Market Value 40 bps plus Market Value
Appreciation on: Depreciation on:
$208,559 (47,500 Shares) Rolls-Royce Group plc Rolls-Royce Group plc 11/17/09 $20,509
FUTURES CONTRACTS. The Fund may engage in futures contracts for the purpose
of hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin." Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily 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 December 31, 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 December 31, 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 December 31, 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,
13
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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 included in
"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. For the year ended
December 31, 2008, reclassifications were made to increase accumulated
distributions in excess of net investment income by $129,879 and decrease
accumulated net realized loss on investments, swap contracts, and foreign
currency transactions by $98,104, with an offsetting adjustment to paid-in
capital.
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.
14
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax character of distributions paid during the years ended December 31, 2008
and December 31, 2007 was as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2008 DECEMBER 31, 2007
------------------------ -----------------------
COMMON PREFERRED COMMON PREFERRED
----------- ---------- ---------- ----------
DISTRIBUTIONS PAID FROM:
Ordinary income
(inclusive of short-term capital gains) .. $ 1,258,279 $1,867,293 $5,549,933 $2,001,944
Net long-term capital gains ................. 59,945 88,960 2,243,463 809,250
Return of capital ........................... 8,866,584 -- 2,153,250 --
----------- ---------- ---------- ----------
Total distributions paid .................... $10,184,808 $1,956,253 $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.
At December 31, 2008, the difference between book basis and tax basis
unrealized depreciation was primarily due to deferral of losses from wash sales
for tax purposes, basis adjustments for investments in partnerships, and prior
tax elections.
As of December 31, 2008, the components of accumulated earnings/losses on a
tax basis were as follows:
Net unrealized depreciation on investments .. $(22,358,576)
Other temporary differences* ................ (182,157)
------------
Total ....................................... $(22,540,733)
============
----------
* Other temporary differences are primarily due to adjustments on dividend
payables, conversion premiums, and basis adjustments from investments in
hybrid securities.
The following summarizes the tax cost of investments, swap contracts, and
the related unrealized appreciation/depreciation at December 31, 2008:
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
COST APPRECIATION DEPRECIATION DEPRECIATION
------------ ------------ ------------ --------------
Investments ... $114,840,317 $1,555,480 $(23,914,056) $(22,358,576)
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
("FIN 48") provides guidance for how uncertain tax positions should be
recognized, measured, presented, and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the "more-likely-than-not" threshold
are recorded as a tax benefit or expense in the current year. In accordance with
FIN 48, management has analyzed the Fund's tax positions taken on the federal
and state income tax returns for all open tax years (the current and prior three
tax years) and has concluded that no provision for income tax is required in the
Fund's financial statements. Management's determination regarding FIN 48 may be
subject to review and adjustment at a later date based on factors including, but
not limited to, an on-going analysis of tax laws, regulations, and
interpretations thereof.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES. The Fund has 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 year.
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 year ended December
31, 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 $365,706.
During the year ended December 31, 2008, the Fund paid brokerage
commissions on security trades of $31,017 to Gabelli & Company, Inc. ("Gabelli &
Company"), an affiliate of the Adviser.
15
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 year
ended December 31, 2008, the Fund paid or accrued $45,000 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 year ended December 31, 2008, the Fund paid or
accrued $135,480, 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 year ended December 31, 2008, other than short-term securities and U.S.
Government obligations, aggregated $47,097,906 and $53,188,916, respectively.
Purchases and proceeds from the sales of U.S. Government obligations for
the year ended December 31, 2008, other than short-term obligations, aggregated
$13,343,263 and $24,100,000, 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 year ended December
31, 2008, the Fund did not repurchase any shares of its common stock in the open
market.
Transactions in common stock were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2008 DECEMBER 31, 2007
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
Net increase from shares issued upon
reinvestment of distributions ... 369,897 $2,351,910 275,924 $2,337,964
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 Cumulative Preferred Stock at a redemption price of
$25.00, 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 year ended December 31, 2008, the Fund repurchased
13,458 shares of 6.00% Series B Cumulative Preferred Stock in the open market at
a cost of $262,495 and an average discount of approximately 20.93% from its
liquidation preference. All 6.00% Series B Cumulative Preferred Stock
repurchased has been retired. At December 31, 2008, 977,342 shares of 6.00%
Series B Cumulative Preferred Stock were outstanding and accrued dividends
amounted to $24,434.
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
16
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 year ended
December 31, 2008 is set forth below:
PERCENT
NET CHANGE IN VALUE AT OWNED OF
BEGINNING SHARES ENDING UNREALIZED REALIZED DECEMBER 31, SHARES
SHARES SOLD SHARES DEPRECIATION LOSS 2008 OUTSTANDING
--------- -------- -------- -------------- --------- ------------ -----------
Trans-Lux Corp. 324,000 (14,000) 310,000 $(1,729,637) $(73,914) $238,700 15.35%
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 is not expected to impact the Fund and 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 including the Fund. 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.
In a separate matter, on January 12, 2009, the SEC issued an administrative
action approving a final settlement of a previously disclosed matter with the
Adviser involving compliance with Section 19(a) of the Investment Company Act of
1940 and Rule 19a-1 thereunder by two closed-end funds. These provisions require
registered investment companies when making a distribution in the nature of a
dividend from sources other than net investment income to contemporaneously
provide written statements to shareholders, which adequately disclose the source
or sources of such distribution. While the two funds sent annual statements and
provided other materials containing this information, the shareholders did not
receive the notices required by Rule 19a-1 with any of the distributions that
were made for 2002 and 2003. The Adviser believes that the funds have been in
compliance with Section 19(a) and Rule 19a-1 since the beginning of 2004. As
part of the settlement, in which the Adviser neither admits nor denies the
findings by the SEC, the Adviser agreed to pay a civil monetary penalty of
$450,000 and to cease and desist from causing violations of Section 19(a) and
Rule 19a-1. In connection with the settlement, the SEC noted the remedial
actions previously undertaken by the Adviser.
17
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Gabelli Convertible and Income Securities Fund Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Convertible and Income
Securities Fund Inc. (hereafter referred to as the "Fund") at December 31, 2008,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2008 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 27, 2009
18
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
ADDITIONAL FUND INFORMATION (UNAUDITED)
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors. Information pertaining to the Directors and officers
of the Fund is set forth below. The Fund's Statement of Additional Information
includes additional information about the Fund's Directors and is available
without charge, upon request, by calling 800-GABELLI (800-422-3554) or by
writing to The Gabelli Convertible and Income Securities Fund Inc. at One
Corporate Center, Rye, NY 10580-1422.
NUMBER OF
TERM OF FUNDS IN FUND
NAME, POSITION(S) OFFICE AND COMPLEX
ADDRESS(1) LENGTH OF OVERSEEN BY PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AND AGE TIME SERVED(2) DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR(5)
------------------------- -------------- ------------- ------------------------------------- -----------------------------------
INTERESTED DIRECTORS(3):
MARIO J. GABELLI Since 1989** 26 Chairman and Chief Executive Officer Director of Morgan Group Holdings,
Director and of GAMCO Investors, Inc. and Chief Inc. (holding company); Chairman of
Chief Investment Officer Investment Officer - Value Portfolios the Board of LICT Corp. (multimedia
Age: 66 of Gabelli Funds, LLC and GAMCO Asset and communication services company)
Management Inc.; Director/Trustee or
Chief Investment Officer of other
registered investment companies in
the Gabelli/GAMCO Funds complex;
Chairman and Chief Executive Officer
of GGCP, Inc.
INDEPENDENT DIRECTORS(6):
E. VAL CERUTTI Since 1989* 7 Chief Executive Officer of Cerutti Director of The LGL Group, Inc.
Director Consultants, Inc. (diversified manufacturing)
Age: 69
ANTHONY J. COLAVITA(4) Since 1989*** 36 Partner in the law firm of Anthony J. --
Director Colavita, P.C.
Age: 73
DUGALD A. FLETCHER Since 1989* 2 President, Fletcher & Company, Inc. Director of Harris and Harris
Director Group, Inc. (venture capital)
Age: 79
ANTHONY R. PUSTORINO Since 1989* 13 Certified Public Accountant; Director of The LGL Group, Inc.
Director Professor Emeritus, Pace University (diversified manufacturing)
Age: 83
WERNER J. ROEDER, MD(4) Since 2001** 22 Medical Director of Lawrence Hospital --
Director and practicing private physician
Age: 68
ANTHONIE C. VAN EKRIS Since 1992*** 20 Chairman of BALMAC International, --
Director Inc. (commodities and futures
Age: 74 trading)
SALVATORE J. ZIZZA Since 1991*** 28 Chairman of Zizza & Co., Ltd. Director of Hollis-Eden
Director (consulting) Pharmaceuticals (biotechnology)
Age: 63 and Earl Scheib, Inc.
(automotive services)
19
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
ADDITIONAL FUND INFORMATION (UNAUDITED) (CONTINUED)
TERM OF
NAME, POSITION(S) OFFICE AND
ADDRESS(1) LENGTH OF PRINCIPAL OCCUPATION(S)
AND AGE TIME SERVED(2) DURING PAST FIVE YEARS
---------------------------- -------------- ------------------------------------------------------------------------------
OFFICERS:
BRUCE N. ALPERT Since 2003 Executive Vice President and Chief Operating Officer of Gabelli Funds, LLC
President Age: 57 since 1988 and an officer of all of the registered investment companies in the
Gabelli/GAMCO Funds complex. Director and President of Teton Advisors, Inc.
(formerly Gabelli Advisers, Inc.) since 1998
LAURISSA M. MARTIRE Since 2004 Vice President of The Gabelli Global Multimedia Trust Inc. since 2004.
Vice President and Ombudsman Assistant Vice President of GAMCO Investors, Inc. since 2003. Prior to 2003,
Age: 32 Sales Assistant for GAMCO Investors, Inc.
AGNES MULLADY Since 2006 Vice President of Gabelli Funds, LLC since 2007; Officer of all of the
Treasurer and Secretary registered investment companies in the Gabelli/GAMCO Funds complex; Senior
Age: 50 Vice President of U.S. Trust Company, N.A. and Treasurer and Chief Financial
Officer of Excelsior Funds from 2004 through 2005; Chief Financial Officer of
AMIC Distribution Partners from 2002 through 2004
PETER D. GOLDSTEIN Since 2004 Director of Regulatory Affairs at GAMCO Investors, Inc. since 2004; Chief
Chief Compliance Officer Compliance Officer of all of the registered investment companies in the
Age: 55 Gabelli/GAMCO Funds complex; Vice President of Goldman Sachs Asset Management
from 2000 through 2004
----------
(1) Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted.
(2) The Fund's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term. The three year term for each class expires as follows:
* - Term expires at the Fund's 2009 Annual Meeting of Shareholders or until
their successors are duly elected and qualified.
** - Term expires at the Fund's 2010 Annual Meeting of Shareholders or until
their successors are duly elected and qualified.
*** - Term expires at the Fund's 2011 Annual Meeting of Shareholders or until
their successors are duly elected and qualified.
Each officer will hold office for an indefinite term until the date he or
she resigns or retires or until his or her successor is elected and
qualified.
(3) "Interested person" of the Fund as defined in the 1940 Act. Mr. Gabelli is
considered an "interested person" because of his affiliation with Gabelli
Funds, LLC which acts as the Fund's investment adviser.
(4) Represents holders of the Fund's Preferred Stock.
(5) This column includes only directorships of companies required to report to
the SEC under the Securities Exchange Act of 1934, as amended (i.e. public
companies) or other investment companies registered under the 1940 Act.
(6) Directors who are not interested persons are considered "Independent"
Directors.
CERTIFICATIONS
The Fund's Chief Executive Officer has certified to the New York Stock
Exchange ("NYSE") that, as of June 17, 2008, he was not aware of any violation
by the Fund of applicable NYSE corporate governance listing standards. The Fund
reports to the Securities and Exchange Commission on Form N-CSR which contains
certifications by the Fund's principal executive officer and principal financial
officer that relate to the Fund's disclosure in such reports and that are
required by Rule 30a-2(a) under the 1940 Act.
The Annual Meeting of The Gabelli Convertible and Income Securities Fund's
shareholders will be held on Monday, May 18, 2009 at the Greenwich Library in
Greenwich, Connecticut.
20
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
INCOME TAX INFORMATION (UNAUDITED)
DECEMBER 31, 2008
CASH DIVIDENDS AND DISTRIBUTIONS
TOTAL AMOUNT ORDINARY LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT CAPITAL RETURN OF REINVESTMENT
DATE DATE PER SHARE (A) INCOME (A) GAIN (A) CAPITAL (C) PRICE
------- -------- ------------- ---------- --------- ----------- ------------
COMMON SHARES
03/25/08 03/17/08 $0.20000 $0.03033 $0.00199 $0.16768 $7.03000
06/24/08 06/16/08 0.20000 0.03033 0.00199 0.16768 6.96350
09/24/08 09/16/08 0.20000 0.03033 0.00199 0.16768 6.06100
12/17/08 12/12/08 0.20000 0.03033 0.00199 0.16768 5.00650
-------- -------- -------- --------
$0.80000 $0.12132 $0.00796 $0.67072
6.000% SERIES B CUMULATIVE PREFERRED STOCK
03/26/08 03/18/08 $0.37500 $0.35190 $0.02310
06/26/08 06/19/08 0.37500 0.35190 0.02310
09/26/08 09/19/08 0.37500 0.35190 0.02310
12/26/08 12/18/08 0.37500 0.35190 0.02310
-------- -------- --------
$1.50000 $1.40760 $0.09240
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
The percentage of 2008 distributions derived from long-term capital gains
for the Series C Auction Rate Cumulative Preferred Stock was 6.16%.
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 2008 tax returns. Ordinary income distributions include net investment
income and net realized short-term capital gains. The long-term gain
distributions for the year ended December 31, 2008 were $221,832, or the maximum
allowable.
21
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
INCOME TAX INFORMATION (CONTINUED) (UNAUDITED)
DECEMBER 31, 2008
CORPORATE DIVIDENDS RECEIVED DEDUCTION, QUALIFIED DIVIDEND INCOME, AND U.S.
GOVERNMENT SECURITIES INCOME
The Fund paid to common and 6.00% Series B Cumulative Preferred
shareholders ordinary income dividends of $0.12132 and $1.40760 per share,
respectively, in 2008. The Fund paid weekly distributions to Series C Auction
Rate Cumulative Preferred shareholders at varying rates through its redemption
date, June 25, 2008, including an ordinary income dividend totalling $414.59644
per share in 2008. For the year ended December 31, 2008, 33.53% of the ordinary
dividend qualified for the dividends received deduction available to
corporations, and 41.53% of the ordinary income distribution was qualified
dividend income. The percentage of ordinary income dividends paid by the Fund
during 2008 derived from U.S. Treasury securities was 5.40%. Such income is
exempt from state and local tax in all states. However, many states, including
New York and California, allow a tax exemption for a portion of the income
earned only if a mutual fund has invested at least 50% of its assets at the end
of each quarter of the Fund's fiscal year in U.S. Government securities. The
Fund did not meet this strict requirement in 2008. The percentage of net assets
of U.S. Treasury securities held as of December 31, 2008 was 58.41%.
HISTORICAL DISTRIBUTION SUMMARY
SHORT-TERM LONG-TERM ADJUSTMENT
INVESTMENT CAPITAL CAPITAL RETURN OF TOTAL TO
INCOME (B) GAINS (B) GAINS CAPITAL (C) DISTRIBUTIONS (A) COST BASIS (D)
---------- ---------- ---------- ----------- ----------------- --------------
COMMON SHARES
2008 $ 0.11672 $ 0.00460 $ 0.00796 $0.67072 $ 0.80000 $0.67072
2007 0.30784 0.07582 0.24480 0.17154 0.80000 0.17154
2006 0.34356 0.12104 0.33540 -- 0.80000 --
2005 0.29540 0.05780 0.20644 0.24036 0.80000 0.24036
2004 0.18800 -- -- 0.61200 0.80000 0.61200
2003 0.18800 -- 0.05160 0.56040 0.80000 0.56040
2002 0.27170 -- -- 0.47830 0.75000 0.47830
2001 0.47550 0.06950 0.26500 -- 0.81000 --
2000 0.56610 0.32670 0.40720 -- 1.30000 --
1999 0.38990 0.44590 0.19420 -- 1.03000 --
1998 0.38660 0.24130 0.29210 -- 0.92000 --
1997 0.39690 0.22850 0.33460 -- 0.96000 --
1996 0.49000 0.14160 0.10340 -- 0.73500 --
1995 0.55740 0.20410 0.35950 0.02900 1.15000 0.02900
1994 0.57300 0.11500 0.21200 -- 0.90000 --
1993 0.56100 0.20000 0.66400 -- 1.42500 --
1992 0.65400 0.09000 0.13200 -- 0.87600 --
1991 0.70600 0.11200 0.04700 -- 0.86500 --
1990 0.69000 -- -- -- 0.69000 --
1989 0.11500 -- -- -- 0.11500 --
6.000% SERIES B CUMULATIVE PREFERRED STOCK
2008 $ 1.35400 $0.05360 $0.09240 -- $ 1.50000 --
2007 0.73128 0.18220 0.58652 -- 1.50000 --
2006 0.64417 0.22693 0.62890 -- 1.50000 --
2005 0.79175 0.15491 0.55334 -- 1.50000 --
2004 1.50000 -- -- -- 1.50000 --
2003 0.90900 -- 0.24930 -- 1.15830 --
SERIES C AUCTION RATE CUMULATIVE PREFERRED
STOCK
2008 $398.85232 $ 15.74412 $ 27.20356 -- $ 441.80000 --
2007 656.77286 163.65570 526.77144 -- 1,347.20000 --
2006 525.22150 185.03180 512.76670 -- 1,223.02000 --
2005 438.5016 85.79450 306.46390 -- 830.76000 --
2004 375.0800 -- -- -- 375.08000 --
2003 187.3200 -- 51.34000 -- 238.66000 --
----------
(a) Total amounts may differ due to rounding.
(b) Taxable as ordinary income for Federal tax purposes.
(c) Non-taxable.
(d) Decrease in cost basis.
All designations are based on financial information available as of the
date of this annual report and, accordingly, are subject to change. For each
item, it is the intention of the Fund to designate the maximum amount permitted
under the Internal Revenue Code and the regulations thereunder.
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: 12,968,295 977,342
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
PHONE: 800-GABELLI (800-422-3554)
FAX: 914-921-5118 INTERNET: www.gabelli.com
E-MAIL: CLOSEDEND@GABELLI.COM GCV Q4/2008
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, that relates to one or more of the
items set forth in paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's Board of
Directors has determined that Anthony R. Pustorino is qualified to serve as an
audit committee financial expert serving on its audit committee and that he is
"independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$43,900 for 2007 and $51,500 for 2008.
AUDIT-RELATED FEES
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $5,833 for 2007 and $7,812 for 2008. Audit-related fees
represent services provided in the preparation of Preferred Shares
Reports.
TAX FEES
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $4,350 for 2007 and $5,000
for 2008. Tax fees represent tax compliance services provided in
connection with the review of the Registrant's tax returns.
ALL OTHER FEES
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are $0
for 2007 and $0 for 2008.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pre-Approval Policies and Procedures. The Audit Committee ("Committee")
of the registrant is responsible for pre-approving (i) all audit and
permissible non-audit services to be provided by the independent
registered public accounting firm to the registrant and (ii) all
permissible non-audit services to be provided by the independent
registered public accounting firm to the Adviser, Gabelli Funds, LLC,
and any affiliate of Gabelli Funds, LLC ("Gabelli") that provides
services to the registrant (a "Covered Services Provider") if the
independent registered public accounting firm's engagement related
directly to the operations and financial reporting of the registrant.
The Committee may delegate its responsibility to pre-approve any such
audit and permissible non-audit services to the Chairperson of the
Committee, and the Chairperson must report to the Committee, at its
next regularly scheduled meeting after the Chairperson's pre-approval
of such services, his or her decision(s). The Committee may also
establish detailed pre-approval policies and procedures for
pre-approval of such services in accordance with applicable laws,
including the delegation of some or all of the Committee's pre-approval
responsibilities to the other persons (other than Gabelli or the
registrant's officers). Pre-approval by the Committee of any
permissible non-audit services is not required so long as: (i) the
permissible non-audit services were not recognized by the registrant at
the time of the engagement to be non-audit services; and (ii) such
services are promptly brought to the attention of the Committee and
approved by the Committee or Chairperson prior to the completion of the
audit.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) 100%
(c) 100%
(d) N/A
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was zero percent (0%).
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the registrant for each of the last two fiscal years of the
registrant was $0 for 2007 and $0 for 2008.
(h) The registrant's audit committee of the board of directors has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated audit committee consisting of the
following members: Anthony J. Colavita, Anthony R. Pustorino and Salvatore J.
Zizza.
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.
The Proxy Voting Policies are attached herewith.
THE VOTING OF PROXIES ON BEHALF OF CLIENTS
Rules 204(4)-2 and 204-2 under the Investment Advisers Act of 1940 and
Rule 30b1-4 under the Investment Company Act of 1940 require investment advisers
to adopt written policies and procedures governing the voting of proxies on
behalf of their clients.
These procedures will be used by GAMCO Asset Management Inc., Gabelli
Funds, LLC, Gabelli Securities, Inc., and Teton Advisors, Inc. (collectively,
the "Advisers") to determine how to vote proxies relating to portfolio
securities held by their clients, including the procedures that the Advisers use
when a vote presents a conflict between the interests of the shareholders of an
investment company managed by one of the Advisers, on the one hand, and those of
the Advisers; the principal underwriter; or any affiliated person of the
investment company, the Advisers, or the principal underwriter. These procedures
will not apply where the Advisers do not have voting discretion or where the
Advisers have agreed to with a client to vote the client's proxies in accordance
with specific guidelines or procedures supplied by the client (to the extent
permitted by ERISA).
I. PROXY VOTING COMMITTEE
The Proxy Voting Committee was originally formed in April 1989 for the
purpose of formulating guidelines and reviewing proxy statements within the
parameters set by the substantive proxy voting guidelines originally published
in 1988 and updated periodically, a copy of which are appended as Exhibit A. The
Committee will include representatives of Research, Administration, Legal, and
the Advisers. Additional or replacement members of the Committee will be
nominated by the Chairman and voted upon by the entire Committee.
Meetings are held as needed basis to form views on the manner in
which the Advisers should vote proxies on behalf of their clients.
In general, the Director of Proxy Voting Services, using the Proxy
Guidelines, recommendations of Institutional Shareholder Corporate Governance
Service ("ISS"), other third-party services and the analysts of Gabelli &
Company, Inc., will determine how to vote on each issue. For non-controversial
matters, the Director of Proxy Voting Services may vote the proxy if the vote is
(1) consistent with the recommendations of the issuer's Board of Directors and
not contrary to the Proxy Guidelines; (2) consistent with the recommendations of
the issuer's Board of Directors and is a non-controversial issue not covered by
the Proxy Guidelines; or (3) the vote is contrary to the recommendations of the
Board of Directors but is consistent with the Proxy Guidelines. In those
instances, the Director of Proxy Voting Services or the Chairman of the
Committee may sign and date the proxy statement indicating how each issue will
be voted.
All matters identified by the Chairman of the Committee, the Director
of Proxy Voting Services or the Legal Department as controversial, taking into
account the recommendations of ISS or other third party services and the
analysts of Gabelli & Company, Inc., will be presented to the Proxy Voting
Committee. If the Chairman of the Committee, the Director of Proxy Voting
Services or the Legal Department has identified the matter as one that (1) is
controversial; (2) would benefit from deliberation by the Proxy Voting
Committee; or (3) may give rise to a conflict of interest between the Advisers
and their clients, the Chairman of the Committee will initially determine what
vote to recommend that the Advisers should cast and the matter will go before
the Committee.
1
A. CONFLICTS OF INTEREST.
The Advisers have implemented these proxy voting procedures in
order to prevent conflicts of interest from influencing their
proxy voting decisions. By following the Proxy Guidelines, as
well as the recommendations of ISS, other third-party services
and the analysts of Gabelli & Company, the Advisers are able
to avoid, wherever possible, the influence of potential
conflicts of interest. Nevertheless, circumstances may arise
in which one or more of the Advisers are faced with a conflict
of interest or the appearance of a conflict of interest in
connection with its vote. In general, a conflict of interest
may arise when an Adviser knowingly does business with an
issuer, and may appear to have a material conflict between its
own interests and the interests of the shareholders of an
investment company managed by one of the Advisers regarding
how the proxy is to be voted. A conflict also may exist when
an Adviser has actual knowledge of a material business
arrangement between an issuer and an affiliate of the Adviser.
In practical terms, a conflict of interest may arise, for
example, when a proxy is voted for a company that is a client
of one of the Advisers, such as GAMCO Asset Management Inc. A
conflict also may arise when a client of one of the Advisers
has made a shareholder proposal in a proxy to be voted upon by
one or more of the Advisers. The Director of Proxy Voting
Services, together with the Legal Department, will scrutinize
all proxies for these or other situations that may give rise
to a conflict of interest with respect to the voting of
proxies.
B. OPERATION OF PROXY VOTING COMMITTEE
For matters submitted to the Committee, each member of the
Committee will receive, prior to the meeting, a copy of the
proxy statement, any relevant third party research, a summary
of any views provided by the Chief Investment Officer and any
recommendations by Gabelli & Company, Inc. analysts. The Chief
Investment Officer or the Gabelli & Company, Inc. analysts may
be invited to present their viewpoints. If the Director of
Proxy Voting Services or the Legal Department believe that the
matter before the committee is one with respect to which a
conflict of interest may exist between the Advisers and their
clients, counsel will provide an opinion to the Committee
concerning the conflict. If the matter is one in which the
interests of the clients of one or more of Advisers may
diverge, counsel will so advise and the Committee may make
different recommendations as to different clients. For any
matters where the recommendation may trigger appraisal rights,
counsel will provide an opinion concerning the likely risks
and merits of such an appraisal action.
2
Each matter submitted to the Committee will be determined by the vote
of a majority of the members present at the meeting. Should the vote concerning
one or more recommendations be tied in a vote of the Committee, the Chairman of
the Committee will cast the deciding vote. The Committee will notify the proxy
department of its decisions and the proxies will be voted accordingly.
Although the Proxy Guidelines express the normal preferences for the
voting of any shares not covered by a contrary investment guideline provided by
the client, the Committee is not bound by the preferences set forth in the Proxy
Guidelines and will review each matter on its own merits. Written minutes of all
Proxy Voting Committee meetings will be maintained. The Advisers subscribe to
ISS, which supplies current information on companies, matters being voted on,
regulations, trends in proxy voting and information on corporate governance
issues.
If the vote cast either by the analyst or as a result of the
deliberations of the Proxy Voting Committee runs contrary to the recommendation
of the Board of Directors of the issuer, the matter will be referred to legal
counsel to determine whether an amendment to the most recently filed Schedule
13D is appropriate.
II. SOCIAL ISSUES AND OTHER CLIENT GUIDELINES
If a client has provided special instructions relating to the voting of
proxies, they should be noted in the client's account file and forwarded to the
proxy department. This is the responsibility of the investment professional or
sales assistant for the client. In accordance with Department of Labor
guidelines, the Advisers' policy is to vote on behalf of ERISA accounts in the
best interest of the plan participants with regard to social issues that carry
an economic impact. Where an account is not governed by ERISA, the Advisers will
vote shares held on behalf of the client in a manner consistent with any
individual investment/voting guidelines provided by the client. Otherwise the
Advisers will abstain with respect to those shares.
III. CLIENT RETENTION OF VOTING RIGHTS
If a client chooses to retain the right to vote proxies or if there is
any change in voting authority, the following should be notified by the
investment professional or sales assistant for the client.
- Operations
- Legal Department
- Proxy Department
- Investment professional assigned to the account
3
In the event that the Board of Directors (or a Committee thereof) of
one or more of the investment companies managed by one of the Advisers has
retained direct voting control over any security, the Proxy Voting Department
will provide each Board Member (or Committee member) with a copy of the proxy
statement together with any other relevant information including recommendations
of ISS or other third-party services.
IV. VOTING RECORDS
The Proxy Voting Department will retain a record of matters voted upon
by the Advisers for their clients. The Advisers will supply information on how
an account voted its proxies upon request.
A letter is sent to the custodians for all clients for which the
Advisers have voting responsibility instructing them to forward all proxy
materials to:
[Adviser name]
Attn: Proxy Voting Department
One Corporate Center
Rye, New York 10580-1433
The sales assistant sends the letters to the custodians along with the
trading/DTC instructions. Proxy voting records will be retained in compliance
with Rule 204-2 under the Investment Advisers Act.
V. VOTING PROCEDURES
1. Custodian banks, outside brokerage firms and clearing firms are responsible
for forwarding proxies directly to the Advisers.
Proxies are received in one of two forms:
o Shareholder Vote Authorization Forms ("VAFs") - Issued by Broadridge
Financial Solutions, Inc. ("Broadridge") VAFs must be voted through the
issuing institution causing a time lag. Broadridge is an outside service
contracted by the various institutions to issue proxy materials.
o Proxy cards which may be voted directly.
2. Upon receipt of the proxy, the number of shares each form represents is
logged into the proxy system according to security.
3. In the case of a discrepancy such as an incorrect number of shares, an
improperly signed or dated card, wrong class of security, etc., the issuing
custodian is notified by phone. A corrected proxy is requested. Any arrangements
are made to insure that a proper proxy is received in time to be voted
(overnight delivery, fax, etc.). When securities are out on loan on record date,
the custodian is requested to supply written verification.
4
4. Upon receipt of instructions from the proxy committee (see Administrative),
the votes are cast and recorded for each account on an individual basis.
Records have been maintained on the Proxy Edge system. The system is backed up
regularly.
Proxy Edge records include:
Security Name and Cusip Number
Date and Type of Meeting (Annual, Special, Contest)
Client Name
Adviser or Fund Account Number
Directors' Recommendation
How GAMCO voted for the client on each issue
5. VAFs are kept alphabetically by security. Records for the current proxy
season are located in the Proxy Voting Department office. In preparation for the
upcoming season, files are transferred to an offsite storage facility during
January/February.
6. Shareholder Vote Authorization Forms issued by Broadridge are always sent
directly to a specific individual at Broadridge.
7. If a proxy card or VAF is received too late to be voted in the conventional
matter, every attempt is made to vote on one of the following manners:
o VAFs can be faxed to Broadridge up until the time of the meeting. This is
followed up by mailing the original form.
o When a solicitor has been retained, the solicitor is called. At the
solicitor's direction, the proxy is faxed.
8. In the case of a proxy contest, records are maintained for each opposing
entity.
9. Voting in Person
a) At times it may be necessary to vote the shares in person. In this case, a
"legal proxy" is obtained in the following manner:
o Banks and brokerage firms using the services at Broadridge:
The back of the VAF is stamped indicating that we wish to vote in person.
The forms are then sent overnight to Broadridge. Broadridge issues individual
legal proxies and sends them back via overnight (or the Adviser can pay
messenger charges). A lead-time of at least two weeks prior to the meeting is
needed to do this. Alternatively, the procedures detailed below for banks not
using Broadridge may be implemented.
5
o Banks and brokerage firms issuing proxies directly:
The bank is called and/or faxed and a legal proxy is requested.
All legal proxies should appoint:
"REPRESENTATIVE OF [ADVISER NAME] WITH FULL POWER OF SUBSTITUTION."
b) The legal proxies are given to the person attending the meeting along with
the following supplemental material:
o A limited Power of Attorney appointing the attendee an Adviser
representative.
o A list of all shares being voted by custodian only. Client names and
account numbers are not included. This list must be presented, along with
the proxies, to the Inspectors of Elections and/or tabulator at least
one-half hour prior to the scheduled start of the meeting. The tabulator
must "qualify" the votes (i.e. determine if the vote have previously been
cast, if the votes have been rescinded, etc. vote have previously been
cast, etc.).
o A sample ERISA and Individual contract.
o A sample of the annual authorization to vote proxies form.
o A copy of our most recent Schedule 13D filing (if applicable).
6
APPENDIX A
PROXY GUIDELINES
PROXY VOTING GUIDELINES
GENERAL POLICY STATEMENT
It is the policy of GAMCO INVESTORS, INC. to vote in the best economic interests
of our clients. As we state in our Magna Carta of Shareholders Rights,
established in May 1988, we are neither FOR nor AGAINST management. We are for
shareholders.
At our first proxy committee meeting in 1989, it was decided that each proxy
statement should be evaluated on its own merits within the framework first
established by our Magna Carta of Shareholders Rights. The attached guidelines
serve to enhance that broad framework.
We do not consider any issue routine. We take into consideration all of our
research on the company, its directors, and their short and long-term goals for
the company. In cases where issues that we generally do not approve of are
combined with other issues, the negative aspects of the issues will be factored
into the evaluation of the overall proposals but will not necessitate a vote in
opposition to the overall proposals.
7
BOARD OF DIRECTORS
The advisers do not consider the election of the Board of Directors a routine
issue. Each slate of directors is evaluated on a case-by-case basis.
Factors taken into consideration include:
o Historical responsiveness to shareholders
This may include such areas as:
-Paying greenmail
-Failure to adopt shareholder resolutions receiving a majority of
shareholder votes
o Qualifications
o Nominating committee in place
o Number of outside directors on the board
o Attendance at meetings
o Overall performance
SELECTION OF AUDITORS
In general, we support the Board of Directors' recommendation for auditors.
BLANK CHECK PREFERRED STOCK
We oppose the issuance of blank check preferred stock.
Blank check preferred stock allows the company to issue stock and establish
dividends, voting rights, etc. without further shareholder approval.
CLASSIFIED BOARD
A classified board is one where the directors are divided into classes with
overlapping terms. A different class is elected at each annual meeting.
While a classified board promotes continuity of directors facilitating long
range planning, we feel directors should be accountable to shareholders on an
annual basis. We will look at this proposal on a case-by-case basis taking into
consideration the board's historical responsiveness to the rights of
shareholders.
8
Where a classified board is in place we will generally not support attempts to
change to an annually elected board.
When an annually elected board is in place, we generally will not support
attempts to classify the board.
INCREASE AUTHORIZED COMMON STOCK
The request to increase the amount of outstanding shares is considered on a
case-by-case basis.
Factors taken into consideration include:
o Future use of additional shares
-Stock split
-Stock option or other executive compensation plan
-Finance growth of company/strengthen balance sheet
-Aid in restructuring
-Improve credit rating
-Implement a poison pill or other takeover defense
o Amount of stock currently authorized but not yet issued or reserved for
stock option plans
o Amount of additional stock to be authorized and its dilutive effect
We will support this proposal if a detailed and verifiable plan for the use of
the additional shares is contained in the proxy statement.
CONFIDENTIAL BALLOT
We support the idea that a shareholder's identity and vote should be treated
with confidentiality.
However, we look at this issue on a case-by-case basis.
In order to promote confidentiality in the voting process, we endorse the use of
independent Inspectors of Election.
9
CUMULATIVE VOTING
In general, we support cumulative voting.
Cumulative voting is a process by which a shareholder may multiply the number of
directors being elected by the number of shares held on record date and cast the
total number for one candidate or allocate the voting among two or more
candidates.
Where cumulative voting is in place, we will vote against any proposal to
rescind this shareholder right.
Cumulative voting may result in a minority block of stock gaining representation
on the board. When a proposal is made to institute cumulative voting, the
proposal will be reviewed on a case-by-case basis. While we feel that each board
member should represent all shareholders, cumulative voting provides minority
shareholders an opportunity to have their views represented.
DIRECTOR LIABILITY AND INDEMNIFICATION
We support efforts to attract the best possible directors by limiting the
liability and increasing the indemnification of directors, except in the case of
insider dealing.
EQUAL ACCESS TO THE PROXY
The SEC's rules provide for shareholder resolutions. However, the resolutions
are limited in scope and there is a 500 word limit on proponents' written
arguments. Management has no such limitations. While we support equal access to
the proxy, we would look at such variables as length of time required to
respond, percentage of ownership, etc.
FAIR PRICE PROVISIONS
Charter provisions requiring a bidder to pay all shareholders a fair price are
intended to prevent two-tier tender offers that may be abusive. Typically, these
provisions do not apply to board-approved transactions.
10
We support fair price provisions because we feel all shareholders should be
entitled to receive the same benefits.
Reviewed on a case-by-case basis.
GOLDEN PARACHUTES
Golden parachutes are severance payments to top executives who are terminated or
demoted after a takeover.
We support any proposal that would assure management of its own welfare so that
they may continue to make decisions in the best interest of the company and
shareholders even if the decision results in them losing their job. We do not,
however, support excessive golden parachutes. Therefore, each proposal will be
decided on a case-by-case basis.
NOTE: CONGRESS HAS IMPOSED A TAX ON ANY PARACHUTE THAT IS MORE THAN THREE TIMES
THE EXECUTIVE'S AVERAGE ANNUAL COMPENSATION.
ANTI-GREENMAIL PROPOSALS
We do not support greenmail. An offer extended to one shareholder should be
extended to all shareholders equally across the board.
LIMIT SHAREHOLDERS' RIGHTS TO CALL SPECIAL MEETINGS
We support the right of shareholders to call a special meeting.
CONSIDERATION OF NONFINANCIAL EFFECTS OF A MERGER
This proposal releases the directors from only looking at the financial effects
of a merger and allows them the opportunity to consider the merger's effects on
employees, the community, and consumers.
11
As a fiduciary, we are obligated to vote in the best economic interests of our
clients. In general, this proposal does not allow us to do that. Therefore, we
generally cannot support this proposal.
Reviewed on a case-by-case basis.
MERGERS, BUYOUTS, SPIN-OFFS, RESTRUCTURINGS
Each of the above is considered on a case-by-case basis. According to the
Department of Labor, we are not required to vote for a proposal simply because
the offering price is at a premium to the current market price. We may take into
consideration the long term interests of the shareholders.
MILITARY ISSUES
Shareholder proposals regarding military production must be evaluated on a
purely economic set of criteria for our ERISA clients. As such, decisions will
be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to
the client's direction when applicable. Where no direction has been given, we
will vote in the best economic interests of our clients. It is not our duty to
impose our social judgment on others.
NORTHERN IRELAND
Shareholder proposals requesting the signing of the MacBride principles for the
purpose of countering the discrimination of Catholics in hiring practices must
be evaluated on a purely economic set of criteria for our ERISA clients. As
such, decisions will be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to
client direction when applicable. Where no direction has been given, we will
vote in the best economic interests of our clients. It is not our duty to impose
our social judgment on others.
12
OPT OUT OF STATE ANTI-TAKEOVER LAW
This shareholder proposal requests that a company opt out of the coverage of the
state's takeover statutes. Example: Delaware law requires that a buyer must
acquire at least 85% of the company's stock before the buyer can exercise
control unless the board approves.
We consider this on a case-by-case basis. Our decision will be based on the
following:
o State of Incorporation
o Management history of responsiveness to shareholders
o Other mitigating factors
POISON PILL
In general, we do not endorse poison pills.
In certain cases where management has a history of being responsive to the needs
of shareholders and the stock is very liquid, we will reconsider this position.
REINCORPORATION
Generally, we support reincorporation for well-defined business reasons. We
oppose reincorporation if proposed solely for the purpose of reincorporating in
a state with more stringent anti-takeover statutes that may negatively impact
the value of the stock.
STOCK OPTION PLANS
Stock option plans are an excellent way to attract, hold and motivate directors
and employees. However, each stock option plan must be evaluated on its own
merits, taking into consideration the following:
o Dilution of voting power or earnings per share by more than 10%
o Kind of stock to be awarded, to whom, when and how much
o Method of payment
o Amount of stock already authorized but not yet issued under existing stock
option plans
13
SUPERMAJORITY VOTE REQUIREMENTS
Supermajority vote requirements in a company's charter or bylaws require a level
of voting approval in excess of a simple majority of the outstanding shares. In
general, we oppose supermajority-voting requirements. Supermajority requirements
often exceed the average level of shareholder participation. We support
proposals' approvals by a simple majority of the shares voting.
LIMIT SHAREHOLDERS RIGHT TO ACT BY WRITTEN CONSENT
Written consent allows shareholders to initiate and carry on a shareholder
action without having to wait until the next annual meeting or to call a special
meeting. It permits action to be taken by the written consent of the same
percentage of the shares that would be required to effect proposed action at a
shareholder meeting.
Reviewed on a case-by-case basis.
14
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
PORTFOLIO MANAGER
Mr. Mario J. Gabelli, CFA, is primarily responsible for the day-to-day
management of The Gabelli Convertible and Income Securities Fund Inc., (the
Fund). Mr. Gabelli has served as Chairman, Chief Executive Officer, and Chief
Investment Officer-Value Portfolios of GAMCO Investors, Inc. and its affiliates
since their organization.
MANAGEMENT OF OTHER ACCOUNTS
The table below shows the number of other accounts managed by Mario J. Gabelli
and the total assets in each of the following categories: registered investment
companies, other paid investment vehicles and other accounts. For each category,
the table also shows the number of accounts and the total assets in the accounts
with respect to which the advisory fee is based on account performance.
------------------------- ------------------- ------------------- -------------- ----------------- ----------------
Total Assets
No. of Accounts in Accounts
Total where Advisory where Advisory
Name of Portfolio Type of No. of Accounts Total Fee is Based on Fee is Based
Manager Accounts Managed Assets Performance on Performance
------------------------- ------------------- ------------------- -------------- ----------------- ----------------
1. Mario J. Gabelli Registered 24 10.4B 6 3.3B
Investment
Companies:
-------------------------- ------------------- ------------------ -------------- ----------------- ----------------
Other Pooled 22 355.1M 19 316.4M
Investment
Vehicles:
-------------------------- ------------------- ------------------ -------------- ----------------- ----------------
Other Accounts 2,049 8.1B 6 994.1M
-------------------------- ------------------- ------------------ -------------- ----------------- ----------------
POTENTIAL CONFLICTS OF INTEREST
As reflected above, Mr. Gabelli manages accounts in addition to the Fund. Actual
or apparent conflicts of interest may arise when a Portfolio Manager also has
day-to-day management responsibilities with respect to one or more other
accounts. These potential conflicts include:
ALLOCATION OF LIMITED TIME AND ATTENTION. As indicated above, Mr. Gabelli
manages multiple accounts. As a result, he will not be able to devote all of his
time to management of the Fund. Mr. Gabelli, therefore, may not be able to
formulate as complete a strategy or identify equally attractive investment
opportunities for each of those accounts as might be the case if he were to
devote all of his attention to the management of only the Fund.
ALLOCATION OF LIMITED INVESTMENT OPPORTUNITIES. As indicated above, Mr. Gabelli
manages managed accounts with investment strategies and/or policies that are
similar to the Fund. In these cases, if the he identifies an investment
opportunity that may be suitable for multiple accounts, a Fund may not be able
to take full advantage of that opportunity because the opportunity may be
allocated among all or many of these accounts or other accounts managed
primarily by other Portfolio Managers of the Adviser, and their affiliates. In
addition, in the event Mr. Gabelli determines to purchase a security for more
than one account in an aggregate amount that may influence the market price of
the security, accounts that purchased or sold the security first may receive a
more favorable price than accounts that made subsequent transactions.
SELECTION OF BROKER/DEALERS. Because of Mr. Gabelli's position with the
Distributor and his indirect majority ownership interest in the Distributor, he
may have an incentive to use the Distributor to execute portfolio transactions
for a Fund.
PURSUIT OF DIFFERING STRATEGIES. At times, Mr. Gabelli may determine that an
investment opportunity may be appropriate for only some of the accounts for
which he exercises investment responsibility, or may decide that certain of the
funds or accounts should take differing positions with respect to a particular
security. In these cases, he may execute differing or opposite transactions for
one or more accounts which may affect the market price of the security or the
execution of the transaction, or both, to the detriment of one or more other
accounts.
VARIATION IN COMPENSATION. A conflict of interest may arise where the financial
or other benefits available to Mr. Gabelli differ among the accounts that he
manages. If the structure of the Adviser's management fee or the Portfolio
Manager's compensation differs among accounts (such as where certain accounts
pay higher management fees or performance-based management fees), the Portfolio
Manager may be motivated to favor certain accounts over others. The Portfolio
Manager also may be motivated to favor accounts in which he has an investment
interest, or in which the Adviser, or their affiliates have investment
interests. Similarly, the desire to maintain assets under management or to
enhance a Portfolio Manager's performance record or to derive other rewards,
financial or otherwise, could influence the Portfolio Manager in affording
preferential treatment to those accounts that could most significantly benefit
the Portfolio Manager. For example, as reflected above, if Mr. Gabelli manages
accounts which have performance fee arrangements, certain portions of his
compensation will depend on the achievement of performance milestones on those
accounts. Mr. Gabelli could be incented to afford preferential treatment to
those accounts and thereby be subject to a potential conflict of interest.
The Adviser, and the Funds have adopted compliance policies and procedures that
are designed to address the various conflicts of interest that may arise for the
Adviser and their staff members. However, there is no guarantee that such
policies and procedures will be able to detect and prevent every situation in
which an actual or potential conflict may arise.
COMPENSATION STRUCTURE FOR MARIO J. GABELLI
Mr. Gabelli receives incentive-based variable compensation based on a percentage
of net revenues received by the Adviser for managing the Fund. Net revenues are
determined by deducting from gross investment management fees the firm's
expenses (other than Mr. Gabelli's compensation) allocable to this Fund. Five
closed-end registered investment companies (including this Fund) managed by Mr.
Gabelli have arrangements whereby the Adviser will only receive its investment
advisory fee attributable to the liquidation value of outstanding preferred
stock (and Mr. Gabelli would only receive his percentage of such advisory fee)
if certain performance levels are met. Additionally, he receives similar
incentive based variable compensation for managing other accounts within the
firm and its affiliates. This method of compensation is based on the premise
that superior long-term performance in managing a portfolio should be rewarded
with higher compensation as a result of growth of assets through appreciation
and net investment activity. The level of compensation is not determined with
specific reference to the performance of any account against any specific
benchmark. One of the other registered investment companies managed by Mr.
Gabelli has a performance (fulcrum) fee arrangement for which his compensation
is adjusted up or down based on the performance of the investment company
relative to an index. Mr. Gabelli manages other accounts with performance fees.
Compensation for managing these accounts has two components. One component is
based on a percentage of net revenues to the investment adviser for managing the
account. The second component is based on absolute performance of the account,
with respect to which a percentage of such performance fee is paid to Mr.
Gabelli. As an executive officer of the Adviser's parent company, GBL, Mr.
Gabelli also receives ten percent of the net operating profits of the parent
company. He receives no base salary, no annual bonus, and no stock options.
OWNERSHIP OF SHARES IN THE FUND
Mario Gabelli owned over $1,000,000 of shares of the Fund as of December 31,
2008.
(B) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
REGISTRANT PURCHASES OF EQUITY SECURITIES
============= ========================= ============================= =========================== =============================
(C) TOTAL NUMBER OF (D) MAXIMUM NUMBER (OR
SHARES (OR UNITS) APPROXIMATE DOLLAR VALUE) OF
(A) TOTAL NUMBER OF PURCHASED AS PART OF SHARES (OR UNITS) THAT MAY
SHARES (OR UNITS) (B) AVERAGE PRICE PAID PER PUBLICLY ANNOUNCED PLANS YET BE PURCHASED UNDER THE
PERIOD PURCHASED SHARE (OR UNIT) OR PROGRAMS PLANS OR PROGRAMS
============= ========================= ============================= =========================== =============================
Month #1 Common - N/A Common - N/A Common - N/A Common - 12,786,964
07/01/08
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
07/31/08
==============================================================================================================================
==============================================================================================================================
Month #2 Common - N/A Common - N/A Common - N/A Common - 12,786,964
08/01/08
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
08/31/08
==============================================================================================================================
==============================================================================================================================
Month #3 Common - N/A Common - N/A Common - N/A Common - 12,786,964
09/01/08
through Preferred Series B - 100 Preferred Series B - Preferred Series B - 100 Preferred Series B - 990,800 -
09/30/08 $20.5000 1000 = 990,700
==============================================================================================================================
==============================================================================================================================
Month #4 Common - N/A Common - N/A Common - N/A Common - 12,845,229
10/01/08
through Preferred Series B - Preferred Series B - Preferred Series B - Preferred Series B - 990,700 -
10/31/08 10,376 $19.9823 10,376 10,376 = 980,324
==============================================================================================================================
==============================================================================================================================
Month #5 Common - N/A Common - N/A Common - N/A Common - 12,845,229
11/01/08
through Preferred Series B - Preferred Series B - Preferred Series B - 1,249 Preferred Series B - 980,324 -
11/30/08 1,249 $19.8800 1,249 = 979,075
==============================================================================================================================
==============================================================================================================================
Month #6 Common - N/A Common - N/A Common - N/A Common - 12,968,295
12/01/08
through Preferred Series B - Preferred Series B - Preferred Series B - 1,733 Preferred Series B - 979,075 -
12/31/08 1,733 $20.2789 1,733 = 977,342
==============================================================================================================================
==============================================================================================================================
Total Common - N/A Common - N/A Common - N/A N/A
Preferred Series B - Preferred Series B - Preferred Series B -
13,348 $19.7789 13,348
==============================================================================================================================
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) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) The Gabelli Convertible and Income Securities Fund Inc.
--------------------------------------------------------------------
By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert, Principal Executive Officer
Date 3/9/09
----------------------------------------------------------------------------
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 3/9/09
----------------------------------------------------------------------------
By (Signature and Title)* /s/ Agnes Mullady
-------------------------------------------------------
Agnes Mullady,
Principal Financial Officer and Treasurer
Date 3/9/09
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.