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THE GABELLI
CONVERTIBLE AND
INCOME SECURITIES
FUND INC.
FIRST QUARTER REPORT
MARCH 31, 2003
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THE GABELLI
CONVERTIBLE AND
INCOME SECURITIES
FUND INC.
Our cover icon represents the underpinnings of Gabelli.
The Teton mountains in Wyoming represent what we believe in
in America -- that creativity, ingenuity, hard work and a global
uniqueness provide enduring values. They also stand out in
an increasingly complex, interconnected and interdependent
economic world.
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* * * *
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MORNINGSTAR RATED(TM) GABELLI CONVERTIBLE AND INCOME SECURITIES FUND
4 STARS OVERALL AND FOR THE THREE-YEAR PERIODS ENDED 03/31/03 AMONG 53
DOMESTIC EQUITY CLOSED-END FUNDS. THE FUND WAS RATED 5 STARS FOR THE
FIVE-YEAR PERIOD AND 3 STARS FOR THE TEN-YEAR PERIOD ENDED 03/31/03
AMONG 51 AND 40 DOMESTIC EQUITY CLOSED-END FUNDS, RESPECTIVELY.
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INVESTMENT OBJECTIVE:
The Gabelli Convertible and Income Securities Fund Inc. is a closed-end,
diversified management investment company whose primary objective is to seek a
high level of total return through a combination of current income and capital
appreciation.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
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PICTURE OF BOOK
NEW FROM THE GABELLI PRESS:
GLOBAL CONVERTIBLE INVESTING:
THE GABELLI WAY
BY HART WOODSON
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PICTURE OF MARIO GABELLI
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THE GABELLI
CONVERTIBLE AND
INCOME SECURITIES
FUND INC.
TO OUR SHAREHOLDERS,
Convertible stocks and bonds are hybrid securities. Because they can be
converted into common stock, performance will be impacted by the dominant trend
in the equity markets. However, due to their significantly higher yield,
performance is also influenced by the direction of the bond market. With stocks
declining in the first quarter as investors pondered the consequences of war
with Iraq, the equity characteristics of converts were a modest negative for
performance. However, the strong performance of the corporate bond market
enhanced convertible returns. On a net asset value ("NAV") basis, the Gabelli
Convertible and Income Securities Fund (the "Fund") gained 2.24% for the
quarter, and with investors favoring more stable income-producing stocks, the
Fund's market price rose 12.93%.
COMPARATIVE RESULTS
--------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH MARCH 31, 2003 (A)
-------------------------------------------------
SINCE
QUARTER INCEPTION (B) 10 YEAR 5 YEAR 3 YEAR 1 YEAR
------- ------------- ------- ------ ------ ------
Gabelli Convertible and Income
Securities Fund NAV Return (c) ...... 2.24% 7.43% 5.89% 2.56% 0.15% (5.55)%
Investment Return (d) ............... 12.93% 4.36%(e) N/A(e) 6.71% 9.76% (4.91)%
S&P 500 Index ......................... (3.15)% 9.84% 8.53% (3.76)% (16.09)% (24.75)%
Lipper Convertible Securities
Fund Average ........................ 1.70% 9.29% 7.60% 1.94% (7.26)% (6.70)%
(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. The S&P 500 Index is an unmanaged indicator of stock market
performance, while the Lipper Average reflects the average performance of
open-end mutual funds classified in this particular category. Performance
for periods less than one year is not annualized.
(b) From commencement of investment operations on July 3, 1989.
(c) Total returns and average annual returns reflect changes in net asset
value ("NAV") and reinvestment of distributions at NAV on the ex-dividend
date and adjustments for rights offerings, and are net of expenses. Since
Inception return based on initial net asset value of $10.00.
(d) 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 based on an
initial offering price of $11.25.
(e) The Fund converted to closed-end status on March 31, 1995 and had no
operating history on the New York Stock Exchange prior to that date.
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PREMIUM / DISCOUNT DISCUSSION
As a refresher to our shareholders, the price of a closed-end mutual fund
is determined in the open market by willing buyers and sellers. Shares of the
Fund trade on the New York Stock Exchange and may trade at a premium to (higher
than) net asset value ("NAV") (the market value of the Fund's underlying
portfolio) or a discount to (lower than) net asset value. Of the 547 closed-end
funds in the U.S., approximately 33% currently trade at premiums to NAV versus
26% five years ago and 60% ten years ago.
Ideally, the Fund's market price will generally track the NAV. The Fund's
premium or discount to NAV fluctuates over time. Over our Fund's 8-year history,
the range fluctuated from a 31% premium in August 2002 to a 17% discount in
April 2000. Since early 2001, the market price of the Fund has exceeded the NAV.
"Mr. Market" often provides opportunities to invest at a discount. The
Fund has various initiatives in place to narrow any existing discount when
appropriate through distribution policies, share repurchase programs and the use
of leverage.
The Fund's long-term investment goal is to seek a high level of total
return through a combination of current income and capital appreciation. We
believe that our securities selection process adds to the investment equation.
We have a successful history of investment providing shareholders average annual
returns of 7.4% since inception. However, it is important to remember that "Mr.
Market" is a pendulum that swings both ways. As the market moves away from
momentum investing and back to basics, we believe that an excessive premium for
the Fund is not likely to be sustainable.
PREMIUM/DISCOUNT SINCE CONVERSION TO A CLOSED-END FUND
----------------------------------------
MARCH 31, 2003
--------------
Net Asset Value $8.43
Market Price $9.45
Premium 12.10%
----------------------------------------
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PLOT POINTS FOLLOW:
0
3/31/95 0.0099
4/30/95 -0.0761
5/31/95 -0.0978
6/30/95 -0.0334
7/31/95 -0.0903
8/31/95 -0.1056
9/30/95 -0.0657
10/31/95 -0.0701
11/30/95 -0.0957
1995 -0.0263
1/31/96 -0.0650
2/29/96 -0.1064
3/31/96 -0.0802
4/30/96 -0.1071
5/31/96 -0.1507
6/30/96 -0.0953
7/31/96 -0.1465
8/31/96 -0.1460
9/30/96 -0.1318
10/31/96 -0.1497
11/30/96 -0.1492
1996 -0.1652
1/31/97 -0.1399
2/28/97 -0.1310
3/31/97 -0.1577
4/30/97 -0.1622
5/31/97 -0.1593
6/30/97 -0.1322
7/31/97 -0.1470
8/31/97 -0.1538
9/30/97 -0.1321
10/31/97 -0.1557
11/30/97 -0.1432
1997 -0.1017
1/31/98 -0.0956
2/28/98 -0.0882
3/31/98 -0.0733
4/30/98 -0.0815
5/31/98 -0.0950
6/30/98 -0.0620
7/31/98 -0.0848
8/31/98 -0.1485
9/30/98 -0.0705
10/31/98 -0.0372
11/30/98 -0.0325
1998 -0.0175
1/31/99 -0.0315
2/28/99 -0.0745
3/31/99 -0.0275
4/30/99 -0.1027
5/31/99 -0.0909
6/30/99 -0.0689
7/31/99 -0.0991
8/31/99 -0.1019
9/30/99 -0.0842
10/31/99 -0.0948
11/30/99 -0.1525
12/31/99 -0.0735
1/31/00 -0.1207
2/29/00 -0.1480
3/31/00 -0.1497
4/30/00 -0.1734
5/31/00 -0.1454
6/30/00 -0.1263
7/31/00 -0.1128
8/31/00 -0.1230
9/30/00 -0.1022
10/31/00 -0.1553
11/30/00 -0.1088
2000 -0.0893
1/31/01 -0.0300
2/28/01 0.0096
3/31/01 0.0039
4/30/01 0.0202
5/31/01 0.0207
6/30/01 0.0337
7/31/01 0.0316
8/31/01 0.0590
9/30/01 0.1202
10/31/01 0.1169
11/30/01 0.1167
2001 0.1156
1/31/02 0.1061
2/28/02 0.0959
3/30/02 0.1067
4/30/02 0.0584
5/30/02 0.1702
6/30/02 0.1458
7/31/02 0.1127
8/31/02 0.2126
9/30/02 0.2896
10/31/02 0.1607
11/30/02 0.0418
2002 0.0130
1/31/03 0.0957
2/28/03 0.1340
3/31/03 0.1210
2
6.00% CUMULATIVE PREFERRED STOCK / SERIES C AUCTION RATE CUMULATIVE PREFERRED
STOCK
As authorized by the Board of Directors, the Fund redeemed the remaining
50% (600,000 Shares) of its outstanding 8.00% Cumulative Preferred Stock in
conjunction with the issuance of two new series of Preferred Stock. The 8.00%
Preferred Stock was redeemed on February 11, 2003 at a redemption price of
$25.25 per Preferred Share, which consists of $25.00 per share of Preferred
Stock (the liquidation value), plus accumulated and unpaid dividends through the
redemption date of $0.25 per share of Preferred Stock. The new preferred
issuance consists of $25 million of 6.00% Series B Cumulative Preferred Stock
and $25 million of Series C Auction Rate Cumulative Preferred Stock. The
proceeds raised will be used for investment purposes.
The 6.00% Series B Preferred Shares are rated "Aaa" by Moody's Investors
Service, Inc. The 6.00% Series B Preferred Shares are perpetual, non-callable
for five years and were issued at $25 per share. Distributions will be paid
quarterly beginning on June 26, 2003. The 6.00% Series B Preferred Shares trade
on the New York Stock Exchange under the symbol "GCV Pr B". The Series C Auction
Rate Preferred Shares are rated "Aaa" by Moody's Investors Service, Inc. and
"AAA" by Fitch, Inc. The Series C Preferred Shares are perpetual and generally
are callable at any time without premium. The initial dividend rate for the
Series C Preferred Shares was 1.30% for the period ending March 25, 2003. The
dividend rates for subsequent periods will be determined by an auction process.
The Series C Auction Rate Preferred Shares do not trade on an exchange.
It should be noted that the Investment Adviser will not receive a
management fee on the incremental assets raised unless the total return of the
Fund to common shareholders during any year exceeds the dividend rate of the
preferred stock, including the costs of any interest rate swap agreement the
Fund may enter into to protect against short-term interest rate increases.
OUR OBJECTIVE
Our mandate is to preserve and enhance our shareholders' wealth through a
conservative and disciplined approach to convertible securities investing. Our
goal is to generate profitable returns in strong markets and protect principal
in weak markets by taking advantage of the unique characteristics of convertible
securities.
Our Fund is managed with a goal of achieving a 600-800 basis point spread
above long-term Treasury yields. We hope to generate these returns over the
long-term. This is the type of performance that our Fund has been recognized for
and we anticipate will continue in the future. Of course, there are no
guarantees.
CONVERTIBLE SECURITIES ARE "HYBRIDS"
It is important to understand our stock selection discipline because price
movement in the underlying equity will generally have the greatest impact on
convertible securities pricing. The convertible securities market consists of
bonds, debentures, corporate notes, preferred stocks and warrants or other
similar securities which may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula.
Converts are "hybrid" securities that combine the capital appreciation potential
of equities with the higher yield of fixed income instruments. Our strategy
incorporates the purchase of convertible securities that are trading at a
premium above parity with the common stock but which generally provide a higher
yield and, over time, capital appreciation. We will also seek out "busted"
converts, where the underlying common stock has dropped significantly and the
values of both the conversion privilege and the convert are down. Such
securities will provide both high yields and long-term capital appreciation
potential.
3
CONVERTIBLE MARKET OVERVIEW
The convertible market, as measured by the Merrill Lynch All Convertible
Index, gained 3.07% during the first quarter. This outperformed the equity
markets as the Nasdaq gained a modest 0.42% while both the Dow Jones Industrial
Average and the Standard & Poor's ("S&P") 500 Index fell by 3.76% and 3.15%,
respectively. Most of this out performance was due to the tightening of
speculative grade credit spreads. The B1 rated Merrill Lynch U.S. High Yield
Master II Index rose by 7.14% during the quarter as credit spreads tightened by
13% from 871 basis points to 757 basis points. Conversely, the AA1 rated Merrill
Lynch Government/Corporate Bond Index gained just 1.11%. Equity market
volatility, as measured by the Chicago Board Option Exchange ("OEX") Volatility
Index, rose by only 3 points during the quarter to 33, but vacillated between 26
and 40. It had been as high as 50% in July 2002. These trends were reflected in
the convertible market as speculative grade convertibles significantly
outperformed their investment-graded counterparts during the quarter gaining
6.19% versus a decline of 0.04%, respectively. The domestic convertible market
is composed of 39% speculative grade credits, 48% investment grade credits, and
13% non-rated credits.
As expected, weak equity performance caused the average conversion premium
to expand as convertibles outperformed their underlying equities. During the
quarter, the average conversion premium rose from 98% to 103%. At the same time,
the average current yield fell slightly from 4.3% to 4.1% while the credit
quality remained constant at BB+.
During the first quarter, the size of the convertible market grew by 5% to
$224 billion assisted by positive net new issuance of $7 billion. However, total
new issuance remains muted with only $14 billion year to date versus $30 billion
over the same period last year. Investors' demand for current yield in the form
of convertible paper has permitted issuers to benefit from very favorable terms.
Theoretical cheapness at issue has now dropped to 0.74% from 3.23% in February
with the average conversion premium rising to 45% from 31% in January. In an
effort to bring issuers to market, Mandalay Resorts succeeded in pricing a
convertible/warrant structure on a record 100% premium.
COMMENTARY
THE POST-IRAQ ECONOMY AND MARKET
As we prepare this letter, U.S.-led coalition forces control almost all of
Iraq and the quick and decisive victory most of the world hoped for has been
achieved. Investor focus is already shifting from the war to the economy and
corporate earnings. Over the next several months, we will see whether
uncertainty regarding Iraq has been the primary restraint on the economy.
Recently released economic data has been troublesome. Institute for Supply
Management ("ISM") barometers indicate that manufacturing and services
contracted in March. New jobless claims are again trending higher, consumer
sentiment readings remain near 10-year lows, consumer spending is off, the
robust new housing market is showing signs of softening, and business investment
and capital spending, which had shown modest improvement in the fourth quarter
of 2002, has stalled.
Importantly, however, oil prices have come way down from their pre-war
peaks and we believe will eventually settle in the mid-$20 per barrel range.
This is the equivalent of an enormous tax cut for individuals and businesses.
Victory in Iraq has also increased President Bush's political capital, improving
the chance that we will see at least some of the Administration's economic
stimulus package make it through Congress. Finally, the Federal Reserve Board
still has leverage in the form of another rate cut if needed and/or the ability
to inject additional liquidity into the financial system. Our conclusion is that
the economy will regain its footing and stocks can make some progress in the
second half of 2003.
4
Longer term, our outlook for the economy and markets has not changed. We
are still anticipating an extended period of modest economic and corporate
profit growth. Over the next five years, we expect annualized Gross Domestic
Product ("GDP") growth in the 3% range and 6% annualized growth in corporate
profits. If interest rates remain relatively low, this would likely translate
into stock market gains in line with earnings growth. If rates increase
significantly, price/earnings multiple contraction would likely result in a flat
market. In either scenario, we believe investors will continue to favor
income-generating securities.
A STABLE BOND MARKET
Corporate bonds performed quite well in the first quarter and yields have
come down. If inflation remains subdued and the economy continues along a slow
growth path, we should enjoy a relatively stable bond market with dividends
being the primary component of total return. If the economy reflates in the
quarters following the war, bonds could be vulnerable.
INVESTMENT SCORECARD
The best performing sectors during the quarter included technology
(+9.2%), utilities (+6.4%) and telecommunications (+5.9%). The Fund benefited
from its holdings in Lucent, Mirant, Nextel and Sealed Air. Lagging sectors
included industrials (-1.9%), transportation (-0.46%) and consumer discretionary
(-0.35%). In general, our utilities investments disappointed with Northeast
Utilities and Progress Energy among our poorest performers. In the year ahead,
convertibles should benefit from a combination of attractive current income,
continued credit spread tightening and capital appreciation.
LET'S TALK CONVERTS
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher prices,
but they do express a positive trend that we believe will develop over time.
AGERE SYSTEMS INC. (AGR'A) (SUB. DEB. CV., 6.50%, 12/15/09) is a developer and
manufacturer of integrated circuits ("ICs") that access, move and store
information in a broad range of computing and communications applications.
Agere, based in Allentown, PA, was spun-off from Lucent Technologies in June of
2002. The company has a strong product mix and attractive end markets that
should allow the company to deliver growth as the semiconductor and personal
computer cycles return to normalcy. Agere continues to maintain its leading
position in the computing and wireless markets including the Wireless LAN
(802.11) arena, an emerging technology that enables mobile broadband access from
almost anywhere.
BROADWING INC. (BRW) (6.75% CV. PFD., SER. B) located in Cincinnati, OH,
received its new name in 1999 when local phone provider Cincinnati Bell made a
$3.2 billion acquisition of IXC Communications and gained access to a
nation-wide all optical fiber network. Broadwing's Cincinnati-based operations
include one million local phone lines and about 465,000 wireless customers
through its 80% ownership of a wireless joint venture with AT&T Wireless
Services (AWE - $6.60 - NYSE). Broadwing recently announced its intent to sell
broadband operations. Proceeds from the sale of broadband together with $350
million financing to be provided by Goldman Sachs will be used to de-lever the
company and restructure the bank credit facility.
FRANKLIN RESOURCES INC. (BEN) (ZERO COUPON, 05/11/31) is a financial holding
company that provides investment advisory and management services through its
Franklin, Templeton, Mutual Series, Bissett, and Fiduciary investment management
5
groups as well as banking services through its banking/finance segment. The
company has $252 billion in assets under management across a wide-range of
investment products and styles. Finally, the company operates in 51 offices in
28 countries, and is focused on further expanding its international investment
management business, particularly as pension systems are reformed in numerous
countries around the world.
GENCORP INC. (GY) (SUB. DEB. CV., 5.75%, 04/15/07) has three main divisions:
value-added systems for the aerospace and defense industries, integrated vehicle
sealing systems for the automotive industry, and fine chemicals for the
pharmaceutical industry. GenCorp's products include satellite payloads and
ground systems, launch vehicle propulsion systems, and tactical weapons systems.
In 2002, the company earned $30 million on $1.1 billion of sales. GenCorp has an
equity market capitalization of $318 million and net debt of $352 million, of
which the convertible represents $150 million. Last year the company generated
$110 million of EBITDA (earnings before interest, taxes, depreciation and
amortization) and spent $45 million on capital expenditures. Liquidity is
sufficient with interest cover of over five times. The company also has
significant real estate holdings and recently announced a joint venture with
Panattoni to begin commercial development of some of these assets.
HILTON HOTELS CORP. (HLT) (SUB. DEB. CV., 5.00%, 05/15/06) is recognized as one
of the world's preeminent hospitality companies. Hilton develops, owns, manages
and franchises hotels, resorts and vacation ownership properties. Hilton's hotel
system includes approximately 2,100 properties totaling over 337,000 rooms
worldwide. The company's hotel brands include Hilton, Hilton Garden Inn,
Doubletree, Embassy Suites Hotels, Hampton Inn, Hampton Inn & Suites, Homewood
Suites by Hilton, Conrad, and Harrison Conference Centers. Flagship properties
include the Waldorf Astoria, the Hilton Chicago, the Hilton Hawaiian Village
Beach Resort & Spa, and the Palmer House Hilton.
SEQUA CORP. (SQA'A) ($5.00 CV. PFD.) is a diversified company with businesses in
aerospace, pre-paint metal, specialty chemical, printing and cannery equipment.
Chromalloy Gas Turbine, Sequa's aerospace business, is the largest independent
supplier of aftermarket parts for the overhaul and repair of jet and industrial
gas turbine engines. We believe this business is attractive to original
equipment engine manufacturers like General Electric and Pratt & Whitney who are
looking to grow their replacement parts business. With roughly $800 million in
revenues, we estimate Chromalloy's private market value to be near the entire
public value of Sequa.
STANDARD MOTOR PRODUCTS INC. (SMP) (SUB DEB. CV., 6.75%, 07/15/09),
headquartered in Long Island City, New York, supplies functional replacement
parts for the engine management, electrical and climate control systems of cars,
trucks and buses. The company services all makes and models, both new and old
cars, imported and domestic. SMP has two primary divisions -- engine management
and temperature control -- and believes it is the number one supplier to the
North American aftermarket in each of these lines.
STOCK REPURCHASE PLAN
The Fund is authorized to repurchase up to 500,000 shares of the Fund's
outstanding common shares. Pursuant to this stock repurchase plan, the Fund may
from time to time purchase shares of its capital stock in the open market when
the shares are trading at a discount of 10% or more from the net asset value of
the shares. In total, through March 31, 2003, 305,200 shares have been
repurchased in the open market under this stock repurchase plan. Since the Fund
continues to trade at a premium to net asset value, we have been unable to buy
additional shares.
COMMON STOCK 8% DISTRIBUTION POLICY
The Fund continues to maintain its 8% Distribution Policy whereby the Fund
pays out to common stock shareholders 8% of its average net assets each year.
Pursuant to this policy, the Convertible and Income Securities Fund distributed
$0.20 per share on March 25, 2003. The next distribution is scheduled for June
2003.
6
Under the policy, distributions are made at the annual rate of 8% of the
average of the calendar quarter-end net assets of the Fund's common stock at
December, March, June and September. The Fund normally distributes $0.20 per
share to common stock shareholders at quarter-end in March, June, and September.
The fourth quarter distribution is a variable adjusting distribution in
December. The adjusting distribution is the greater of the remaining portion of
8% of the average net assets to be distributed (8% of the average net assets
less the cumulative amount paid in March, June, and September) or the
distribution required by IRS regulations. Each quarter, the Board of Directors
reviews the amount of any potential distribution based on the income, capital
gains or capital available.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage at www.gabelli.com contains
information about Gabelli Asset Management Inc., the Gabelli Mutual Funds, IRAs,
401(k)s, quarterly reports, closing prices and other current news. You can send
us e-mail at closedend@gabelli.com.
In our efforts to bring our shareholders more timely portfolio
information, Gabelli Fund's portfolio managers regularly participate in chat
sessions at www.gabelli.com as reflected below.
MAY JUNE JULY
--- ---- ----
1st Tuesday Howard Ward Howard Ward Howard Ward
1st Wednesday Henry Van der Eb Susan Byrne Caesar Bryan
2nd Wednesday Caesar Bryan Walter Walsh Charles Minter & Martin Weiner
3rd Wednesday Elizabeth Lilly Ivan Arteaga Hartswell Woodson
4th Wednesday Barbara Marcin Barbara Marcin Ivan Arteaga
5th Wednesday Barbara Marcin
All chat sessions start at 4:15 PM (Eastern Time). Please arrive early, as
participation is limited.
You may sign up for our e-mail alerts at www.gabelli.com and receive early
notice of chat sessions, closing mutual fund prices, news events and media
sightings.
IN CONCLUSION
Convertible securities performed well in the first quarter as investors
gravitated to less volatile income generating securities. If the stock market
can make modest progress and the corporate bond market remains stable in the
year ahead, convertible securities should produce satisfactory returns.
Sincerely,
/S/ MARIO J. GABELLI
MARIO J. GABELLI
Chairman and Chief Investment Officer
May 5, 2003
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
7
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
CONVERTIBLE CORPORATE BONDS -- 26.6%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 5.6%
GenCorp Inc., Sub. Deb. Cv.,
$ 1,150,000 5.750%, 04/15/07 (b) .........$ 974,625
450,000 5.750%, 04/15/07 ............. 381,375
8,600,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 ............. 6,751,000
------------
8,107,000
------------
AVIATION: PARTS AND SERVICES -- 2.8%
4,352,000 Kaman Corp., Sub. Deb. Cv.,
6.000%, 03/15/12 ............. 4,096,320
------------
BUSINESS SERVICES -- 2.7%
900,000 BBN Corp., Sub. Deb. Cv.,
6.000%, 04/01/12+ (a)(c) ..... 0
10,000 First Data Corp., Cv.,
2.000%, 03/01/08 ............. 11,125
3,000,000 Franklin Resources Inc., Cv.,
Zero Coupon, 05/11/31 ........ 1,811,250
600,000 Navistar Financial Corp.,
Sub. Deb. Cv.,
4.750%, 04/01/09 ............. 486,000
1,950,000 Trans-Lux Corp., Sub. Deb. Cv.,
7.500%, 12/01/06 ............. 1,550,250
------------
3,858,625
------------
CABLE -- 0.4%
400,000 Adelphia Communications Corp.,
Sub. Deb. Cv.,
3.250%, 05/01/21+ (c) ........ 35,000
2,900,000 Charter Communications Inc., Cv.,
4.750%, 06/01/06 ............. 507,500
------------
542,500
------------
COMPUTER SOFTWARE AND SERVICES -- 0.2%
300,000 QuadraMed Corp., Sub. Deb. Cv.,
5.250%, 05/01/05 ............. 301,500
------------
CONSUMER PRODUCTS -- 0.1%
160,000 Standard Commercial Corp.,
Sub. Deb. Cv.,
7.250%, 03/31/07 ............. 159,200
------------
CONSUMER SERVICES -- 0.1%
1,100,000 Ogden Corp., Sub. Deb. Cv.,
6.000%, 06/01/03+ (c) ........ 99,000
------------
DIVERSIFIED INDUSTRIAL -- 0.3%
500,000 GATX Corp., Cv.,
7.500%, 02/01/07 (b) ......... 484,375
------------
ELECTRONICS -- 5.1%
$ 2,300,000 Agere Systems Inc.,
Sub. Deb. Cv.,
6.500%, 12/15/09 .............$ 2,047,000
1,000,000 Oak Industries Inc.,
Sub. Deb. Cv.,
4.875%, 03/01/08 ............. 785,000
4,500,000 Thermo Electron Corp.,
Sub. Deb. Cv.,
4.000%, 01/15/05 ............. 4,528,125
------------
7,360,125
------------
ENERGY AND UTILITIES -- 1.2%
388,000 Devon Energy Corp.,
Sub. Deb. Cv.,
4.950%, 08/15/08 ............. 398,670
1,400,000 Mirant Corp.,
Sub. Deb. Cv.,
2.500%, 06/15/21 ............. 892,500
511,000 Moran Energy Inc.,
Sub. Deb. Cv.,
8.750%, 01/15/08 ............. 464,371
------------
1,755,541
------------
EQUIPMENT AND SUPPLIES -- 1.1%
Robbins & Myers Inc.,
Sub. Deb. Cv.,
1,098,000 8.000%, 01/31/08 ............. 1,136,430
452,000 6.500%, 09/01/03 ............. 448,045
------------
1,584,475
------------
FOOD AND BEVERAGE -- 0.1%
300,000 Koninklijke Ahold NV,
Sub. Deb. Cv.,
3.000%, 09/30/03 ............. 133,695
------------
HEALTH CARE -- 0.8%
50,000 Apogent Technologies Inc., Cv.,
2.250%, 10/15/21 (b) ......... 49,437
30,000 Invitrogen Corp., Sub. Deb. Cv.,
5.500%, 03/01/07 ............. 28,650
IVAX Corp., Sub. Deb. Cv.,
700,000 5.500%, 05/15/07 ............. 670,250
400,000 4.500%, 05/15/08 (b) ......... 353,000
150,000 Sabratek Corp., Sub. Deb. Cv.,
6.000%, 04/15/05+ (c) ........ 0
------------
1,101,337
------------
HOTELS AND GAMING -- 4.0%
6,000,000 Hilton Hotels Corp.,
Sub. Deb. Cv.,
5.000%, 05/15/06 ............. 5,782,500
------------
PAPER AND FOREST PRODUCTS -- 0.1%
200,000 Riverwood International Corp.,
Sub. Deb. Cv.,
6.750%, 09/15/03 ............. 220,000
------------
PUBLISHING -- 0.1%
200,000 Times Mirror Co., Sub. Deb. Cv.,
Zero Coupon, 04/15/17 ........ 136,000
------------
8
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
RETAIL -- 0.0%
$ 60,000 Costco Companies Inc.,
Sub. Deb. Cv.,
Zero Coupon, 08/19/17 ........$ 43,350
10,000 School Specialty Inc.,
Sub. Deb. Cv.,
6.000%, 08/01/08 ............. 9,463
------------
52,813
------------
TELECOMMUNICATIONS -- 0.3%
80,000 Amnex Inc., Sub. Deb. Cv.,
8.500%, 09/25/49+ (b)(c) ..... 0
500,000 Rogers Communications Inc.,
Sub. Deb. Cv.,
2.000%, 11/26/05 ............. 400,000
------------
400,000
------------
WIRELESS COMMUNICATIONS -- 1.6%
Nextel Communications Inc., Cv.,
550,000 6.000%, 06/01/11 ............. 541,063
1,500,000 5.250%, 01/15/10 ............. 1,295,625
100,000 4.750%, 07/01/07 ............. 95,250
1,100,000 United States Cellular Corp.,
Sub. Deb. Cv.,
Zero Coupon, 06/15/15 ........ 451,000
------------
2,382,938
------------
TOTAL CONVERTIBLE
CORPORATE BONDS .............. 38,557,944
------------
SHARES
------
CONVERTIBLE PREFERRED STOCKS -- 14.7%
AEROSPACE -- 0.7%
8,500 Northrop Grumman Corp.,
7.000% Cv. Pfd., Ser. B ...... 1,049,750
------------
AUTOMOTIVE -- 0.5%
4,000 Ford Motor Co. Capital Trust II,
6.500% Cv. Pfd. .............. 142,560
General Motors Corp.,
13,000 5.250% Cv. Pfd., Ser. B ...... 295,100
10,000 4.500% Cv. Pfd., Ser. A ...... 239,500
------------
677,160
------------
AVIATION: PARTS AND SERVICES -- 2.7%
53,000 Coltec Capital Trust,
5.250% Cv. Pfd. .............. 1,474,063
32,000 Sequa Corp.,
$5.00 Cv. Pfd. ............... 2,432,000
------------
3,906,063
------------
MARKET
SHARES VALUE
------ ------
BROADCASTING -- 0.7%
100 Gray Television Inc.,
8.000% Cv. Pfd.,
Ser. C (a)(b) ................$ 1,020,000
------------
BUSINESS SERVICES -- 1.0%
14,000 Interep National Radio Sales Inc.,
4.000% Cv. Pfd.,
Ser. A+ (a)(b) ............... 1,428,000
20,000 Key3Media Group,
5.500% Cv. Pfd. (a) .......... 324
------------
1,428,324
------------
CABLE -- 0.9%
55,000 CVC Equity Securities Trust I,
6.500% Cv. Pfd. .............. 1,208,350
------------
DIVERSIFIED INDUSTRIAL -- 0.3%
2,400 GATX Corp.,
$2.50 Cv. Pfd. ............... 240,000
WHX Corp.,
28,000 6.500% Cv. Pfd.,+ Ser. A + ... 94,920
10,000 $3.75 Cv. Pfd.,+ Ser. B + .... 32,000
------------
366,920
------------
ENERGY AND UTILITIES -- 0.2%
3,000 AES Trust III,
6.750% Cv. Pfd. .............. 69,660
500 Cinergy Corp.,
9.500% Cv. Pfd. .............. 27,900
2,500 FPL Group Inc.,
8.500% Cv. Pfd. .............. 137,375
26,000 Semco Capital Trust II,
11.000% Cv. Pfd. ............. 83,980
------------
318,915
------------
ENTERTAINMENT -- 1.2%
2,000 Metromedia International Group Inc.,
7.250% Cv. Pfd.+ ............. 2,500
60,000 Rainbow Equity Securities Trust II,
6.250% Cv. Pfd. .............. 1,342,800
24,000 Six Flags Inc.,
7.250% Cv. Pfd. .............. 432,000
------------
1,777,300
------------
PAPER AND FOREST PRODUCTS -- 2.2%
70,000 Sealed Air Corp.,
$2.00 Cv. Pfd., Ser. A ....... 3,218,600
------------
REAL ESTATE -- 0.1%
5,000 Innkeepers USA Trust,
8.625% Cv. Pfd., Ser. A ...... 115,000
------------
9
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2003 (UNAUDITED)
MARKET
SHARES VALUE
------ ------
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
TELECOMMUNICATIONS -- 4.1%
3,000 ALLTEL Corp.,
7.750% Cv. Pfd. ..............$ 141,030
15,000 Broadwing Inc.,
6.750% Cv. Pfd., Ser. B ...... 487,500
78,000 Citizens Communications Co.,
5.000% Cv. Pfd. .............. 3,744,000
800 Lucent Technologies
Capital Trust I,
7.750% Cv. Pfd. .............. 453,000
1,000 Lucent Technologies Inc.,
8.000% Cv. Pfd. .............. 846,300
12,000 Philippine Long Distance
Telephone Co.,
$3.50 Cv. Pfd., Ser. III ..... 306,000
------------
5,977,830
------------
WIRELESS COMMUNICATIONS -- 0.1%
2,000 Allen Telecom Inc.,
7.750% Cv. Pfd., Ser. D ...... 148,440
------------
TOTAL CONVERTIBLE
PREFERRED STOCKS ............. 21,212,652
------------
COMMON STOCKS -- 1.4%
AVIATION: PARTS AND SERVICES -- 0.1%
9,000 Kaman Corp., Cl. A ............. 88,020
------------
BROADCASTING -- 0.0%
35,000 Granite Broadcasting Corp.+ .... 55,300
------------
CABLE -- 0.0%
10,000 UnitedGlobalCom Inc., Cl. A+ ... 30,500
------------
ENERGY AND UTILITIES -- 0.7%
2,000 AGL Resources Inc. ............. 47,260
8,000 BP plc, ADR .................... 308,720
3,000 CH Energy Group Inc. ........... 125,100
10,000 NiSource Inc.+ ................. 21,100
25,000 Northeast Utilities ............ 348,000
10,000 Progress Energy Inc., CVO+ ..... 1,300
2,400 SJW Corp. ...................... 183,600
------------
1,035,080
------------
FINANCIAL SERVICES -- 0.1%
19,000 Argonaut Group Inc. ............ 162,450
------------
HEALTH CARE: PHARMACEUTICALS -- 0.5%
15,000 Scios Inc.+ .................... 660,900
------------
SATELLITE -- 0.0%
25,000 Loral Space &
Communications Ltd.+ ......... 8,250
------------
MARKET
SHARES VALUE
------ ------
TELECOMMUNICATIONS -- 0.0%
2,000 AT&T Corp. .....................$ 32,400
542 NTL Inc.+ ...................... 4,807
------------
37,207
------------
WIRELESS COMMUNICATIONS -- 0.0%
49 Winstar Communications Inc.+ ... 0
------------
TOTAL COMMON STOCKS ............ 2,077,707
------------
PREFERRED STOCKS -- 1.4%
BROADCASTING -- 1.0%
2,127 Granite Broadcasting Corp.,
12.750% Pfd.+ ................ 1,393,185
------------
EQUIPMENT AND SUPPLIES -- 0.2%
15,000 Fedders Corp.,
8.600% Pfd., Ser. A .......... 339,000
------------
PUBLISHING -- 0.2%
9,777 News Corp. Ltd., Pfd., ADR ..... 209,130
------------
TELECOMMUNICATIONS -- 0.0%
3,993 NTL Europe Inc.,
10.000% Pfd., Ser. A+ ........ 13,277
------------
TOTAL PREFERRED STOCKS ......... 1,954,592
------------
PRINCIPAL
AMOUNT
---------
CORPORATE BONDS -- 0.1%
BROADCASTING -- 0.0%
$ 15,000 Granite Broadcasting Corp.,
Sub. Deb.,
8.875%, 05/15/08 ............. 13,050
------------
WIRELESS COMMUNICATIONS -- 0.1%
100,000 Nextel Communications Inc.,
9.500%, 02/01/11 ............. 106,250
------------
TOTAL CORPORATE BONDS .......... 119,300
------------
SHARES
------
WARRANTS -- 0.0%
BUSINESS SERVICES -- 0.0%
87,500 Interep National
Radio Sales Inc.,+ (a) ....... 0
CONSUMER PRODUCTS -- 0.0%
4,331 Pillowtex Corp.,
expire 11/24/09+ ............. 238
------------
TOTAL WARRANTS ................. 238
------------
10
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2003 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
U.S. GOVERNMENT OBLIGATIONS -- 55.8%
$80,798,000 U.S. Treasury Bills,
1.137% to 1.200%++,
04/03/03 to 08/07/03 .........$ 80,756,939
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $150,415,885) ...................... 144,679,372
OTHER LIABILITIES IN EXCESS OF ASSETS ...... (282,020)
PREFERRED STOCK
(1,001,000 preferred shares outstanding) . (50,000,000)
------------
NET ASSETS -- COMMON STOCK
(11,194,572 common shares outstanding) ...$ 94,397,352
============
NET ASSET VALUE PER COMMON SHARE
(94,397,352 [DIVIDE] 11,194,572
shares outstanding) ...................... $8.43
=====
----------------
For Federal tax purposes:
Aggregate Cost ....................$150,415,885
============
Gross unrealized appreciation .....$ 3,072,084
Gross unrealized depreciation ..... (8,808,597)
------------
Net unrealized depreciation .......$ (5,736,513)
============
-----------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At March
31, 2003, the market value of Rule 144A securities amounted to $4,309,437
or 2.98% of total net assets.
(c) Bond in default.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depository Receipt.
CVO - Contingent Value Obligation.
11
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Convertible and Income Securities Fund Inc.
("Convertible and Income Securities Fund") to automatically reinvest dividends.
As a "registered" shareholder you automatically become a participant in the
Convertible and Income Securities Fund's Automatic Dividend Reinvestment Plan
(the "Plan"). The Plan authorizes the Convertible and Income Securities Fund to
issue shares to participants upon an income dividend or a capital gains
distribution regardless of whether the shares are trading at a discount or a
premium to net asset value. All distributions to shareholders whose shares are
registered in their own names will be automatically reinvested pursuant to the
Plan in additional shares of the Convertible and Income Securities Fund. Plan
participants may send their stock certificates to EquiServe Trust Company
("EquiServe") to be held in their dividend reinvestment account. Registered
shareholders wishing to receive their distribution in cash must submit this
request in writing to:
The Gabelli Convertible and Income Securities Fund Inc.
c/o EquiServe
P.O. Box 43011
Providence, RI 02940-3011
Shareholders requesting this cash election must include the shareholder's name
and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan may contact EquiServe at 1 (800)
336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at EquiServe must do
so in writing or by telephone. Please submit your request to the above mentioned
address or telephone number. Include in your request your name, address and
account number. The cost to liquidate shares is $2.50 per transaction as well as
the brokerage commission incurred. Brokerage charges are expected to be less
than the usual brokerage charge for such transactions.
If your shares are held in the name of a broker, bank or nominee, you should
contact such institution. If such institution is not participating in the Plan,
your account will be credited with a cash dividend. In order to participate in
the Plan through such institution, it may be necessary for you to have your
shares taken out of "street name" and re-registered in your own name. Once
registered in your own name your dividends will be automatically reinvested.
Certain brokers participate in the Plan. Shareholders holding shares in "street
name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of Common Stock distributed to participants in the Plan
in lieu of cash dividends is determined in the following manner. Under the Plan,
whenever the market price of the Convertible and Income Securities Fund's Common
Stock is equal to or exceeds net asset value at the time shares are valued for
purposes of determining the number of shares equivalent to the cash dividends or
capital gains distribution, participants are issued shares of Common Stock
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Convertible and Income
Securities Fund's Common Stock. The valuation date is the dividend or
distribution payment date or, if that date is not a New York Stock Exchange
trading day, the next trading day. If the net asset value of the Common Stock at
the time of valuation exceeds the market price of the Common Stock, participants
will receive shares from the Convertible and Income Securities Fund valued at
market price. If the Convertible and Income Securities Fund should declare a
dividend or capital gains distribution payable only in cash, EquiServe will buy
Common Stock in the open market, or on the New York Stock Exchange or elsewhere,
for the participants' accounts, except that EquiServe will endeavor to terminate
purchases in the open market and cause the Convertible and Income Securities
Fund to issue shares at net asset value if, following the commencement of such
purchases, the market value of the Common Stock exceeds the then current net
asset value.
The automatic reinvestment of dividends and capital gains distributions will
not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Convertible and Income Securities Fund reserves the right to amend or
terminate the Plan as applied to any voluntary cash payments made and any
dividend or distribution paid subsequent to written notice of the change sent to
the members of the Plan at least 90 days before the record date for such
dividend or distribution. The Plan also may be amended or terminated by
EquiServe on at least 90 days' written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders
to increase their investment in the Convertible and Income Securities Fund. In
order to participate in the Voluntary Cash Purchase Plan, shareholders must have
their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to EquiServe for investments in the Convertible and
Income Securities Fund's shares at the then current market price. Shareholders
may send an amount from $250 to $10,000. EquiServe will use these funds to
purchase shares in the open market on or about the 1st and 15th of each month.
EquiServe will charge each shareholder who participates $0.75, plus a pro rata
share of the brokerage commissions. Brokerage charges for such purchases are
expected to be less than the usual brokerage charge for such transactions. It is
suggested that any voluntary cash payments be sent to EquiServe, P.O. Box 43011,
Providence, RI 02940-3011 such that EquiServe receives such payments
approximately 10 days before the investment date. Funds not received at least
five days before the investment date shall be held for investment until the next
purchase date. A payment may be withdrawn without charge if notice is received
by EquiServe at least 48 hours before such payment is to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Convertible and Income Securities Fund.
12
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 INVESTMENT OFFICER,
GABELLI ASSET MANAGEMENT INC.
E. Val Cerutti
CHIEF EXECUTIVE OFFICER,
CERUTTI CONSULTANTS, INC.
Anthony J. Colavita
ATTORNEY-AT-LAW,
ANTHONY J. COLAVITA, P.C.
Dugald A. Fletcher
PRESIDENT, FLETCHER & COMPANY, INC.
Karl Otto Pohl
FORMER PRESIDENT, DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT,
PROFESSOR EMERITUS, PACE UNIVERSITY
Werner J. Roeder, MD
VICE PRESIDENT/MEDICAL AFFAIRS,
LAWRENCE HOSPITAL CENTER
Anthonie C. van Ekris
MANAGING DIRECTOR,
BALMAC INTERNATIONAL, INC.
Salvatore J. Zizza
CHAIRMAN, HALLMARK ELECTRICAL SUPPLIES CORP.
OFFICERS
Bruce N. Alpert
PRESIDENT
Gus Coutsouros
VICE PRESIDENT & TREASURER
Peter W. Latartara
VICE PRESIDENT
A. Hartswell Woodson, III
ASSOCIATE PORTFOLIO MANAGER
James E. McKee
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
EquiServe Trust Company
STOCK EXCHANGE LISTING
Common 6.00% Preferred
------ ---------------
NYSE-Symbol: GCV GCV Pr B
Shares Outstanding: 11,194,572 1,000,000
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Sunday's The New York Times and in
Monday's The Wall Street Journal. It is also listed in Barron's Mutual
Funds/Closed End Funds section under the heading "Convertible Securities Funds."
The Net Asset Value may be obtained each day by calling (914) 921-5071.
--------------------------------------------------------------------------------
For general information about the Gabelli Funds, call 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 Convertible and Income Securities
Fund may from time to time purchase shares of its common stock in the open
market when the Convertible and Income Securities Fund shares are trading at a
discount of 10% or more from the net asset value of the shares. The
Convertible and Income Securities Fund may also, from time to time, purchase
shares of its Cumulative Preferred Stock in the open market when the shares
are trading at a discount to the Liquidation Value of $25.00.
--------------------------------------------------------------------------------
THE GABELLI CONVERTIBLE AND
INCOME SECURITIES FUND INC.
ONE CORPORATE CENTER
RYE, NY 10580-1422
(914) 921-5070
WWW.GABELLI.COM
FIRST QUARTER REPORT
MARCH 31, 2003
GBFCS 03/03