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: 811-04656
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ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
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(Exact name of registrant as specified in charter)
65 Madison Avenue, Morristown, New Jersey 07960-7308
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(Address of principal executive offices) (Zip code)
Thomas H. Dinsmore
Ellsworth Convertible Growth and Income Fund, Inc.
65 Madison Avenue
Morristown, New Jersey 07960-7308
(Name and address of agent for service)
Copy to:
Martha J. Hays, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103-7599
Registrant's telephone number, including area code: (973)631-1177
Date of fiscal year end: September 30
Date of reporting period: September 30, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
ELLSWORTH CONVERTIBLE
GROWTH AND INCOME FUND
[GRAPHIC]
2004 Annual Report
September 30, 2004
2004 Annual Report
September 30, 2004
Ellsworth Convertible Growth and Income Fund, Inc. operates as a closed-end,
diversified management investment company and invests primarily in convertible
securities, with the objectives of providing income and the potential for
capital appreciation -- which objectives the Fund considers to be relatively
equal, over the long-term, due to the nature of the securities in which it
invests.
Highlights
Performance through September 30, 2004 with dividends reinvested
Calendar
YTD 1 Year 5 Years 10 Years
-------- ------ ------- --------
Ellsworth market price (a) ................... 2.12% 2.83% 39.53% 196.10%
Ellsworth net asset value (b) ................ 0.13 5.23 20.11 147.45
Closed-end convertible fund average (b) ....... 2.60 10.97 23.19 116.48
S&P 500 (a) ................................... 1.51 13.87 (6.38) 185.95
Russell 2000 (b) .............................. 3.71 18.77 42.96 156.33
Lehman Aggregate Bond Total Return Index (b)... 3.35 3.68 43.43 109.18
Performance data represent past results and do not reflect future performance.
(a) From Bloomberg L.P. pricing service.
(b) From Lipper, Inc. Closed-End Fund Performance Analysis, dated September 30,
2004.
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Quarterly History of NAV and Market Price
Net Asset Values Market Prices (AMEX, symbol ECF)
Qtr. Ended High Low Close High Low Close
---------- ----- ----- ----- ----- ----- -----
Dec. 03 $8.92 $8.58 $8.91 $8.22 $7.80 $8.00
Mar. 04 9.25 8.91 9.12 8.50 8.01 8.20
Jun. 04 9.19 8.58 8.87 8.34 7.41 7.70
Sep. 04 8.82 8.39 8.71 8.05 7.15 7.95
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Dividend Distributions (12 Months)
Record Payment Capital * Corporate
Date Date Income Gains Deduction
--------- -------- ------ ------- ----------
10/30/03 11/26/03 $0.105 -- 6%
2/12/04 2/26/04 0.070 -- 13
5/13/04 5/27/04 0.070 -- 13
8/16/04 8/30/04 0.070 -- 13
------
$0.315
======
* Percentage of each ordinary income distribution qualifying for the corporate
dividend received tax deduction.
To Our Shareholders
November 9, 2004
With the election over, the stock market's attention can now turn to the economy
and the war on terror. The economy continues to grow at a pace above the average
3% growth rate of the last fifteen years, but below many economists'
expectations. It is clear to us that energy prices are having a greater impact
than some had predicted; we believe growth may be reduced by as much as a full
point. This directly affects new job creation and personal income.
At its slower rate of growth, the economy is giving off mixed signals. Auto
sales have been flat, but at a level where auto companies can make money.
Housing starts are 30% higher in 2004 than they were in 2000 and 2001. This
indicates that there should be a solid increase in the sales of consumer
durables such as refrigerators, washers and dryers. It also indicates that
insurance companies and mortgage companies should see improvements in their
demand.
Energy prices spiked above $50 per barrel of oil before breaking down into the
upper $40's. We listed the causes of this rise in our last report, and now must
add another: the weakness of the dollar against most other major currencies such
as the euro and the yen. Ultimately these currency fluctuations will help our
own industries as they make our exports cheaper and imports more expensive. Oil
has played an important role in this process as oil imports have doubled to over
10 million barrels per day and domestic oil production has fallen by a third to
around 5 million barrels per day since 1991. If oil prices remain at levels
above $40, we expect that the economy will be more efficient in its use of
energy. We also expect the oil industry to expand exploration to bring out oil
from fields that were uneconomical (or politically controversial) at lower
prices. Further, there should be greater research, development and use of
alternative energy sources such as hybrid technologies, solar, hydrogen fuel
cells and possibly nuclear power.
Performance of the Fund was affected by its industry exposure. Energy companies
provided the best performance for the Fund, as energy prices rose most of the
year. Entertainment and technology are industries that underperformed as the
economy has not grown as quickly as we anticipated.
Since the founding of Ellsworth Convertible Growth and Income Fund in 1986, the
Fund's strategy has consistently been to use convertible securities as an equity
alternative to reduce risk and volatility. This strategy tends to outperform in
bear markets and lag in bull markets. The Fund underperformed the average of its
peer-group for the quarter ended September 30, 2004. Our peers consist of the
thirteen closed-end convertible funds in the Lipper Closed-End Performance
Analysis survey. Of these thirteen funds, only four, including the Fund, remain
unleveraged convertible funds. In addition, we believe that many of our
competitors have greater exposure to non-convertible, low-rated, high yield debt
than we do. We believe these factors contributed to the difference in
performance between Ellsworth and many of the other funds in the group.
continued on the following page
Page 1
To Our Shareholders (continued)
Visit our website, www.ellsworthfund.com, for additional information on the
Fund. Further, shareholders who wish to obtain a copy of the most recent report
on the Fund issued by Standard & Poor's should contact us.
At its October 18, 2004 meeting, the Board of Directors declared a dividend of
8.50 cents ($0.085) per share. The dividend consists of undistributed net
investment income and will be payable on November 24, 2004 to shareholders of
record on October 28, 2004.
The 2005 annual meeting of shareholders will be held at our offices in
Morristown, New Jersey on January 14, 2005. Time and location will be included
in the Proxy Statement, scheduled to be mailed to shareholders on November 24,
2004. All shareholders are welcome to attend, we hope to see you there.
/s/ Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board
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Major Portfolio Changes by underlying common stock
Six months ended September 30, 2004
ADDITIONS REDUCTIONS
Albertson's, Inc. Amerada Hess Corp.
The Walt Disney Company Devon Energy Corp.
(exchangeable from Kerr-McGee Corp.)
Four Seasons Hotels, Inc.
Felcor Lodging Trust, Inc.
GrafTech International Ltd.
Kulicke & Soffa Industries, Inc.
Kulicke & Soffa Industries, Inc.
Novell, Inc.
Leucadia National Corp.
School Specialty, Inc.
Novell, Inc.
State Street Corp.
Ocwen Financial Corp.
STMicroelectronics, N.V.
Reebok International Ltd.
Teva Pharmaceuticals Industries Ltd.
Saks, Inc. (exchangeable from Teva Pharm. Finance B.V.)
Schering-Plough Corp. Toys "R" Us, Inc.
Titan International, Inc. Verizon Communications, Inc.
(exchangeable from The Goldman Sachs Group, Inc.)
Page 2
Largest Investment Holdings by underlying common stock
Value % Total
(Note 1) Net Assets
----------- ----------
Sovereign Bancorp, Inc. ........................................................ $ 2,443,750 2.3%
A holding company for Sovereign Bank. The bank's primary business
consists of attracting deposits from its network of banking offices, and
originating commercial, consumer and residential mortgage loans, as well as
automobile loans.
Amerada Hess Corp. ............................................................. 2,391,750 2.2
Together with its subsidiaries explores for, produces, purchases,
transports and sells crude oil and natural gas. The company also manufactures,
purchases, transports and markets refined petroleum products.
Church & Dwight Co., Inc. ...................................................... 2,209,519 2.1
Produces sodium bicarbonate and sodium bicarbonate-based products. The company
sells its products primarily under the Arm & Hammer trademark, to consumers
and to industrial customers and distributors.
Leucadia National Corp. ........................................................ 2,187,500 2.0
A diversified holding company that provides banking and lending services,
manufacturing, real estate activities, winery operations, development of a
copper mine and property and casualty reinsurance.
The Chubb Corp. ................................................................ 2,037,600 1.9
A holding company that offers property and casualty insurance, which
includes personal, standard commercial and specialty commercial insurance.
The TJX Companies, Inc. ........................................................ 1,986,000 1.9
Retails off-price apparel and home fashions. The company currently
operates T.J. Maxx, Marshalls, HomeGoods, A.J. Wright, Winners and
T.K. Maxx stores.
Fifth Third Bancorp ............................................................ 1,971,534 1.8
A diversified financial services company. Principal businesses include
retail banking, commercial banking, investment advisory and data
processing. (exch. from The Bear Stearns Co., Inc.)
Washington Mutual, Inc. ........................................................ 1,920,625 1.8
A financial services company that provides a diversified line of products and
services to consumers and small- to mid-sized businesses.
Teva Pharmaceutical Industries Ltd. ............................................ 1,916,250 1.8
Develops, manufactures and markets generic and branded human
pharmaceuticals and active pharmaceutical ingredients.
Lucent Technologies, Inc. ...................................................... 1,891,140 1.8
Designs, builds and delivers a wide range of public and private networks, ----------- ----
communications systems and software, business telephone systems and data
networking systems.
Total .......................................................................... $20,955,668 19.6%
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Page 3
Major Industry Exposure
[REPRESENTATION OF BAR CHART]
Automotive 4.7%
Banking/Savings & Loan 11.0%
Energy 10.4%
Entertainment 4.2%
Financial & Insurance 11.1%
Health Care 4.7%
Pharmaceuticals 11.1%
Retail 7.9%
Technology 7.3%
Telecommunications 6.7%
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Diversification of Assets
% Total Net Assets
September 30,
Value ------------------
Cost (Note 1) 2004 2003
------------ ------------ ----- -----
Advertising .................................... $ 980,625 $ 1,088,125 1.0% 3.8%
Aerospace & Defense ............................ 2,811,795 2,514,085 2.4 5.3
Automotive ..................................... 5,010,579 5,078,125 4.7 2.5
Banking/Savings & Loan ......................... 11,632,279 11,741,460 11.0 9.7
Consumer Goods ................................. 3,266,410 3,847,019 3.6 3.0
Data-Processing Services ....................... 1,979,062 1,941,250 1.8 2.3
Electrical Supplies ............................ 999,375 1,087,500 1.0 --
Energy ......................................... 9,007,263 11,071,850 10.4 6.9
Entertainment .................................. 4,756,041 4,534,981 4.2 4.6
Financial & Insurance .......................... 11,710,685 11,916,332 11.1 10.9
Foods .......................................... 1,004,604 1,020,000 1.0 --
Health Care .................................... 5,138,482 5,061,725 4.7 7.1
Hotel Services ................................. 1,045,000 1,104,375 1.0 --
Mining ......................................... 1,481,987 1,528,500 1.4 --
Office Equipment ............................... 1,498,125 1,545,000 1.5 1.6
Paper and Paper Products ....................... -- -- -- 1.4
Pharmaceuticals ................................ 11,768,224 11,946,497 11.1 9.8
Retail ......................................... 8,585,281 8,461,263 7.9 9.4
Technology...................................... 8,982,722 7,830,824 7.3 6.8
Telecommunications ............................. 6,989,334 7,132,928 6.7 7.7
Transportation ................................. -- -- -- 2.1
Utilities ...................................... 1,138,364 1,163,250 1.1 2.5
Short-Term Securities .......................... 4,110,446 4,110,412 3.8 0.0
------------ ------------ ----- -----
Total Investments .............................. 103,896,683 105,725,501 98.7 97.4
Other Assets, Net of Liabilities ............... -- 1,381,946 1.3 2.6
------------ ------------ ----- -----
Total Net Assets ............................... $103,896,683 $107,107,447 100.0% 100.0%
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Page 4
Portfolio of Investments September 30, 2004
Principal Identified Value
Amount Cost (Note 1)
---------- ------------ ------------
CONVERTIBLE BONDS AND NOTES -- 53.5%
Advertising -- 1.0%
$1,000,000 Lamar Advertising Company 2.875% 2010 cv. sub. notes (B2) ............. $ 980,625 $ 1,088,125
------------ ------------
Aerospace and Defense -- 1.4%
1,500,000 The Goldman Sachs Group, Inc. 1% 2009 exch. equity-linked notes
(Aa3) (exch. for General Dynamics Corp. common stock) (1) ............ 1,713,885 1,479,585
------------ ------------
Automotive -- 3.4%
1,000,000 American Axle & Manufacturing Holdings, Inc. 2% 2024
cv. sr. notes (Baa3) (1) ............................................. 1,055,835 895,000
3,500,000 Lear Corp. 0% 2022 cv. sr. notes (Baa3) .............................. 1,642,806 1,758,750
1,000,000 Titan International, Inc. 5.25% 2009 sr. cv. notes 144A (NR)
(Acquired 07/20/04) (2) .............................................. 1,000,938 1,016,875
------------ ------------
3,699,579 3,670,625
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Banking/Savings & Loan -- 3.1%
2,077,000 The Bear Stearns Companies, Inc. 0.25% 2010 medium term notes
(A1) (exch. for Fifth Third Bancorp common stock) (1) ................ 2,294,118 1,971,534
1,250,000 Ocwen Financial Corp. 3.25% 2024 contingent cv. sr. unsecured notes
(B-) (Acquired 07/22/04 - 09/27/04) (2) .............................. 1,263,750 1,298,438
------------ ------------
3,557,868 3,269,972
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Consumer Goods -- 2.1%
1,875,000 Church & Dwight Co., Inc. 5.25% 2033 cv. sr. deb. (Ba3) .............. 1,875,000 2,209,519
------------ ------------
Data-Processing Services -- 1.8%
1,500,000 Pegasus Solutions, Inc. 3.875% 2023 cv. sr. notes (NR) ............... 1,470,937 1,402,500
500,000 Per-Se Technologies, Inc. 3.25% 2024 cv. sub. deb. (B-)
(Acquired 06/24/04 - 06/25/04) (2) ................................... 508,125 538,750
------------ ------------
1,979,062 1,941,250
------------ ------------
Electrical Supplies -- 1.0%
1,000,000 GrafTech International Ltd. 1.625% 2024 cv. sr. deb. (B2) ............ 999,375 1,087,500
------------ ------------
Energy -- 3.1%
1,000,000 Devon Energy Corp. 0% 2020 cv. sr. deb. (BBB) ........................ 560,618 559,375
1,500,000 Kerr-McGee Corp. 5.25% 2010 cv. sub. deb. (Ba1) ...................... 1,573,438 1,605,720
500,000 McMoRan Exploration Co. 5.25% 2011 cv. sr. notes
(Acquired 09/30/04) (2) .............................................. 500,000 500,000
1,000,000 Weatherford International Ltd. 0% 2020 cv. sr. deb. (Baa1) ........... 637,786 644,050
------------ ------------
3,271,842 3,309,145
------------ ------------
Entertainment -- 1.9%
1,250,000 Citadel Broadcasting Corp. 1.875% 2011 cv. sub. notes (NR)............ 1,246,250 1,049,625
1,000,000 The Walt Disney Company 2.125% 2023 cv. sr. notes (Baa1).............. 1,053,800 1,030,700
------------ ------------
2,300,050 2,080,325
------------ ------------
Financial and Insurance -- 2.9%
2,000,000 Leucadia National Corp. 3.75% 2014 cv. sr. sub. notes (Ba3) .......... 2,038,123 2,187,500
1,000,000 Swiss Re America Holding Corp. 3.25% 2021 euro. sub. cv. bonds
(Aa1) (conv. into Swiss Reinsurance Company common stock)
(Acquired 11/15/01 - 12/05/01) (2) ................................... 1,007,875 954,100
------------ ------------
3,045,998 3,141,600
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Page 5
Portfolio of Investments September 30, 2004 (continued)
Principal Identified Value
Amount Cost (Note 1)
---------- ------------ ------------
CONVERTIBLE BONDS AND NOTES -- continued
Health Care -- 3.5%
$1,000,000 AmerisourceBergen Corp. 5% 2007 cv. sub. notes (B1) .................. $ 1,104,923 $ 1,069,450
1,000,000 Community Health Systems, Inc. 4.25% 2008 cv. sub. notes (B3)......... 988,600 1,037,900
500,000 LifePoint Hospitals, Inc. 4.50% 2009 cv. sub. notes (B3) ............. 490,000 491,250
875,000 Mentor Corp. 2.75% 2024 cv. deb. (NR) ................................ 941,250 1,133,125
------------ ------------
3,524,773 3,731,725
------------ ------------
Hotel Services -- 1.0%
1,000,000 Four Seasons Hotels, Inc. 1.875% 2024 cv. sr. notes (Baa3) ........... 1,045,000 1,104,375
------------ ------------
Office Equipment -- 1.5%
1,500,000 IOS Capital, LLC 5% 2007 cv. sub. notes (Ba3)
(exch. for IKON Office Solutions, Inc. common stock)
(Acquired 05/08/02 - 06/02/03) (2) ................................... 1,498,125 1,545,000
------------ ------------
Pharmaceuticals -- 7.6%
2,000,000 Amgen, Inc. 0% 2032 LYONs (A2) (1) ................................... 1,611,294 1,477,440
1,000,000 Gilead Sciences, Inc. 2% 2007 cv. sr. notes (NR) ..................... 1,291,725 1,620,000
1,500,000 Impax Laboratories, Inc. 1.25% 2024 cv. sr. sub. deb. (NR)
(Acquired 03/31/04 - 07/21/04) (2) ................................... 1,543,813 1,340,625
500,000 Ivax Corp. 4.50% 2008 cv. sr. sub. notes (NR) ........................ 495,000 493,750
1,250,000 Ivax Corp. 1.50% 2024 cv. sr. notes (NR) (1) ......................... 1,291,282 1,313,263
1,000,000 Teva Pharmaceutical Finance II, LLC series A 0.50% 2024 cv. sr. deb.
(BBB) (exch. for Teva Pharmaceuticals Industries Ltd. ADR) ........... 1,000,000 957,500
1,000,000 Teva Pharmaceutical Finance II, LLC series B 0.25% 2024 cv. sr. deb.
(BBB) (exch. for Teva Pharmaceuticals Industries Ltd. ADR) ........... 1,000,000 958,750
------------ ------------
8,233,114 8,161,328
------------ ------------
Retail -- 7.9%
1,250,000 Casual Male Retail Group, Inc. 5% 2024 cv. sr. sub. notes (NR) ....... 1,295,633 1,093,750
1,250,000 Charming Shoppes, Inc. 4.75% 2012 sr. cv. notes (B2) ................. 1,285,428 1,327,341
750,000 Costco Wholesale Corp. 0% 2017 cv. sub. notes (A3) ................... 618,093 710,265
1,250,000 Dick's Sporting Goods, Inc. 1.6061% 2024 sr. cv. notes (NR) .......... 859,233 992,969
1,000,000 Reebok International Ltd. 2% 2024 cv. deb. (BBB)
(Acquired 04/27/04) (1) (2) .......................................... 1,015,653 1,015,000
1,500,000 Saks, Inc. 2% 2024 cv. sr. notes (Ba3)
(Acquired 03/17/04 - 07/16/04) (2) ................................... 1,483,785 1,335,938
2,400,000 The TJX Companies, Inc. 0% 2021 LYONs (Baa1) ......................... 2,027,456 1,986,000
------------ ------------
8,585,281 8,461,263
------------ ------------
Technology -- 4.9%
1,500,000 Axcelis Technologies, Inc. 4.25% 2007 cv. sub. notes (NR) ............ 1,437,188 1,477,500
1,000,000 Conexant Systems, Inc. 5.25% 2006 cv. sub. notes (NR) ................ 1,016,250 970,000
2,379,000 Hewlett-Packard Co., Inc. 0% 2017 LYONs (Baa1) ....................... 1,357,301 1,338,188
1,500,000 International Rectifier Corp. 4.25% 2007 cv. sub. notes (B2) ......... 1,486,875 1,473,750
------------ ------------
5,297,614 5,259,438
------------ ------------
Telecommunications -- 5.4%
1,500,000 Comverse Technology, Inc. 0% 2023 ZYPS (BB-) (3)...................... 1,649,375 1,825,650
1,000,000 Lucent Technologies, Inc. 2.75% 2023 series A cv. sr. deb. (B2) ...... 1,000,000 1,242,550
500,000 Lucent Technologies, Inc. 2.75% 2025 series B cv. sr. deb. (B2)....... 500,000 648,590
1,250,000 Nortel Networks Corp. 4.25% 2008 cv. sr. notes (B3) .................. 1,287,500 1,200,000
750,000 Tekelec, Inc. 2.25% 2008 cv. sub. discount notes (NR)................. 756,719 855,938
------------ ------------
5,193,594 5,772,728
------------ ------------
TOTAL CONVERTIBLE BONDS AND NOTES .................................... $ 56,800,785 $57,313,503
------------ ------------
Page 6
Portfolio of Investments September 30, 2004 (continued)
Identified Value
Shares Cost (Note 1)
---------- ------------ ------------
CONVERTIBLE PREFERRED STOCKS -- 19.9%
Automotive -- 1.3%
50,000 General Motors Corp. 6.25% series C cv. sr. deb. (Baa1)............... $ 1,311,000 $ 1,407,500
------------ ------------
Banking/Savings and Loan -- 7.9%
17,500 Commerce Capital Trust II 5.95% cv. trust pfd. (Baa1)
(exch. for Commerce Bancorp, Inc. common stock) ...................... 884,220 1,047,813
40,000 National Australia Bank Ltd. 7.875% exch. capital units (NR) ......... 1,038,700 1,356,800
30,000 New York Community Bancorp, Inc. 6% BONUSES units (Baa2) ............. 1,807,306 1,702,500
50,000 Sovereign Capital Trust IV 4.375% PIERS (Ba1)
(exch. for Sovereign Bancorp, Inc. common stock) (1) ................. 2,571,060 2,443,750
35,000 Washington Mutual Capital Trust PIERS units (Baa1)
(exch. for Washington Mutual, Inc. common stock) ..................... 1,773,125 1,920,625
------------ ------------
8,074,411 8,471,488
------------ ------------
Energy -- 3.0%
7,500 Chesapeake Energy Corp. 6% cum. cv. pfd. (B3) ........................ 468,521 617,025
1,000 Chesapeake Energy Corp. 4.125% cum. cv. pfd. (B3) .................... 1,000,000 1,128,750
20,000 The Williams Companies, Inc. 5.50% 2033 jr. sub. cv. deb. (B-) ....... 1,015,000 1,432,500
------------ ------------
2,483,521 3,178,275
------------ ------------
Entertainment -- 2.3%
22,500 Emmis Communications Corp. 6.25% series A cum. cv. pfd. (Caa1)........ 919,590 939,375
1,500 Radio One, Inc. 6.50% HIGH TIDES (B3) ................................ 1,536,401 1,515,281
------------ ------------
2,455,991 2,454,656
------------ ------------
Financial and Insurance -- 2.8%
20,000 Reinsurance Group of America, Inc. 5.75% PIERS (Baa2)................. 1,000,000 1,167,500
80,000 The St. Paul Travelers Companies, Inc. 4.50% 2032
cv. jr. sub. notes (Baa1) ............................................ 1,965,055 1,815,200
------------ ------------
2,965,055 2,982,700
------------ ------------
Health Care -- 1.2%
28,000 Omnicare Capital Trust I 4% PIERS (Ba3)
(exch. for Omnicare, Inc. common stock) (1) .......................... 1,613,709 1,330,000
------------ ------------
Mining -- 1.4%
1,500 Freeport-McMoRan Copper and Gold, Inc. 5.50%
cv. perpetual pfd. (CCC+) ............................................ 1,481,987 1,528,500
------------ ------------
TOTAL CONVERTIBLE PREFERRED STOCKS ................................... $ 20,385,674 $ 21,353,119
------------ ------------
MANDATORY CONVERTIBLE SECURITIES -- 19.2% (4)
Aerospace and Defense -- 1.0%
10,000 Northrop Grumman Corp. 7.25% equity units (NR) (1).................... 1,097,910 1,034,500
------------ ------------
Consumer Goods -- 1.5%
50,000 Constellation Brands, Inc. dep. shs. representing 5.75%
series A mand. cv. pfd. (B)........................................... 1,391,410 1,637,500
------------ ------------
Page 7
Portfolio of Investments September 30, 2004 (continued)
Principal
Amount Identified Value
or Shares Cost (Note 1)
-------------- ------------ ------------
MANDATORY CONVERTIBLE SECURITIES -- continued
Energy -- 4.3%
30,000 shs Amerada Hess Corp. 7% mandatory cv. pfd. ACES (Ba3)................... $ 1,526,250 $ 2,391,750
20,000 shs Teekay Shipping Corp. 7.25% PEPS units (BB-) ......................... 800,000 1,000,000
30,000 shs Valero Energy Corp. 2% mandatory cv. pfd. (BB+) ...................... 925,650 1,192,680
------------ ------------
3,251,900 4,584,430
------------ ------------
Financial and Insurance -- 5.4%
27,800 shs Capital One Financial Corp. 6.25% Upper DECS (Baa3) (1)............... 1,453,127 1,471,732
72,000 shs The Chubb Corp. 7% equity units (A2) (1) ............................. 1,979,793 2,037,600
40,000 shs Platinum Underwriters Holdings, Ltd. 7% equity sec. units (NR) (1) ... 1,129,712 1,171,200
45,000 shs XL Capital, Ltd. 6.5% equity security units (A2)...................... 1,137,000 1,111,500
------------ ------------
5,699,632 5,792,032
------------ ------------
Foods -- 1.0%
40,000 shs Albertson's, Inc. 7.25% HITS units (Baa2) (1)......................... 1,004,604 1,020,000
------------ ------------
Pharmaceuticals -- 2.5%
31,500 shs Baxter International, Inc. 7% equity units (Baa1) (1) ................ 1,484,645 1,695,330
20,000 shs Schering-Plough Corp. 6% mand. cv. pfd. (BBB) ........................ 1,024,750 1,059,000
------------ ------------
2,509,395 2,754,330
------------ ------------
Technology -- 2.4%
105,550 shs The Goldman Sachs Group, Inc. 7.50% mand. exch. notes (Aa3)
(exch. for EMC Corp. common stock) ................................... 1,500,087 1,267,180
36,395 shs The Goldman Sachs Group, Inc. 5.625% mand. exch. notes (Aa3)
(exch. for Intel Corp. common stock) ................................. 999,771 752,831
$1,100,000 Lehman Brothers Holdings, Inc. 6% 2005 YEELDS (A)
(performance linked to LSI Logic Corp. common stock) ................. 1,185,250 551,375
------------ ------------
3,685,108 2,571,386
------------ ------------
Utilities -- 1.1%
45,000 shs DTE Energy Co. 8.75% equity security units (BBB) (1).................. 1,138,364 1,163,250
------------ ------------
TOTAL MANDATORY CONVERTIBLE SECURITIES (4) ........................... $ 19,778,323 $ 20,557,428
------------ ------------
COMMON STOCKS -- 2.3%
Pharmaceuticals -- 1.0%
18,300 shs Johnson & Johnson .................................................... 1,025,715 1,030,839
------------ ------------
Telecommunications -- 1.3%
40,000 shs SBC Communications, Inc............................................... 1,063,000 1,038,000
20,000 shs UTStarcom, Inc. (3)................................................... 732,740 322,200
------------ ------------
1,795,740 1,360,200
------------ ------------
TOTAL COMMON STOCKS .................................................. $ 2,821,455 $ 2,391,039
------------ ------------
Page 8
Portfolio of Investments September 30, 2004 (continued)
Principal Identified Value
Amount Cost (Note 1)
---------- ------------ ------------
SHORT-TERM SECURITIES -- 3.8%
Commercial Paper -- 3.8%
$4,100,000 American Express Credit Corp. (P1)
(1.65% maturing 10/01/04) ............................................. $ 4,099,436 $ 4,099,436
------------ ------------
U.S. Government Obligations -- 0.0%
11,000 U.S. Treasury notes 1.625% 04/30/05 (Aaa) (5) ......................... 11,010 10,976
------------ ------------
TOTAL SHORT-TERM SECURITIES ........................................... $ 4,110,446 $ 4,110,412
------------ ------------
Total Convertible Bonds and Notes -- 53.5% ............................ 56,800,785 57,313,503
Total Convertible Preferred Stocks -- 19.9% ........................... 20,385,674 21,353,119
Total Mandatory Convertible Securities -- 19.2% ....................... 19,778,323 20,557,428
Total Common Stocks -- 2.3% ........................................... 2,821,455 2,391,039
Total Short-Term Securities -- 3.8% ................................... 4,110,446 4,110,412
------------ ------------
Total Investments -- 98.7% ............................................ $103,896,683 105,725,501
============
Other assets and liabilities, net -- 1.3% ............................. 1,381,946
------------
Total Net Assets -- 100.0% ............................................ $107,107,447
============
(1) Contingent payment debt instrument which accrues contingent interest. See
Note 1(b).
(2) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction). The security may be
resold only pursuant to an exemption from registration under the 1933 Act,
typically to qualified institutional buyers. The Fund generally has no
rights to demand registration of these securities. The aggregate market
value of these securities at September 30, 2004 was $9,544,726 which
represented 8.9% of the Fund's net assets.
(3) Non-income producing security.
(4) Mandatory convertible. See Note 1(e).
(5) Collateral for a letter of credit.
ACES Automatic Convertible Equity Securities.
ADR American Depositary Receipts.
BONUSES Bifurcated Option Note Unit Securities.
DECS Debt Exchangeable for Common Stock.
HIGH TIDES Remarketable Term Income Deferrable Equity Securities.
HITS Hybrid Income Term Security.
LYONs Liquid Yield Option Notes.
PEPS Premium Equity Participating Securities.
PIERS Preferred Income Equity Redeemable Securities.
YEELDS Yield Enhanced Equity Linked Debt Securities.
ZYPS Zero Yield Puttable Securities.
Ratings in parentheses by Moody's Investors Service, Inc. or Standard & Poor's,
a division of McGraw-Hill Companies, Inc., have been obtained from sources
believed reliable but have not been examined by PricewaterhouseCoopers LLP. NR
is used whenever a rating is unavailable.
See accompanying notes to financial statements
Page 9
Statement of Assets and Liabilities
September 30, 2004
------------------
Assets:
Investments at value (cost $103,896,683) (Note 1) ....................... $105,725,501
Cash .................................................................... 1,485,315
Receivable for securities sold .......................................... 500,000
Dividends and interest receivable ....................................... 441,642
Other assets ............................................................ 32,769
------------
Total assets ............................................................ 108,185,227
------------
Liabilities:
Payable for securities purchased ........................................ 1,000,000
Accrued management fee (Note 2) ......................................... 11,307
Accrued expenses ........................................................ 23,351
Other liabilities ....................................................... 43,122
------------
Total liabilities ....................................................... 1,077,780
------------
Net Assets ................................................................ $107,107,447
============
Net assets consist of:
Undistributed net investment income ..................................... $ 967,661
Accumulated net realized loss from investment transactions .............. (4,915,273)
Unrealized appreciation on investments .................................. 1,828,818
Capital shares (Note 3) ................................................. 122,981
Additional paid-in capital .............................................. 109,103,260
------------
Net Assets ................................................................ $107,107,447
============
Net asset value per share ($107,107,447 / 12,298,127 outstanding shares) .. $ 8.71
============
--------------------------------------------------------------------------------
Statement of Operations
For the Year Ended September 30, 2004
Investment Income (Note 1):
Interest ................................................................ $ 2,594,530
Dividends ............................................................... 2,302,465
------------
Total Income .......................................................... 4,896,995
------------
Expenses (Note 2):
Management fee .......................................................... 785,869
Custodian ............................................................... 31,127
Transfer agent........................................................... 22,932
Professional fees ....................................................... 128,289
Directors' fees ......................................................... 118,100
Reports to shareholders ................................................. 50,374
Treasurer's office ...................................................... 25,000
Other ................................................................... 87,904
------------
Total Expenses ........................................................ 1,249,595
------------
Net Investment Income...................................................... 3,647,400
------------
Realized and Unrealized Loss on Investments:
Net realized gain from investment transactions .......................... 3,243,708
Net unrealized appreciation of investments .............................. 411,096
------------
Net gain on investments.................................................. 3,654,804
------------
Net Increase in Net Assets Resulting from Operations ...................... $ 7,302,204
============
See accompanying notes to financial statements
Page 10
Statement of Changes in Net Assets
For the Years Ended September 30, 2004 and 2003
2004 2003
------------ -----------
Change in net assets from operations:
Net investment income..................................................... $ 3,647,400 $ 3,375,274
Net realized gain (loss) from investment transactions..................... 3,243,708 (442,388)
Net unrealized appreciation of investments................................ 411,096 8,367,818
------------ -----------
Net increase in net assets resulting from operations.................... 7,302,204 11,300,704
------------ -----------
Dividends to shareholders from:
Net investment income .................................................... (3,681,116) (3,143,201)
Capital share transactions (Note 3)
Value of shares issued on reinvestment of distributions................... 648,017 518,366
Net proceeds from rights offering ........................................ 13,037,152 --
------------ -----------
Total capital share transactions........................................ 13,685,169 518,366
------------ -----------
Change in net assets ....................................................... 17,306,257 8,675,869
Net assets at beginning of period .......................................... 89,801,190 81,125,321
------------ -----------
Net assets at end of period (including undistributed net investment
income of $967,661 and $1,001,377, respectively) ........................... $107,107,447 $89,801,190
============ ===========
--------------------------------------------------------------------------------
Financial Highlights Selected data for a share of common stock outstanding:
Years Ended September 30,
---------------------------------------------------------
2004 2003 2002 2001 2000
----- ----- ----- ------ ------
Operating Performance:
Net asset value, beginning of year......................... $8.58 $7.81 $8.67 $11.82 $11.23
----- ----- ----- ------ ------
Net investment income ..................................... 0.30 0.32 0.34 0.47 0.42
Net realized and unrealized gain (loss).................... 0.35 0.75 (0.76) (1.88) 1.71
----- ----- ----- ------ ------
Total from investment operations ........................ 0.65 1.07 (0.42) (1.41) 2.13
Less Distributions:
Dividends from net investment income ...................... (0.32) (0.30) (0.44) (0.42) (0.35)
Distributions from realized gains ......................... -- -- -- (1.32) (1.23)
----- ----- ----- ------ ------
Total distributions ..................................... (0.32) (0.30) (0.44) (1.74) (1.58)
Capital share transactions:
Effect of rights offering ................................. (0.20) -- -- -- --
Capital share repurchases ................................. -- -- -- -- 0.04
----- ----- ----- ------ ------
Total capital share transactions ........................ (0.20) -- -- -- 0.04
----- ----- ----- ------ ------
Net asset value, end of year .............................. $8.71 $8.58 $7.81 $ 8.67 $11.82
===== ===== ===== ====== ======
Market value, end of year ................................. $7.95 $8.05 $7.55 $8.35 $9.88
Total Net Asset Value Return (%)(a) ....................... 5.2 14.0 (5.2) (13.3) 21.9
Total Investment Return (%)(b) ............................ 2.8 10.8 (4.5) 2.2 25.7
Ratios/Supplemental Data:
Net assets, end of year ($000's) .......................... $107,107 $89,801 $81,125 $88,901 $109,180
Ratio of expenses to average net assets (%)................ 1.2 1.2 1.2 1.2 1.2
Ratio of net investment income to
average net assets (%) .................................. 3.4 3.9 3.9 5.0 3.8
Portfolio turnover rate (%) ............................... 70 86 89 82 98
(a) Assumes valuation of the Fund's shares, and reinvestment of dividends, at
net asset values.
(b) Assumes valuation of the Fund's shares at market price and reinvestment of
dividends at actual reinvestment price.
See accompanying notes to financial statements
Page 11
Notes to Financial Statements
1. Significant Accounting Policies
Ellsworth Convertible Growth and Income Fund, Inc. (the "Fund"), established in
1986, is registered under the Investment Company Act of 1940 as a diversified,
closed-end management investment company. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements:
(a) Security Valuation
Investments in securities traded on a national securities exchange are valued at
market using the last reported sales price as of the close of regular trading.
Unlisted securities traded in the over-the-counter market and listed securities
for which no sales were reported, are valued at the mean between closing
reported bid and asked prices as of the close of regular trading. Securities for
which quotations are not readily available, restricted securities and other
assets are valued at fair value as determined in good faith by management with
the approval of the Board of Directors. Short-term debt securities with initial
maturities of 60 days or less are valued at amortized cost.
(b) Securities Transactions and Related Investment Income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) with gain or loss on the sale of securities being
determined based upon identified cost. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis, including
accretion of discounts and amortization of non-equity premium. For certain
securities, known as "contingent payment debt instruments," Federal tax
regulations require the Fund to record non-cash, "contingent" interest income in
addition to interest income actually received. Contingent interest income
amounted to 5 cents per share for the year ended September 30, 2004. In
addition, Federal tax regulations require the Fund to reclassify realized gains
on contingent payment debt instruments to interest income. At September 30, 2004
there were unrealized losses of approximately 1 cent per share on contingent
payment debt instruments.
(c) Federal Income Taxes
The Fund's policy is to distribute substantially all of its taxable income
within the prescribed time and to otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. Therefore,
no provision for federal income or excise taxes is believed necessary.
At September 30, 2004, the Fund had a capital loss carryforward of $4,915,273
available to the extent allowed by tax law to offset future net capital gains,
if any. To the extent that the carryforward is used, no capital gains
distributions will be made. The carryforward expires in 2011. The Fund utilized
net capital loss carryforwards of $2,804,454 during the year ended September 30,
2004.
Page 12
Notes to Financial Statements (continued)
(d) Distributions to Shareholders
Distributions to shareholders from net investment income are recorded by the
Fund on the ex-dividend date. Distributions from capital gains, if any, are
recorded on the ex-dividend date and paid annually. The amount and character of
income and capital gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted accounting
principles. The tax character of distributions paid during the years ended
September 30, 2004 and 2003 were $3,681,116 and $3,143,201, respectively, both
from ordinary income.
At September 30, 2004 the components of distributable net assets and the federal
tax cost were as follows:
Unrealized appreciation $ 6,230,065
Unrealized depreciation (4,401,247)
------------
Net unrealized appreciation 1,828,818
Undistributed ordinary income 967,661
Tax basis capital loss carryforward (4,915,273)
Cost for federal income tax purposes $103,896,683
In accordance with subchapter M of the Internal Revenue Code of 1986, as
amended, for the year ended September 30, 2004, 12.8% of the dividends paid from
ordinary income qualified for the dividends received deduction for corporations.
Certain dividends paid by the Fund for the fiscal year ended September 30, 2004
may be subject to a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up
to a maximum amount of $471,316 as taxed at a maximum rate of 15%.
Shareholders should not use the above information to prepare their tax returns.
Since the Fund's fiscal year is not the calendar year, another notification will
be sent with respect to calendar year 2004. Such notification, which will
reflect the amount to be used by taxpayers on their federal income tax returns,
will be made in conjunction with Form 1099 DIV and will be mailed in January
2005. Shareholders are advised to consult their own tax advisers with respect to
the tax consequences of their investment in the Fund.
(e) Market Risk
It is the Fund's policy to invest at least 80% of its assets in convertible
securities. Although convertible securities do derive part of their value from
that of the securities into which they are convertible, they are not considered
derivative financial instruments. However, certain of the Fund's investments
include features which render them more sensitive to price changes in their
underlying securities. Thus they expose the Fund to greater downside risk than
traditional convertible securities, but still less than that of the underlying
common stock. The market value of those securities was $20,557,428 at September
30, 2004, representing 19.2% of net assets.
Page 13
Notes to Financial Statements (continued)
2. Management Fee and Other Transactions with Affiliates
The management fee is paid to the investment adviser, Davis-Dinsmore Management
Company (the "Adviser"). The contract provides for payment of a monthly advisory
fee, computed at an annual rate of 3/4 of 1% of the first $100,000,000 and 1/2
of 1% of the excess over $100,000,000 of the Fund's net asset value in such
month.
The Adviser furnishes investment advice, office equipment and facilities, and
pays the salaries of all executive officers of the Fund. The Fund pays all
expenses incurred by it and not assumed by the Adviser and in addition will pay
the costs and expenses of its Treasurer's office, up to a maximum of $25,000 per
year, incurred in connection with its performance of certain services for the
Fund. These services include the valuation of securities owned by the Fund, and
the preparation of financial statements and schedules of the Fund's investments
for inclusion in certain periodic reports to the Fund's Board of Directors and
to the U.S. Securities and Exchange Commission.
3. Capital Stock
At September 30, 2004 there were 12,298,127 shares of $.01 par value common
stock outstanding, (20,000,000 shares authorized). During the years ended
September 30, 2004 and 2003, 81,307 shares and 68,117 shares were issued in
connection with reinvestment of dividends from net investment income, resulting
in an increase in paid-in capital of $648,017 and $518,366 respectively.
On November 19, 2003, the Fund completed a rights offering of Common Stock to
its stockholders at the rate of one common share for each 6 rights held by
stockholders of record on October 14, 2003. The rights offering was fully
subscribed, resulting in the issuance of 1,754,826 common shares at a price of
$7.53, and proceeds of $13,213,840 to the Fund prior to the deduction of
expenses. The net asset value per share of the Fund's Common Stock was reduced
by approximately $0.20 per share as a result of the issuance.
4. Portfolio Activity
Purchases and sales of investments, exclusive of corporate short-term notes,
aggregated $81,474,741 and $71,911,217, respectively, for the year ended
September 30, 2004.
Page 14
Report of Independent Auditors
To the Shareholders and Board of Directors of
Ellsworth Convertible Growth and Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio 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 Ellsworth Convertible Growth and
Income Fund, Inc. (the "Fund") at September 30, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
October 29, 2004
Page 15
Miscellaneous Notes
Automatic Dividend Investment and Cash Payment Plan
The Fund has an Automatic Dividend Investment and Cash Payment Plan (the
"Plan"). Any shareholder may elect to join the Plan by sending an application to
American Stock Transfer & Trust Company, P.O. Box 922, Church Street Station, NY
10269-0560 (the "Plan Agent"). You may also obtain additional information about
the Plan by calling the Plan Agent toll free at (800) 937-5449. If your shares
are held by a broker or other nominee, you should instruct the nominee to join
the Plan on your behalf. Some brokers may require that your shares be taken out
of the broker's "street name" and re-registered in your own name. Shareholders
should also contact their broker to determine whether shares acquired through
participation in the Plan can be transferred to another broker, and thereafter,
whether the shareholder can continue to participate in the Plan.
Under the Plan, all dividends and distributions are automatically invested in
additional Fund shares. Depending on the circumstances, shares may either be
issued by the Fund or acquired through open market purchases at the current
market price or net asset value, whichever is lower (but not less than 95% of
market price). When the market price is lower, the Plan Agent will combine your
dividends with those of other Plan participants and purchase shares in the
market, thereby taking advantage of the lower commissions on larger purchases.
There is no other charge for this service.
All dividends and distributions made by the Fund (including capital gain
dividends and dividends designated as qualified dividend income, which are
eligible for taxation at lower rates) remain taxable to Plan participants,
regardless of whether such dividends and distributions are reinvested in
additional shares of the Fund through open market purchases or through the
issuance of new shares. Plan participants will be treated as receiving the cash
used to purchase shares on the open market and, in the case of any dividend or
distribution made in the form of newly issued shares, will be treated as
receiving an amount equal to the fair market value of such shares as of the
reinvestment date. Accordingly, a shareholder may incur a tax liability even
though such shareholder has not received a cash distribution with which to pay
the tax.
Plan participants may also voluntarily send cash payments of $100 to $10,000 per
month to the Plan Agent, to be combined with other Plan monies, for purchase of
additional Fund shares in the open market. You pay only a bank service charge of
$1.25 per transaction, plus your proportionate share of the brokerage
commission. All shares and fractional shares purchased will be held by the Plan
Agent in your dividend reinvestment account. You may deposit with the Plan Agent
any Ellsworth stock certificates you hold, for a one-time fee of $7.50.
At any time, a Plan participant may instruct the Plan Agent to liquidate all or
any portion of such Plan participant's account. To do so, a Plan participant
must deliver written notice to the Plan Agent prior to the record date of any
dividend or distribution requesting either liquidation or a stock certificate.
The Plan Agent will combine all liquidation requests it receives from Plan
participants on a particular day and will then sell shares of the Fund that are
subject to liquidation requests in the open market. The amount of proceeds a
Plan participant will receive shall be determined by the average sales price per
share, after deducting brokerage commissions, of all shares sold by the Plan
Agent for all Plan participants who have given the Plan Agent liquidation
requests.
The Plan Agent or the Fund may terminate the Plan for any reason at any time by
sending written notice addressed to Plan participant's address as shown on the
Plan Agent's records. Following the date of termination, the Plan Agent shall
send the Plan participant either the proceeds of liquidation, or a stock
certificate or certificates for the full shares held by Plan Agent in Plan
participant's account and a check for the value of any fractional interest in
Plan participant's account based on the market price of the Fund's Common Stock
on that date.
Page 16
Miscellaneous Notes (continued)
Notice of Privacy Policy
The Fund has adopted a privacy policy in order to protect the confidentiality of
nonpublic personal information that we have about you. We receive personal
information, such as your name, address and account balances, when transactions
occur in Ellsworth shares registered in your name.
We may disclose this information to companies that perform services for the
Fund, such as the Fund's transfer agent or proxy solicitors. These companies may
only use this information in connection with the services they provide to the
Fund, and not for any other purpose. We will not otherwise disclose any
nonpublic personal information about our stockholders or former stockholders to
anyone else, except as required by law.
Access to nonpublic information about you is restricted to our employees and
service providers who need that information in order to provide services to you.
We maintain physical, electronic and procedural safeguards that comply with
federal standards to guard your nonpublic personal information.
--------------------------------------------------------------------------------
For More Information About Portfolio Holdings
In addition to the semi-annual and annual reports that Ellsworth delivers to
shareholders and makes available through the Ellsworth public website, the Fund
files a complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the Fund's first and third fiscal quarters on Form N-Q.
Ellsworth does not deliver the schedule for the first and third fiscal quarters
to shareholders, however the schedule is posted to the Ellsworth public website,
www.ellsworthfund.com. You may obtain the Form N-Q filings by accessing the
SEC's website at www.sec.gov. You may also review and copy them at the SEC's
Public Reference Room in Washington, DC. Information on the operation of the
SEC's Public Reference Room may be obtained by calling the SEC at (800)
SEC-0330. You can also request copies of this information, upon payment of a fee
for duplication, at the SEC's email address (publicinfo@sec.gov) or by writing
the Public Reference section of the SEC, Washington, DC 20549-0102.
--------------------------------------------------------------------------------
Proxy Voting Policies and Procedures / Proxy Voting Record
The Fund's policies and procedures with respect to the voting of proxies
relating to the Fund's porfolio securities is available without charge, upon
request, by calling (973) 631-1177, or at our website at www.ellsworthfund.com.
This information is also available on the SEC's website at www.sec.gov. In
addition, information on how the Fund voted such proxies relating to portfolio
securities during the most recent twelve-month period ended June 30, is
available without charge at the above sources.
--------------------------------------------------------------------------------
Pursuant to Section 23 of the Investment Company Act of 1940, notice is hereby
given that the Fund may in the future purchase shares of its own Common Stock
from time to time, at such times, and in such amounts, as may be deemed
advantageous to the Fund. Nothing herein shall be considered a commitment to
purchase such shares.
--------------------------------------------------------------------------------
The Fund is a member of the Closed-End Fund Association (CEFA). Its website
address is www.cefa.com. CEFA is solely responsible for the content of its
website.
Page 17
Directors
Each director is also a director of Bancroft Convertible Fund, Inc. (Bancroft)
(a closed-end management investment company). Davis-Dinsmore Management Company
(Davis-Dinsmore) is the Fund's investment adviser and is also the investment
adviser to Bancroft. Because of this connection, the Fund and Bancroft make up a
Fund Complex. Therefore, each director oversees two investment companies in the
Fund Complex.
------------------------------------------------------------------------------------------------------------------
Personal Principal Occupation(s) During Past Five Years; Other
Information Directorship(s)
------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Gordon F. Ahalt Retired. Prior to 2001, President of G.F.A. Inc. (petroleum industry
65 Madison Avenue consulting company). Director of Bancroft and CalDive
Suite 550 International.
Morristown, NJ 07960
Term expires 2007
Director since 1986
Age 76
-----------------------------------------------------------------------------------------------------------------
William A. Benton Retired. Prior to 2001, Partner of BE Partners (small options market
65 Madison Avenue maker). Prior to 2000, Limited Partner of Gavin, Benton & Co.
Suite 550 (NYSE specialist); Director of Bancroft.
Morristown, NJ 07960
Term expires 2006
Director since 1986
Age 71
-----------------------------------------------------------------------------------------------------------------
Elizabeth C. Bogan, Ph.D. Senior Lecturer in Economics at Princeton University; Director of
65 Madison Avenue Bancroft.
Suite 550
Morristown, NJ 07960
Term expires 2007
Director since 1986
Age 60
-----------------------------------------------------------------------------------------------------------------
Donald M. Halsted, Jr. Retired Business Executive; Director of Bancroft.
65 Madison Avenue
Suite 550
Morristown, NJ 07960
Term expires 2005
Director since 1986
Age 77
-----------------------------------------------------------------------------------------------------------------
George R. Lieberman (1) Retired Advertising Executive; Director of Bancroft.
65 Madison Avenue
Suite 550
Morristown, NJ 07960
Term expires 2006
Director since 1990
Age 82
Page 18
Directors (continued)
------------------------------------------------------------------------------------------------------------------
Personal Principal Occupation(s) During Past Five Years; Other
Information Directorship(s)
------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS (continued)
Duncan O. McKee Retired Attorney; Director of Bancroft.
65 Madison Avenue
Suite 550
Morristown, NJ 07960
Term expires 2005
Director since 1996
Age 73
------------------------------------------------------------------------------------------------------------------
Nicolas W. Platt Since January 2003, President of CNC-US (an international consulting company).
65 Madison Avenue Prior to January 2003, Senior Partner of Platt & Rickenbach (public relations
Suite 550 firm). Prior to May 2001, with WPP Group, UK and its public relations
Morristown, NJ 07960 subsidiaries, Ogilvy Public Relations, Burson-Marsteller and Robinson Lehr
Term expires 2007 Montgomery; Director of Bancroft.
Director since 1997
Age 51
------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
Thomas H. Dinsmore, C.F.A. (2) Chairman and Chief Executive Officer of the Fund, Bancroft and Davis-Dinsmore;
65 Madison Avenue Director of Bancroft and Davis-Dinsmore.
Suite 550
Morristown, NJ 07960
Term expires 2005
Director since 1986
Age 51
------------------------------------------------------------------------------------------------------------------
Jane D. O'Keeffe (2) President of the Fund, Bancroft and Davis-Dinsmore; Director of Bancroft and
65 Madison Avenue Davis-Dinsmore.
Suite 550
Morristown, NJ 07960
Term expires 2006
Director since 1995
Age 49
------------------------------------------------------------------------------------------------------------------
As of the date of this report, the Board of Directors did not have an audit
committee financial expert serving on its audit committee as the Board was still
in the process of identifying an appropriate candidate. However, the Fund's
directors subsequently elected Robert J. McMullan to the Board of Directors,
effective November 15, 2004, and have appointed Mr. McMullan to serve on the
Fund's audit committee. The Board of Directors has determined that Mr. McMullan
possesses the attributes required to be considered an audit committee financial
expert under applicable federal securities laws. Mr. McMullan's background and
experience will be included in the Proxy Statement for the Fund's 2005 annual
meeting, at which time shareholders will vote to approve the election of Mr.
McMullan as a director.
(1) Mr. Lieberman retired as Director of the Fund as of October 18, 2004.
(2) Mr. Dinsmore and Ms. O'Keeffe are considered interested persons because they
are officers and directors of Davis-Dinsmore. They are brother and sister.
Page 19
Principal Officers
The business address of each officer is 65 Madison Avenue, Suite 550,
Morristown, NJ 07960-7308. Officers are elected by and serve at the pleasure of
the Board of Directors. Each officer holds office until the annual meeting to be
held in 2005, and thereafter until his or her respective successor is duly
elected and qualified.
------------------------------------------------------------------------------------------------------------------
Personal Principal Occupation(s) During Past Five Years; Other
Information Directorship(s)
------------------------------------------------------------------------------------------------------------------
Thomas H. Dinsmore, C.F.A.(1,2,3) Director, Chairman and Chief Executive Officer of the Fund,
Director, Chairman and Bancroft and Davis-Dinsmore.
Chief Executive Officer
Officer since 1986
Age 51
------------------------------------------------------------------------------------------------------------------
Jane D. O'Keeffe (1,2,3) Director and President of the Fund, Bancroft and Davis-Dinsmore.
Director and President
Officer since 1994
Age 49
------------------------------------------------------------------------------------------------------------------
Gary I. Levine Since 2004, Executive Vice President and Chief Financial Officer,
Executive Vice President, and since 2003 Secretary, and prior thereto, Treasurer and Assistant
Chief Financial Officer and Secretary of the Fund, Bancroft and Davis-Dinsmore.
Secretary
Officer since 1993
Age 47
------------------------------------------------------------------------------------------------------------------
H. Tucker Lake, Jr. (2,4) Since 2002, Vice President, and prior thereto Vice President,
Vice President Trading, of the Fund, Bancroft and Davis-Dinsmore.
Officer since 1994
Age 57
------------------------------------------------------------------------------------------------------------------
Germaine M. Ortiz Since 1999, Vice President of the Fund, Bancroft and Davis-
Vice President Dinsmore.
Officer since 1994
Age 35
------------------------------------------------------------------------------------------------------------------
Mercedes A. Pierre Vice President and Chief Compliance Officer since 2004, and
Vice President, Chief Assistant Treasurer since 1998 of the Fund, Bancroft and Davis-
Compliance Officer and Dinsmore. Prior thereto Assistant Treasurer of Davis-Dinsmore.
Assistant Treasurer
Officer since 1998
Age 43
------------------------------------------------------------------------------------------------------------------
Joshua P. Lake (3,4) Since 2004, Treasurer and Assistant Secretary. Prior to 2004,
Treasurer and Assistant Assistant Treasurer and Assistant Secretary and prior to 2002
Secretary Research Associate of the Fund, Bancroft and Davis-Dinsmore.
Officer since 2002
Age 28
------------------------------------------------------------------------------------------------------------------
(1) Mr. Dinsmore and Ms. O'Keeffe brother and sister.
(2) Mr. H. Tucker Lake is the cousin of Mr. Dinsmore and Ms. O'Keeffe.
(3) Mr. Joshua Lake is the cousin of Mr. Dinsmore and Ms. O'Keeffe.
(4) Mr. Tucker Lake is the father of Mr. Joshua Lake.
Page 20
Board of Directors
GORDON F. AHALT Petroleum Consultant
WILLIAM A. BENTON Retired Stock Exchange Specialist
ELIZABETH C. BOGAN Senior Lecturer in Economics at Princeton University
THOMAS H. DINSMORE, C.F.A. Chairman of the Board of Ellsworth
DONALD M. HALSTED, JR. Investor
GEORGE R. LIEBERMAN (1) Retired Advertising Executive
DUNCAN O. MCKEE Retired Attorney
JANE D. O'KEEFFE President of Ellsworth
NICOLAS W. PLATT Public Relations Executive
Officers
THOMAS H. DINSMORE Chairman of the Board
JANE D. O'KEEFFE President
GARY I. LEVINE Executive Vice President, Chief Financial Officer and Secretary
H. TUCKER LAKE Vice President
GERMAINE M. ORTIZ Vice President
MERCEDES A. PIERRE Vice President, Chief Compliance Officer and Assistant Treasurer
JOSHUA P. LAKE Treasurer and Assistant Secretary
JESSICA K. LAKE Assistant Vice President
JOANN VENEZIA Assistant Vice President
(1) Retired as Director of the Fund as of October 18, 2004.
--------------------------------------------------------------------------------
Internet
www.ellsworthfund.com
email: info@ellsworthfund.com
Investment Adviser
Davis-Dinsmore Management Company
65 Madison Avenue, Morristown, NJ 07960-7308
(973) 631-1177
Shareholder Services and Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
(800) 937-5449
www.amstock.com
Common Stock Listing
American Stock Exchange Symbol: ECF
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
65 MADISON AVENUE, SUITE 550
MORRISTOWN, NEW JERSEY 07960
www.ellsworthfund.com
[LOGO]
AMERICAN
STOCK EXCHANGE(R)
LISTED
ECF(TM)
ITEM 2. CODE OF ETHICS.
Effective May 15, 2003, the Board of Directors of the Fund has adopted a
code of ethics that applies to the Fund's principal executive officer and
principal financial officer. See attached Exhibit EX-99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the date of this report, the Board of Directors did not have an audit
committee financial expert serving on its audit committee as the Board was still
in the process of identifying an appropriate candidate. However, the Fund's
directors subsequently elected Robert J. McMullan to the Board of Directors,
effective November 15, 2004, and have appointed Mr. McMullan to serve on the
Fund's audit committee. Mr. McMullan is an independent director. The Board of
Directors has determined that Mr. McMullan possesses the attributes required to
be considered an audit committee financial expert under applicable federal
securities laws. Mr. McMullan's background and experience will be included in
the Proxy Statement for the Fund's 2005 annual meeting, at which time
shareholders will vote to approve the election of Mr. McMullan as a director.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Set forth in the table below are the aggregate fees billed to the Company
by PricewaterhouseCoopers LLP ("PwC") for services rendered to the Company
during the Company's last two fiscal years ended September 30, 2003 and
September 30, 2004.
Fiscal YE Audit Audit-Related All Other
September 30 Fees Fees (1) Tax Fees (2) Fees
2003 $32,827 $0 $2,200 $0
2004 $34,400 $9,785 $2,500 $0
(1) "Audit-Related Fees" include those fees billed to the Company by PwC in
connection with its review of the Company's Registration Statement on Form N-
2 relating to the Company's Rights Offering. All Audit-Related Fees were pre-
approved by the Company's audit committee and no Audit-Related Fees were
approved by the Company's audit committee pursuant to section
2.01(c)(7)(i)(C) of Regulation S-X, which waives the pre-approval requirement
for certain de minimus fees.
(2) "Tax Fees" include those fees billed by PwC in connection with its
review of the Company's income tax returns. All Tax Fees were pre-approved
by the Company's audit committee and no Tax Fees were approved by the
Company's audit committee pursuant to section 2.01(c)(7)(i)(C) of Regulation
S-X, which waives the pre-approval requirement for certain de minimus fees.
Non-Audit Services
During each of the last two fiscal years ended September 30, 2003 and
September 30, 2004, PwC did not provide any non-audit services to the Company or
Davis-Dinsmore or its affiliates or otherwise bill the Company or Davis-Dinsmore
or its affiliates for any such non-audit services.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee pre-approves all audit and permissible non-audit
services that are proposed to be provided to the Company by its independent
auditors before they are provided to the Company. Such pre-approval also
includes the proposed fees to be charged by the independent auditors for such
services. The Audit Committee may delegate the pre-approval of audit and
permissible non-audit services and related fees to one or more members of the
Audit Committee who are "independent," as such term is defined in Rule 10A-
3(b)(1)(iii) under the Exchange Act. Any such member's decision to pre-approve
audit and/or non-audit services and related fees shall be presented to the full
Audit Committee, solely for informational purposes, at their next scheduled
meeting.
The Audit Committee also pre-approves non-audit services to be provided by
the Company's independent auditors to the Company' investment adviser if the
engagement relates directly to the operations and financial reporting of the
Company and if the Company' independent auditors are the same as, or affiliated
with, the investment adviser's auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Fund has a designated Audit Committee in accordance with
Section 3(a)(58)(A) of the Exchange Act:
WILLIAM A. BENTON
ELIZABETH C. BOGAN, PH.D.
DONALD M. HALSTED, JR.
GEORGE R. LIEBERMAN (1)
(1) Mr. Liebermnan retired as a director of the Fund as of October 18, 2004
and will be replaced on the Audit Committee by Robert J. McMullan.
(b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments in securities of unaffiliated issuers 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.
Bancroft Convertible Fund, Inc.
Ellsworth Convertible Growth and Income Fund, Inc.
Davis-Dinsmore Management Company
Proxy Voting Guidelines
(Adopted April 14, 2003)
These proxy voting guidelines have been adopted by the Boards of Directors of
Bancroft Convertible Fund, Inc. and Ellsworth Convertible Growth and Income
Fund, Inc. (collectively, the "Funds"), as well as by the Board of Directors of
Davis-Dinsmore Management Company ("Davis-Dinsmore").
The Boards of Directors of the Funds have delegated to Davis-Dinsmore
responsibility for voting proxies received by the Funds in their capacities as
shareholders of various companies. The Boards recognize that, due to the nature
of the Funds' investments, the Funds do not frequently receive proxies.
Davis-Dinsmore exercises its voting responsibility with the overall goal of
maximizing the value of the Funds' investments. The portfolio managers at
Davis-Dinsmore oversee the voting policies and decisions for the Funds.
In evaluating voting issues, the portfolio managers may consider information
from many sources, including management of a company presenting a proposal,
shareholder groups, research analysts, and independent proxy research services.
Set forth below are the proxy voting guidelines:
A. Matters Related to the Board of Directors
1. The Funds generally will support the election of nominees recommended
by management for election as directors. In determining whether to support a
particular nominee, Davis-Dinsmore will consider whether the election of that
nominee will cause a company to have less than a majority of independent
directors.
2. The Funds generally will support proposals to de-classify boards of
directors if fewer than 66 2/3% of the directors are independent, and will
generally vote against proposals to classify boards of directors.
3. The Funds generally will withhold a vote in favor of a director who
has served on a committee which has approved excessive compensation arrangements
or proposed equity-based compensation plans that unduly dilute the ownership
interests of stockholders.
B. Matters Related to Independent Auditors
1. The Funds generally will vote in favor of independent accountants
approved by the company. Prior to such vote, however, Davis-Dinsmore will take
into consideration whether non-audit fees make up more than 50 to 75% of the
total fees paid by the company to the independent auditors, and the nature of
the non-audit services provided.
C. Corporate Governance Matters
1. As a general rule, the Funds will vote against proposals recommended
by management of a company that are being made primarily to implement anti-
takeover measures, and will vote in favor of proposals to eliminate policies
that are primarily intended to act as anti-takeover measures.
2. Subject to the other provisions of these guidelines, including without
limitation provision C.1. above, the Funds generally will vote in accordance
with management's recommendations regarding routine matters, including the
following:
a. Fixing number of directors;
b. Stock splits; and
c. Change of state of incorporation for specific corporate purposes.
D. Matters Related to Equity-Based Compensation Plans
1. The Fund generally will vote in favor of broad-based stock option
plans for executives, employees or directors which would not increase the
aggregate number of shares of stock available for grant under all currently
active plans to over 10% of the total number of shares outstanding.
2. The Funds generally will vote in favor of employee stock purchase
plans and employee stock ownership plans permitting purchase of company stock at
85% or more of fair market value.
E. Contested Matters
1. Contested situations will be evaluated on a case by case basis by the
portfolio manager at Davis-Dinsmore principally responsible for the particular
portfolio security.
F. Miscellaneous Matters
1. The Funds may in their discretion abstain from voting shares that have
been recently sold.
2. The Funds generally will abstain from voting on issues relating to
social and/or political responsibility.
3. Proposals that are not covered by the above-stated guidelines will be
evaluated on a case by case basis by the portfolio manager at Davis-Dinsmore
principally responsible for the particular portfolio security.
G. Material Conflicts of Interest
1. Conflicts of interest may arise from time to time between Davis-
Dinsmore and the Funds. Examples of conflicts of interests include:
a. Davis-Dinsmore may manage a pension plan, administer employee
benefit plans, or provide services to a company whose management is
soliciting proxies;
b. Davis-Dinsmore or its officers or directors may have a business
or personal relationship with corporate directors, candidates for
directorships, or participants in proxy contests;
c. Davis-Dinsmore may hold a position in a security contrary to
shareholder interests.
2. If a conflict of interest arises with respect to a proxy voting
matter, the portfolio manager will promptly notify the Funds' Audit Committee
and counsel for independent directors and the proxies will be voted in
accordance with direction received from the Audit Committee.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not currently applicable to registrant.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
There were no purchases made by or on behalf of the registrant or any
"affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Exchange Act
(17 CFR 240.10b-18(a)(3)), of shares or other units of any class of the
registrant's equity securities that is registered by the registrant pursuant to
Section 12 of the Exchange Act(15 U.S.C. 781).
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant adopted Shareholder Communication Procedures (the "Procedures")
as amended effective July 22, 2004. The Procedures are intended to set forth
the process by which shareholders of the registrant may send communications to
the Board. If a shareholder sends a recommendation of a nominee to the Board or
to an individual director, such communication would be covered by the
Procedures. Shareholder proposals submitted pursuant to Rule 14a-8 under the
Securitiesn Exchange Act of 1934, as amended (the "1934 Act"), and
communications made in connection with such proposals are not subject to the
Procedures. The Registrant's Bylaws also contain provisions requiring a
shareholder to provide advance notice of his or her intention to nominate, at
the Registrant's annual meeting of shareholders, an individual for election as
director.
Pursuant to the Procedures, shareholders should send their communications to the
Shareholder Relations Group. Communications may be sent by regular mail or
delivery service to the following address: 65 Madison Avenue, Suite 550,
Morristown, NJ 07960. Email communications may be sent to:
info@ellsworthfund.com. All shareholder communications received by the
Shareholder Relations Group shall be promptly forwarded to the individual
director of the registrant to whom they were addressed or to the full Board, as
applicable. Copies of all such shareholder communications will also be
distributed to the Chairs of each of the registrant's Audit Committee, and
Nominating and Administration Committee, and to counsel for the registrant and
for the independent directors. Counsel for the registrant and for the
independent directors, upon receipt of its copy of a shareholder communication,
shall work with such Chairs and counsel for the independent directors to
determine whether such shareholder communication should be distributed to any
directors to whom it was not sent and whether and in what manner the directors
should respond to such shareholder communication. Responses, if any, to
shareholder communications shall be coordinated by counsel for the registrant
and for the independent directors, working with the Chairs.
ITEM 11. CONTROLS AND PROCEDURES
Conclusions of principal officers concerning controls and procedures
(a) As of November 15, 2004, an evaluation was performed under the supervision
and with the participation of the officers of Ellsworth Convertible Growth and
Income Fund, Inc. (the "Registrant"), including the Principal Executive Officer
("PEO") and Principal Financial Officer ("PFO"), to assess the effectiveness of
the Registrant's disclosure controls and procedures, as that term is defined in
Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act"), as amended.
Based on that evaluation, the Registrant's officers, including the PEO and PFO,
concluded that, as of November 15, 2004, the Registrant's disclosure controls
and procedures were reasonably designed so as to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the time periods specified by the rules and forms
of the Securities and Exchange Commission; and (2) that material information
relating to the Registrant is made known to the PEO and PFO as appropriate to
allow timely decisions regarding required disclosure.
(b) There have been no significant changes in the Registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the Registrant's last fiscal half-
year (the Registrant's second fiscal half-year in the case of an annual 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) A code of ethics, effective May 15, 2003, that applies to the Fund's
principal executive officer and principal financial officer is attached
hereto.
(a)(2) Certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940.
(a)(3) There were no written solicitations to purchase securities under Rule
23c-1 under the Investment Company Act of 1940 during the period covered by the
report.
(b) Certifications of the principal executive officer and the principal
financial officer, as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities and 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.
Ellsworth Convertible Growth and Income Fund, Inc.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 22, 2004
Pursuant to the requirements of the Securities and 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: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 22, 2004
By: /s/Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: November 22, 2004