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
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Date of reporting period: December 31, 2006
-------------------
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 OMITTED]
THE GABELLI
CONVERTIBLE AND
INCOME SECURITIES
FUND INC.
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
Annual Report
December 31, 2006
TO OUR SHAREHOLDERS,
The Sarbanes-Oxley Act requires a fund's principal executive and financial
officers to certify the entire contents of the semi-annual and annual
shareholder reports in a filing with the Securities and Exchange Commission on
Form N-CSR. This certification would cover the portfolio manager's commentary
and subjective opinions if they are attached to or a part of the financial
statements. Many of these comments and opinions would be difficult or impossible
to certify.
Because we do not want our portfolio managers to eliminate their opinions
and/or restrict their commentary to historical facts, we have separated their
commentary from the financial statements and investment portfolio and have sent
it to you separately. Both the commentary and the financial statements,
including the portfolio of investments, will be available on our website at
www.gabelli.com.
Enclosed are the audited financial statements and the investment portfolio
as of December 31, 2006.
COMPARATIVE RESULTS
--------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 2006 (A)
-----------------------------------------------------
Since
Inception
Quarter 1 Year 3 Year 5 Year 10 Year 15 Year (07/03/89)
-----------------------------------------------------------------------
GABELLI CONVERTIBLE AND INCOME SECURITIES FUND
NAV TOTAL RETURN (B) .......................... 5.34% 15.34% 7.66% 6.13% 6.60% 7.55% 7.90%
INVESTMENT TOTAL RETURN (C) ................... 5.11 11.32 3.46 4.90 9.18 N/A(D) 7.57(D)
S&P 500 Index ................................... 6.69 15.78 10.43 6.18 8.42 10.63 11.29(e)
Lehman Bros. Gov't./Corporate Bond Index ........ 1.04 3.78 3.44 5.17 6.26 6.57 7.27(e)
Lipper Convertible Securities Fund Average ...... 4.66 10.88 7.72 7.80 7.86 9.55 9.84(e)
(a) RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE.
WHEN SHARES ARE SOLD, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA
PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST
RECENT MONTH END. PERFORMANCE RETURNS FOR LESS THAN ONE YEAR ARE NOT
ANNUALIZED. INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, CHARGES, AND EXPENSES OF THE FUND BEFORE INVESTING. THE S&P 500
INDEX IS AN UNMANAGED INDICATOR OF STOCK MARKET PERFORMANCE. THE LEHMAN
BROTHERS GOVERNMENT/CORPORATE BOND INDEX IS AN UNMANAGED MARKET VALUE
WEIGHTED INDEX THAT TRACKS THE TOTAL RETURN PERFORMANCE OF FIXED RATE,
PUBLICLY PLACED, DOLLAR DENOMINATED OBLIGATIONS. THE LIPPER AVERAGE
REFLECTS THE AVERAGE PERFORMANCE OF OPEN-END MUTUAL FUNDS CLASSIFIED IN
THIS PARTICULAR CATEGORY. DIVIDENDS AND INTEREST INCOME ARE CONSIDERED
REINVESTED. YOU CANNOT INVEST DIRECTLY IN AN INDEX.
(b) TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN NET ASSET VALUE
PER SHARE ("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.
(e) FROM JUNE 30, 1989, THE DATE CLOSEST TO THE FUND'S INCEPTION FOR WHICH DATA
IS AVAILABLE.
--------------------------------------------------------------------------------
Sincerely yours,
/s/ Bruce N. Alpert
Bruce N. Alpert
President
January 24, 2007
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED)
The following table presents portfolio holdings as a percent of total
investments as of December 31, 2006:
U.S. Government Obligations ........................... 31.2%
Energy and Utilities .................................. 11.0%
Communications Equipment .............................. 8.1%
Automotive: Parts and Accessories ..................... 7.7%
Health Care ........................................... 7.1%
Financial Services .................................... 4.9%
Broadcasting .......................................... 4.5%
Aerospace ............................................. 3.5%
Business Services ..................................... 3.1%
Food and Beverage ..................................... 2.9%
Diversified Industrial ................................ 2.9%
Electronics ........................................... 2.2%
Telecommunications .................................... 1.5%
Hotels and Gaming ..................................... 1.5%
Real Estate ........................................... 1.4%
Transportation ........................................ 1.3%
Wireless Communications ............................... 1.0%
Specialty Chemicals ................................... 0.9%
Computer Hardware ..................................... 0.9%
Entertainment ......................................... 0.5%
Consumer Products ..................................... 0.5%
Retail ................................................ 0.5%
Computer Software and Services ........................ 0.4%
Cable and Satellite ................................... 0.2%
Equipment and Supplies ................................ 0.2%
Manufactured Housing and Recreational Vehicles ........ 0.1%
Publishing ............................................ 0.0%
Metals and Mining ..................................... 0.0%
Cable ................................................. 0.0%
------
100.0%
======
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC. (THE "FUND") FILES A
COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC") FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON
FORM N-Q, THE LAST OF WHICH WAS FILED FOR THE QUARTER ENDED SEPTEMBER 30, 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 SEC'S
PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE
PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330.
PROXY VOTING
The Fund files Form N-PX with its complete proxy voting record for the 12
months ended June 30th, no later than August 31st of each year. A description of
the Fund's proxy voting policies, procedures, and how the Fund voted proxies
relating to portfolio securities is available without charge, upon request, by
(i) calling 800-GABELLI (800-422-3554); (ii) writing to The Gabelli Funds at One
Corporate Center, Rye, NY 10580-1422; or (iii) visiting the SEC's website at
www.sec.gov.
2
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ------- -------
CONVERTIBLE CORPORATE BONDS -- 29.9%
AEROSPACE -- 2.8%
$ 830,000 GenCorp Inc., Sub. Deb. Cv.,
5.750%, 04/15/07 ..............$ 827,094 $ 862,162
3,356,000 Kaman Corp., Sub. Deb. Cv.,
6.000%, 03/15/12 .............. 3,232,902 3,448,290
------------ ------------
4,059,996 4,310,452
------------ ------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 6.3%
6,900,000 Standard Motor Products Inc.,
Sub. Deb. Cv.,
6.750%, 07/15/09 .............. 6,020,975 6,555,000
3,000,000 The Pep Boys -
Manny, Moe & Jack, Cv.,
4.250%, 06/01/07 .............. 2,996,651 2,985,000
------------ ------------
9,017,626 9,540,000
------------ ------------
BROADCASTING -- 3.8%
4,800,000 Sinclair Broadcast Group Inc.,
Sub. Deb. Cv.,
6.000%, 09/15/12 .............. 4,022,937 4,416,000
1,500,000 Sinclair Broadcast Group Inc.,
Sub. Deb. Cv. (STEP),
4.875%, 07/15/18 .............. 1,384,075 1,378,125
------------ ------------
5,407,012 5,794,125
------------ ------------
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 .............. 2,528,174 2,535,000
------------ ------------
3,411,067 2,535,000
------------ ------------
CABLE -- 0.0%
400,000 Adelphia Communications Corp.,
Sub. Deb. Cv.,
3.250%, 05/01/21+ (d) ......... 127,000 2,240
------------ ------------
COMMUNICATIONS EQUIPMENT -- 7.2%
3,000,000 Agere Systems Inc.,
Sub. Deb. Cv.,
6.500%, 12/15/09 .............. 3,030,248 3,067,500
2,000,000 Lucent Technologies Inc.,
Sub. Deb. Cv.,
8.000%, 08/01/31 .............. 2,000,000 2,010,000
6,000,000 Nortel Networks Corp., Cv.,
4.250%, 09/01/08 .............. 5,858,242 5,835,000
------------ ------------
10,888,490 10,912,500
------------ ------------
CONSUMER PRODUCTS -- 0.1%
100,000 Church & Dwight Co. Inc.,
Deb. Cv.,
5.250%, 08/15/33 (b) .......... 100,000 144,500
1,500,000 Pillowtex Corp., Sub. Deb. Cv.,
9.000%, 12/15/17 (a)(d) ....... 0 0
------------ ------------
100,000 144,500
------------ ------------
DIVERSIFIED INDUSTRIAL -- 0.6%
1,400,000 Roper Industries Inc.,
Cv. (STEP),
1.481%, 01/15/34 .............. 693,600 917,000
------------ ------------
ELECTRONICS -- 0.0%
10,000 Artesyn Technologies Inc.,
Sub. Deb. Cv.,
5.500%, 08/15/10 (b) .......... 10,343 13,691
------------ ------------
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ------- -------
ENERGY AND UTILITIES -- 0.9%
$ 500,000 Devon Energy Corp., Deb. Cv.,
4.950%, 08/15/08 ..............$ 499,871 $ 695,000
257,000 Moran Energy Inc.,
Sub. Deb. Cv.,
8.750%, 01/15/08 .............. 188,200 255,715
400,000 Unisource Energy Corp., Cv.,
4.500%, 03/01/35 (b) .......... 402,366 441,500
------------ ------------
1,090,437 1,392,215
------------ ------------
FINANCIAL SERVICES -- 0.3%
500,000 Conseco Inc., Cv. (STEP),
3.500%, 09/30/35 (b) .......... 508,027 496,250
------------ ------------
HEALTH CARE -- 2.7%
100,000 Advanced Medical Optics Inc.,
Sub. Deb. Cv.,
3.250%, 08/01/26 .............. 92,696 90,875
4,000,000 ICOS Corp., Sub. Deb. Cv.,
2.000%, 07/01/23 .............. 3,940,777 3,945,000
150,000 Sabratek Corp., Sub. Deb. Cv.,
6.000%, 04/16/07+ (a)(d) ...... 84,763 0
------------ ------------
4,118,236 4,035,875
------------ ------------
HOTELS AND GAMING -- 0.0%
10,000 Hilton Hotels Corp., Cv.,
3.375%, 04/15/23 .............. 15,372 15,825
10,000 Wynn Resorts Ltd.,
Sub. Deb. Cv.,
6.000%, 07/15/15 (b) .......... 10,078 40,975
------------ ------------
25,450 56,800
------------ ------------
MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 0.1%
100,000 Fleetwood Enterprises Inc.,
Sub. Deb. Cv.,
5.000%, 12/15/23 (b) .......... 100,000 101,500
------------ ------------
REAL ESTATE -- 1.4%
Palm Harbor Homes Inc., Cv.,
1,550,000 3.250%, 05/15/24 (b) .......... 1,533,727 1,317,500
950,000 3.250%, 05/15/24 .............. 854,618 807,500
------------ ------------
2,388,345 2,125,000
------------ ------------
RETAIL -- 0.1%
60,000 Costco Wholesale Corp.,
Sub. Deb. Cv.,
Zero Coupon, 08/19/17 ......... 48,227 72,300
100,000 Pier 1 Imports Inc., Cv. (STEP),
6.375%, 02/15/36 .............. 95,314 91,750
------------ ------------
143,541 164,050
------------ ------------
TELECOMMUNICATIONS -- 0.0%
AMNEX Inc., Sub. Deb. Cv.,
50,000 8.500%, 09/25/49+ (a)(b)(c)(d) 48,801 0
30,000 8.500%, 09/25/49+ (a)(d) ...... 22,971 0
50,000 Commonwealth Telephone
Enterprises Inc., Cv.,
3.250%, 07/15/23 .............. 49,675 54,125
------------ ------------
121,447 54,125
------------ ------------
TRANSPORTATION -- 0.9%
1,000,000 GATX Corp., Cv.,
7.500%, 02/01/07 .............. 1,005,264 1,278,750
------------ ------------
See accompanying notes to financial statements.
3
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ------- -------
CONVERTIBLE CORPORATE BONDS (CONTINUED)
WIRELESS COMMUNICATIONS -- 1.0%
$ 1,500,000 Nextel Communications Inc., Cv.,
5.250%, 01/15/10 ..............$ 1,226,402 $ 1,483,125
------------ ------------
TOTAL CONVERTIBLE
CORPORATE BONDS ................ 44,442,283 45,357,198
------------ ------------
SHARES
---------
CONVERTIBLE PREFERRED STOCKS -- 4.1%
AEROSPACE -- 0.7%
7,300 Northrop Grumman Corp.,
7.000% Cv. Pfd., Ser. B ....... 850,596 970,900
------------ ------------
BROADCASTING -- 0.7%
100 Gray Television Inc.,
8.000% Cv. Pfd.,
Ser. C (a)(c) ................. 1,000,000 1,000,000
------------ ------------
BUSINESS SERVICES -- 0.3%
14,561 Interep National Radio Sales Inc.,
4.000% Cv. Pfd.,
Ser. A+ (a)(c) ................ 1,347,184 509,637
20,000 Key3Media Group Inc.,
5.500% Cv. Pfd.,
Ser. B+ (a)(d) ................ 500,000 117
------------ ------------
1,847,184 509,754
------------ ------------
COMMUNICATIONS EQUIPMENT -- 0.5%
800 Lucent Technologies
Capital Trust I,
7.750% Cv. Pfd. ............... 556,750 814,000
------------ ------------
ENERGY AND UTILITIES -- 0.6%
6,000 AES Trust III,
6.750% Cv. Pfd. ............... 229,530 295,500
500 El Paso Corp.,
4.990% Cv. Pfd. (b) ........... 479,192 663,613
300 El Paso Corp. Capital Trust I,
4.750% Cv. Pfd., Ser. C ....... 11,460 11,640
------------ ------------
720,182 970,753
------------ ------------
ENTERTAINMENT -- 0.5%
2,000 Metromedia International Group Inc.,
7.250% Cv. Pfd.+ .............. 26,611 102,000
30,000 Six Flags Inc.,
7.250% Cv. Pfd., Ser. B ....... 548,515 669,000
------------ ------------
575,126 771,000
------------ ------------
FINANCIAL SERVICES -- 0.0%
100 Alleghany Corp.,
5.750% Cv. Pfd. ............... 27,010 33,375
------------ ------------
TELECOMMUNICATIONS -- 0.4%
14,400 Cincinnati Bell Inc.,
6.750% Cv. Pfd., Ser. B ....... 409,992 662,400
------------ ------------
TRANSPORTATION -- 0.4%
2,500 GATX Corp.,
$2.50 Cv. Pfd. ................ 360,275 556,250
------------ ------------
TOTAL CONVERTIBLE
PREFERRED STOCKS ............... 6,347,115 6,288,432
------------ ------------
MARKET
SHARES COST VALUE
--------- ------- -------
COMMON STOCKS -- 33.6%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.4%
45,000 Genuine Parts Co. ...............$ 1,751,210 $ 2,134,350
------------ ------------
BROADCASTING -- 0.0%
10,000 Emmis Communications Corp.,
Cl. A ......................... 119,596 82,400
------------ ------------
BUSINESS SERVICES -- 1.1%
25,000 Aramark Corp., Cl. B ............ 826,890 836,250
20,000 Digital Insight Corp.+ .......... 767,100 769,800
------------ ------------
1,593,990 1,606,050
------------ ------------
CABLE AND SATELLITE -- 0.2%
2,000 EchoStar Communications
Corp., Cl. A+ ................. 60,184 76,060
3,000 Rogers Communications Inc.,
Cl. B ......................... 86,740 178,800
------------ ------------
146,924 254,860
------------ ------------
COMMUNICATIONS EQUIPMENT -- 0.4%
30,000 Corning Inc.+ ................... 366,667 561,300
------------ ------------
COMPUTER HARDWARE -- 0.9%
14,000 International Business
Machines Corp. ................ 1,122,403 1,360,100
------------ ------------
COMPUTER SOFTWARE AND SERVICES -- 0.4%
2,000 Microsoft Corp. ................. 51,660 59,720
55,000 ProQuest Co.+ ................... 625,902 574,750
------------ ------------
677,562 634,470
------------ ------------
CONSUMER PRODUCTS -- 0.4%
13,000 Avon Products Inc. .............. 368,438 429,520
10,000 Swedish Match AB ................ 117,392 186,972
------------ ------------
485,830 616,492
------------ ------------
DIVERSIFIED INDUSTRIAL -- 1.1%
35,000 General Electric Co. ............ 1,190,152 1,302,350
37,000 WHX Corp.+ ...................... 553,375 312,650
------------ ------------
1,743,527 1,615,000
------------ ------------
ELECTRONICS -- 2.2%
15,000 Intel Corp. ..................... 294,893 303,750
200,000 Symbol Technologies Inc. ........ 2,964,090 2,988,000
------------ ------------
3,258,983 3,291,750
------------ ------------
ENERGY AND UTILITIES -- 9.5%
7,000 Anadarko Petroleum Corp. ........ 237,992 304,640
10,000 BP plc, ADR ..................... 665,900 671,000
4,000 Cameron
International Corp.+ .......... 116,464 212,200
2,700 CH Energy Group Inc. ............ 70,475 142,560
17,000 Chevron Corp. ................... 1,044,150 1,250,010
5,000 ConocoPhillips .................. 312,250 359,750
2,000 Devon Energy Corp. .............. 127,485 134,160
20,000 Duke Energy Corp. ............... 545,488 664,200
25,000 Exxon Mobil Corp. ............... 1,478,135 1,915,750
6,000 FPL Group Inc. .................. 250,530 326,520
1,000 Giant Industries Inc.+ .......... 81,830 74,950
25,000 Great Plains Energy Inc. ........ 740,419 795,000
16,000 Halliburton Co. ................. 480,544 496,800
28,000 Kinder Morgan Inc. .............. 2,881,019 2,961,000
43,000 Mirant Corp.+ ................... 603,418 1,357,510
See accompanying notes to financial statements.
4
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
MARKET
SHARES COST VALUE
--------- ------- -------
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES (CONTINUED)
2,000 National Fuel Gas Co. ...........$ 53,500 $ 77,080
20,000 Northeast Utilities ............. 343,233 563,200
5,000 Peoples Energy Corp. ............ 202,236 222,850
10,000 Progress Energy Inc., CVO+ ...... 5,200 3,250
20,000 Royal Dutch Shell plc,
Cl. A, ADR .................... 1,261,731 1,415,800
7,000 SJW Corp. ....................... 149,930 271,320
10,000 Xcel Energy Inc. ................ 183,300 230,600
------------ ------------
11,835,229 14,450,150
------------ ------------
EQUIPMENT AND SUPPLIES -- 0.2%
8,000 Mueller Industries Inc. ......... 265,127 253,600
------------ ------------
FINANCIAL SERVICES -- 4.6%
5,000 AllianceBernstein
Holding LP .................... 305,450 402,000
35,000 American Express Co. ............ 1,653,334 2,123,450
5,000 Ameriprise Financial Inc. ....... 166,953 272,500
45,000 Citigroup Inc. .................. 2,101,271 2,506,500
50,000 TD Banknorth Inc. ............... 1,611,765 1,614,000
------------ ------------
5,838,773 6,918,450
------------ ------------
FOOD AND BEVERAGE -- 2.9%
4,000 Anheuser-Busch
Companies Inc. ................ 172,747 196,800
10,000 Cadbury Schweppes plc,
ADR ........................... 344,243 429,300
23,000 General Mills Inc. .............. 1,148,962 1,324,800
213,860 Parmalat SpA, GDR+ (b) .......... 917,160 919,341
632 Pernod-Ricard SA ................ 107,187 145,163
30,000 The Coca-Cola Co. ............... 1,311,355 1,447,500
------------ ------------
4,001,654 4,462,904
------------ ------------
HEALTH CARE -- 4.4%
22,000 Eli Lilly & Co. ................. 1,252,923 1,146,200
80,000 ICOS Corp.+ ..................... 2,593,462 2,703,200
8,000 Merck & Co. Inc. ................ 226,680 348,800
73,000 Pfizer Inc. ..................... 2,071,278 1,890,700
15,000 Schering-Plough Corp. ........... 236,353 354,600
6,000 UnitedHealth Group Inc. ......... 306,126 322,380
------------ ------------
6,686,822 6,765,880
------------ ------------
HOTELS AND GAMING -- 1.5%
273,037 Ladbrokes plc ................... 1,669,743 2,235,971
------------ ------------
METALS AND MINING -- 0.0%
1,000 Peabody Energy Corp. ............ 35,386 40,410
------------ ------------
PUBLISHING -- 0.0%
1,700 Idearc Inc.+ .................... 50,977 48,705
------------ ------------
RETAIL -- 0.4%
5,000 Costco Wholesale Corp. .......... 253,812 264,350
5,000 The Home Depot Inc. ............. 182,600 200,800
2,000 Wal-Mart Stores Inc. ............ 96,720 92,360
------------ ------------
533,132 557,510
------------ ------------
MARKET
SHARES COST VALUE
--------- ------- -------
SPECIALTY CHEMICALS -- 0.9%
40,000 MacDermid Inc. ..................$ 1,363,498 $ 1,364,000
------------ ------------
TELECOMMUNICATIONS -- 1.1%
12,000 Philippine Long Distance
Telephone Co., ADR ............ 269,002 613,560
30,000 Verizon Communications Inc. ..... 1,106,794 1,117,200
------------ ------------
1,375,796 1,730,760
------------ ------------
WIRELESS COMMUNICATIONS -- 0.0%
49 Winstar
Communications Inc.+ (a) ...... 438 0
------------ ------------
TOTAL
COMMON STOCKS .................. 44,923,267 50,985,112
------------ ------------
PREFERRED STOCKS -- 0.0%
TELECOMMUNICATIONS -- 0.0%
3,679 PTV Inc., 10.000% Pfd.,
Ser. A ........................ 0 25,293
------------ ------------
PRINCIPAL
AMOUNT
--------
CORPORATE BONDS -- 0.7%
DIVERSIFIED INDUSTRIAL -- 0.7%
$ 1,707,500 GP Strategies Corp., Sub. Deb.,
6.000%, 08/14/08 (a)(c) ....... 1,502,497 1,146,025
------------ ------------
SHARES
---------
WARRANTS -- 0.5%
BUSINESS SERVICES -- 0.0%
87,500 Interep National Radio
Sales Inc.,
expire 05/06/07+ (a)(c) ....... 0 0
------------ ------------
CONSUMER PRODUCTS -- 0.0%
4,331 Pillowtex Corp.,
expire 11/24/09+ (a) .......... 120,955 1
------------ ------------
DIVERSIFIED INDUSTRIAL -- 0.5%
212,431 GP Strategies Corp.,
expire 08/14/08+ (a)(c) ....... 515,687 622,744
379,703 National Patent
Development Corp.,
expire 08/14/08+ (a)(c) ....... 0 102,183
11,220 WHX Corp.,
expire 02/28/08+ .............. 38,936 4,600
------------ ------------
554,623 729,527
------------ ------------
FOOD AND BEVERAGE -- 0.0%
1,300 Parmalat SpA, GDR,
expire 12/31/15+ (a)(b)(c) .... 0 0
------------ ------------
TOTAL WARRANTS .................. 675,578 729,528
------------ ------------
See accompanying notes to financial statements.
5
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ------- -------
U.S. GOVERNMENT OBLIGATIONS -- 31.2%
$47,764,000 U.S. Treasury Bills,
4.845% to 5.126%++,
01/04/07 to 04/26/07 ..........$ 47,351,236 $ 47,352,543
------------ ------------
TOTAL INVESTMENTS -- 100.0% ..................$145,241,976 151,884,131
============
OTHER ASSETS AND LIABILITIES (NET) ......................... 274,179
------------
PREFERRED STOCK
(991,800 preferred shares outstanding) ................... (49,770,000)
NET ASSETS -- COMMON STOCK
(12,322,474 common shares outstanding) ...................$102,388,310
============
NET ASSET VALUE PER COMMON SHARE
($102,388,310 / 12,322,474 shares outstanding) .......... $8.31
=====
------------------
(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 December 31, 2006, the
market value of fair valued securities amounted to $3,380,707 or 2.23% of
total investments.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At December
31, 2006, the market value of Rule 144A securities amounted to $4,138,870
or 2.73% of total investments. Except as noted in (c), these securities
are liquid.
(c) At December 31, 2006, the Fund held investments in restricted and illiquid
securities amounting to $3,380,590 or 2.23% of total investments, which
were valued under methods approved by the Board as follows:
ACQUISITION
SHARES/ 12/31/06
PRINCIPAL ACQUISITION ACQUISITION CARRYING VALUE
AMOUNT ISSUER DATE COST PER UNIT
------ ------ ----------- ----------- --------
$ 50,000 Amnex Inc.,
8.500%, 09/25/49 .......... 09/15/97 $ 48,801 --
1,707,500 GP Strategies Corp.
6.000%, 08/14/08 .......... 08/14/03 1,163,605 $ 67.1171
212,431 GP Strategies Corp.
Warrants expire 08/14/08 .. 08/08/03 515,687 2.9315
100 Gray Television Inc.,
8.000% Cv. Pfd., Ser. C ... 04/22/02 1,000,000 10,000.0000
14,561 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 -- 0.2691
1,300 Pamalat SpA Warrants,
GDR, expire 12/31/15 ...... 11/09/05 -- --
(d) Security in default.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR American Depository Receipt
CVO Contingent Value Obligation
GDR Global Depository Receipt
STEP Step coupon bond. The rate disclosed is that in effect at December 31,
2006.
See accompanying notes to financial statements.
6
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS:
Investments, at value (cost $145,241,976) ................ $ 151,884,131
Deposit at broker ........................................ 183,882
Dividends and interest receivable ........................ 877,834
Receivable for investments sold .......................... 391,554
Prepaid expense .......................................... 8,007
-------------
TOTAL ASSETS ............................................. 153,345,408
-------------
LIABILITIES:
Payable to custodian ..................................... 386,818
Payable for investment advisory fees ..................... 584,717
Payable for legal and audit fees ......................... 61,624
Distributions payable .................................... 43,034
Payable for payroll expenses ............................. 24,688
Payable for accounting fees .............................. 7,501
Other accrued expenses ................................... 78,716
-------------
TOTAL LIABILITIES ........................................ 1,187,098
-------------
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 ..................................... $ 102,388,310
=============
NET ASSETS ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS CONSIST OF:
Paid-in capital, at $0.001 par value ..................... $ 96,115,728
Accumulated distributions in excess of net
investment income ...................................... (56,042)
Accumulated distributions in excess of net
realized gain on investments, securities
sold short, and foreign currency transactions .......... (313,531)
Net unrealized appreciation on investments ............... 6,642,155
-------------
TOTAL NET ASSETS ......................................... $ 102,388,310
=============
NET ASSET VALUE PER COMMON SHARE
($102,388,310 / 12,322,474 shares outstanding;
998,000,000 shares authorized) ......................... $8.31
=====
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
INVESTMENT INCOME:
Dividends (net of foreign taxes of $9,260) .................. $ 2,013,216
Interest .................................................... 5,474,343
------------
TOTAL INVESTMENT INCOME ..................................... 7,487,559
------------
EXPENSES:
Investment advisory fees .................................... 1,488,222
Payroll expenses ............................................ 107,350
Shareholder communications expenses ......................... 88,202
Directors' fees ............................................. 64,001
Auction agent fees .......................................... 62,400
Legal and audit fees ........................................ 57,516
Shareholder services fees ................................... 46,258
Accounting fees ............................................. 45,000
Custodian fees .............................................. 29,433
Miscellaneous expenses ...................................... 57,267
------------
TOTAL EXPENSES .............................................. 2,045,649
------------
Less: Custodian fee credits ................................. (11,830)
------------
NET EXPENSES ................................................ 2,033,819
------------
NET INVESTMENT INCOME ....................................... 5,453,740
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
SECURITIES SOLD SHORT, AND FOREIGN CURRENCY:
Net realized gain on investments ............................ 6,485,649
Net realized gain on securities sold short .................. 840,301
Net realized gain on foreign currency transactions .......... 57,380
------------
Net realized gain on investments, securities sold short,
and foreign currency transactions ......................... 7,383,330
------------
Net change in unrealized appreciation/depreciation:
on investments ............................................ 3,821,156
on foreign currency translations .......................... 207
------------
Net change in unrealized appreciation/depreciation
on investments and foreign currency translations .......... 3,821,363
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, SECURITIES SOLD SHORT, AND
FOREIGN CURRENCY .......................................... 11,204,693
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................... 16,658,433
------------
Total Distributions to Preferred Stock Shareholders ......... (2,711,728)
------------
NET INCREASE IN NET ASSETS ATTRIBUTABLE TO COMMON
STOCK SHAREHOLDERS RESULTING FROM OPERATIONS .............. $ 13,946,705
============
See accompanying notes to financial statements.
7
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
OPERATIONS:
Net investment income ............................................ $ 5,453,740 $ 4,762,777
Net realized gain on investments, swap contracts,
securities sold short, and foreign currency transactions ....... 7,383,330 4,064,956
Net change in unrealized appreciation/depreciation on investments,
swap contracts, and foreign currency translations .............. 3,821,363 (1,585,036)
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. 16,658,433 7,242,697
------------- -------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
Net investment income ............................................ (1,164,307) (1,701,396)
Net realized short-term gain on investments, swap contracts,
securities sold short, and foreign currency transactions ....... (410,176) (146,093)
Net realized long-term gain on investments, swap contracts,
securities sold short, and foreign currency transactions ....... (1,137,245) (454,906)
------------- -------------
TOTAL DISTRIBUTIONS TO PREFERRED SHAREHOLDERS .................... (2,711,728) (2,302,395)
------------- -------------
NET INCREASE IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS
RESULTING FROM OPERATIONS ...................................... 13,946,705 4,940,302
------------- -------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income ............................................ (4,167,267) (2,958,577)
Net realized short-term gain on investments, swap contracts,
securities sold short, and foreign currency transactions ....... (1,468,096) (1,500,753)
Net realized long-term gain on investments, swap contracts,
securities sold short, and foreign currency transactions ....... (4,070,407) (1,869,629)
Return of capital ................................................ -- (3,133,698)
------------- -------------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS ....................... (9,705,770) (9,462,657)
------------- -------------
FUND SHARE TRANSACTIONS:
Net increase in net assets from common shares issued
upon reinvestment of dividends and distributions ............... 2,593,272 2,649,555
Offering costs for preferred shares charged to paid-in capital ... -- (5,068)
------------- -------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS .......... 2,593,272 2,644,487
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS ...................................... 6,834,207 (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) ............................. $ 102,388,310 $ 95,554,103
============= =============
See accompanying notes to financial statements.
8
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION. The Gabelli Convertible and Income Securities Fund Inc. (the
"Fund") is a diversified closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), whose
investment objective is to seek a high level of total return through a
combination of current income and capital appreciation by investing in
convertible securities. The Fund was incorporated in Maryland on December 19,
1988 as a diversified open-end management investment company and commenced
investment operations on July 3, 1989 as The Gabelli Convertible Securities
Fund, Inc. The Board of Directors (the "Board"), 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.
In September 2006, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") 157, Fair Value
Measurements, which clarifies the definition of fair value and requires
companies to expand their disclosure about the use of fair value to measure
assets and liabilities in interim and annual periods subsequent to initial
recognition. Adoption of SFAS 157 requires the use of the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. At this time,
management is in the process of reviewing the requirements of SFAS 157 against
its current valuation policies to determine future applicability.
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
9
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 December
31, 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 are 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
December 31, 2006, there were no open swap agreements.
FUTURES CONTRACTS. The Fund may engage in futures contracts for the purpose
of hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin." Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily fluctuations in the
value of the contract, which are included in unrealized
appreciation/depreciation on investments and futures contracts. The Fund
recognizes a realized gain or loss when the contract is closed.
There are several risks in connection with the use of futures contracts as
a hedging instrument. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in value of the hedged investments. In addition, there
is the risk that the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market. At December 31, 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. At December 31, 2006, there were no open
securities sold short.
10
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORWARD FOREIGN EXCHANGE CONTRACTS. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. Forward foreign exchange contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
included in unrealized appreciation/depreciation on investments and foreign
currency translations. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate
fluctuations in the underlying prices of the Fund's portfolio securities, but it
does establish a rate of exchange that can be achieved in the future. Although
forward foreign exchange contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that might
result should the value of the currency increase. In addition, the Fund could be
exposed to risks if the counterparties to the contracts are unable to meet the
terms of their contracts. At December 31, 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.
FOREIGN SECURITIES. The Fund may directly purchase securities of foreign
issuers. Investing in securities of foreign issuers involves special risks not
typically associated with investing in securities of U.S. issuers. The risks
include possible revaluation of currencies, the ability to repatriate funds,
less complete financial information about companies, and possible future adverse
political and economic developments. Moreover, securities of many foreign
issuers and their markets may be less liquid and their prices more volatile than
those of securities of comparable U.S. issuers.
FOREIGN TAXES. The Fund may be subject to foreign taxes on income, gains on
investments, or currency repatriation, a portion of which may be recoverable.
The Fund will accrue such taxes and recoveries as applicable, based upon its
current interpretation of tax rules and regulations that exist in the markets in
which it invests.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its
net assets in securities for which the markets are illiquid. Illiquid securities
include securities the disposition of which is subject to substantial legal or
contractual restrictions. The sale of illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Securities freely saleable among qualified
institutional investors under special rules adopted by the SEC may be treated as
liquid if they satisfy liquidity standards established by the Board. The
continued liquidity of such securities is not as well assured as that of
publicly traded securities, and accordingly the Board will monitor their
liquidity.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded on the accrual
basis. Premiums and discounts on debt securities are amortized using the
effective yield to maturity method. Dividend income is recorded on the
ex-dividend date except for certain dividends which are recorded as soon as the
Fund is informed of the dividend.
CUSTODIAN FEE CREDITS AND INTEREST EXPENSE. When cash balances are
maintained in the custody account, the Fund receives credits which are used to
offset custodian fees. The gross expenses paid under the custody arrangement are
included in custodian fees in the Statement of Operations with the corresponding
expense offset, if any, shown as "custodian fee credits". When cash balances are
overdrawn, the Fund is charged an overdraft fee of 2.00% above the Federal Funds
rate on outstanding balances. This amount, if any, would be shown as "interest
expense" in the Statement of Operations.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions to common shareholders are
recorded on the ex-dividend date. Distributions to shareholders are based on
income and capital gains as determined in accordance with Federal income tax
regulations, which may differ from income and capital gains as determined under
U.S. generally accepted accounting principles. These differences are primarily
due to differing treatments of income and gains on various investment securities
and foreign currency transactions held by
11
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the Fund, timing differences, and differing characterizations of distributions
made by the Fund. Distributions from net investment income include net realized
gains on foreign currency transactions. These book/tax differences are either
temporary or permanent in nature. To the extent these differences are permanent,
adjustments are made to the appropriate capital accounts in the period when the
differences arise. These reclassifications have no impact on the NAV of the
Fund. For the fiscal year ended December 31, 2006, reclassifications were made
to decrease accumulated distributions in excess of net investment income by
$3,563 and to increase accumulated distributions in excess of net realized gain
on investments, swap contracts, and foreign currency transactions by $3,563.
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.
The tax character of distributions paid during the fiscal years ended
December 31, 2006 and December 31, 2005 was as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
--------------------------- ----------------------------
COMMON PREFERRED COMMON PREFERRED
---------- ---------- ---------- ----------
DISTRIBUTIONS PAID FROM:
Ordinary income
(inclusive of short-term
capital gains) ......................... $5,635,363 $1,574,483 $4,459,330 $1,847,489
Net long-term capital gains .............. 4,070,407 1,137,245 1,869,629 454,906
Non-taxable return of capital ............ -- -- 3,133,698 --
---------- ---------- ---------- ----------
Total distributions paid ................. $9,705,770 $2,711,728 $9,462,657 $2,302,395
========== ========== ========== ==========
During 2006, distributions were made from current earnings and profits that
were in excess of required distributions and treated as ordinary income.
PROVISION FOR INCOME TAXES. The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). It is the policy of the Fund to comply with the
requirements of the Code applicable to regulated investment companies and to
distribute substantially all of its net investment company taxable income and
net capital gains. Therefore, no provision for Federal income taxes is required.
At December 31, 2006, the difference between book basis and tax basis
unrealized appreciation was primarily due to deferral of losses on wash sales,
basis adjustments on investments in partnerships, and from prior year tax
elections.
As of December 31, 2006, the components of accumulated earnings/(losses) on
a tax basis were as follows:
Undistributed ordinary income
(inclusive of short-term capital gains) ....$ 148,033
Net long-term capital gains .................. 12,642
Net unrealized appreciation on investments ... 6,332,016
Other* ....................................... (220,109)
----------
Total accumulated earnings ...................$6,272,582
==========
------------------
* Other is primarily due to defaulted income accrued for tax purposes.
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 December 31, 2006:
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
---- ------------ ------------ ------------
Investments ...... $145,552,115 $10,766,741 $(4,434,725) $6,332,016
In July 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" ("the
Interpretation"). The Interpretation establishes for all entities, including
pass-through entities such as the Fund, a minimum threshold for financial
statement recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. The Interpretation is required to be
implemented for the Fund no later than June 29, 2007, and is to be applied to
all open tax years as of the date of effectiveness. Management has begun to
evaluate the application of the Interpretation to the Fund, and is not in a
position at this time to estimate the significance of its impact, if any, on the
Fund's financial statements.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES. The Fund has entered into an
investment advisory agreement (the "Advisory Agreement") with the Adviser which
provides that the Fund will pay the Adviser a fee, computed daily and paid
monthly, equal on an annual basis to 1.00% of the value of the Fund's average
daily net assets including the liquidation value of preferred stock. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio and oversees the administration of
all aspects of the Fund's business and affairs. The Adviser has agreed to reduce
the management fee on the incremental assets attributable to the Cumulative
Preferred Stock if the total return of the NAV of the common shares of the Fund,
including
12
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 fiscal year ended
December 31, 2006, the Fund's total return on the NAV of the Common Shares
exceeded the stated dividend rate or net swap expense of all outstanding
Preferred Stock. Thus, management fees were accrued on these assets.
During the year ended December 31, 2006, the Fund paid brokerage
commissions of $70,362 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 fiscal
year ended December 31, 2006, the Fund paid or accrued $45,000 to the Adviser in
connection with the cost of computing the Fund's NAV.
The Fund is assuming its portion of the allocated cost of the Gabelli
Funds' Chief Compliance Officer in the amount of $3,947 for the fiscal year
ended December 31, 2006, which is included in payroll expenses in the Statement
of Operations.
The Fund pays each Director that is not considered to be an affiliated
person an annual retainer of $5,000 plus $750 for each Board meeting attended
and they are reimbursed for any out of pocket expenses incurred in attending
meetings. All Board committee members receive $500 per meeting attended. In
addition, the Audit Committee Chairman receives an annual fee of $3,000 and the
Nominating Committee Chairman receives an annual fee of $2,000. Directors who
are directors or employees of the Adviser or an affiliated company receive no
compensation or expense reimbursement from the Fund.
4. PORTFOLIO SECURITIES. Purchases and proceeds from the sales of securities for
the fiscal year ended December 31, 2006, other than short-term securities,
aggregated $68,913,802 and $54,143,354, respectively.
5. CAPITAL. The charter permits the Fund to issue 998,000,000 shares of common
stock (par value $0.001). The Board has authorized the repurchase of up to
500,000 common shares on the open market when the shares are trading at a
discount of 10% or more (or such other percentage as the Board may determine
from time to time) from the NAV of the shares. During the year ended December
31, 2006, the Fund did not repurchase any shares of its common stock in the open
market.
Transactions in common stock were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
---------------------- ---------------------
Shares Amount Shares Amount
--------- ---------- --------- ---------
Net increase from shares issued upon
reinvestment of distributions ........... 307,518 $2,593,272 297,916 $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 6.00% Series B and Series C Auction Rate Cumulative Preferred Stock at
redemption prices of $25.00 and $25,000, respectively, per share plus an amount
equal to the accumulated and unpaid dividends whether or not declared on such
shares in order to meet these requirements. Additionally, failure to meet the
foregoing asset coverage requirements could restrict the Fund's ability to pay
dividends to common shareholders and could lead to sales of portfolio securities
at inopportune times. The income received on the Fund's assets may vary in a
manner unrelated to the fixed and variable rates, which could have either a
beneficial or detrimental impact on net investment income and gains available to
common shareholders.
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 fiscal year ended December 31, 2006, the Fund did
not repurchase any shares of 6.00% Series B Cumulative Preferred Stock. At
December 31, 2006, 990,800 shares of 6.00% Series B Cumulative Preferred Stock
were outstanding and accrued dividends amounted to $24,770.
13
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On March 18, 2003, the Fund received net proceeds of $24,531,741 after
underwriting discounts of $250,000 and offering expenses of $218,259 from the
public offering of 1,000 shares of Series C Auction Rate Cumulative Preferred
Stock. The dividend rate, as set by the auction process, which is generally held
every seven days, is expected to vary with short-term interest rates. The
dividend rates of Series C Auction Rate Cumulative Preferred Stock ranged from
4.15% to 5.26% for the year ended December 31, 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 year ended December 31, 2006, the Fund did not redeem any
shares of Series C Auction Rate Cumulative Preferred Stock. At December 31,
2006, 1,000 shares of Series C Auction Rate Cumulative Preferred Stock were
outstanding with an annualized dividend rate of 5.26% and accrued dividends
amounted to $18,264.
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 received subpoenas from the
Attorney General of the State of New York and the SEC requesting information on
mutual fund share trading practices involving certain funds managed by the
Adviser. GAMCO Investors, Inc. ("GAMCO"), the Adviser's parent company,
responded to these requests for documents and testimony. In June 2006, GAMCO
began discussions with the SEC regarding a possible resolution of their inquiry.
In February 2007, the Adviser made an offer of settlement to the staff of the
SEC for communication to the Commission for its consideration to resolve this
matter. This offer of settlement is subject to agreement regarding the specific
language of the SEC's administrative order and other settlement documents. 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.
14
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A COMMON SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
OPERATING PERFORMANCE:
Net asset value, beginning of period ....................$ 7.95 $ 8.32 $ 8.90 $ 8.44 $ 9.92
-------- -------- -------- -------- --------
Net investment income ................................... 0.45 0.40 0.34 0.31 0.49
Net realized and unrealized gain (loss) on investments .. 0.92 0.20 0.01 1.19 (0.76)
-------- -------- -------- -------- --------
Total from investment operations ........................ 1.37 0.60 0.35 1.50 (0.27)
-------- -------- -------- -------- --------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS: (A)
Net investment income ................................... (0.09) (0.14) (0.16) (0.11) (0.28)
Net realized gain on investments ........................ (0.13) (0.05) -- (0.03) --
-------- -------- -------- -------- --------
Total distributions to preferred stock shareholders ..... (0.22) (0.19) (0.16) (0.14) (0.28)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS ............................. 1.15 0.41 0.19 1.36 (0.55)
-------- -------- -------- -------- --------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Net investment income ................................... (0.34) (0.25) (0.18) (0.17) (0.27)
Net realized gain on investments ........................ (0.46) (0.29) -- (0.03) --
Paid-in capital ......................................... -- (0.26) (0.62) (0.60) (0.48)
-------- -------- -------- -------- --------
Total distributions to common shareholders .............. (0.80) (0.80) (0.80) (0.80) (0.75)
-------- -------- -------- -------- --------
FUND SHARE TRANSACTIONS:
Increase in net asset value from common
share transactions .................................... 0.01 0.02 0.03 0.02 0.02
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(f) -- --
Offering costs for preferred shares
charged to paid-in capital ............................ -- (0.00)(f) 0.00(f) (0.12) --
-------- -------- -------- -------- --------
Total fund share transactions ........................... 0.01 0.02 0.03 (0.10) (0.18)
-------- -------- -------- -------- --------
NET ASSET VALUE ATTRIBUTABLE TO COMMON SHAREHOLDERS,
END OF PERIOD .........................................$ 8.31 $ 7.95 $ 8.32 $ 8.90 $ 8.44
======== ======== ======== ======== ========
NAV total return + ...................................... 14.80% 4.4% 1.5% 14.5% (7.0)%
======== ======== ======== ======== ========
Market value, end of period .............................$ 8.95 $ 8.83 $ 9.24 $ 10.54 $ 8.55
======== ======== ======== ======== ========
Investment total return ++ .............................. 11.32% 4.5% (4.8)% 33.9% (14.2)%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets including liquidation value
of preferred shares,
end of period (in 000's) ..............................$152,158 $145,324 $147,202 $151,658 $108,774
Net assets attributable to common shares,
end of period (in 000's) ..............................$102,388 $ 95,554 $ 97,432 $101,658 $ 93,774
Ratio of net investment income to
average net assets attributable
to common shares before preferred
share distributions ................................... 5.51% 4.93% 4.41% 3.47% 5.32%
Ratio of operating expenses to average
net assets attributable to
common shares net of advisory
fee reduction, if any ................................. 2.07%(d)(e) 1.92%(d) 1.61% 1.93% 1.58%
Ratio of operating expenses to average
net assets including liquidation
value of preferred shares net of
advisory fee reduction, if any ........................ 1.37%(d)(e) 1.27%(d) 1.07% 1.37% 1.15%
Portfolio turnover rate ................................. 51% 32% 57% 39% 56%
See accompanying notes to financial statements.
15
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
PREFERRED STOCK:
8.00% CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's) ........... -- -- -- -- $ 15,000
Total shares outstanding (in 000's) ................... -- -- -- -- 600
Liquidation preference per share ...................... -- -- -- -- $ 25.00
Average market value (b) .............................. -- -- -- -- $ 25.83
Asset coverage per share .............................. -- -- -- -- $ 181.29
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) .............................. $ 24.10 $ 25.14 $ 24.90 $ 25.33 --
Asset coverage per share .............................. $ 76.43 $ 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 .............................. $ 76,431 $ 72,998 $ 73,941 $ 75,829 --
ASSET COVERAGE (C) .................................... 306% 292% 296% 303% 725%
----------------------
+ Based on net asset value per share, adjusted for reinvestment of
distributions at prices obtained under the Fund's dividend reinvestment
plan, including the effect of shares issued pursuant to the 2002 rights
offering, assuming full subscription by shareholder.
++ Based on market value per share, adjusted for reinvestment of distributions
at prices obtained under the Fund's dividend reinvestment plan, including
the effect of shares issued pursuant to the 2002 rights offering, assuming
full subscription by shareholder.
(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) 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 year ended December 31, 2006, the ratios of operating
expenses to average net assets attributable to common shares net of fee
reduction would have been 2.05% and the ratios of operating expenses to
average net assets including liquidation value of preferred shares net of
fee reduction would have been 1.37%. For the year ended December 31, 2005,
the effect of the custodian fee credits was minimal.
(e) The Fund incurred dividend expense on securities sold short for the fiscal
year ended December 31, 2006. If dividend expense had not been incurred,
the ratio of operating expenses to average net assets attributable to
common shares would have been 2.06% and the ratio of operating expenses to
average net assets including liquidation value of preferred shares would
have been 1.37%.
(f) Amount represents less than $0.005 per share.
See accompanying notes to financial statements.
16
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Gabelli Convertible and Income Securities Fund Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Convertible and Income
Securities Fund Inc. (hereafter referred to as the "Fund") at December 31, 2006,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 28, 2007
17
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
ADDITIONAL FUND INFORMATION (UNAUDITED)
The business and affairs of the Fund are managed under the direction of
the Fund's Board of Directors. Information pertaining to the Directors and
officers of the Fund is set forth below. The Fund's Statement of Additional
Information includes additional information about The Gabelli Convertible and
Income Securities Fund Inc. Directors and is available, without charge, upon
request, by calling 800-GABELLI (800-422-3554) or by writing to The Gabelli
Convertible and Income Securities Fund Inc. at One Corporate Center, Rye, NY
10580-1422.
TERM OF NUMBER OF
OFFICE AND FUNDS IN FUND
NAME, POSITION(S) LENGTH OF COMPLEX
ADDRESS 1 TIME OVERSEEN BY PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AND AGE SERVED 2 DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR 5
----------------- -------- ----------- ----------------------- ------------------
INTERESTED DIRECTORS 3:
----------------------
MARIO J. GABELLI Since 1989** 24 Chairman of the Board and Chief Executive Director of Morgan
Director and Officer of GAMCO Investors, Inc. and Group Holdings, Inc.
Chief Investment Officer Chief Investment Officer - Value Portfolios (transportation
Age: 64 of Gabelli Funds, LLC and GAMCO Asset services); Chairman
Management Inc.; Director/Trustee or Chief of the Board of Lynch
Investment Officer of other registered Interactive Corporation
investment companies in the Gabelli Funds (multimedia
complex; Chairman and Chief Executive and communication
Officer of GGCP, Inc. services company)
INDEPENDENT DIRECTORS 6:
-----------------------
E. VAL CERUTTI Since 1989* 7 Chief Executive Officer of Cerutti Director of The LGL
Director Consultants, Inc.; Adviser to Group, Inc. (diversified
Age: 67 Iona College Hagan School of Business manufacturing)
ANTHONY J. COLAVITA 4 Since 1989*** 34 Partner in the law firm of --
Director Anthony J. Colavita, P.C.
Age: 71
DUGALD A. FLETCHER Since 1989* 2 President, Fletcher & Company, Inc. Director of Harris
Director and Harris Group, Inc.
Age: 77 (venture capital)
ANTHONY R. PUSTORINO Since 1989* 14 Certified Public Accountant; Professor Director of The LGL
Director Emeritus, Pace University Group, Inc. (diversified
Age: 81 manufacturing)
WERNER J. ROEDER, MD 4 Since 2001** 23 Medical Director of Lawrence Hospital --
Director and practicing private physician
Age: 66
ANTHONIE C. VAN EKRIS Since 1992*** 17 Chairman of BALMAC International, Inc. --
Director (commodities and futures trading)
Age: 72
SALVATORE J. ZIZZA Since 1991*** 25 Chairman of Hallmark Electrical Supplies Director of Hollis-Eden
Director Corp. (distribution of electrical supplies) Pharmaceuticals
Age: 61 (biotechnology)
Earl Scheib, Inc.
(automotive services)
18
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
ADDITIONAL FUND INFORMATION (UNAUDITED) (CONTINUED)
TERM OF
OFFICE AND
NAME, POSITION(S) LENGTH OF
ADDRESS 1 TIME PRINCIPAL OCCUPATION(S)
AND AGE SERVED 2 DURING PAST FIVE YEARS
----------------- ------------ -----------------------
OFFICERS:
--------
BRUCE N. ALPERT Since 2003 Executive Vice President and Chief Operating Officer of Gabelli Funds, LLC
President since 1988 and an officer of all of the registered investment companies in the
Age: 55 Gabelli Funds complex. Director and President of Gabelli Advisers, Inc.
since 1998
LAURISSA M. MARTIRE Since 2004 Vice President of The Gabelli Global Multimedia Trust Inc. since 2004.
Vice President and Ombudsman Assistant Vice President of GAMCO Investors, Inc. since 2003. Prior to 2003,
Age: 30 Sales Assistant for GAMCO Investors, Inc.
JAMES E. MCKEE Since 1995 Vice President, General Counsel and Secretary of GAMCO Investors, Inc.
Secretary since 1999 and GAMCO Asset Management Inc. since 1993; Secretary of
Age: 43 all of the registered investment companies in the Gabelli Funds complex
AGNES MULLADY Since 2006 Treasurer of all of the registered investment companies in the Gabelli Funds complex;
Treasurer Senior Vice President of U.S. Trust Company, N.A. and Treasurer and Chief Financial
Age: 48 Officer of Excelsior Funds from 2004 through 2005; Chief Financial Officer of AMIC
Distribution Partners from 2002 through 2004; Controller of Reserve Management
Corporation and Reserve Partners, Inc. and Treasurer of Reserve Funds from 2000
through 2002
PETER D. GOLDSTEIN Since 2004 Director of Regulatory Affairs at GAMCO Investors, Inc. since 2004; Chief Compliance
Chief Compliance Officer Officer of all of the registered investment companies in the Gabelli Funds complex;
Age: 53 Vice President of Goldman Sachs Asset Management from 2000 through 2004
-------------------------
1 Address: One Corporate Center, Rye, NY 10580 1422, unless otherwise noted.
2 The Fund's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term. The three year term for each class expires as follows:
* - Term expires at the Fund's 2009 Annual Meeting of Shareholders or
until their successors are duly elected and qualified.
** - Term expires at the Fund's 2007 Annual Meeting of Shareholders or
until their successors are duly elected and qualified.
*** - Term expires at the Fund's 2008 Annual Meeting of Shareholders or
until their successors are duly elected and qualified.
Each officer will hold office for an indefinite term until the date he or
she resigns or retires or until his or her successor is elected and
qualified.
3 "Interested person" of the Fund as defined in the 1940 Act. Mr. Gabelli is
considered an "interested person" because of his affiliation with Gabelli
Funds, LLC which acts as the Fund's investment adviser.
4 Represents holders of the Fund's Preferred Stock.
5 This column includes only directorships of companies required to report to
the SEC under the Securities Exchange Act of 1934, as amended (i.e. public
companies) or other investment companies registered under the 1940 Act.
6 Directors who are not interested persons are considered "Independent"
Directors.
CERTIFICATIONS
The Fund's Chief Executive Officer has certified to the New York Stock
Exchange ("NYSE") that, as of June 12, 2006, he was not aware of any violation
by the Fund of applicable NYSE corporate governance listing standards. The Fund
reports to the Securities and Exchange Commission on Form N-CSR which contains
certifications by the Fund's principal executive officer and principal financial
officer that relate to the Fund's disclosure in such reports and that are
required by Rule 30a-2(a) under the 1940 Act.
19
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
INCOME TAX INFORMATION (UNAUDITED)
DECEMBER 31, 2006
CASH DIVIDENDS AND DISTRIBUTIONS
TOTAL AMOUNT ORDINARY LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT CAPITAL REINVESTMENT
DATE DATE PER SHARE (A) INCOME (A) GAIN (A) PRICE
-------- -------- ------------- ---------- -------- -------------
COMMON SHARES
03/27/06 03/17/06 $0.20000 $0.11615 $0.08385 $8.78750
06/26/06 06/16/06 0.20000 0.11615 0.08385 7.84000
09/25/06 09/15/06 0.20000 0.11615 0.08385 8.43600
12/18/06 12/13/06 0.20000 0.11615 0.08385 8.74000
-------- -------- --------
$0.80000 $0.46460 $0.33540
6.00% PREFERRED SHARES
03/27/06 03/20/06 $0.37500 $0.21777 $0.15723
06/26/06 06/19/06 0.37500 0.21777 0.15723
09/26/06 09/19/06 0.37500 0.21778 0.15722
12/26/06 12/18/06 0.37500 0.21778 0.15722
-------- -------- --------
$1.50000 $0.87110 $0.62890
AUCTION RATE PREFERRED SHARES
Auction Rate Preferred Shares pay dividends weekly based on a rate set at
auction, usually held every seven days. The percentage of 2006 distributions
derived from long-term capital gains for the Auction Rate Preferred Shares was
41.93%.
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
your 2006 tax returns. Ordinary income distributions include net investment
income and net realized short-term capital gains. The long-term gain
distributions for the fiscal year ended December 31, 2006 were $5,207,652, or
the maximum allowable.
CORPORATE DIVIDENDS RECEIVED DEDUCTION, QUALIFIED DIVIDEND INCOME AND U.S.
GOVERNMENT SECURITIES INCOME
The Fund paid to common and 6.00% Series B preferred shareholders ordinary
income dividends of $0.46460 and $0.87110 per share, respectively, in 2006. The
Fund paid weekly distributions to Series C Auction Rate Preferred shareholders
at varying rates throughout the year, including an ordinary income dividend
totalling $710.25330 per share in 2006. For the fiscal year ended December 31,
2006, 19.02% of the ordinary dividend qualified for the dividend received
deduction available to corporations, and 25.92% of the ordinary income
distribution was qualified dividend income. The percentage of ordinary income
dividends paid by the Fund during 2006 derived from U.S. Treasury Securities was
27.52%. Such income is exempt from state and local tax in all states. However,
many states, including New York and California, allow a tax exemption for a
portion of the income earned only if a mutual fund has invested at least 50% of
its assets at the end of each quarter of the Fund's fiscal year in U.S.
Government Securities. The Fund did not meet this strict requirement in 2006.
The percentage of U.S. Treasury Securities held as of December 31, 2006 was
31.11%.
HISTORICAL DISTRIBUTION SUMMARY
SHORT-TERM LONG-TERM ADJUSTMENT
INVESTMENT CAPITAL CAPITAL RETURN OF TOTAL TO
INCOME (B) GAINS (B) GAINS CAPITAL (C) DISTRIBUTIONS (A) COST BASIS (D)
COMMON STOCK ---------- ---------- --------- ----------- ----------------- --------------
2006 ......................... $0.34356 $0.12104 $0.33540 -- $0.80000 --
2005 ......................... 0.29540 0.05780 0.20644 $0.24036 0.80000 $0.24036
2004 ......................... 0.18800 -- -- 0.61200 0.80000 0.61200
2003 ......................... 0.18800 -- 0.05160 0.56040 0.80000 0.56040
2002 ......................... 0.27170 -- -- 0.47830 0.75000 0.47830
2001 ......................... 0.47550 0.06950 0.26500 -- 0.81000 --
2000 ......................... 0.56610 0.32670 0.40720 -- 1.30000 --
1999 ......................... 0.38990 0.44590 0.19420 -- 1.03000 --
1998 ......................... 0.38660 0.24130 0.29210 -- 0.92000 --
1997 ......................... 0.39690 0.22850 0.33460 -- 0.96000 --
1996 ......................... 0.49000 0.14160 0.10340 -- 0.73500 --
1995 ......................... 0.55740 0.20410 0.35950 0.02900 1.15000 0.02900
1994 ......................... 0.57300 0.11500 0.21200 -- 0.90000 --
1993 ......................... 0.56100 0.20000 0.66400 -- 1.42500 --
1992 ......................... 0.65400 0.09000 0.13200 -- 0.87600 --
1991 ......................... 0.70600 0.11200 0.04700 -- 0.86500 --
1990 ......................... 0.69000 -- -- -- 0.69000 --
1989 ......................... 0.11500 -- -- -- 0.11500 --
6.00% PREFERRED STOCK
2006 ......................... $0.64417 $0.22693 $0.62890 -- $1.50000 --
2005 ......................... 0.79175 0.15491 0.55334 -- 1.50000 --
2004 ......................... 1.50000 -- -- -- 1.50000 --
2003 ......................... 0.90900 -- 0.24930 -- 1.15830 --
AUCTION RATE PREFERRED SHARES
2006 .........................$525.22150 $185.03180 $512.76670 -- $1.223.02000 --
2005 ......................... 438.5016 85.79450 306.46390 -- 830.76000 --
2004 ......................... 375.0800 -- -- -- 375.08000 --
2003 ......................... 187.3200 -- 51.34000 -- 238.66000 --
--------------------------
(a) Total amounts may differ due to rounding.
(b) Taxable as ordinary income for Federal tax purposes.
(c) Non-taxable.
(d) Decrease in cost basis.
20
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 payable to common shareholders.
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 distributions 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.
21
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,
RI02940-3010 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 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.
--------------------------------------------------------------------------------
The Annual Meeting of The Gabelli Convertible and Income Securities Fund
Inc.'s shareholders will be held at 8:30 A.M. on Monday, May 14, 2007 at the
Greenwich Library in Greenwich, Connecticut.
--------------------------------------------------------------------------------
22
DIRECTORS AND OFFICERS
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
ONE CORPORATE CENTER, RYE, NY 10580-1422
DIRECTORS OFFICERS
Mario J. Gabelli, CFA Bruce N. Alpert
CHAIRMAN & CHIEF EXECUTIVE OFFICER, PRESIDENT
GAMCO INVESTORS, INC.
Peter D. Goldstein
E. Val Cerutti CHIEF COMPLIANCE OFFICER
CHIEF EXECUTIVE OFFICER,
CERUTTI CONSULTANTS, INC. Laurissa M. Martire
VICE PRESIDENT & OMBUDSMAN
Anthony J. Colavita
ATTORNEY-AT-LAW, James E. McKee
ANTHONY J. COLAVITA, P.C. SECRETARY
Dugald A. Fletcher Agnes Mullady
PRESIDENT, FLETCHER & COMPANY, INC. TREASURER
Anthony R. Pustorino INVESTMENT ADVISER
CERTIFIED PUBLIC ACCOUNTANT, Gabelli Funds, LLC
PROFESSOR EMERITUS, PACE UNIVERSITY One Corporate Center
Rye, New York 10580-1422
Werner J. Roeder, MD
MEDICAL DIRECTOR, CUSTODIAN
LAWRENCE HOSPITAL State Street Bank and Trust Company
Anthonie C. van Ekris COUNSEL
CHAIRMAN, BALMAC INTERNATIONAL, INC. Skadden, Arps, Slate, Meagher & Flom LLP
Salvatore J. Zizza TRANSFER AGENT AND REGISTRAR
CHAIRMAN, HALLMARK ELECTRICAL SUPPLIES CORP. Computershare Trust Company, N.A.
STOCK EXCHANGE LISTING
Common 6.00% Preferred
------ ---------------
NYSE-Symbol: GCV GCV PrB
Shares Outstanding: 12,322,474 990,800
The Net Asset Value per share appears in the
Publicly Traded Funds column, under the
heading "Convertible Securities Funds," in
Monday's The Wall Street Journal. It is also
listed in Barron's Mutual Funds/Closed End
Funds section under the heading "Convertible
Securities Funds."
The Net Asset Value per share may be obtained
each day by calling (914) 921-5070.
--------------------------------------------------------------------------------
For general information about the Gabelli Funds, call 800-GABELLI
(800-422-3554), fax us at 914-921-5118, visit Gabelli Funds' Internet homepage
at: WWW.GABELLI.COM or e-mail us at: closedend@gabelli.com
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Fund may, from time to time, purchase
shares of its common stock in the open market when the Fund's shares are trading
at a discount of 10% or more from the net asset value of the shares. The Fund
may also, from time to time, purchase shares of its Series B Cumulative
Preferred Stock in the open market when the shares are trading at a discount to
the Liquidation Value of $25.00.
--------------------------------------------------------------------------------
THE GABELLI CONVERTIBLE AND INCOME SECURITIES FUND INC.
ONE CORPORATE CENTER, RYE, NY 10580-1422
PHONE: 800-GABELLI (800-422-3554)
FAX: 914-921-5118 INTERNET: WWW.GABELLI.COM
E-MAIL: CLOSEDEND@GABELLI.COM
GCV Q4/2006
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, that relates to one or more of the
items set forth in paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's Board of
Directors has determined that Anthony R. Pustorino is qualified to serve as an
audit committee financial expert serving on its audit committee and that he is
"independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$41,315 for 2005 and $41,800 for 2006.
AUDIT-RELATED FEES
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $7,700 for 2005 and $7,700 for 2006. Audit-related fees
represent services provided in the preparation of Preferred Shares
Reports.
TAX FEES
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $2,880 for 2005 and $3,100
for 2006. Tax fees represent tax compliance services provided in
connection with the review of the Registrant's tax returns.
ALL OTHER FEES
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are $0
for 2005 and $0 for 2006.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pre-Approval Policies and Procedures. The Audit Committee ("Committee")
of the registrant is responsible for pre-approving (i) all audit and
permissible non-audit services to be provided by the independent
registered public accounting firm to the registrant and (ii) all
permissible non-audit services to be provided by the independent
registered public accounting firm to the Adviser, Gabelli Funds, LLC,
and any affiliate of Gabelli Funds, LLC ("Gabelli") that provides
services to the registrant (a "Covered Services Provider") if the
independent registered public accounting firm's engagement related
directly to the operations and financial reporting of the registrant.
The Committee may delegate its responsibility to pre-approve any such
audit and permissible non-audit services to the Chairperson of the
Committee, and the Chairperson must report to the Committee, at its
next regularly scheduled meeting after the Chairperson's pre-approval
of such services, his or her decision(s). The Committee may also
establish detailed pre-approval policies and procedures for
pre-approval of such services in accordance with applicable laws,
including the delegation of some or all of the Committee's pre-approval
responsibilities to the other persons (other than Gabelli or the
registrant's officers). Pre-approval by the Committee of any
permissible non-audit services is not required so long as: (i) the
permissible non-audit services were not recognized by the registrant at
the time of the engagement to be non-audit services; and (ii) such
services are promptly brought to the attention of the Committee and
approved by the Committee or Chairperson prior to the completion of the
audit.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) 100%
(c) 100%
(d) Not applicable
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was 0%.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the registrant for each of the last two fiscal years of the
registrant was $0 for 2005 and $0 for 2006.
(h) The registrant's audit committee of the board of directors has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated audit committee consisting of the
following members: Anthony J. Colavita, Anthony R. Pustorino and Salvatore J.
Zizza.
ITEM 6. 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.
The Proxy Voting Policies are attached herewith.
THE VOTING OF PROXIES ON BEHALF OF CLIENTS
Rules 204(4)-2 and 204-2 under the Investment Advisers Act of 1940 and
Rule 30b1-4 under the Investment Company Act of 1940 require investment advisers
to adopt written policies and procedures governing the voting of proxies on
behalf of their clients.
These procedures will be used by GAMCO Asset Management Inc., Gabelli
Funds, LLC, Gabelli Securities, Inc., and Gabelli Advisers, Inc. (collectively,
the "Advisers") to determine how to vote proxies relating to portfolio
securities held by their clients, including the procedures that the Advisers use
when a vote presents a conflict between the interests of the shareholders of an
investment company managed by one of the Advisers, on the one hand, and those of
the Advisers; the principal underwriter; or any affiliated person of the
investment company, the Advisers, or the principal underwriter. These procedures
will not apply where the Advisers do not have voting discretion or where the
Advisers have agreed to with a client to vote the client's proxies in accordance
with specific guidelines or procedures supplied by the client (to the extent
permitted by ERISA).
I. PROXY VOTING COMMITTEE
The Proxy Voting Committee was originally formed in April 1989 for the purpose
of formulating guidelines and reviewing proxy statements within the parameters
set by the substantive proxy voting guidelines originally published by GAMCO
Investors, Inc. in 1988 and updated periodically, a copy of which are appended
as Exhibit A. The Committee will include representatives of Research,
Administration, Legal, and the Advisers. Additional or replacement members of
the Committee will be nominated by the Chairman and voted upon by the entire
Committee.
Meetings are held as needed basis to form views on the manner in which
the Advisers should vote proxies on behalf of their clients.
In general, the Director of Proxy Voting Services, using the Proxy
Guidelines, recommendations of Institutional Shareholder Corporate Governance
Service ("ISS"), other third-party services and the analysts of Gabelli &
Company, Inc., will determine how to vote on each issue. For non-controversial
matters, the Director of Proxy Voting Services may vote the proxy if the vote is
(1) consistent with the recommendations of the issuer's Board of Directors and
not contrary to the Proxy Guidelines; (2) consistent with the recommendations of
the issuer's Board of Directors and is a non-controversial issue not covered by
the Proxy Guidelines; or (3) the vote is contrary to the recommendations of the
Board of Directors but is consistent with the Proxy Guidelines. In those
instances, the Director of Proxy Voting Services or the Chairman of the
Committee may sign and date the proxy statement indicating how each issue will
be voted.
All matters identified by the Chairman of the Committee, the Director
of Proxy Voting Services or the Legal Department as controversial, taking into
account the recommendations of ISS or other third party services and the
analysts of Gabelli & Company, Inc., will be presented to the Proxy Voting
Committee. If the Chairman of the Committee, the Director of Proxy Voting
Services or the Legal Department has identified the matter as one that (1) is
controversial; (2) would benefit from deliberation by the Proxy Voting
Committee; or (3) may give rise to a conflict of interest between the Advisers
and their clients, the Chairman of the Committee will initially determine what
vote to recommend that the Advisers should cast and the matter will go before
the Committee.
A. CONFLICTS OF INTEREST.
THE ADVISERS HAVE IMPLEMENTED THESE PROXY VOTING PROCEDURES IN
ORDER TO PREVENT CONFLICTS OF INTEREST FROM INFLUENCING THEIR
PROXY VOTING DECISIONS. BY FOLLOWING THE PROXY GUIDELINES, AS
WELL AS THE RECOMMENDATIONS OF ISS, OTHER THIRD-PARTY SERVICES
AND THE ANALYSTS OF GABELLI & COMPANY, THE ADVISERS ARE ABLE TO
AVOID, WHEREVER POSSIBLE, THE INFLUENCE OF POTENTIAL CONFLICTS OF
INTEREST. NEVERTHELESS, CIRCUMSTANCES MAY ARISE IN WHICH ONE OR
MORE OF THE ADVISERS ARE FACED WITH A CONFLICT OF INTEREST OR THE
APPEARANCE OF A CONFLICT OF INTEREST IN CONNECTION WITH ITS VOTE.
IN GENERAL, A CONFLICT OF INTEREST MAY ARISE WHEN AN ADVISER
KNOWINGLY DOES BUSINESS WITH AN ISSUER, AND MAY APPEAR TO HAVE A
MATERIAL CONFLICT BETWEEN ITS OWN INTERESTS AND THE INTERESTS OF
THE SHAREHOLDERS OF AN INVESTMENT COMPANY MANAGED BY ONE OF THE
ADVISERS REGARDING HOW THE PROXY IS TO BE VOTED. A CONFLICT ALSO
MAY EXIST WHEN AN ADVISER HAS ACTUAL KNOWLEDGE OF A MATERIAL
BUSINESS ARRANGEMENT BETWEEN AN ISSUER AND AN AFFILIATE OF THE
ADVISER.
IN PRACTICAL TERMS, A CONFLICT OF INTEREST MAY ARISE, FOR
EXAMPLE, WHEN A PROXY IS VOTED FOR A COMPANY THAT IS A CLIENT OF
ONE OF THE ADVISERS, SUCH AS GAMCO ASSET MANAGEMENT INC. A
CONFLICT ALSO MAY ARISE WHEN A CLIENT OF ONE OF THE ADVISERS HAS
MADE A SHAREHOLDER PROPOSAL IN A PROXY TO BE VOTED UPON BY ONE OR
MORE OF THE ADVISERS. THE DIRECTOR OF PROXY VOTING SERVICES,
TOGETHER WITH THE LEGAL DEPARTMENT, WILL SCRUTINIZE ALL PROXIES
FOR THESE OR OTHER SITUATIONS THAT MAY GIVE RISE TO A CONFLICT OF
INTEREST WITH RESPECT TO THE VOTING OF PROXIES.
A. OPERATION OF PROXY VOTING COMMITTEE.
For matters submitted to the Committee, each member of the
Committee will receive, prior to the meeting, a copy of the proxy
statement, any relevant third party research, a summary of any
views provided by the Chief Investment Officer and any
recommendations by Gabelli & Company, Inc. analysts. The Chief
Investment Officer or the Gabelli & Company, Inc. analysts may be
invited to present their viewpoints. IF THE DIRECTOR OF PROXY
VOTING SERVICES or the Legal Department believe that the matter
before the committee is one with respect to which a conflict of
interest may exist between the Advisers and their clients,
counsel will provide an opinion to the Committee concerning the
conflict. If the matter is one in which the interests of the
clients of one or more of Advisers may diverge, counsel will so
advise and the Committee may make different recommendations as to
different clients. For any matters where the recommendation may
trigger appraisal rights, counsel will provide an opinion
concerning the likely risks and merits of such an appraisal
action.
Each matter submitted to the Committee will be determined by the vote
of a majority of the members present at the meeting. Should the vote concerning
one or more recommendations be tied in a vote of the Committee, the Chairman of
the Committee will cast the deciding vote. The Committee will notify the proxy
department of its decisions and the proxies will be voted accordingly.
Although the Proxy Guidelines express the normal preferences for the
voting of any shares not covered by a contrary investment guideline provided by
the client, the Committee is not bound by the preferences set forth in the Proxy
Guidelines and will review each matter on its own merits. Written minutes of all
Proxy Voting Committee meetings will be maintained. The Advisers subscribe to
ISS, which supplies current information on companies, matters being voted on,
regulations, trends in proxy voting and information on corporate governance
issues.
If the vote cast either by the analyst or as a result of the
deliberations of the Proxy Voting Committee runs contrary to the recommendation
of the Board of Directors of the issuer, the matter will be referred to legal
counsel to determine whether an amendment to the most recently filed Schedule
13D is appropriate.
II. SOCIAL ISSUES AND OTHER CLIENT GUIDELINES
If a client has provided special instructions relating to the voting of
proxies, they should be noted in the client's account file and forwarded to the
proxy department. This is the responsibility of the investment professional or
sales assistant for the client. In accordance with Department of Labor
guidelines, the Advisers' policy is to vote on behalf of ERISA accounts in the
best interest of the plan participants with regard to social issues that carry
an economic impact. Where an account is not governed by ERISA, the Advisers will
vote shares held on behalf of the client in a manner consistent with any
individual investment/voting guidelines provided by the client. Otherwise the
Advisers will abstain with respect to those shares.
III. CLIENT RETENTION OF VOTING RIGHTS
If a client chooses to retain the right to vote proxies or if there is
any change in voting authority, the following should be notified by the
investment professional or sales assistant for the client.
- Operations
- Legal Department
- Proxy Department
- Investment professional assigned to the account
In the event that the Board of Directors (or a Committee thereof) of
one or more of the investment companies managed by one of the Advisers has
retained direct voting control over any security, the Proxy Voting Department
will provide each Board Member (or Committee member) with a copy of the proxy
statement together with any other relevant information including recommendations
of ISS or other third-party services.
IV. VOTING RECORDS
The Proxy Voting Department will retain a record of matters voted upon
by the Advisers for their clients. The Advisers' staff may request proxy-voting
records for use in presentations to current or prospective clients. Requests for
proxy voting records should be made at least ten days prior to client meetings.
If a client wishes to receive a proxy voting record on a quarterly,
semi-annual or annual basis, please notify the Proxy Voting Department. The
reports will be available for mailing approximately ten days after the quarter
end of the period. First quarter reports may be delayed since the end of the
quarter falls during the height of the proxy season.
A letter is sent to the custodians for all clients for which the
Advisers have voting responsibility instructing them to forward all proxy
materials to:
[Adviser name]
Attn: Proxy Voting Department
One Corporate Center
Rye, New York 10580-1433
The sales assistant sends the letters to the custodians along with the
trading/DTC instructions. Proxy voting records will be retained in compliance
with Rule 204-2 under the Investment Advisers Act.
V. VOTING PROCEDURES
1. Custodian banks, outside brokerage firms and Wexford Clearing Services
Corporation are responsible for forwarding proxies directly to GAMCO.
Proxies are received in one of two forms:
o Shareholder Vote Authorization Forms (VAFs) - Issued by ADP. VAFs must be
voted through the issuing institution causing a time lag. ADP is an outside
service contracted by the various institutions to issue proxy materials.
o Proxy cards which may be voted directly.
2. Upon receipt of the proxy, the number of shares each form represents is
logged into the proxy system according to security.
3. In the case of a discrepancy such as an incorrect number of shares, an
improperly signed or dated card, wrong class of security, etc., the issuing
custodian is notified by phone. A corrected proxy is requested. Any arrangements
are made to insure that a proper proxy is received in time to be voted
(overnight delivery, fax, etc.). When securities are out on loan on record date,
the custodian is requested to supply written verification.
4. Upon receipt of instructions from the proxy committee (see Administrative),
the votes are cast and recorded for each account on an individual basis.
Since January 1, 1992, records have been maintained on the Proxy Edge system.
The system is backed up regularly. From 1990 through 1991, records were
maintained on the PROXY VOTER system and in hardcopy format. Prior to 1990,
records were maintained on diskette and in hardcopy format.
PROXY EDGE records include:
Security Name and Cusip Number
Date and Type of Meeting (Annual, Special, Contest)
Client Name
Adviser or Fund Account Number
Directors' Recommendation
How GAMCO voted for the client on each issue
The rationale for the vote when it appropriate
Records prior to the institution of the PROXY EDGE system include:
Security name
Type of Meeting (Annual, Special, Contest)
Date of Meeting
Name of Custodian
Name of Client
Custodian Account Number
Adviser or Fund Account Number
Directors' recommendation
How the Adviser voted for the client on each issue
Date the proxy statement was received and by whom
Name of person posting the vote
Date and method by which the vote was cast
o From these records individual client proxy voting records are compiled. It
is our policy to provide institutional clients with a proxy voting record
during client reviews. In addition, we will supply a proxy voting record at
the request of the client on a quarterly, semi-annual or annual basis.
5. VAFs are kept alphabetically by security. Records for the current proxy
season are located in the Proxy Voting Department office. In preparation for the
upcoming season, files are transferred to an offsite storage facility during
January/February.
6. Shareholder Vote Authorization Forms issued by ADP are always sent directly
to a specific individual at ADP.
7. If a proxy card or VAF is received too late to be voted in the conventional
matter, every attempt is made to vote on one of the following manners:
o VAFs can be faxed to ADP up until the time of the meeting. This is followed
up by mailing the original form.
o When a solicitor has been retained, the solicitor is called. At the
solicitor's direction, the proxy is faxed.
8. In the case of a proxy contest, records are maintained for each opposing
entity.
9. Voting in Person
a) At times it may be necessary to vote the shares in person. In this case, a
"legal proxy" is obtained in the following manner:
o Banks and brokerage firms using the services at ADP:
The back of the VAF is stamped indicating that we wish to vote in person.
The forms are then sent overnight to ADP. ADP issues individual legal proxies
and sends them back via overnight (or the Adviser can pay messenger charges). A
lead-time of at least two weeks prior to the meeting is needed to do this.
Alternatively, the procedures detailed below for banks not using ADP may be
implemented.
o Banks and brokerage firms issuing proxies directly:
The bank is called and/or faxed and a legal proxy is requested.
All legal proxies should appoint:
"REPRESENTATIVE OF [ADVISER NAME] WITH FULL POWER OF SUBSTITUTION."
b) The legal proxies are given to the person attending the meeting along with
the following supplemental material:
o A limited Power of Attorney appointing the attendee an Adviser
representative.
o A list of all shares being voted by custodian only. Client names and
account numbers are not included. This list must be presented, along with
the proxies, to the Inspectors of Elections and/or tabulator at least
one-half hour prior to the scheduled start of the meeting. The tabulator
must "qualify" the votes (i.e. determine if the vote have previously been
cast, if the votes have been rescinded, etc. vote have previously been
cast, etc.).
o A sample ERISA and Individual contract.
o A sample of the annual authorization to vote proxies form.
o A copy of our most recent Schedule 13D filing (if applicable).
APPENDIX A
PROXY GUIDELINES
PROXY VOTING GUIDELINES
GENERAL POLICY STATEMENT
It is the policy of GAMCO INVESTORS, INC. to vote in the best economic interests
of our clients. As we state in our Magna Carta of Shareholders Rights,
established in May 1988, we are neither FOR nor AGAINST management. We are for
shareholders.
At our first proxy committee meeting in 1989, it was decided that each proxy
statement should be evaluated on its own merits within the framework first
established by our Magna Carta of Shareholders Rights. The attached guidelines
serve to enhance that broad framework.
We do not consider any issue routine. We take into consideration all of our
research on the company, its directors, and their short and long-term goals for
the company. In cases where issues that we generally do not approve of are
combined with other issues, the negative aspects of the issues will be factored
into the evaluation of the overall proposals but will not necessitate a vote in
opposition to the overall proposals.
BOARD OF DIRECTORS
The advisers do not consider the election of the Board of Directors a routine
issue. Each slate of directors is evaluated on a case-by-case basis.
Factors taken into consideration include:
o Historical responsiveness to shareholders
This may include such areas as:
-Paying greenmail
-Failure to adopt shareholder resolutions receiving a majority of
shareholder votes
o Qualifications
o Nominating committee in place
o Number of outside directors on the board
o Attendance at meetings
o Overall performance
SELECTION OF AUDITORS
In general, we support the Board of Directors' recommendation for audit.
BLANK CHECK PREFERRED STOCK
We oppose the issuance of blank check preferred stock.
Blank check preferred stock allows the company to issue stock and establish
dividends, voting rights, etc. without further shareholder approval.
CLASSIFIED BOARD
A classified board is one where the directors are divided into classes with
overlapping terms. A different class is elected at each annual meeting.
While a classified board promotes continuity of directors facilitating long
range planning, we feel directors should be accountable to shareholders on an
annual basis. We will look at this proposal on a case-by-case basis taking into
consideration the board's historical responsiveness to the rights of
shareholders.
Where a classified board is in place we will generally not support attempts to
change to an annually elected board.
When an annually elected board is in place, we generally will not support
attempts to classify the board.
INCREASE AUTHORIZED COMMON STOCK
The request to increase the amount of outstanding shares is considered on a
case-by-case basis.
Factors taken into consideration include:
o Future use of additional shares
-Stock split
-Stock option or other executive compensation plan
-Finance growth of company/strengthen balance sheet
-Aid in restructuring
-Improve credit rating
-Implement a poison pill or other takeover defense
o Amount of stock currently authorized but not yet issued or reserved for
stock option plans
o Amount of additional stock to be authorized and its dilutive effect
We will support this proposal if a detailed and verifiable plan for the use of
the additional shares is contained in the proxy statement.
CONFIDENTIAL BALLOT
We support the idea that a shareholder's identity and vote should be treated
with confidentiality.
However, we look at this issue on a case-by-case basis.
In order to promote confidentiality in the voting process, we endorse the use of
independent Inspectors of Election.
CUMULATIVE VOTING
In general, we support cumulative voting.
Cumulative voting is a process by which a shareholder may multiply the number of
directors being elected by the number of shares held on record date and cast the
total number for one candidate or allocate the voting among two or more
candidates.
Where cumulative voting is in place, we will vote against any proposal to
rescind this shareholder right.
Cumulative voting may result in a minority block of stock gaining representation
on the board. When a proposal is made to institute cumulative voting, the
proposal will be reviewed on a case-by-case basis. While we feel that each board
member should represent all shareholders, cumulative voting provides minority
shareholders an opportunity to have their views represented.
DIRECTOR LIABILITY AND INDEMNIFICATION
We support efforts to attract the best possible directors by limiting the
liability and increasing the indemnification of directors, except in the case of
insider dealing.
EQUAL ACCESS TO THE PROXY
The SEC's rules provide for shareholder resolutions. However, the resolutions
are limited in scope and there is a 500 word limit on proponents' written
arguments. Management has no such limitations. While we support equal access to
the proxy, we would look at such variables as length of time required to
respond, percentage of ownership, etc.
FAIR PRICE PROVISIONS
Charter provisions requiring a bidder to pay all shareholders a fair price are
intended to prevent two-tier tender offers that may be abusive. Typically, these
provisions do not apply to board-approved transactions.
We support fair price provisions because we feel all shareholders should be
entitled to receive the same benefits.
Reviewed on a case-by-case basis.
GOLDEN PARACHUTES
Golden parachutes are severance payments to top executives who are terminated or
demoted after a takeover.
We support any proposal that would assure management of its own welfare so that
they may continue to make decisions in the best interest of the company and
shareholders even if the decision results in them losing their job. We do not,
however, support excessive golden parachutes. Therefore, each proposal will be
decided on a case-by-case basis.
NOTE: CONGRESS HAS IMPOSED A TAX ON ANY PARACHUTE THAT IS MORE THAN THREE TIMES
THE EXECUTIVE'S AVERAGE ANNUAL COMPENSATION.
ANTI-GREENMAIL PROPOSALS
We do not support greenmail. An offer extended to one shareholder should be
extended to all shareholders equally across the board.
LIMIT SHAREHOLDERS' RIGHTS TO CALL SPECIAL MEETINGS
We support the right of shareholders to call a special meeting.
CONSIDERATION OF NONFINANCIAL EFFECTS OF A MERGER
This proposal releases the directors from only looking at the financial effects
of a merger and allows them the opportunity to consider the merger's effects on
employees, the community, and consumers.
As a fiduciary, we are obligated to vote in the best economic interests of our
clients. In general, this proposal does not allow us to do that. Therefore, we
generally cannot support this proposal.
Reviewed on a case-by-case basis.
MERGERS, BUYOUTS, SPIN-OFFS, RESTRUCTURINGS
Each of the above is considered on a case-by-case basis. According to the
Department of Labor, we are not required to vote for a proposal simply because
the offering price is at a premium to the current market price. We may take into
consideration the long term interests of the shareholders.
MILITARY ISSUES
Shareholder proposals regarding military production must be evaluated on a
purely economic set of criteria for our ERISA clients. As such, decisions will
be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to
the client's direction when applicable. Where no direction has been given, we
will vote in the best economic interests of our clients. It is not our duty to
impose our social judgment on others.
NORTHERN IRELAND
Shareholder proposals requesting the signing of the MacBride principles for the
purpose of countering the discrimination of Catholics in hiring practices must
be evaluated on a purely economic set of criteria for our ERISA clients. As
such, decisions will be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to
client direction when applicable. Where no direction has been given, we will
vote in the best economic interests of our clients. It is not our duty to impose
our social judgment on others.
OPT OUT OF STATE ANTI-TAKEOVER LAW
This shareholder proposal requests that a company opt out of the coverage of the
state's takeover statutes. Example: Delaware law requires that a buyer must
acquire at least 85% of the company's stock before the buyer can exercise
control unless the board approves.
We consider this on a case-by-case basis. Our decision will be based on the
following:
o State of Incorporation
o Management history of responsiveness to shareholders
o Other mitigating factors
POISON PILL
In general, we do not endorse poison pills.
In certain cases where management has a history of being responsive to the needs
of shareholders and the stock is very liquid, we will reconsider this position.
REINCORPORATION
Generally, we support reincorporation for well-defined business reasons. We
oppose reincorporation if proposed solely for the purpose of reincorporating in
a state with more stringent anti-takeover statutes that may negatively impact
the value of the stock.
STOCK OPTION PLANS
Stock option plans are an excellent way to attract, hold and motivate directors
and employees. However, each stock option plan must be evaluated on its own
merits, taking into consideration the following:
o Dilution of voting power or earnings per share by more than 10%
o Kind of stock to be awarded, to whom, when and how much
o Method of payment
o Amount of stock already authorized but not yet issued under existing stock
option plans
SUPERMAJORITY VOTE REQUIREMENTS
Supermajority vote requirements in a company's charter or bylaws require a level
of voting approval in excess of a simple majority of the outstanding shares. In
general, we oppose supermajority-voting requirements. Supermajority requirements
often exceed the average level of shareholder participation. We support
proposals' approvals by a simple majority of the shares voting.
LIMIT SHAREHOLDERS RIGHT TO ACT BY WRITTEN CONSENT
Written consent allows shareholders to initiate and carry on a shareholder
action without having to wait until the next annual meeting or to call a special
meeting. It permits action to be taken by the written consent of the same
percentage of the shares that would be required to effect proposed action at a
shareholder meeting.
Reviewed on a case-by-case basis.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
PORTFOLIO MANAGER
Mr. Mario J. Gabelli, CFA, is primarily responsible for the day-to-day
management of The Gabelli Convertible and Income Securities Fund Inc., (the
Fund). Mr. Gabelli has served as Chairman, Chief Executive Officer, and Chief
Investment Officer -Value Portfolios of GAMCO Investors, Inc. and its affiliates
since their organization.
MANAGEMENT OF OTHER ACCOUNTS
The table below shows the number of other accounts managed by Mario J. Gabelli
and the total assets in each of the following categories: registered investment
companies, other paid investment vehicles and other accounts. For each category,
the table also shows the number of accounts and the total assets in the accounts
with respect to which the advisory fee is based on account performance.
------------------------------------------------------------------------------------------------------------------
Total Assets
No. of Accounts in Accounts
Total where Advisory where Advisory
Name of No. of Accounts Fee is Based on Fee is Based
Portfolio Manager Type of Accounts Managed Total Assets Performance on Performance
------------------------ ---------------- --------------- ------------ ------------- --------------
------------------------------------------------------------------------------------------------------------------
1. Mario J. Gabelli Registered 21 $13.9B 5 $5.3B
Investment
Companies:
------------------------------------------------------------------------------------------------------------------
Other Pooled 17 $714.9M 16 $624.3M
Investment
Vehicles:
------------------------------------------------------------------------------------------------------------------
Other Accounts: 1818 $11.0B 6 $1.5B
------------------------------------------------------------------------------------------------------------------
POTENTIAL CONFLICTS OF INTEREST
As reflected above, Mr. Gabelli manages accounts in addition to the Fund. Actual
or apparent conflicts of interest may arise when a Portfolio Manager also has
day-to-day management responsibilities with respect to one or more other
accounts. These potential conflicts include:
ALLOCATION OF LIMITED TIME AND ATTENTION. As indicated above, Mr. Gabelli
manages multiple accounts. As a result, he will not be able to devote all of his
time to management of the Fund. Mr. Gabelli, therefore, may not be able to
formulate as complete a strategy or identify equally attractive investment
opportunities for each of those accounts as might be the case if he were to
devote all of his attention to the management of only the Fund.
ALLOCATION OF LIMITED INVESTMENT OPPORTUNITIES. As indicated above, Mr. Gabelli
manages managed accounts with investment strategies and/or policies that are
similar to the Fund. In these cases, if the he identifies an investment
opportunity that may be suitable for multiple accounts, a Fund may not be able
to take full advantage of that opportunity because the opportunity may be
allocated among all or many of these accounts or other accounts managed
primarily by other Portfolio Managers of the Adviser, and their affiliates. In
addition, in the event Mr. Gabelli determines to purchase a security for more
than one account in an aggregate amount that may influence the market price of
the security, accounts that purchased or sold the security first may receive a
more favorable price than accounts that made subsequent transactions.
SELECTION OF BROKER/DEALERS. Because of Mr. Gabelli's position with the
Distributor and his indirect majority ownership interest in the Distributor, he
may have an incentive to use the Distributor to execute portfolio transactions
for a Fund.
PURSUIT OF DIFFERING STRATEGIES. At times, Mr. Gabelli may determine that an
investment opportunity may be appropriate for only some of the accounts for
which he exercises investment responsibility, or may decide that certain of the
funds or accounts should take differing positions with respect to a particular
security. In these cases, he may execute differing or opposite transactions for
one or more accounts which may affect the market price of the security or the
execution of the transaction, or both, to the detriment of one or more other
accounts.
VARIATION IN COMPENSATION. A conflict of interest may arise where the financial
or other benefits available to Mr. Gabelli differ among the accounts that he
manages. If the structure of the Adviser's management fee or the Portfolio
Manager's compensation differs among accounts (such as where certain accounts
pay higher management fees or performance-based management fees), the Portfolio
Manager may be motivated to favor certain accounts over others. The Portfolio
Manager also may be motivated to favor accounts in which he has an investment
interest, or in which the Adviser, or their affiliates have investment
interests. Similarly, the desire to maintain assets under management or to
enhance a Portfolio Manager's performance record or to derive other rewards,
financial or otherwise, could influence the Portfolio Manager in affording
preferential treatment to those accounts that could most significantly benefit
the Portfolio Manager. For example, as reflected above, if Mr. Gabelli manages
accounts which have performance fee arrangements, certain portions of his
compensation will depend on the achievement of performance milestones on those
accounts. Mr. Gabelli could be incented to afford preferential treatment to
those accounts and thereby be subject to a potential conflict of interest.
The Adviser, and the Funds have adopted compliance policies and procedures that
are designed to address the various conflicts of interest that may arise for the
Adviser and their staff members. However, there is no guarantee that such
policies and procedures will be able to detect and prevent every situation in
which an actual or potential conflict may arise.
COMPENSATION STRUCTURE FOR MARIO J. GABELLI
Mr. Gabelli receives incentive-based variable compensation based on a percentage
of net revenues received by the Adviser for managing the Fund. Net revenues are
determined by deducting from gross investment management fees the firm's
expenses (other than Mr. Gabelli's compensation) allocable to this Fund. Five
closed-end registered investment companies (including this Fund) managed by Mr.
Gabelli have arrangements whereby the Adviser will only receive its investment
advisory fee attributable to the liquidation value of outstanding preferred
stock (and Mr. Gabelli would only receive his percentage of such advisory fee)
if certain performance levels are met. Additionally, he receives similar
incentive based variable compensation for managing other accounts within the
firm and its affiliates. This method of compensation is based on the premise
that superior long-term performance in managing a portfolio should be rewarded
with higher compensation as a result of growth of assets through appreciation
and net investment activity. The level of compensation is not determined with
specific reference to the performance of any account against any specific
benchmark. One of the other registered investment companies managed by Mr.
Gabelli has a performance (fulcrum) fee arrangement for which his compensation
is adjusted up or down based on the performance of the investment company
relative to an index. Mr. Gabelli manages other accounts with performance fees.
Compensation for managing these accounts has two components. One component is
based on a percentage of net revenues to the investment adviser for managing the
account. The second component is based on absolute performance of the account,
with respect to which a percentage of such performance fee is paid to Mr.
Gabelli. As an executive officer of the Adviser's parent company, GBL, Mr.
Gabelli also receives ten percent of the net operating profits of the parent
company. He receives no base salary, no annual bonus, and no stock options.
OWNERSHIP OF SHARES IN THE FUND
Mario Gabelli owned over $1,000,000 of shares of the Fund as of December 31,
2006.
(B) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
REGISTRANT PURCHASES OF EQUITY SECURITIES
=============================================================================================================================
(C) TOTAL NUMBER OF (D) MAXIMUM NUMBER (OR
SHARES (OR UNITS) APPROXIMATE DOLLAR VALUE) OF
(A) TOTAL NUMBER OF (B) AVERAGE PRICE PURCHASED AS PART OF SHARES (OR UNITS) THAT MAY YET
SHARES (OR UNITS) 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 - 12,174,398
07/01/06 Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
through
07/31/06
=============================================================================================================================
Month #2 Common - N/A Common - N/A Common - N/A Common - 12,174,398
08/01/06 Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
through
08/31/06
=============================================================================================================================
Month #3 Common - N/A Common - N/A Common - N/A Common - 12,248,930
09/01/06 Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
through
09/30/06
=============================================================================================================================
Month #4 Common - N/A Common - N/A Common - N/A Common - 12,248,930
10/01/06 Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
through
10/31/06
=============================================================================================================================
Month #5 Common - N/A Common - N/A Common - N/A Common - 12,248,930
11/01/06 Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
through
11/30/06
=============================================================================================================================
Month #6 Common - N/A Common - N/A Common - N/A Common - 12,322,474
12/01/06 Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - N/A Preferred Series B - 990,800
through
12/31/06
=============================================================================================================================
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 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) The Gabelli Convertible and Income Securities Fund Inc.
-------------------------------------------------------------------
By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert, Principal Executive Officer
Date 03/01/2007
----------------------------------------------------------------------------
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 03/01/2007
----------------------------------------------------------------------------
By (Signature and Title)* /s/ Agnes Mullady
-------------------------------------------------------
Agnes Mullady,
Principal Financial Officer and Treasurer
Date 03/01/2007
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.