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: 811-4980
TCW CONVERTIBLE SECURITIES FUND, INC.
(Exact name of registrant as specified in charter)
865 SOUTH FIGUEROA STREET, SUITE 1800, LOS ANGELES, CA 90017
(Address of principal executive offices)
PHILIP K. HOLL, ESQ.
SECRETARY
865 SOUTH FIGUEROA STREET, SUITE 1800
LOS ANGELES, CA 90017
(Name and address of agent for service)
Registrant's telephone number, including area code: (213) 244-0000
Date of fiscal year end: December 31
Date of reporting period: June 30, 2004
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, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
[GRAPHIC]
[TCW LOGO]
TCW CONVERTIBLE SECURITIES FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2004
(THIS PAGE INTENTIONALLY LEFT BLANK)
TCW CONVERTIBLE SECURITIES FUND, INC.
[TCW LOGO]
DEAR SHAREHOLDER:
The equity markets started off in 2004 with positive returns in January and
February; however, they gave up most of their gains by the end of April due to
concerns over lack of job creation and terrorism. The change in non-farm
payrolls increased by an average of over 200,000 per month during the months of
April, May and June, signaling the economic recovery was gathering steam and was
no longer a "jobless recovery." Markets took this information as a sign the Fed
could no longer sustain its accommodative stance toward interest rates, fearing
a rise in inflation. As a result, markets began to factor this information into
stock and bond prices only to be surprised by warnings about business outlooks
from the likes of Wal-Mart and select technology stocks, creating a volatile
second quarter.
PERFORMANCE OF THE FUND'S SHARES:
For the six months ended June 20, 2004, the net asset value of the TCW
Convertible Securities Fund, Inc. (the "Fund") increased by 3.4%. For the same
period, the CS First Boston Convertible Securities Index generated a total
return of 2.9% while the S&P 500 Index delivered a total return of 3.4%. While
the net asset value of the Fund increased during this six month period, the
market price of the Fund continued to trade at a discount to net asset value and
returned -1% with dividends reinvested. The discount, which averaged 13.2% with
a high of 17.3% during the first half of 2004, increased approximately 4%. The
increase in the discount was in-line with the performance of other closed-end
convertible funds during this period of rising interest rates.
The Fund paid a total dividend of eight cents per share in the first half of
2004. The Fund's dividend distribution is highly dependent on the level of short
and intermediate term interest rates. As rates rise or fall, Fund income is
likely to move in the same direction.
PORTFOLIO STRUCTURE AND STRATEGY:
The Fund buys securities of companies that exhibit strong and improving business
fundamentals. The Fund does not purchase securities that may be in default or
where the dividends are in arrears. We continued to structure the Fund so that
it has modestly higher exposure than its convertible benchmarks to a rising
equity market. An expanding economy with low inflation, accompanied by a likely
continued recovery in Europe and Japan is expected to result in a positive
market return for the year. Offsetting these positives have been persistently
high and rising energy prices, the Presidential race and fears of terrorism.
In response to the current low interest rate environment, the fund has modified
its portfolio holdings in order to enhance income. The fund currently has an
average rating of BB+, with over 53% of its securities being investment grade,
down slightly from 2003. Secondly, the Fund's holdings in convertible preferreds
has risen to approximately 48%. This allows the Fund to pick up income and
maintain exposure to a rising equity market, though the net sensitivity to
equity prices has been reduced slightly.
We believe that the Fund is structured to benefit in an environment of moderate
economic growth with a modestly improving stock market. As of June 30, 2004, the
annualized current yield of the Fund is 3.31%. The yield to maturity on its
convertible bonds is over 4.5%. We believe that the Fund has good exposure to
improving equity markets given its sector allocation and the structural
characteristics of its convertible securities. The Fund is broadly diversified
with 79 holdings in over 26 industries.
SHARE REPURCHASE PLAN
The Fund completed the Share Repurchase Plan (the "Plan") in the first quarter
of 2004 by repurchasing 899,300 shares at an average price of $5.22 per share
(average discount of 10.56% from NAV). The Fund
1
started the Plan in 2000 by repurchasing 624,700 shares, and in 2003, it
repurchased an additional 1,476,000 shares. In total, the Fund repurchased
3,000,000 shares as authorized by the Fund's Board of Directors.
DIVIDEND REINVESTMENT PLAN
Shareholders who wish to add to their investment may do so through the Dividend
Reinvestment Plan (the "Plan"). Under the Plan, your dividend is used to
purchase shares on the open market whenever shares, including the related sales
commission, are selling below the Fund's Net Asset Value per share. If the
market price, including commission, is above the Net Asset Value, you will
receive shares at a price equal to the higher of the Net Asset Value per share
on the payment date or 95% of the closing market price on the payment date.
To enroll in the Plan, if your shares are registered in your name, write to The
Bank of New York, Church Street Station, P.O. Box #11002, New York, New York
10277-0770, or call toll free at (800) 524-4458. If your shares are held by a
brokerage firm, please call your broker. If you need assistance, please call our
investor relations department at (877) 829-4768 or visit our website at
www.tcw.com. As always, we would be pleased to accommodate your investment
needs.
DISCLOSURE OF PORTFOLIO INFORMATION
As stated previously, it is the policy of the Fund to provide certain unaudited
information regarding its portfolio composition as of month-end (the "Portfolio
Holdings") to shareholders and others upon request to the Fund, beginning on the
15th calendar day after the end of the month (or, if not a business day, the
next business day).
Shareholders and others who wish to obtain Portfolio Holdings for a particular
month may make a request by contacting the Fund between 7:00 a.m. and 5:00 p.m.
Pacific time, Monday through Friday, toll free at (877) 829-4768 beginning on
the 15th day following the end of that month (or, if not a business day, the
next business day).
Persons making requests will be asked to provide their name and a mailing
address, e-mail address or fax number. The Fund reserves the right to refuse to
fulfill a request if it believes that providing Portfolio Holdings would be
contrary to its best interests.
In addition to the policy stated above, the Fund may disclose Portfolio Holdings
at other times to analysts or rating agencies. The disclosure of Portfolio
Holdings in this context is conditioned on the recipient agreeing to treat such
Portfolio Holdings as confidential (provided that analysts and rating agencies
may publish portfolio positions upon the consent of the Fund), and to not allow
the Portfolio Holdings to be used by it or its employees in connection with the
purchase or sale of Fund shares. In addition, Portfolio Holdings are provided or
otherwise available to third-party service providers of the Fund, including the
Fund's custodian, pricing services, and administrators, as necessary for the
provision of services to the Fund.
Sincerely,
/s/ Ernest O. Ellison /s/ Alvin R. Albe
Ernest O. Ellison Alvin R. Albe Jr.
Chairman President & Chief
Executive Officer
July 28, 2004
2
TCW CONVERTIBLE SECURITIES FUND, INC.
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2004 (UNAUDITED)
[TCW LOGO]
PRINCIPAL MARKET
AMOUNT VALUE
------------ ---------------
FIXED INCOME SECURITIES
AUTOMOTIVE (0.9% OF NET ASSETS)
$ 2,635,000 Navistar Financial Corp.,
4.75%, due 04/01/09 $ 2,602,062+
---------------
BANKING & FINANCIAL
SERVICES (3.0%)
3,225,000 Bear Stearns Co., Inc.,
Exchangeable Fifth Third
Bancorp, 0.25%,
due 05/12/10 3,201,135
4,797,000 E*TRADE Group, Inc.,
6.75%, due 05/15/08 5,075,226+
---------------
Total Banking &
Financial Services 8,276,361
---------------
COMMERCIAL SERVICES (0.5%)
995,000 Celgene Corp., 1.75%,
due 06/01/08 1,353,200
---------------
COMPUTER SERVICES (3.9%)
195,000 Computer Associates
International, Inc., 1.625%,
due 12/15/09 296,644+
1,775,000 Computer Associates
International, Inc., (144A),
1.625%, due 12/15/09 2,700,219*
1,110,000 CSG Systems International,
Inc., (144A), 2.5%, due
06/15/24 1,153,012*
5,415,000 Morgan Stanley, Exchangeable
Cisco Systems, Inc., 0.25%,
due 05/15/10 6,613,069
---------------
Total Computer Services 10,762,944
---------------
COMPUTER SOFTWARE (1.1%)
2,390,000 DST Systems, Inc., (144A),
4.125%, due 08/15/23 2,999,450*
---------------
COMPUTERS & INFORMATION (1.9%)
$ 5,060,000 Maxtor Corp., 6.8%,
due 04/30/10 $ 5,363,600+
---------------
ELECTRIC UTILITIES (0.9%)
2,665,000 Calpine Corp., (144A), 4.75%,
due 11/15/23 2,358,525*+
---------------
ELECTRONICS (9.5%)
5,275,000 Agere Systems, Inc., 6.5%,
due 12/15/09 6,145,375
6,500,000 Amkor Technology, Inc.,
5.75%, due 06/01/06 6,370,000
4,660,000 ASM Lithography Holding
N.V., (144A), 5.75%,
due 10/15/06 5,664,696*
2,475,000 Eastman Kodak Co., (144A),
3.375%, due 10/15/33 2,753,437*+
5,575,000 Lehman Brothers Holdings,
Inc., 0.25%, due 08/27/10 5,568,310^
---------------
Total Electronics 26,501,818
---------------
ENTERTAINMENT & LEISURE (2.2%)
5,260,000 Morgan Stanley, Exchangeable
The Walt Disney Co., 0.25%,
due 12/30/08 6,016,388
---------------
HEALTHCARE (2.5%)
3,570,000 AmeriSource Health Corp.,
5%, due 12/01/07 4,221,525+
2,510,000 Matria Healthcare, Inc. (144A),
4.875%, due 05/01/24 2,825,005*
---------------
Total Healthcare 7,046,530
---------------
INDUSTRIAL-DIVERSIFIED (5.1%)
3,565,000 Tyco International Group SA,
(144A), 2.75%,
due 01/15/18 5,374,237*
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 2004,
the value of these securities amounted to $68,912,636 or 24.7% of net
assets.
^ Security convertible into a basket of four technology companies: Applied
Materials, Inc., Xilinx, Inc., Texas Instruments, Inc., and Maxim Integrated
Products, Inc.
+ Security partially or fully lent (Note 5).
See accompanying Notes to Financial Statements.
3
PRINCIPAL MARKET
AMOUNT VALUE
------------ ---------------
INDUSTRIAL-DIVERSIFIED (CONT.)
$ 5,495,000 Tyco International Group SA,
(144A), 3.125%,
due 01/15/23 $ 8,922,506*
---------------
Total Industrial-
Diversified 14,296,743
---------------
INSURANCE (1.0%)
2,830,000 Swiss RE America Holding,
(144A), 3.25%,
due 11/21/21 2,638,550*
---------------
MEDIA-BROADCASTING &
PUBLISHING (5.0%)
6,130,000 Liberty Media Corp., 3.75%,
due 02/15/30 4,038,137
4,695,000 Liberty Media Corp.,
Exchangeable Time Warner
Inc., (144A), 0.75%,
due 03/30/23 5,381,644*
1,665,000 Liberty Media Corp.,
Exchangeable Time Warner
Inc., 0.75%, due 03/30/23 1,908,506+
2,950,000 Liberty Media Corp.,
Exchangeable Viacom Inc.,
Class B, 3.25%,
due 03/15/31 2,655,000+
---------------
Total Media-Broadcasting
& Publishing 13,983,287
---------------
MEDICAL SUPPLIES (4.1%)
990,000 Cooper Companies, Inc.,
2.625%, due 07/01/23 1,532,025+
2,625,000 Cooper Companies, Inc.,
(144A), 2.625%,
due 07/01/23 4,062,188*
5,615,000 Fisher Scientific International,
Inc., 3.25%, due 03/01/24 5,853,638+
---------------
Total Medical Supplies 11,447,851
---------------
OIL & GAS (2.4%)
$ 2,580,000 McMoRan Exploration Co.,
(144A), 6%, due 07/02/08 $ 3,515,250*
---------------
2,685,000 Pride International, Inc.,
(144A), 3.25%,
due 05/01/33 2,705,138*+
500,000 Willbros Group, Inc., (144A),
2.75%, due 03/15/24 525,000*
---------------
Total Oil & Gas 6,745,388
---------------
PHARMACEUTICALS (3.2%)
2,650,000 Axcan Pharma, Inc., (144A),
4.25%, due 04/15/08 4,266,500*
1,735,000 DeCode Genetics, Inc., (144A),
3.5%, due 04/15/11 1,626,563*
1,715,000 MGI Pharma, Inc. (144A),
2.25%, due 03/02/24 1,348,419*
840,000 Teva Pharmaceutical
Finance II LLC, Series A,
0.5%, due 02/01/24 871,500
840,000 Teva Pharmaceutical
Finance II LLC, Series B,
0.25%, due 02/01/24 896,700+
---------------
Total Pharmaceuticals 9,009,682
---------------
REAL ESTATE (1.0%)
2,605,000 Capital Automotive REIT, 6%,
due 05/15/24 2,718,969
---------------
RETAIL (1.1%)
1,975,000 The Gap, Inc., 5.75%,
due 03/15/09 3,081,000
---------------
TRANSPORTATION (2.3%)
685,000 Alaska Air Group, Inc., 4.05%,
due 03/21/23 781,585
1,435,000 Alaska Air Group, Inc., (144A),
4.05%, due 03/21/23 1,637,335*
1,160,000 JetBlue Airways Corp., 3.5%,
due 07/15/33 1,196,250+
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 2004,
the value of these securities amounted to $68,912,636 or 24.7% of net
assets.
+ Security partially or fully lent (Note 5).
See accompanying Notes to Financial Statements.
4
PRINCIPAL MARKET
AMOUNT VALUE
------------ ---------------
TRANSPORTATION (CONT.)
$ 1,600,000 JetBlue Airways Corp., (144A),
3.5%, due 07/15/33 $ 1,650,000*
1,210,000 Northwest Airlines Corp.,
(144A), 6.625%,
due 05/15/23 1,185,800*+
---------------
Total Transportation 6,450,970
---------------
TOTAL FIXED INCOME SECURITIES
(COST: $132,892,539)
(51.6%) 143,653,318
---------------
NUMBER OF
SHARES
------------
EQUITY SECURITIES
COMMON STOCK
(COST: $323,240) (0.1%)
BANKING & FINANCIAL
SERVICES (0.1%)
32,311 E*TRADE Group, Inc. 360,106**
---------------
CONVERTIBLE PREFERRED STOCK
AEROSPACE/DEFENSE (2.0%)
52,470 Northrop Grumman Corp.,
$7.25 5,594,614
---------------
AUTOMOTIVE (5.8%)
171,085 Ford Motor Co. Capital
Trust II, $3.25 9,431,061
273,650 General Motors Corp.,
$1.3125 6,807,044
---------------
Total Automotive 16,238,105
---------------
BANKING & FINANCIAL
SERVICES (4.2%)
76,700 Household International, Inc.,
Exchangeable HSBC
Holdings PLC, $2.219 3,359,460
33,300 Sovereign Capital Trust IV,
$2.1875 1,581,750**
NUMBER OF MARKET
SHARES VALUE
------------ ---------------
29,900 State Street Corp., $13.50 $ 6,847,100
---------------
Total Banking &
Financial Services 11,788,310
---------------
COMMERCIAL SERVICES (4.3%)
263,950 Solectron Corp., $1.8125 4,586,131
87,085 United Rentals, Inc., $3.25 3,897,054+
25,805 Xerox Corp., $6.25 3,416,582
---------------
Total Commercial
Services 11,899,767
---------------
COMMUNICATIONS (0.9%)
2,080 Lucent Technologies Capital
Trust I, $77.50 2,463,094**+
---------------
ELECTRIC UTILITIES (6.3%)
74,205 Dominion Resources, Inc.,
$4.375 3,977,388+
72,670 FPL Group, Inc., $4.00 4,015,017
110,000 Great Plains Energy, Inc.,
$2.00 2,750,000**+
150,065 TXU Corp., $4.0625 6,865,474+
---------------
Total Electric Utilities 17,607,879
---------------
FOOD RETAILERS (1.0%)
106,665 Albertson's, Inc., $1.8125 2,693,291**
---------------
HEALTHCARE (2.3%)
68,850 Baxter International, Inc.,
$3.50 3,950,269+
41,200 Omnicare, Inc., $2.00 2,555,636
---------------
Total Healthcare 6,505,905
---------------
INSURANCE (7.1%)
145,700 Chubb Corp., $1.75 4,098,541
37,370 Conseco, Inc. $1.375 1,018,332**
49,100 Hartford Financial Services
Group, Inc., $3.50 3,289,700
78,450 Phoenix Companies, Inc.,
Exchangeable Hilb, Rogal and
Hamilton Co., $2.667 2,799,488**
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 2004,
the value of these securities amounted to $68,912,636 or 24.7% of net
assets.
** Non-income producing.
+ Security partially or fully lent (Note 5).
See accompanying Notes to Financial Statements.
5
NUMBER OF MARKET
SHARES VALUE
------------ ---------------
INSURANCE (CONT.)
70,105 Reinsurance Group of
America, Inc., $2.875 $ 4,162,484
59,150 The St. Paul Companies, Inc.,
$4.50 4,378,283
---------------
Total Insurance 19,746,828
---------------
MEDIA-BROADCASTING &
PUBLISHING (4.9%)
100,750 Equity Securities Trust,
Exchangeable Cablevision
Systems Corp., $1.406 2,241,687+
103,100 Equity Securities Trust,
Exchangeable Cablevision
Systems Corp., $2.343 2,165,100
2,050 Radio One, Inc., $65.00 2,108,938
1,825 Radio One, Inc., (144A),
$65.00 1,877,469***
119,230 Sinclair Broadcast Group, Inc.,
$3.00 5,156,698
---------------
Total Media-Broadcasting
& Publishing 13,549,892
---------------
OIL & GAS (3.3%)
2,880 Chesapeake Energy Corp.,
(144A), $41.25 3,085,200*
118,600 Unocal Corp., $3.125 6,167,200
---------------
Total Oil & Gas 9,252,400
---------------
PAPER & FOREST PRODUCTS (1.2%)
64,150 Boise Cascade Corp., $3.75 3,399,950
---------------
TELECOMMUNICATIONS (3.8%)
135,760 Alltel Corp., $3.875 6,872,850
74,500 Motorola, Inc., $3.50 3,697,063+
---------------
Total Telecommunications 10,569,913
---------------
TELEPHONE SYSTEMS (1.0%)
110,600 CenturyTel, Inc., $1.71875 $ 2,778,825
---------------
TOTAL CONVERTIBLE PREFERRED
STOCK (COST: $123,468,324)
(48.1%) 134,088,773
---------------
TOTAL EQUITY SECURITIES
(COST: $123,791,564)
(48.2%) 134,448,879
---------------
PRINCIPAL
AMOUNT
------------
SHORT-TERM INVESTMENTS
$ 1,084,065 Bank of America, 1.5%,
due 07/21/04 1,084,065***
1,258,563 Bank of Montreal, 1.2%,
due 07/23/04 1,258,563***
3,252,199 Bank of Nova Scotia, 1.04%,
due 07/06/04 3,252,199***
1,084,066 Bank of Nova Scotia, 1.24%,
due 07/23/04 1,084,066***
542,033 Bear Stearns Companies,
Inc., 1.635%, due 12/15/04 542,033***
1,084,066 BGI Prime Money Market
Fund, 1.284%,
due 07/01/04 1,084,066***
2,168,132 BNP Paribas, 1.08%,
due 07/02/04 2,168,132***
271,017 Branch Banker & Trust, 1.08%,
due 07/14/04 271,017***
1,084,066 Canadian Imperial Bank of
Commerce, 1.445%,
due 11/04/04 1,084,066***
1,626,099 Caylon, 1.16%, due 07/15/04 1,626,099***
542,033 Caylon, 1.17%, due 08/04/04 542,033***
1,626,099 Caylon, 1.34%, due 08/24/04 1,626,099***
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 2004,
the value of these securities amounted to $68,912,636 or 24.7% of net
assets.
** Non-income producing.
*** Represents investments of security lending collateral (Note 5).
+ Security partially or fully lent (Note 5).
See accompanying Notes to Financial Statements.
6
PRINCIPAL MARKET
AMOUNT VALUE
------------ ---------------
SHORT-TERM INVESTMENTS (CONT.)
$ 813,050 Credit Suisse First Boston
Corp., 1.13%,
due 09/08/04 $ 813,050***
1,355,083 Den Danske Bank, 1.03%,
due 07/02/04 1,355,083***
1,084,066 Den Danske Bank, 1.08%,
due 07/02/04 1,084,066***
1,355,083 Deutsche Bank, 1.161%,
due 10/12/04 1,355,083***
542,033 Falcon Asset Securitization
Corp, 1.271%,
due 07/20/04 542,033***
541,449 Federal Home Loan Bank,
0.97%, due 07/02/04 541,449***
542,033 Fortis Bank, 1.19%,
due 07/14/04 542,033***
271,017 Fortis Bank, 1.29%,
due 09/03/04 271,017***
1,080,002 Govco Inc., 1.252%,
due 08/02/04 1,080,002***
813,050 Harris Trust & Savings Bank,
1.2%, due 07/16/04 813,050***
542,033 HBOS Halifax Bank of
Scotland, 1.08%,
due 07/29/04 542,033***
271,017 HBOS Halifax Bank of
Scotland, 1.3%,
due 09/03/04 271,017***
1,469,319 Investors Bank & Trust
Depository Reserve,
0.25%, due 07/01/04 1,469,319
542,033 Jupiter Securitization Corp,
1.071%, due 07/02/04 542,033***
$ 1,441,590 Merrill Lynch Premier
Institutional Fund, 1.168%,
due 07/01/04 $ 1,441,590***
4,607,282 Merrimac Cash Fund
(Premium Class), 1.112%,
due 07/01/04 4,607,282***
4,065,248 Royal Bank of Canada, 1.05%,
due 07/08/04 4,065,248***
1,463,489 Royal Bank of Scotland, 1.05%,
due 07/07/04 1,463,489***
2,710,166 Royal Bank of Scotland, 1.05%,
due 07/15/04 2,710,166***
2,710,166 Toronto Dominion Bank, 1.09%,
due 08/02/04 2,710,166***
1,355,083 Wells Fargo & Co., 1.19%,
due 07/14/04 1,355,083***
1,347,304 Wells Fargo & Co., 1.19%,
due 07/19/04 1,347,304***
1,897,116 Wells Fargo & Co., 1.24%,
due 07/26/04 1,897,116***
---------------
TOTAL SHORT-TERM
INVESTMENTS
(COST: $48,441,150)
(17.4%) 48,441,150
---------------
TOTAL INVESTMENTS
(COST: $305,125,253)
(117.2%) 326,543,347
LIABILITIES IN EXCESS OF
OTHER ASSETS (-17.2%) (48,005,399)++
---------------
NET ASSETS (100.0%) $ 278,537,948
===============
*** Represents investments of security lending collateral (Note 5).
++ Represents Total Liabilities less Interest and Dividends Receivable.
See accompanying Notes to Financial Statements.
7
TCW CONVERTIBLE SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 2004 (UNAUDITED)
[TCW LOGO]
ASSETS:
Investments, at Value (Cost: $305,125,253) $ 326,543,347
Interest and Dividends Receivable 1,250,522
--------------
Total Assets 327,793,869
--------------
LIABILITIES:
Distributions Payable 1,944,399
Payables Upon Return of Securities Loaned 46,971,831
Accrued Investment Advisory Fees 136,301
Other Accrued Expenses 203,390
--------------
Total Liabilities 49,255,921
--------------
NET ASSETS $ 278,537,948
==============
Net Assets were comprised of:
Common Stock, par value $0.01 per share, (75,000,000 shares
authorized, 48,609,979 shares issued and outstanding) $ 486,100
Paid-in Capital 356,172,493
Undistributed Net Realized (Loss) on Investments (97,841,832)
Net Unrealized Appreciation of Investments 21,418,094
(Overdistributed) Net Investment Income (1,696,907)
--------------
NET ASSETS $ 278,537,948
==============
NET ASSET VALUE PER SHARE $ 5.73
==============
See accompanying Notes to Financial Statements.
8
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
[TCW LOGO]
INVESTMENT INCOME:
Interest (including security lending fees of $48,866) $ 1,861,781
Dividends 3,469,441
--------------
Total Investment Income 5,331,222
--------------
EXPENSES:
Investment Advisory Fees 822,848
Accounting Fees 31,121
Administration Fees 48,540
Audit and Tax Service Fees 21,782
Transfer Agent Fees 32,889
Custodian Fees 10,772
Directors' Fees & Expenses 43,036
Proxy Costs 36,801
Listing Fees 24,122
Insurance Costs 6,581
Legal Fees 32,089
Printing and Distribution Costs 19,873
Miscellaneous 20,861
--------------
Total Expenses 1,151,315
--------------
Net Investment Income 4,179,907
--------------
NET REALIZED GAIN AND CHANGE IN UNREALIZED DEPRECIATION
OF INVESTMENTS:
Net Realized Gain on Investments 16,684,534
Change in Unrealized (Depreciation) of Investments (12,100,966)
--------------
Net Realized Gain and Change in Unrealized Depreciation
of Investments 4,583,568
--------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,763,475
==============
See accompanying Notes to Financial Statements.
9
STATEMENTS OF CHANGES IN NET ASSETS
[TCW LOGO]
SIX MONTHS
ENDED
JUNE 30, 2004 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2003
--------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net Investment Income $ 4,179,907 $ 9,968,943
Net Realized Gain (Loss) on Investments 16,684,534 (10,406,842)
Change in Unrealized Appreciation (Depreciation) of Investments (12,100,966) 60,949,112
--------------- ---------------
Increase in Net Assets Resulting from Operations 8,763,475 60,511,213
--------------- ---------------
Distributions to Shareholders:
From Net Investment Income (3,888,799) (8,199,902)
Return of Capital -- (2,961,779)
--------------- ---------------
Total Distributions to Shareholders (3,888,799) (11,161,681)
--------------- ---------------
Capital Share Transactions:
Shares Issued in Reinvestment of Dividends (46,104 for the
year ended December 31, 2003) -- 215,306
Shares Repurchased (899,300 for the six months ended
June 30, 2004 and 1,476,000 for the year ended
December 31, 2003) (4,697,540) (7,277,321)
--------------- ---------------
(Decrease) in Net Assets Resulting from Net Capital
Share Transactions (4,697,540) (7,062,015)
--------------- ---------------
Total Increase in Net Assets 177,136 42,287,517
NET ASSETS:
Beginning of Period 278,360,812 236,073,295
--------------- ---------------
End of Period $ 278,537,948 $ 278,360,812
=============== ===============
See accompanying Notes to Financial Statements.
10
TCW CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
[TCW LOGO]
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
TCW Convertible Securities Fund, Inc. (the "Fund") was incorporated in Maryland
on January 13, 1987 as a diversified, closed-end investment management company
and is registered under the Investment Company Act of 1940, as amended. The Fund
commenced operations on March 5, 1987. The Fund's investment objective is to
seek a total investment return, comprised of current income and capital
appreciation through investment principally in convertible securities. In
accordance with the requirements of Rule 35d-1 under the 1940 Act, the Fund will
invest, under normal market conditions, at least 80% of its net assets, plus any
borrowings for investment purposes in convertible securities. The 80% investment
policy described above is non-fundamental and may be changed by the Board of
Directors to become effective upon at least 60 days' notice to shareholders.
The preparation of the accompanying financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements as well as the reported
amounts of income and expenses during the reporting period. Actual results could
differ from those estimates.
The following is a summary of the significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America.
SECURITY VALUATION: Securities traded on national exchanges are valued at the
last reported sales price or the mean of the current bid and asked prices if
there are no sales in the trading period. Other securities which are traded on
the over-the-counter market are valued at the mean of the current bid and asked
prices. Short-term debt securities with maturities of 60 days or less at the
time of purchase are valued at amortized cost. Other short-term debt securities
are valued on a mark-to-market basis until such time as they reach a remaining
maturity of 60 days, where upon they will be valued at amortized value using
their value on the 61st day prior to maturity.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are
recorded on the trade date. Dividend income is recorded on the ex-dividend date,
while interest income is recorded on the accrual basis. Discounts, including
original issue discounts, and premiums on securities purchased are recognized as
interest income and expense, respectively, using a constant yield-to-maturity
method. Realized gains and losses on investments are recorded on the basis of
identified cost.
DISTRIBUTIONS: Distributions to shareholders are recorded on ex-dividend date.
The Fund intends to distribute its investment company taxable income quarterly
and to distribute any net realized capital gains at least annually, to the
extent required for U.S. federal income tax purposes. The Board of Directors
also may, in its discretion, choose to pay distributions in excess of net
investment income and net realized capital gains, though it is not required to
do so.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from accounting principles generally accepted
in the United States of America. These differences may be primarily due to
differing treatments for losses deferred due to wash sales and spillover
distributions. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications
11
to paid-in-capital and may affect net investment income per share.
REPURCHASE AGREEMENTS: The Fund may invest in repurchase agreements secured by
U.S. Government Securities. A repurchase agreement arises when the Fund
purchases a security and simultaneously agrees to resell it to the seller at an
agreed upon future date. The Fund requires the seller to maintain the value of
the securities, marked to market daily, at not less than the repurchase price.
If the seller defaults on its repurchase obligation, the Fund could suffer
delays, collection expenses and losses to the extent that the proceeds from the
sale of the collateral are less than the repurchase price. The Fund did not
enter into any repurchase agreements for the six months ended June 30, 2004.
NOTE 2--FEDERAL INCOME TAXES:
It is the policy of the Fund to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and distribute all of
its net taxable income, including any net realized gains on investments, to its
shareholders. Therefore, no federal income tax provision is required.
At June 30, 2004, the Fund had the following net realized loss carryforwards:
EXPIRING IN
------------------------------------------
2009 2010 2011
------------ ------------ ------------
Net realized loss carryforwards $ 42,470,592 $ 61,853,273 $ 10,690,734
------------ ------------ ------------
At June 30, 2004, net unrealized appreciation for federal income tax purposes is
comprised of the following components:
Appreciated securities $ 27,695,987
Depreciated securities (6,542,241)
--------------
Net unrealized appreciation $ 21,153,746
==============
Cost of securities for federal
income tax purposes $ 305,389,601
==============
NOTE 3--INVESTMENT ADVISORY AND SERVICE FEES:
TCW Investment Management Company (the "Advisor") is the investment advisor of
the Fund. As compensation for the services rendered, facilities provided, and
expenses borne, the Advisor is paid a monthly fee by the Fund computed at the
annual rate of 0.75% of the first $100 million of the Fund's average net assets
and 0.50% of the Fund's average net assets in excess of $100 million.
NOTE 4--PURCHASES AND SALES OF SECURITIES:
For the six months ended June 30, 2004, purchases and sales or maturities of
investment securities (excluding short-term investments) aggregated $150,710,655
and $153,612,883, respectively. There were no purchases or sales of U.S.
Government securities for the six months ended June 30, 2004.
NOTE 5--SECURITY LENDING:
During the six months ended June 30, 2004, the Fund lent securities to brokers.
The brokers provided collateral, which must be maintained at not less than 100%
of the value of the loaned securities, to secure the obligation. At June 30,
2004, the cash collateral received from the borrowing brokers was invested in
short-term investments valued at $46,971,831 which is 102.5% of the value of the
loaned securities.
NOTE 6--DIRECTORS' FEES:
Directors who are not affiliated with the Advisor received, as a group,
aggregate fees and expenses of $43,036 from the Fund for the six months ended
June 30, 2004. Certain officers and/or directors of the Fund are also officers
and/or directors of the Advisor.
12
NOTE 7--RESTRICTED SECURITIES:
The Funds are permitted to invest in securities that are subject to legal or
contractual restrictions on resale. These securities generally may be resold in
transactions exempt from registration or to the public if the securities are
registered. Disposal of these securities may involve time consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult. There are
no restricted securities (excluding 144A issues) at June 30, 2004.
NOTE 8--SHARE REPURCHASE PLAN:
In 2000, the Fund's Board of Directors approved the Shares Repurchase Plan (the
"Plan") authorizing the Fund to repurchase up to 2 million shares of its common
stock. In 2003, the Board authorized an additional 1 million shares to be
repurchased pursuant to the Plan. The purpose of the Plan was to enhance the
shareholders' value during the time when the stock price traded at a discount to
the Fund's net asset value per share. The Fund completed the Plan in the first
quarter of 2004 repurchasing all 3 million shares authorized. The following is
the summary of the Plan:
2000 2003 2004 TOTAL
------------- ------------- ------------- -------------
Total Shares
Repurchased 624,700 1,476,000 899,300 3,000,000
Cost of Shares
Repurchased $ 7,406,082 $ 7,277,321 $ 4,697,540 $ 19,380,943
Average Price of
Shares
Repurchased $ 11.86 $ 4.93 $ 5.22 $ 6.46
Average Discount
from NAV 9.01% 10.22% 10.56% 9.84%
NOTE 9--REPORT OF ANNUAL MEETING OF SHAREHOLDER:
The Annual Meeting of Shareholders of the Fund was held on July 13, 2004. At the
meeting, the following matters were submitted to a shareholder vote: (i) the
election of Ernest O. Ellison, Samuel P. Bell, Richard W. Call, Matthew K. Fong;
John A. Gavin, Patrick C. Haden, Charles A. Parker and Robert G. Sims as
Directors to serve until the next annual meeting of the Fund's shareholders and
until their successors are elected and quality (each Director received
43,183,030 affirmative votes, votes exception/abstain 359,823 and votes withheld
2,762,670); and (ii) the conversion of the Fund to an open-ended investment
company pursuant to the Fund's Articles of Incorporation, and adoption of an
amendment and restatement of the Articles of Incorporation to effectuate the
proposal (votes for 7,109,110; votes against 13,737,740; and abstentions
835,174). 48,609,979 shares were outstanding on the record date of this meeting
and 46,305,523 shares entitled to vote were present in person or by proxy at the
meeting.
13
TCW CONVERTIBLE SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
[TCW LOGO]
SIX MONTHS
ENDED
JUNE 30, 2004 YEAR ENDED DECEMBER 31,
(UNAUDITED) 2003 2002 2001 2000 1999
------------- ---------------------------------------------------------------------------
Net Asset Value Per Share,
Beginning of Period $ 5.62 $ 4.63 $ 6.70 $ 8.48 $ 11.32 $ 9.37
----------- ----------- ----------- ----------- ----------- -----------
Income from Operations:
Net Investment Income (5) 0.09 0.20 0.32 0.38 0.35 0.35
Impact to Capital for
Shares Issued -- -- -- (0.01) -- --
Impact to Capital for Shares
Repurchased 0.01 0.01 -- -- 0.02 --
Net Realized and Unrealized
Gains (Losses) on
Securities 0.09 1.00 (1.68) (1.31) (0.80) 3.15
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations 0.19 1.21 (1.36) (0.94) (0.43) 3.50
----------- ----------- ----------- ----------- ----------- -----------
Less Distributions:
Distributions from Net
Investment Income (0.08) (0.16) (0.32) (0.60) (0.35) (0.35)
Distributions from Net
Realized Gain -- -- -- -- (2.06) (1.20)
Distributions from
Paid-in-Capital -- (0.06) (0.39) (0.24) -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions (0.08) (0.22) (0.71) (0.84) (2.41) (1.55)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value Per Share,
End of Period $ 5.73 $ 5.62 $ 4.63 $ 6.70 $ 8.48 $ 11.32
=========== =========== =========== =========== =========== ===========
Market Value Per Share,
End of Period $ 4.84 $ 4.98 $ 4.16 $ 8.55 $ 10.38 $ 9.56
=========== =========== =========== =========== =========== ===========
Total Investment Return (1) (1.01)%(4) 25.14% (45.11)% (9.27)% 34.95% 16.10%
Net Asset Value Total Return (2) 3.39%(4) 26.82% (20.75)% (10.89)% (4.79)% 39.16%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(in thousands) $ 278,538 $ 278,361 $ 236,073 $ 339,577 $ 352,555 $ 477,608
Ratio of Expenses to Average
Net Assets 0.83%(3) 0.84% 0.83% 0.75% 0.69% 0.68%
Ratio of Net Investment Income
to Average Net Assets 3.01%(3) 3.89% 5.82% 5.16% 2.88% 3.47%
Portfolio Turnover Rate 54.57%(4) 115.16% 75.04% 129.57% 159.44% 119.92%
(1) Based on market value per share, adjusted for reinvestment of distributions.
(2) Based on net asset value per share, adjusted for reinvestment of
distributions.
(3) Annualized.
(4) For the six months ended June 30, 2004 and not indicative of a full year's
operating results.
(5) Computed using average shares outstanding throughout the period.
See accompanying Notes to Financial Statements.
14
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[TCW LOGO]
TCW CONVERTIBLE
SECURITIES FUND, INC.
[TCW LOGO]
DIRECTORS AND OFFICERS
Ernest O. Ellison John A. Gavin
CHAIRMAN DIRECTOR
Samuel P. Bell Patrick C. Haden
DIRECTOR DIRECTOR
Richard W. Call Charles A. Parker
DIRECTOR DIRECTOR
Matthew K. Fong Robert G. Sims
DIRECTOR DIRECTOR
Alvin R. Albe, Jr. Philip K. Holl
PRESIDENT AND CHIEF EXECUTIVE OFFICER SECRETARY AND ASSOCIATE GENERAL COUNSEL
Mohan Kapoor Michael E. Cahill
SENIOR VICE PRESIDENT GENERAL COUNSEL AND ASSISTANT SECRETARY
Thomas D. Lyon David S. DeVito
SENIOR VICE PRESIDENT TREASURER AND CHIEF FINANCIAL OFFICER
Thomas E. Larkin, Jr. George N. Winn
SENIOR VICE PRESIDENT ASSISTANT TREASURER
Hilary G.D. Lord
SENIOR VICE PRESIDENT AND ASSISTANT SECRETARY
SHAREHOLDER INFORMATION INVESTMENT ADVISER
TCW Investment Management Company
865 South Figueroa Street
Los Angeles, California 90017
TRANSFER AGENT, DIVIDEND REINVESTMENT AND DISBURSING AGENT AND REGISTRAR
The Bank of New York
Church Street Station
P.O. Box #11002
New York, New York 10277-0770
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
INDEPENDENT AUDITORS
Deloitte & Touche LLP
350 South Grand Avenue
Los Angeles, California 90071
LEGAL COUNSEL
Dechert
1775 Eye Street N.W.
Washington DC, 20006
ITEM 2. CODE OF ETHICS. Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable.
ITEM 5. AUDIT OF COMMITTEE OF LISTED REGISTRANTS. Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS. Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
(a) Registrant Purchases of Equity Securities
(D)
(C) MAXIMUM NUMBER
TOTAL NUMBER OF (OR APPROXIMATE
(A) SHARES (OR UNITS) DOLLAR VALUE) OF
TOTAL NUMBER (B) PURCHASED AS PART SHARES (OR UNITS)
OF SHARES (OR AVERAGE PRICE OF PUBLICLY THAT MAY YET BE
UNITS) PAID PER SHARE ANNOUNCED PLANS PURCHASED UNDER THE
PERIOD PURCHASED (OR UNITS) OR PROGRAMS PLANS OR PROGRAMS
------------------------------------------------------------------------------------------------------------
January 1, 2004 to
January 31, 2004 526,300 $ 5.2121 2,627,000 373,000
February 1, 2004 to
February 28, 2004 373,000 $ 5.2397 3,000,000 0
March 1, 2004 to
March 31, 2004 0 0 0 0
April 1, 2004 to
April 30, 2004 0 0 0 0
May 1, 2004 to
May 31, 2004 0 0 0 0
June 1, 2004 to
June 30, 2004 0 0 0 0
------------------------------------------------------------------------------------------------------------
Total 3,000,000 $ 6.4603 3,000,000 0
(b) The share repurchase plan was initially announced July 20, 2000
and authorized the repurchase of 2,000,000 shares. On November
12, 2003 it was announced that the share repurchase plan was
being reinstituted and amount increased to 3,000,000 shares.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not
Applicable.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Chief Executive Officer and Chief Financial Officer
have concluded that the registrant's disclosure controls and
procedures (as defined in rule 30a-2(c) under the Investment
Company Act of 1940) provide reasonable assurances that
material information relating to the registrant is made known
to them by the appropriate persons as of a date within 90 days
of the filing date of this report, based on their evaluation of
these controls and procedures required by Rule 30a-3(b) under
the Investment Company Act of 1940 and 15d-15(b) under the
Exchange Act.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the
Investment Company Act of 1940) that occurred during the
registrant's last fiscal half-year that have materially
affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a) EX-99.CERT - Section 302 Certifications (filed herewith).
EX-99.906CERT - Section 906 Certification (filed herewith).
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) TCW Convertible Securities Funds, Inc.
By (Signature and Title)
/s/ Alvin R. Albe, Jr.
------------------------------------
Alvin R. Albe, Jr.
Chief Executive Officer
Date September 1, 2004
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/ Alvin R. Albe, Jr.
------------------------------------
Alvin R. Albe, Jr.
Chief Executive Officer
Date September 1, 2004
By (Signature and Title)
/s/ David S. DeVito
------------------------------------
David S. DeVito
Chief Financial Officer
Date September 1, 2004