UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05715
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The Gabelli Convertible and Income Securities Fund Inc.
-------------------------------------------------------
(Exact name of registrant as specified in charter)
One Corporate Center
Rye, New York 10580-1422
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(Address of principal executive offices) (Zip code)
Bruce N. Alpert
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
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(Name and address of agent for service)
registrant's telephone number, including area code: 1-800-422-3554
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Date of fiscal year end: December 31
-----------
Date of reporting period: June 30, 2006
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 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.
[LOGO]
THE GABELLI
CONVERTIBLE AND
INCOME SECURITIES
FUND INC.
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
Semi-Annual Report
June 30, 2006
TO OUR SHAREHOLDERS,
During the second quarter of 2006, the Gabelli Convertible and Income
Securities Fund's (the "Fund") total return declined 0.1% on a net asset value
("NAV") basis while the Standard & Poor's ("S&P") 500 Index and the Lipper
Convertible Securities Fund Average were down 1.4% and 1.3%, respectively. For
the six month period ended June 30, 2006, the Fund's NAV total return was up
5.1% versus gains of 2.7% and 3.5% for the S&P 500 Index and the Lipper
Convertible Securities Fund Average, respectively. The Fund's market price
declined 10.8% and 4.4% during the second quarter and the six month period ended
June 30, 2006, respectively. The Fund's market price on June 30, 2006 was $8.05,
which equated to a 1.3% premium to its NAV of $7.95.
Enclosed are the financial statements and the investment portfolio as of
June 30, 2006.
COMPARATIVE RESULTS
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 2006 (a)
------------------------------------------------
SINCE
YEAR TO INCEPTION
QUARTER DATE 1 YEAR 3 YEAR 5 YEAR 10 YEAR 15 YEAR (7/3/89)
------- ---- ------ ------ ------ ------- ------- --------
GABELLI CONVERTIBLE AND INCOME SECURITIES FUND
NAV RETURN (b) ................................. (0.06)% 5.11% 8.61% 6.07% 4.05% 5.85% 7.20% 7.55%
INVESTMENT RETURN (c) .......................... (10.75) (4.38) (11.10) 0.24 2.84 6.98 N/A(d) 6.48(d)
S&P 500 Index ..................................... (1.44) 2.71 8.62 11.21 2.49 8.32 10.73 10.85
Lipper Convertible Securities Fund Average ........ (1.29) 3.49 9.45 9.43 5.25 7.89 10.00 9.56
(a) RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE. WHEN SHARES ARE SOLD, THEY MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE
INFORMATION AS OF THE MOST RECENT MONTH END. PERFORMANCE RETURNS FOR
PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. INVESTORS SHOULD CAREFULLY
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND EXPENSES OF THE
FUND BEFORE INVESTING. THE S&P 500 INDEX IS AN UNMANAGED INDICATOR OF
STOCK MARKET PERFORMANCE. THE LIPPER AVERAGE REFLECTS THE AVERAGE
PERFORMANCE OF OPEN-END MUTUAL FUNDS CLASSIFIED IN THIS PARTICULAR
CATEGORY. DIVIDENDS ARE CONSIDERED REINVESTED.
(b) TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN NET ASSET
VALUE ("NAV"), REINVESTMENT OF DISTRIBUTIONS AT NAV ON THE EX-DIVIDEND
DATE, AND ADJUSTMENTS FOR RIGHTS OFFERINGS, AND ARE NET OF EXPENSES. SINCE
INCEPTION RETURN 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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
We have separated the portfolio manager's commentary from the financial
statements and investment portfolio due to corporate governance regulations
stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that
the content of the portfolio manager's commentary is unrestricted. The financial
statements and investment portfolio are mailed separately from the commentary.
Both the commentary and the financial statements, including the portfolio of
investments, will be available on our website at www.gabelli.com/funds.
--------------------------------------------------------------------------------
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED)
The following table presents portfolio holdings as a percent of total
investments as of June 30, 2006:
LONG POSITIONS
U.S. Treasury Bills .................................................. 34.7%
Energy and Utilities ................................................. 10.9%
Communications Equipment ............................................. 9.3%
Automotive: Parts and Accessories .................................... 7.4%
Broadcasting ......................................................... 4.9%
Financial Services ................................................... 4.5%
Aerospace ............................................................ 3.6%
Health Care .......................................................... 3.4%
Diversified Industrial ............................................... 3.3%
Food and Beverage .................................................... 2.5%
Business Services .................................................... 2.0%
Telecommunications ................................................... 1.9%
Aviation: Parts and Accessories ...................................... 1.5%
Real Estate .......................................................... 1.5%
Equipment and Supplies ............................................... 1.4%
Hotels and Gaming .................................................... 1.4%
Transportation ....................................................... 1.3%
Metals and Mining .................................................... 1.2%
Wireless Communications .............................................. 1.0%
Cable and Satellite .................................................. 0.7%
Entertainment ........................................................ 0.6%
Consumer Products .................................................... 0.4%
Consumer Services .................................................... 0.4%
Computer Hardware .................................................... 0.1%
Manufactured Housing and Recreational Vehicles ....................... 0.1%
Retail ............................................................... 0.0%
Automotive ........................................................... 0.0%
Electronics .......................................................... 0.0%
Cable ................................................................ 0.0%
------
100.0%
======
SHORT POSITIONS
Equipment and Supplies ............................................... (0.5)%
=====
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC. (THE "FUND") FILES A
COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FIRST AND THIRD
QUARTERS OF EACH FISCAL YEAR ON FORM N-Q, THE LAST OF WHICH WAS FILED FOR THE
QUARTER ENDED MARCH 31, 2006. SHAREHOLDERS MAY OBTAIN THIS INFORMATION AT
WWW.GABELLI.COM OR BY CALLING THE FUND AT 800-GABELLI (800-422-3554). THE FUND'S
FORM N-Q IS AVAILABLE ON THE SEC'S WEBSITE AT WWW.SEC.GOV AND MAY ALSO BE
REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY
CALLING 1-800-SEC-0330.
PROXY VOTING
The Fund files Form N-PX with its complete proxy voting record for the 12
months ended June 30th, no later than August 31st of each year. A description of
the Fund's proxy voting policies, procedures, and how the Fund voted proxies
relating to portfolio securities is available without charge, upon request, (i)
by calling 800-GABELLI (800-422-3554); (ii) by writing to The Gabelli Funds at
One Corporate Center, Rye, NY 10580-1422; and (iii) by visiting the Securities
and Exchange Commission's website at www.sec.gov.
SHAREHOLDER MEETING - MAY 15, 2006 - FINAL RESULTS
The Annual Meeting of Shareholders was held on May 15, 2006 at the
Greenwich Library in Greenwich, Connecticut. At that meeting, common
shareholders and preferred shareholders voting together as a single class
elected E. Val Cerutti, Dugald A. Fletcher, and Anthony R. Pustorino as
Directors of the Fund. There were 9,710,787 votes, 9,692,062 votes, and
9,688,107 votes cast in favor of each Director and 158,919 votes, 177,644 votes,
and 181,599 votes were withheld, respectively.
Mario J. Gabelli, Anthony J. Colavita, Werner J. Roeder, MD, Anthonie C.
van Ekris, and Salvatore J. Zizza continue to serve in their capacities as
Directors.
We thank you for your participation and appreciate your continued support.
2
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 2006 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- ----------- ----------
CONVERTIBLE CORPORATE BONDS -- 30.9%
AEROSPACE -- 2.9%
$ 830,000 GenCorp Inc., Sub. Deb. Cv.,
5.750%, 04/15/07 ...................... $ 821,999 $ 882,912
3,356,000 Kaman Corp., Sub. Deb. Cv.,
6.000%, 03/15/12 ...................... 3,223,102 3,322,440
----------- -----------
4,045,101 4,205,352
----------- -----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 6.2%
3,000,000 Pep Boys - Manny, Moe &
Jack, Cv.,
4.250%, 06/01/07 ...................... 2,992,663 2,955,000
6,900,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 ...................... 5,883,542 6,123,750
----------- -----------
8,876,205 9,078,750
----------- -----------
BROADCASTING -- 4.2%
Sinclair Broadcast Group Inc.,
Sub. Deb. Cv.,
5,000,000 6.000%, 09/15/12 ...................... 4,144,458 4,350,000
2,000,000 4.875%, 07/15/18 ...................... 1,891,152 1,745,000
----------- -----------
6,035,610 6,095,000
----------- -----------
BUSINESS SERVICES -- 1.7%
900,000 BBN Corp., Sub. Deb. Cv.,
6.000%, 04/01/12+ (a)(d) .............. 882,893 0
2,600,000 Trans-Lux Corp.,
Sub. Deb. Cv.,
8.250%, 03/01/12 ...................... 2,522,825 2,460,250
----------- -----------
3,405,718 2,460,250
----------- -----------
CABLE -- 0.0%
400,000 Adelphia Communications
Corp., Sub. Deb. Cv.,
3.250%, 05/01/21+ (d) ................. 127,000 5,000
----------- -----------
COMMUNICATIONS EQUIPMENT -- 8.0%
2,600,000 Agere Systems Inc.,
Sub. Deb. Cv.,
6.500%, 12/15/09 ...................... 2,642,242 2,583,750
2,000,000 Lucent Technologies Inc.,
Sub. Deb. Cv.,
8.000%, 08/01/31 ...................... 2,008,246 2,015,000
5,500,000 Nortel Networks Corp., Cv.,
4.250%, 09/01/08 ...................... 5,337,227 5,211,250
1,900,000 TriQuint Semiconductor Inc.,
Sub. Deb. Cv.,
4.000%, 03/01/07 ...................... 1,882,430 1,876,250
----------- -----------
11,870,145 11,686,250
----------- -----------
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- ----------- -----------
CONSUMER PRODUCTS -- 0.1%
$ 100,000 Church & Dwight Co. Inc.,
Deb. Cv.,
5.250%, 08/15/33 (b) .................. $ 100,000 $ 126,500
----------- -----------
DIVERSIFIED INDUSTRIAL -- 0.6%
1,400,000 Roper Industries Inc., Cv.,
1.481%, 01/15/34 ...................... 689,609 857,500
----------- -----------
ELECTRONICS -- 0.0%
10,000 Artesyn Technologies Inc.,
Sub. Deb. Cv.,
5.500%, 08/15/10 (b) .................. 10,426 13,691
----------- -----------
ENERGY AND UTILITIES -- 0.9%
500,000 Devon Energy Corp., Deb. Cv.,
4.950%, 08/15/08 ...................... 499,841 609,375
257,000 Moran Energy Inc.,
Sub. Deb. Cv.,
8.750%, 01/15/08 ...................... 187,007 253,145
400,000 Unisource Energy Corp., Cv.,
4.500%, 03/01/35 (b) .................. 402,954 391,500
----------- -----------
1,089,802 1,254,020
----------- -----------
EQUIPMENT AND SUPPLIES -- 1.2%
1,500,000 Robbins & Myers Inc.,
Sub. Deb. Cv.,
8.000%, 01/31/08 ...................... 1,489,914 1,758,750
----------- -----------
FINANCIAL SERVICES -- 0.4%
500,000 Conseco Inc., Cv.,
3.500%, 09/30/35 (b) .................. 509,038 533,750
----------- -----------
HEALTH CARE -- 0.0%
150,000 Sabratek Corp., Sub. Deb. Cv.,
6.000%, 04/16/07+ (a)(d) .............. 84,763 0
----------- -----------
HOTELS AND GAMING -- 0.0%
10,000 Wynn Resorts Ltd.,
Sub. Deb. Cv.,
6.000%, 07/15/15 (b) .................. 10,119 31,888
----------- -----------
MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 0.1%
100,000 Fleetwood Enterprises Inc.,
Sub. Deb. Cv.,
5.000%, 12/15/23 (b) .................. 100,000 96,625
----------- -----------
METALS AND MINING -- 1.2%
1,000,000 Inco Ltd., Cv.,
Zero Coupon, 03/29/21 ................. 1,005,101 1,755,000
----------- -----------
REAL ESTATE -- 1.5%
Palm Harbor Homes Inc., Cv.,
1,550,000 3.250%, 05/15/24 (b) .................. 1,533,200 1,325,250
950,000 3.250%, 05/15/24 ...................... 852,748 812,250
----------- -----------
2,385,948 2,137,500
----------- -----------
See accompanying notes to financial statements.
3
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2006 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT COST VALUE
---------- ----------- -----------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
RETAIL -- 0.0%
$ 60,000 Costco Wholesale Corp.,
Sub. Deb. Cv.,
Zero Coupon, 08/19/17 ................ $ 47,732 $ 78,225
----------- -----------
TELECOMMUNICATIONS -- 0.0%
80,000 AMNEX Inc., Sub. Deb. Cv.,
8.500%, 09/25/49+
(a)(b)(c)(d) ......................... 71,773 0
50,000 Commonwealth Telephone
Enterprises Inc., Cv.,
3.250%, 07/15/23 ..................... 49,667 48,813
----------- -----------
121,440 48,813
----------- -----------
TRANSPORTATION -- 0.9%
1,000,000 GATX Corp., Cv.,
7.500%, 02/01/07 ..................... 1,036,057 1,265,000
----------- -----------
WIRELESS COMMUNICATIONS -- 1.0%
1,500,000 Nextel Communications Inc., Cv.,
5.250%, 01/15/10 ..................... 1,190,537 1,456,875
----------- -----------
TOTAL CONVERTIBLE
CORPORATE BONDS ...................... 44,230,265 44,944,739
----------- -----------
SHARES
----------
CONVERTIBLE PREFERRED STOCKS -- 4.3%
AEROSPACE -- 0.7%
8,000 Northrop Grumman Corp.,
7.000% Cv. Pfd., Ser. B .............. 932,160 1,012,000
----------- -----------
AUTOMOTIVE -- 0.0%
500 Ford Motor Co. Capital Trust II,
6.500% Cv. Pfd. ...................... 17,705 13,900
----------- -----------
BROADCASTING -- 0.7%
100 Gray Television Inc.,
8.000% Cv. Pfd.,
Ser. C (a)(b)(c) ..................... 1,000,000 1,000,000
----------- -----------
BUSINESS SERVICES -- 0.3%
14,001 Interep National Radio Sales Inc.,
4.000% Cv. Pfd.,
Ser. A+ (a)(b)(c) .................... 1,347,184 490,035
20,000 Key3Media Group Inc.,
5.500% Cv. Pfd.,
Ser. B+ (a)(d) ....................... 500,000 117
----------- -----------
1,847,184 490,152
----------- -----------
COMMUNICATIONS EQUIPMENT -- 0.6%
800 Lucent Technologies
Capital Trust I,
7.750% Cv. Pfd. ...................... 556,750 812,000
----------- -----------
MARKET
SHARES COST VALUE
---------- ----------- -----------
ENERGY AND UTILITIES -- 0.6%
6,000 AES Trust III,
6.750% Cv. Pfd. ....................... $ 229,530 $ 283,560
500 El Paso Corp.,
4.990% Cv. Pfd. (b) ................... 479,192 647,987
300 El Paso Corp. Capital Trust I,
4.750% Cv. Pfd., Ser. C ............... 11,460 10,869
----------- -----------
720,182 942,416
----------- -----------
ENTERTAINMENT -- 0.6%
2,000 Metromedia International
Group Inc.,
7.250% Cv. Pfd.+ ...................... 26,611 73,200
36,000 Six Flags Inc.,
7.250% Cv. Pfd., Ser. B ............... 644,195 777,600
----------- -----------
670,806 850,800
----------- -----------
FINANCIAL SERVICES -- 0.0%
100 Alleghany Corp.,
5.750% Cv. Pfd. ....................... 27,010 27,638
----------- -----------
TELECOMMUNICATIONS -- 0.4%
15,000 Cincinnati Bell Inc.,
6.750% Cv. Pfd., Ser. B ............... 427,662 645,000
----------- -----------
TRANSPORTATION -- 0.4%
2,500 GATX Corp.,
$2.50 Cv. Pfd. ........................ 360,275 525,000
----------- -----------
TOTAL CONVERTIBLE
PREFERRED STOCKS ...................... 6,559,734 6,318,906
----------- -----------
COMMON STOCKS -- 28.7%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.2%
40,000 Genuine Parts Co. ........................ 1,543,879 1,666,400
----------- -----------
AVIATION: PARTS AND SERVICES -- 1.5%
27,500 Sequa Corp., Cl. A+ ...................... 1,533,695 2,241,250
----------- -----------
CABLE AND SATELLITE -- 0.7%
5,000 DIRECTV Group Inc.+ ...................... 89,456 82,500
10,000 EchoStar Communications
Corp., Cl. A+ ......................... 303,641 308,100
17,000 Rogers Communications
Inc., Cl. B ........................... 491,525 686,800
----------- -----------
884,622 1,077,400
----------- -----------
COMMUNICATIONS EQUIPMENT -- 0.7%
40,000 Corning Inc.+ ............................ 515,114 967,600
----------- -----------
COMPUTER HARDWARE -- 0.1%
2,000 International Business
Machines Corp. ........................ 152,180 153,640
----------- -----------
See accompanying notes to financial statements.
4
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2006 (UNAUDITED)
MARKET
SHARES COST VALUE
---------- ----------- -----------
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS -- 0.3%
10,000 Avon Products Inc. ....................... $ 297,039 $ 310,000
10,000 Swedish Match AB ......................... 117,392 161,184
----------- -----------
414,431 471,184
----------- -----------
CONSUMER SERVICES -- 0.4%
20,000 IAC/InterActiveCorp+ ..................... 550,527 529,800
----------- -----------
DIVERSIFIED INDUSTRIAL -- 1.3%
10,000 Applied Films Corp.+ ..................... 280,599 284,900
40,000 General Electric Co. ..................... 1,368,706 1,318,400
38,000 WHX Corp.+ ............................... 588,220 349,600
----------- -----------
2,237,525 1,952,900
----------- -----------
ENERGY AND UTILITIES -- 9.4%
8,000 Anadarko Petroleum Corp. ................. 271,991 381,520
10,000 BP plc, ADR .............................. 665,900 696,100
4,000 Cameron International Corp.+ ............. 116,464 191,080
3,000 CH Energy Group Inc. ..................... 83,900 144,000
22,574 Chevron Corp. ............................ 1,392,414 1,400,942
10,000 ConocoPhillips ........................... 624,500 655,300
13,000 Duke Energy Corp. ........................ 260,720 381,810
28,000 Exxon Mobil Corp. ........................ 1,633,631 1,717,800
33,000 FPL Group Inc. ........................... 1,339,429 1,365,540
20,000 Great Plains Energy Inc. ................. 598,719 557,200
6,000 Kerr-McGee Corp. ......................... 411,641 416,100
50,000 Mirant Corp.+ ............................ 719,481 1,340,000
4,000 National Fuel Gas Co. .................... 107,880 140,560
35,000 Northeast Utilities ...................... 628,982 723,450
2,000 Occidental Petroleum Corp. ............... 166,414 205,100
10,000 Progress Energy Inc.,
CVO+ .................................. 5,200 3,000
6,000 Public Service Enterprise
Group Inc. ............................ 298,805 396,720
20,000 Royal Dutch Shell plc,
Cl. A, ADR ............................ 1,261,731 1,339,600
16,000 SJW Corp. ................................ 242,666 407,200
12,000 Western Gas Resources Inc. ............... 716,370 718,200
25,000 Xcel Energy Inc. ......................... 434,456 479,500
----------- -----------
11,981,294 13,660,722
----------- -----------
EQUIPMENT AND SUPPLIES -- 0.2%
10,000 Mueller Industries Inc. .................. 387,752 330,300
----------- -----------
FINANCIAL SERVICES -- 4.1%
5,000 AllianceBernstein
Holding LP ............................ 282,458 305,700
30,000 American Express Co. ..................... 1,385,881 1,596,600
2,000 American International
Group Inc. ............................ 108,258 118,100
MARKET
SHARES COST VALUE
---------- ----------- -----------
8,000 Ameriprise Financial Inc. ............... $ 265,936 $ 357,360
57,000 Citigroup Inc. .......................... 2,636,155 2,749,680
10,000 Franklin Resources Inc. ................. 671,172 868,100
----------- -----------
5,349,860 5,995,540
----------- -----------
FOOD AND BEVERAGE -- 2.5%
4,000 Anheuser-Busch
Companies Inc. ......................... 172,747 182,360
10,000 Cadbury Schweppes plc, ADR .............. 344,243 388,200
26,000 Coca-Cola Co. ........................... 1,135,715 1,118,520
21,400 General Mills Inc. ...................... 1,066,418 1,105,524
213,860 Parmalat SpA, GDR+ (b) .................. 917,160 667,906
2,528 Pernod-Ricard SA, ADR ................... 107,187 125,315
----------- -----------
3,743,470 3,587,825
----------- -----------
HEALTH CARE -- 3.4%
10,000 Bristol-Myers Squibb Co. ................ 264,245 258,600
12,000 Diagnostic Products Corp. ............... 695,280 698,040
22,000 Eli Lilly & Co. ......................... 1,252,923 1,215,940
20,000 Merck & Co. Inc. ........................ 623,510 728,600
75,000 Pfizer Inc. ............................. 2,194,777 1,760,250
15,000 Schering-Plough Corp. ................... 236,353 285,450
----------- -----------
5,267,088 4,946,880
----------- -----------
HOTELS AND GAMING -- 1.4%
273,038 Ladbrokes plc ........................... 1,669,748 2,057,490
----------- -----------
TELECOMMUNICATIONS -- 1.5%
180,000 Eircom Group plc ........................ 502,967 501,900
20,000 Philippine Long Distance
Telephone Co., ADR ..................... 480,560 690,400
28,715 Verizon Communications
Inc................................... 1,086,190 961,665
----------- -----------
2,069,717 2,153,965
----------- -----------
WIRELESS COMMUNICATIONS -- 0.0%
49 Winstar Communications
Inc.+ (a) ............................ 438 0
----------- -----------
TOTAL
COMMON STOCKS .......................... 38,301,340 41,792,896
----------- -----------
PREFERRED STOCKS -- 0.0%
TELECOMMUNICATIONS -- 0.0%
3,679 PTV Inc., 10.000% Pfd.,
Ser. A+ .............................. 0 14,256
----------- ----------
PRINCIPAL
AMOUNT
----------
CORPORATE BONDS -- 0.9%
DIVERSIFIED INDUSTRIAL -- 0.9%
$2,000,000 GP Strategies Corp., Sub. Deb.,
6.000%, 08/14/08 (a)(c) .............. 1,687,666 1,321,536
----------- -----------
See accompanying notes to financial statements.
5
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2006 (UNAUDITED)
MARKET
SHARES COST VALUE
---------- ------------ -----------
WARRANTS -- 0.5%
BUSINESS SERVICES -- 0.0%
87,500 Interep National Radio
Sales Inc., expire
05/06/07+ (a)(b)(c) ............... $ 0 $ 0
------------ -----------
CONSUMER PRODUCTS -- 0.0%
4,331 Pillowtex Corp.,
expire 11/24/09+ (a) .............. 120,955 0
------------ -----------
DIVERSIFIED INDUSTRIAL -- 0.5%
262,431 GP Strategies Corp.,
expire 08/14/08+ (a)(c) ........... 637,065 674,289
379,703 National Patent
Development Corp.,
expire 08/14/08+ (a)(c) ........... 0 37,916
11,220 WHX Corp.,
expire 02/28/08+ .................. 38,936 8,415
------------ -----------
676,001 720,620
------------ -----------
FOOD AND BEVERAGE -- 0.0%
1,300 Parmalat SpA, GDR,
expire 12/31/15+ (b)(c) ........... 0 0
------------ -----------
TOTAL WARRANTS ....................... 796,956 720,620
------------ -----------
PRINCIPAL
AMOUNT
-----------
U.S. GOVERNMENT OBLIGATIONS -- 34.7%
$50,776,000 U.S. Treasury Bills,
4.656% to 4.911%++,
07/06/06 to 10/12/06 (e) .......... 50,533,951 50,528,893
------------ ------------
TOTAL INVESTMENTS -- 100.0% ...................... $142,109,911 145,641,846
============
SECURITIES SOLD SHORT
(Proceeds received $743,658) ................. (748,911)
OTHER ASSETS AND LIABILITIES (NET) ............... 1,709,923
PREFERRED STOCK
(991,800 preferred shares outstanding) ........ (49,770,000)
------------
NET ASSETS -- COMMON STOCK
(12,174,398 common shares outstanding) ........ $ 96,832,858
============
NET ASSET VALUE PER COMMON SHARE
($96,832,858/12,174,398 shares outstanding) ... $7.95
=====
MARKET
SHARES PROCEEDS VALUE
---------- ------------ ------------
COMMON STOCKS SOLD SHORT -- (0.5)%
EQUIPMENT AND SUPPLIES -- (0.5)%
28,650 Robbins & Myers Inc. ................. $ 743,658 $ 748,911
============ ============
-----------
(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 valuation of comparable
securities and other factors on a regular basis. At June 30, 2006, the
market value of fair valued securities amounted to $3,523,893 or 2.42% of
total investments.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At June 30,
2006, the market value of Rule 144A securities amounted to $5,325,132 or
3.66% of total investments. Except as noted in (c), these securities are
liquid.
(c) At June 30, 2006, the Fund held investments in restricted and illiquid
securities amounting to $3,523,776 or 2.42% of total investments, which
were valued under methods approved by the Board as follows:
ACQUISITION
SHARES/ 06/30/06
PRINCIPAL ACQUISITION ACQUISITION CARRYING VALUE
AMOUNT ISSUER DATE COST PER UNIT
----------- ------ ---------- ----------- --------------
$ 80,000 Amnex Inc., 8.500%, 09/25/49 ....... 09/15/97 $ 71,773 --
2,000,000 GP Strategies Corp. 6.000%, 08/14/08 08/14/03 1,362,935 $ 0.6608
262,431 GP Strategies Corp.
Warrants expire 08/14/08 ......... 08/08/03 657,065 2.5694
100 Gray Television Inc.,
8.000% Cv. Pfd., Ser. C .......... 04/22/02 1,000,000 10,000.0000
14,001 Interep National Radio Sales Inc.,
4.000% Cv. Pfd., Ser. A .......... 05/03/02 1,347,184 35.0000
87,500 Interep National Radio Sales Inc.,
Warrants expire 05/06/07 ......... 05/03/02 -- --
379,703 National Patent Development Corp.
Warrants expire 08/14/08 ......... 11/24/04 -- 0.0999
1,300 Parmalat SpA, GDR,
Warrants expire 12/31/15 ......... 11/09/05 -- --
(d) Security in default.
(e) At June 30, 2006, $800,000 of the principal amount was pledged as
collateral for a security sold short.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
GDR Global Depository Receipt
ADR American Depository Receipt
CVO Contingent Value Obligation
See accompanying notes to financial statements.
6
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2006 (UNAUDITED)
ASSETS:
Investments, at value (cost $142,109,911) ................... $ 145,641,846
Deposit at broker ........................................... 183,882
Cash ........................................................ 11,837
Dividends and interest receivable ........................... 929,343
Receivable for investments sold ............................. 898,677
Other assets ................................................ 4,546
-------------
TOTAL ASSETS ................................................ 147,670,131
-------------
LIABILITIES:
Securities sold short (proceeds $743,658) ................... 748,911
Payable for investment advisory fees ........................ 84,410
Payable for shareholder communications expenses ............. 61,848
Dividends payable ........................................... 46,815
Payable for legal and audit fees ............................ 45,894
Payable for payroll expenses ................................ 25,584
Payable for shareholder services fees ....................... 9,791
Payable for Directors' fees ................................. 3,547
Other accrued expenses ...................................... 40,473
-------------
TOTAL LIABILITIES ........................................... 1,067,273
-------------
PREFERRED STOCK:
Series B Cumulative Preferred Stock (6.00%, $25
liquidation value, $0.001 par value, 1,995,000
shares authorized with 990,800 shares
issued and outstanding) .................................. 24,770,000
Series C Cumulative Preferred Stock (Auction
Rate, $25,000 liquidation value, $0.001 par value,
5,000 shares authorized with 1,000 shares
issued and outstanding) .................................. 25,000,000
-------------
TOTAL PREFERRED STOCK ....................................... 49,770,000
-------------
NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS ........ $ 96,832,858
=============
NET ASSETS ATTRIBUTABLE TO COMMON STOCK SHAREHOLDERS CONSIST OF:
Capital stock, at $0.001 par value .......................... $ 12,174
Additional paid-in capital .................................. 93,900,987
Accumulated distributions in excess of net realized
gain on investments, securities sold short, and
foreign currency transactions ............................ (607,374)
Net unrealized depreciation on securities sold short ........ (5,253)
Net unrealized appreciation on investments .................. 3,531,935
Net unrealized appreciation on foreign currency translations 389
-------------
TOTAL NET ASSETS ............................................ $ 96,832,858
=============
NET ASSET VALUE PER COMMON SHARE
($96,832,858 / 12,174,398 shares outstanding;
998,000,000 shares authorized) ........................... $7.95
=====
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign taxes of $6,097) ................. $ 1,152,174
Interest ................................................... 2,725,891
-----------
TOTAL INVESTMENT INCOME .................................... 3,878,065
-----------
EXPENSES:
Investment advisory fees ................................... 738,935
Shareholder communications expenses ........................ 56,875
Payroll expenses ........................................... 55,046
Directors' fees ............................................ 33,048
Auction agent fees ......................................... 31,200
Legal and audit fees ....................................... 30,984
Shareholder services fees .................................. 25,631
Custodian fees ............................................. 17,510
Miscellaneous expenses ..................................... 58,680
-----------
TOTAL EXPENSES ............................................. 1,047,909
-----------
LESS:
Advisory fee reduction ................................... (246,805)
Custodian fee credits .................................... (5,505)
-----------
TOTAL REDUCTIONS AND CREDITS ............................. (252,310)
-----------
TOTAL NET EXPENSES ......................................... 795,599
-----------
NET INVESTMENT INCOME ...................................... 3,082,466
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, SECURITIES SOLD SHORT,
AND FOREIGN CURRENCY:
Net realized gain on investments ........................... 1,702,213
Net realized gain on securities sold short ................. 562,415
Net realized gain on foreign currency transactions ......... 57,150
-----------
Net realized gain on investments, securities sold
short, and foreign currency transactions ................. 2,321,778
Net change in unrealized appreciation/depreciation
on investments, securities sold short, and
foreign currency translations ............................ 706,279
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, SECURITIES SOLD SHORT, AND
FOREIGN CURRENCY ......................................... 3,028,057
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .......................................... 6,110,523
-----------
Total Distributions to Preferred Stock Shareholders ........ (1,332,329)
-----------
NET INCREASE IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS RESULTING
FROM OPERATIONS .......................................... $ 4,778,194
===========
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
SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2005
---------------- ------------------
OPERATIONS:
Net investment income .................................................................. $ 3,082,466 $ 4,762,777
Net realized gain on investments, securities sold short, and foreign
currency transactions ............................................................... 2,321,778 4,064,956
Net change in unrealized appreciation/depreciation on investments,
securities sold short, and foreign currency translations ............................ 706,279 (1,585,036)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................... 6,110,523 7,242,697
------------ ------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
Net investment income .................................................................. (740,010)* (1,701,396)
Net realized short-term gain on investments, securities sold short, and
foreign currency transactions ....................................................... (303,128)* (146,093)
Net realized long-term gain on investments, securities sold short, and
foreign currency transactions ....................................................... (289,191)* (454,906)
------------ ------------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS .......................................... (1,332,329) (2,302,395)
------------ ------------
NET INCREASE IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS ........................................................... 4,778,194 4,940,302
------------ ------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income .................................................................. (2,160,685)* (2,958,577)
Net realized short-term gain on investments, securities sold short, and
foreign currency transactions ....................................................... (885,077)* (1,500,753)
Net realized long-term gain on investments, securities sold short, and
foreign currency transactions ....................................................... (844,382)* (1,869,629)
Return of capital ...................................................................... (930,961)* (3,133,698)
------------ ------------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS ............................................. (4,821,105) (9,462,657)
------------ ------------
FUND SHARE TRANSACTIONS:
Net increase in net assets from common shares issued upon reinvestment
of dividends and distributions ...................................................... 1,321,666 2,649,555
Offering costs for preferred shares charged to paid-in capital ......................... -- (5,068)
------------ ------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS ................................ 1,321,666 2,644,487
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS .............. 1,278,755 (1,877,868)
NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Beginning of period .................................................................... 95,554,103 97,431,971
------------ ------------
End of period (including undistributed net investment income of $0 and $0, respectively) $ 96,832,858 $ 95,554,103
============ ============
--------------
* Based on fiscal year to date book income. Amounts are subject to change
and recharacterization at fiscal year end.
See accompanying notes to financial statements.
8
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION. The Gabelli Convertible and Income Securities Fund Inc. (the
"Fund") is a diversified closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), whose
investment objective is to seek a high level of total return through a
combination of current income and capital appreciation by investing in
convertible securities. The Fund was incorporated in Maryland on December 19,
1988 as a diversified open-end management investment company and commenced
investment operations on July 3, 1989 as The Gabelli Convertible Securities
Fund, Inc. The Board of Directors (the "Board"), upon approval at a special
meeting of shareholders held on February 17, 1995, voted to approve the
conversion of the Fund to closed-end status, effective March 31, 1995.
Effective August 1, 2002, the Fund changed its name to The Gabelli
Convertible and Income Securities Fund Inc. Consistent with its new name, under
normal market conditions, the Fund will invest at least 80% of its net assets in
a combination of convertible securities and income producing securities (the
"80% Policy"). The Fund expects to continue its practice of focusing on
convertible securities to the extent attractive opportunities are available. The
80% Policy may be changed without shareholder approval. However, the Fund has
adopted a policy to provide shareholders with notice at least 60 days prior to
the implementation of any change in the 80% Policy.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with United States ("U.S.") generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements.
SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange or traded in the U.S. over-the-counter market for
which market quotations are readily available are valued at the last quoted sale
price or a market's official closing price as of the close of business on the
day the securities are being valued. If there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day. If no bid or asked prices are quoted on such
day, the security is valued at the most recently available price or, if the
Board so determines, by such other method as the Board shall determine in good
faith to reflect its fair market value. Portfolio securities traded on more than
one national securities exchange or market are valued according to the broadest
and most representative market, as determined by Gabelli Funds, LLC (the
"Adviser").
Portfolio securities primarily traded on a foreign market are generally
valued at the preceding closing values of such securities on the relevant
market, but may be fair valued pursuant to procedures established by the Board
if market conditions change significantly after the close of the foreign market
but prior to the close of business on the day the securities are being valued.
Debt instruments with remaining maturities of 60 days or less that are not
credit impaired are valued at amortized cost, unless the Board determines such
amount does not reflect the securities' fair value, in which case these
securities will be fair valued as determined by the Board. Debt instruments
having a maturity greater than 60 days for which market quotations are readily
available are valued at the average of the latest bid and asked prices. If there
were no asked prices quoted on such day, the security is valued using the
closing bid price. Futures contracts are valued at the closing settlement price
of the exchange or board of trade on which the applicable contract is traded.
Securities and assets for which market quotations are not readily
available are fair valued as determined by the Board. Fair valuation
methodologies and procedures may include, but are not limited to: analysis and
review of available financial and non-financial information about the company;
comparisons to the valuation and changes in valuation of similar securities,
including a comparison of foreign securities to the equivalent U.S. dollar value
ADR securities at the close of the U.S. exchange; and evaluation of any other
information that could be indicative of the value of the security.
9
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Board,
with member banks of the Federal Reserve System, or with other brokers or
dealers that meet credit guidelines established by the Adviser and reviewed by
the Board. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
The Fund will always receive and maintain securities as collateral whose market
value, including accrued interest, will be at least equal to 102% of the dollar
amount invested by the Fund in each agreement. The Fund will make payment for
such securities only upon physical delivery or upon evidence of book entry
transfer of the collateral to the account of the custodian. To the extent that
any repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market on a daily basis to maintain the adequacy of the collateral.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited. At June 30,
2006, there were no open repurchase agreements.
SWAP AGREEMENTS. The Fund may enter into interest rate swap or cap
transactions. The use of swaps and caps is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio transactions. Swap agreements may involve, to varying
degrees, elements of market and counterparty risk, and exposure to loss in
excess of the related amounts reflected in the Statement of Assets and
Liabilities. In an interest rate swap, the Fund would agree to pay to the other
party to the interest rate swap (which is known as the counterparty)
periodically a fixed rate payment in exchange for the counterparty agreeing to
pay to the Fund periodically a variable rate payment that is intended to
approximate the Fund's variable rate payment obligation on Series C Preferred
Stock. In an interest rate cap, the Fund would pay a premium to the counterparty
and, to the extent that a specified variable rate index exceeds a predetermined
fixed rate, would receive from that counterparty payments of the difference
based on the notional amount of such cap. Interest rate swap and cap
transactions introduce additional risk because the Fund would remain obligated
to pay preferred stock dividends when due in accordance with the Articles
Supplementary even if the counterparty defaulted. If there is a default by the
counterparty to a swap contract, the Fund will be limited to contractual
remedies pursuant to the agreements related to the transaction. There is no
assurance that the swap contract counterparties will be able to meet their
obligations pursuant to a swap contract or that, in the event of default, the
Fund will succeed in pursuing contractual remedies. The Fund thus assumes the
risk that it may be delayed in or prevented from obtaining payments owed to it
pursuant to a swap contract. The creditworthiness of the swap contract
counterparties is closely monitored in order to minimize this risk. Depending on
the general state of short-term interest rates and the returns on the Fund's
portfolio securities at that point in time, such a default could negatively
affect the Fund's ability to make dividend payments for Series C Preferred
Stock. In addition, at the time an interest rate swap or cap transaction reaches
its scheduled termination date, there is a risk that the Fund will not be able
to obtain a replacement transaction or that the terms of the replacement will
not be as favorable as on the expiring transaction. If this occurs, it could
have a negative impact on the Fund's ability to make dividend payments on Series
C Preferred Stock.
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. At
June 30, 2006, there were no open swap agreements.
10
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
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 June 30, 2006, 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. Securities sold short at June 30, 2006 are
reported within the Schedule of Investments.
FORWARD FOREIGN EXCHANGE CONTRACTS. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. Forward foreign exchange contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
included in unrealized appreciation/depreciation on investments and foreign
currency translations. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate
fluctuations in the underlying prices of the Fund's portfolio securities, but it
does establish a rate of exchange that can be achieved in the future. Although
forward foreign exchange contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that might
result should the value of the currency increase. In addition, the Fund could be
exposed to risks if the counterparties to the contracts are unable to meet the
terms of their contracts. At June 30, 2006, there were no open forward foreign
exchange contracts.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are
maintained in U.S. dollars. Foreign currencies, investments, and other assets
and liabilities are translated into U.S. dollars at the current exchange rates.
Purchases and sales of investment securities, income, and expenses are
translated at the exchange rate prevailing on the respective dates of such
transactions. Unrealized gains and losses that result from changes in foreign
exchange rates and/or changes in market prices of securities have been included
in unrealized appreciation/depreciation on investments and foreign currency
translations. Net realized foreign currency gains and losses resulting from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, foreign
currency transactions, and the difference between the amounts of interest and
dividends recorded on the books of the Fund and the amounts actually received.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial trade date and subsequent sale trade date is
included in realized gain/(loss) on investments.
11
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
FOREIGN SECURITIES. The Fund may directly purchase securities of foreign
issuers. Investing in securities of foreign issuers involves special risks not
typically associated with investing in securities of U.S. issuers. The risks
include possible revaluation of currencies, the ability to repatriate funds,
less complete financial information about companies, and possible future adverse
political and economic developments. Moreover, securities of many foreign
issuers and their markets may be less liquid and their prices more volatile than
those of securities of comparable U.S. issuers.
FOREIGN TAXES. The Fund may be subject to foreign taxes on income, gains
on investments, or currency repatriation, a portion of which may be recoverable.
The Fund will accrue such taxes and recoveries as applicable, based upon its
current interpretation of tax rules and regulations that exist in the markets in
which it invests.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its
net assets in securities for which the markets are illiquid. Illiquid securities
include securities the disposition of which is subject to substantial legal or
contractual restrictions. The sale of illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Securities freely saleable among qualified
institutional investors under special rules adopted by the Securities and
Exchange Commission (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. 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".
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 net asset value ("NAV") of the Fund. For
the fiscal year ended December 31, 2005, reclassifications were made to increase
accumulated distributions in excess of net investment income by $76,782 and to
decrease accumulated distributions in excess of net realized gain on
investments, swap contracts, and foreign currency transactions by $977,104 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.
12
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
The tax character of distributions paid during the fiscal year ended
December 31, 2005 was as follows:
COMMON PREFERRED
---------- ----------
DISTRIBUTIONS PAID FROM:
Ordinary income
(inclusive of short-term capital gains) $4,459,330 $1,847,489
Net long-term capital gains .............. 1,869,629 454,906
Non-taxable return of capital ............ 3,133,698 --
---------- ----------
Total distributions paid ................. $9,462,657 $2,302,395
========== ==========
During 2005, distributions were made from current earnings and profits
that were in excess of required distributions and treated as ordinary income.
The Fund utilized its capital loss carryforward of $900,322.
PROVISION FOR INCOME TAXES. The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). It is the policy of the Fund to comply with the
requirements of the Code applicable to regulated investment companies and to
distribute substantially all of its net investment company taxable income and
net capital gains. Therefore, no provision for Federal income taxes is required.
As of December 31, 2005, the components of accumulated earnings/(losses)
on a tax basis were as follows:
Net unrealized appreciation on investments ..... $ 2,064,941
Other* ......................................... (33,294)
-----------
Total .......................................... $ 2,031,647
===========
--------------
* Other is primarily due to dividends payable.
Differences between amounts reported on a tax basis and those reported on
a book basis are primarily due to timing of recognition of capital gains on
investments held by the Fund.
The following summarizes the tax cost of investments and the related
unrealized appreciation/depreciation at June 30, 2006:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
COST/PROCEEDS APPRECIATION DEPRECIATION (DEPRECIATION)
-------------- -------------- -------------- --------------
Investments ... $ 142,602,092 $ 8,347,129 $ (5,307,375) $ 3,039,754
Short sales ... (743,658) -- (5,253) (5,253)
-------------- -------------- --------------
$ 8,347,129 $ (5,312,628) $ 3,034,501
============== ============== ==============
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES. The Fund has entered into an
investment advisory agreement (the "Advisory Agreement") with the Adviser which
provides that the Fund will pay the Adviser a fee, computed daily and paid
monthly, equal on an annual basis to 1.00% of the value of the Fund's average
weekly net assets including the liquidation value of preferred stock. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio and oversees the administration of
all aspects of the Fund's business and affairs. The Adviser has agreed to reduce
the management fee on the incremental assets attributable to the Cumulative
Preferred Stock if the total return of the NAV of the common shares of the Fund,
including distributions and advisory fee subject to reduction, does not exceed
the stated dividend rate or corresponding swap rate of each particular series of
the Cumulative Preferred Stock for the fiscal year.
The Fund's total return on the NAV of the common shares is monitored on a
monthly basis to assess whether the total return on the NAV of the common shares
exceeds the stated dividend rate or corresponding swap rate of each particular
series of Cumulative Preferred Stock for the period. For the six months ended
June 30, 2006, the Fund's total return on the NAV of the common shares did not
exceed the stated dividend rate or net swap expense of all outstanding preferred
stock. Thus, management fees with respect to the liquidation value of those
preferred stock assets were reduced by $246,805.
13
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
During the six months ended June 30, 2006, the Fund paid brokerage
commissions of $21,510 to Gabelli & Company, Inc. ("Gabelli & Company"), an
affiliate of the Adviser.
The cost of calculating the Fund's NAV per share is a Fund expense
pursuant to the Advisory Agreement between the Fund and the Adviser. During the
six months ended June 30, 2006, the Fund paid or accrued $22,500 to the Adviser
in connection with the cost of computing the Fund's NAV, which is included in
miscellaneous expenses in the Statement of Operations.
The Fund is assuming its portion of the allocated cost of the Gabelli
Funds' Chief Compliance Officer in the amount of $2,042 for the six months ended
June 30, 2006, which is included in payroll expenses in the Statement of
Operations.
4. PORTFOLIO SECURITIES. Purchases and proceeds from the sales of securities for
the six months ended June 30, 2006, other than short-term securities, aggregated
$18,428,708 and $24,531,203, respectively.
5. CAPITAL. The charter permits the Fund to issue one billion shares of common
stock (par value $0.001). The Board has authorized the repurchase of up to
500,000 common shares on the open market when the shares are trading at a
discount of 10% or more (or such other percentage as the Board may determine
from time to time) from the NAV of the shares. During the six months ended June
30, 2006, the Fund did not repurchase any shares of its common stock in the open
market.
Transactions in common stock were as follows:
SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2005
----------------------- -----------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
Net increase from shares issued upon
reinvestment of distributions ...... 159,442 $1,321,666 297,916 $2,649,555
The Fund's Articles of Incorporation authorize the issuance of up to
2,000,000 shares of $0.001 par value Cumulative Preferred Stock. The Cumulative
Preferred Stock is senior to the common stock and results in the financial
leveraging of the common stock. Such leveraging tends to magnify both the risks
and opportunities to common shareholders. Dividends on shares of the Cumulative
Preferred Stock are cumulative. The Fund is required by the 1940 Act and by the
Articles Supplementary to meet certain asset coverage tests with respect to the
Cumulative Preferred Stock. If the Fund fails to meet these requirements and
does not correct such failure, the Fund may be required to redeem, in part or in
full, the 6% Series B and Series C Auction Rate Cumulative Preferred Stock at
redemption prices of $25.00 and $25,000, respectively, per share plus an amount
equal to the accumulated and unpaid dividends whether or not declared on such
shares in order to meet these requirements. Additionally, failure to meet the
foregoing asset coverage requirements could restrict the Fund's ability to pay
dividends to common shareholders and could lead to sales of portfolio securities
at inopportune times. The income received on the Fund's assets may vary in a
manner unrelated to the fixed and variable rates, which could have either a
beneficial or detrimental impact on net investment income and gains available to
common shareholders.
On March 18, 2003, the Fund received net proceeds of $23,994,241 (after
underwriting discounts of $787,500 and offering expenses of $218,259) from the
public offering of 1,000,000 shares of 6.00% Series B Cumulative Preferred
Stock. Commencing March 19, 2008 and thereafter, the Fund, at its option, may
redeem the 6.00% Series B Cumulative Preferred Stock in whole or in part at the
redemption price at any time. The Board has authorized the repurchase on the
open market at prices less than the $25 liquidation value of the Cumulative
Preferred Stock. During the six months ended June 30, 2006, the Fund did not
repurchase any shares of 6% Series B Cumulative Preferred Stock. At June 30,
2006, 990,800 shares of 6% Series B Cumulative Preferred Stock were outstanding
and accrued dividends amounted to $28,898.
14
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
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 7 days, is expected to vary with short-term interest rates. The dividend
rates of Series C Auction Rate Cumulative Preferred Stock ranged from 4.15% to
5.16% for the six months ended June 30, 2006. Existing shareholders may submit
an order to hold, bid, or sell such shares on each auction date. Series C
Auction Rate Cumulative Preferred Stock shareholders may also trade shares in
the secondary market. The Fund, at its option, may redeem the Series C Auction
Rate Cumulative Preferred Stock in whole or in part at the redemption price at
any time. During the six months ended June 30, 2006, the Fund did not redeem any
shares of Series C Auction Rate Cumulative Preferred Stock. At June 30, 2006,
1,000 shares of Series C Auction Rate Cumulative Preferred Stock were
outstanding with an annualized dividend rate of 5.16% per share and accrued
dividends amounted to $17,917.
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. 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.
7. OTHER MATTERS. The Adviser and/or affiliates have received subpoenas from the
Attorney General of the State of New York and the SEC requesting information on
mutual fund trading practices involving certain funds managed by the Adviser.
GAMCO Investors, Inc. ("GAMCO"), the Adviser's parent company, is responding to
these requests for documents and testimony. In June 2006, GAMCO began
discussions with the SEC regarding a possible resolution of their inquiry. Since
these discussions are ongoing, it cannot be determined at this time whether they
will ultimately result in a settlement of this matter. On a separate matter, in
September 2005, the Adviser was informed by the staff of the SEC that the staff
may recommend to the Commission that an administrative remedy and a monetary
penalty be sought from the Adviser in connection with the actions of two of
seven closed-end funds managed by the Adviser relating to Section 19(a) and Rule
19a-1 of the 1940 Act. These provisions require registered investment companies
to provide written statements to shareholders when a dividend is made from a
source other than net investment income. While the two closed-end funds sent
annual statements and provided other materials containing this information, the
funds did not send written statements to shareholders with each distribution in
2002 and 2003. The Adviser believes that all of the funds are now in compliance.
The Adviser believes that these matters would have no effect on the Fund or any
material adverse effect on the Adviser or its ability to manage the Fund.
15
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A COMMON SHARE SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
OUTSTANDING THROUGHOUT EACH PERIOD: JUNE 30, 2006 ------------------------------------------------------------
(UNAUDITED) 2005 2004 2003 2002 2001
---------------- -------- -------- -------- -------- --------
OPERATING PERFORMANCE:
Net asset value, beginning of period ........... $ 7.95 $ 8.32 $ 8.90 $ 8.44 $ 9.92 $ 10.02
-------- -------- -------- -------- -------- --------
Net investment income .......................... 0.26 0.40 0.34 0.31 0.49 0.68
Net realized and unrealized gain (loss)
on investments ............................... 0.25 0.20 0.01 1.19 (0.76) 0.32
-------- -------- -------- -------- -------- --------
Total from investment operations ............... 0.51 0.60 0.35 1.50 (0.27) 1.00
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS: (a)
Net investment income .......................... (0.06)(d) (0.14) (0.16) (0.11) (0.28) (0.18)
Net realized gain on investments ............... (0.05)(d) (0.05) -- (0.03) -- (0.12)
-------- -------- -------- -------- -------- --------
Total distributions to preferred shareholders .. (0.11) (0.19) (0.16) (0.14) (0.28) (0.30)
-------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS ................... 0.40 0.41 0.19 1.36 (0.55) 0.70
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income .......................... (0.18)(d) (0.25) (0.18) (0.17) (0.27) (0.48)
Net realized gain on investments ............... (0.14)(d) (0.29) -- (0.03) -- (0.33)
Paid-in capital ................................ (0.08)(d) (0.26) (0.62) (0.60) (0.48) --
-------- -------- -------- -------- -------- --------
Total distributions to common shareholders ..... (0.40) (0.80) (0.80) (0.80) (0.75) (0.81)
-------- -------- -------- -------- -------- --------
FUND SHARE TRANSACTIONS:
Increase in net asset value from common share
transactions ................................ 0.00(e) 0.02 0.03 0.02 0.02 0.01
Decrease in net asset value from shares
issued in rights offering ................... -- -- -- -- (0.20) --
Increase in net asset value from repurchase of
preferred shares ............................ -- -- 0.00(e) -- -- --
Offering costs for preferred shares charged to
paid-in capital ............................. -- (0.00)(e) 0.00(e) (0.12) -- --
-------- -------- -------- -------- -------- --------
Total capital share transactions ............... 0.00(e) 0.02 0.03 (0.10) (0.18) 0.01
-------- -------- -------- -------- -------- --------
NET ASSET VALUE ATTRIBUTABLE TO COMMON
SHAREHOLDERS, END OF PERIOD ................. $ 7.95 $ 7.95 $ 8.32 $ 8.90 $ 8.44 $ 9.92
======== ======== ======== ======== ======== ========
Net asset value total return + ................. 5.1% 4.4% 1.5% 14.5% (7.0)% 7.0%
======== ======== ======== ======== ======== ========
Market value, end of period .................... $ 8.05 $ 8.83 $ 9.24 $ 10.54 $ 8.55 $ 10.90
======== ======== ======== ======== ======== ========
Total investment return ++ ..................... (4.4)% 4.5% (4.8)% 33.9% (14.2)% 29.1%
======== ======== ======== ======== ======== ========
See accompanying notes to financial statements.
16
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR A COMMON SHARE SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
OUTSTANDING THROUGHOUT EACH PERIOD: JUNE 30, 2006 -------------------------------------------------------
(UNAUDITED) 2005 2004 2003 2002 2001
---------------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net assets including liquidation value of
preferred shares, end of period (in 000's) ... $146,603 $145,324 $147,202 $151,658 $108,774 $110,074
Net assets attributable to common shares,
end of period (in 000's) ..................... $ 96,833 $ 95,554 $ 97,432 $101,658 $ 93,774 $ 80,074
Ratio of net investment income to average
net assets attributable to common shares ..... 6.26%(f) 4.93% 4.41% 3.47% 5.32% 6.58%
Ratio of operating expenses to average net assets
attributable to common shares net of fee
reduction .................................... 1.63%(f)(g) 1.92%(g) 1.61% 1.93% 1.58% 1.46%
Ratio of operating expenses to average net
assets including liquidation value of
preferred shares net of fee reduction ........ 1.08%(f)(g) 1.27%(g) 1.07% 1.37% 1.15% 1.07%
Portfolio turnover rate ......................... 17% 32% 57% 39% 56% 59%
PREFERRED STOCK:
8.00% CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ..... -- -- -- -- $ 15,000 $ 30,000
Total shares outstanding (in 000's) ............. -- -- -- -- 600 1,200
Liquidation preference per share ................ -- -- -- -- $ 25.00 $ 25.00
Average market value (b) ........................ -- -- -- -- $ 25.83 $ 25.80
Asset coverage per share ........................ -- -- -- -- $ 181.29 $ 91.73
6.00% CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ..... $ 24,770 $ 24,770 $ 24,770 $ 25,000 -- --
Total shares outstanding (in 000's) ............. 991 991 991 1,000 -- --
Liquidation preference per share ................ $ 25.00 $ 25.00 $ 25.00 $ 25.00 -- --
Average market value (b) ........................ $ 23.91 $ 25.14 $ 24.90 $ 25.33 -- --
Asset coverage per share ........................ $ 73.64 $ 73.00 $ 73.93 $ 75.83 -- --
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 (b) ........................ $ 25,000 $ 25,000 $ 25,000 $ 25,000 -- --
Asset coverage per share ........................ $ 73,640 $ 72,998 $ 73,941 $ 75,829 -- --
ASSET COVERAGE (C) .............................. 295% 292% 296% 303% 725% 367%
------------
+ Based on net asset value per share, adjusted for reinvestment of
distributions, at prices dependent upon the relationship of the net asset
value per share and the market value per share on the ex-dividend dates,
including the effect of shares issued pursuant to 2002 rights offering,
assuming full subscription by shareholder. Total return for the period of
less than one year is not annualized.
++ Based on market value per share, adjusted for reinvestment of
distributions including the effect of shares issued pursuant to 2002
rights offering, assuming full subscription by shareholder. Total return
for the period of less than one year is not annualized.
(a) Calculated based upon average common shares outstanding on the record
dates throughout the periods.
(b) Based on weekly prices.
(c) Asset coverage is calculated by combining all series of preferred stock.
(d) Based on fiscal year to date book income. Amounts are subject to change
and recharacterization at fiscal year end.
(e) Amount represents less than $0.005 per share.
(f) Annualized.
(g) 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 six months ended June 30, 2006, the ratios
of operating expenses to average net assets attributable to common shares
net of fee reduction would have been 1.62% and the ratios of operating
expenses to average net assets including liquidation value of preferred
shares net of fee reduction would have been 1.07%. For the year ended
December 31, 2005, the effect of the custodian fee credits was minimal.
See accompanying notes to financial statements.
17
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
BOARD CONSIDERATION AND RE-APPROVAL OF INVESTMENT ADVISORY CONTRACT (UNAUDITED)
At its meeting on May 17, 2006, the Board of Directors ("Board") of the Fund
approved the continuation of the investment advisory contract with the Adviser
for the Fund on the basis of the recommendation by the directors who are not
"interested persons" of the Fund (the "independent board members"). The
following paragraphs summarize the material information and factors considered
by the independent board members as well as their conclusions relative to such
factors.
NATURE, EXTENT AND QUALITY OF SERVICES. The independent board members considered
information regarding the portfolio manager, the depth of the analyst pool
available to the Adviser and the portfolio manager, the scope of supervisory,
administrative, shareholder and other services supervised or provided by the
Adviser, and the absence of significant service problems reported to the Board.
The independent board members noted the experience, length of service, and
reputation of the portfolio manager.
INVESTMENT PERFORMANCE. The independent board members reviewed the short,
medium, and long-term performance of the Fund since inception against a peer
group of convertible securities and income/preferred stock closed-end funds and
the customized peer group selected by Lipper. The independent board members
noted that the Fund's comparative performance was fair to excellent over the
short (one year) and longer (five year) periods, depending on the peer group
selected, and was poor over the intermediate (three year) and long (ten year)
periods, although understandable in relation to the conservative position taken
by the Fund.
PROFITABILITY. The independent board members reviewed summary data regarding the
profitability of the Fund to the Adviser and found the profitability to be
moderate.
ECONOMIES OF SCALE. The independent board members discussed the major elements
of the Adviser's cost structure and the relationship of those elements to
potential economies of scale. The independent board members noted that the Fund
was a closed-end fund and unlikely to realize any economies of scale potentially
available through growth.
SHARING OF ECONOMIES OF SCALE. The independent board members noted that the
investment advisory fee schedule for the Fund does not take into account any
potential economies of scale.
SERVICE AND COST COMPARISONS. The independent board members compared the expense
ratios of the investment advisory fee, other expenses, and total expenses of the
Fund to similar expense ratios of the peer group of convertible and
income/preferred stock closed-end funds as well as the customized Lipper peer
groups and noted that the advisory fee includes substantially all administrative
services of the Fund as well as investment advisory services of the Adviser. The
independent board members noted that the Fund's expense ratios were above
average and the Fund's size was below average within these groups. The
independent board members were presented with, but did not consider to be
material to their decision, various information comparing the advisory fee to
the fee for other types of accounts managed by affiliates of the Adviser.
CONCLUSIONS. The independent board members concluded that the Fund enjoyed
highly experienced portfolio management services, good ancillary services, and a
reasonable performance record within its conservative stance. The independent
board members also concluded that the Fund's expense ratios were reasonable in
light of the Fund's size, and that, in part due to the Fund's structure as a
closed-end fund, economies of scale were not a significant factor in their
thinking. The independent board members did not view the potential profitability
of ancillary services as material to their decision. On the basis of the
foregoing and without assigning particular weight to any single conclusion, the
independent board members determined to recommend continuation of the investment
advisory contract to the full Board.
18
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. (the "Fund") to automatically reinvest dividends. As a "registered"
shareholder you automatically become a participant in the Fund's Automatic
Dividend Reinvestment Plan (the "Plan"). The Plan authorizes the Fund to issue
shares of common stock to participants upon an income dividend or a capital
gains distribution regardless of whether the shares are trading at a discount or
a premium to net asset value. All distributions to shareholders whose shares are
registered in their own names will be automatically reinvested pursuant to the
Plan in additional shares of the Fund. Plan participants may send their stock
certificates to Computershare Trust Company, N.A. ("Computershare") 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 Computershare
P.O. Box 43010
Providence, RI 02940-3010
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan, or requesting a copy of the terms of
the plan may contact Computershare at (800) 336-6983.
If your shares are held in the name of a broker, bank, or nominee, you
should contact such institution. If such institution is not participating in the
Plan, your account will be credited with a cash dividend. In order to
participate in the Plan through such institution, it may be necessary for you to
have your shares taken out of "street name" and re-registered in your own name.
Once registered in your own name your dividends will be automatically
reinvested. Certain brokers participate in the Plan. Shareholders holding shares
in "street name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of common stock distributed to participants in the
Plan in lieu of cash dividends is determined in the following manner. Under the
Plan, whenever the market price of the Fund's common stock is equal to or
exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividends or capital
gains distribution, participants are issued shares of common stock valued at the
greater of (i) the net asset value as most recently determined or (ii) 95% of
the then current market price of the Fund's common stock. The valuation date is
the dividend or distribution payment date or, if that date is not a New York
Stock Exchange ("NYSE") trading day, the next trading day. If the net asset
value of the common stock at the time of valuation exceeds the market price of
the common stock, participants will receive shares from the Fund valued at
market price. If the Fund should declare a dividend or capital gains
distribution payable only in cash, Computershare will buy common stock in the
open market, or on the NYSE or elsewhere, for the participants' accounts, except
that Computershare will endeavor to terminate purchases in the open market and
cause the Fund to issue shares at net asset value if, following the commencement
of such purchases, the market value of the common stock exceeds the then current
net asset value.
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.
19
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 Computershare on at least 90 days' written notice to
participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Fund. In order to participate
in the Voluntary Cash Purchase Plan, shareholders must have their shares
registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to Computershare for investments in the Fund's shares
at the then current market price. Shareholders may send an amount from $250 to
$10,000. Computershare will use these funds to purchase shares in the open
market on or about the 1st and 15th of each month. Computershare 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 Computershare, P.O. Box 43010, Providence, RI
02940-3010 such that Computershare receives such payments approximately 10 days
before the 1st and 15th of the month. 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
Computershare at least 48 hours before such payment is to be invested.
SHAREHOLDERS WISHING TO LIQUIDATE SHARES HELD AT COMPUTERSHARE 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.
For more information regarding the Dividend Reinvestment Plan and
Voluntary Cash Purchase Plan, brochures are available by calling (914) 921-5070
or by writing directly to the Fund.
The Fund reserves the right to amend or terminate the Plans 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 Computershare on at least 90 days' written
notice to participants in the Plan.
20
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, HALLMARK ELECTRICAL SUPPLIES CORP.
OFFICERS
Bruce N. Alpert
PRESIDENT
Peter D. Goldstein
CHIEF COMPLIANCE OFFICER
Laurissa M. Martire
VICE PRESIDENT & OMBUDSMAN
James E. McKee
SECRETARY
Agnes Mullady
TREASURER
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
Common 6.00% Preferred
---------- ---------------
NYSE-Symbol: GCV GCV PrB
Shares Outstanding: 12,174,398 990,800
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in Sunday's The New York Times and in
Monday's The Wall Street Journal. It is also listed in Barron's Mutual
Funds/Closed End Funds section under the heading "Convertible Securities Funds."
The Net Asset Value may be obtained each day by calling (914) 921-5070.
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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
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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 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 Series B Cumulative Preferred
Stock in the open market when the shares are trading at a discount to the
Liquidation Value of $25.00.
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[GRAPHIC]
THE GABELLI CONVERTIBLE AND
INCOME SECURITIES FUND INC.
ONE CORPORATE CENTER
RYE, NY 10580-1422
(914) 921-5070
www.gabelli.com
SEMI-ANNUAL REPORT
JUNE 30, 2006
GCV SA 2006
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
There has been no change, as of the date of this filing, in any of the portfolio
managers identified in response to paragraph (a)(1) of this Item in the
registrant's most recently filed annual report on Form N-CSR.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
REGISTRANT PURCHASES OF EQUITY SECURITIES
=============================================================================================================================
(C) TOTAL NUMBER OF (D) MAXIMUM NUMBER (OR
SHARES (OR UNITS) APPROXIMATE DOLLAR VALUE) OF
(A) TOTAL NUMBER OF PURCHASED AS PART OF SHARES (OR UNITS) THAT MAY YET
SHARES (OR UNITS) (B) AVERAGE PRICE PAID PUBLICLY ANNOUNCED PLANS BE PURCHASED UNDER THE PLANS
PERIOD PURCHASED PER SHARE (OR UNIT) OR PROGRAMS OR PROGRAMS
=============================================================================================================================
Month #1 Common - N/A Common - N/A Common - N/A Common - 12,014,956
01/01/06
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
01/31/06
=============================================================================================================================
Month #2 Common - N/A Common - N/A Common - N/A Common - 12,014,956
02/01/06
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
02/28/06
=============================================================================================================================
Month #3 Common - N/A Common - N/A Common - N/A Common - 12,090,569
03/01/06
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
03/31/06
=============================================================================================================================
Month #4 Common - N/A Common - N/A Common - N/A Common - 12,090,569
04/01/06
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
04/30/06
=============================================================================================================================
Month #5 Common - N/A Common - N/A Common - N/A Common - 12,090,569
05/01/06
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
05/31/06
=============================================================================================================================
Month #6 Common - N/A Common - N/A Common - N/A Common - 12,174,398
06/01/06
through Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
06/30/06
=============================================================================================================================
Total Common - N/A Common - N/A Common - N/A N/A
Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A
=============================================================================================================================
Footnote columns (c) and (d) of the table, by disclosing the following
information in the aggregate for all plans or programs publicly announced:
a. The date each plan or program was announced - The notice of the
potential repurchase of common and preferred shares occurs quarterly in
the Fund's quarterly report in accordance with Section 23(c) of the
Investment Company Act of 1940, as amended.
b. The dollar amount (or share or unit amount) approved - Any or all
common shares outstanding may be repurchased when the Fund's common
shares are trading at a discount of 10% or more from the net asset
value of the shares.
Any or all preferred shares outstanding may be repurchased when the
Fund's preferred shares are trading at a discount to the liquidation
value of $25.00.
c. The expiration date (if any) of each plan or program - The Fund's
repurchase plans are ongoing.
d. Each plan or program that has expired during the period covered by the
table - The Fund's repurchase plans are ongoing.
e. Each plan or program the registrant has determined to terminate prior
to expiration, or under which the registrant does not intend to make
further purchases. - The Fund's repurchase plans are ongoing.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's Board of Directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) The Gabelli Convertible and Income Securities Fund Inc.
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By (Signature and Title)* /s/ Bruce N. Alpert
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Bruce N. Alpert, Principal Executive Officer
Date September 1, 2006
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert, Principal Executive Officer
Date September 1, 2006
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By (Signature and Title)* /s/ Agnes Mullady
-------------------------------------------------------
Agnes Mullady, Principal Financial Officer & Treasurer
Date September 1, 2006
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* Print the name and title of each signing officer under his or her signature.