-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SQl9AdeVzpg63U8+ZiVGH3dyaANWJv5e77MfyHc7Elu1QN7Q8CyMRr3Z6CFWo0xW mnWs58K4n2xUfZeKOTLDDQ== 0000793040-05-000017.txt : 20051129 0000793040-05-000017.hdr.sgml : 20051129 20051129134144 ACCESSION NUMBER: 0000793040-05-000017 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051129 DATE AS OF CHANGE: 20051129 EFFECTIVENESS DATE: 20051129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELLSWORTH CONVERTIBLE GROWTH & INCOME FUND INC CENTRAL INDEX KEY: 0000793040 IRS NUMBER: 133345139 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04656 FILM NUMBER: 051231164 BUSINESS ADDRESS: STREET 1: 65 MADISON AVENUE STREET 2: SUITE 550 CITY: MORRISTOWN STATE: NJ ZIP: 07960 BUSINESS PHONE: (973) 631-1177 MAIL ADDRESS: STREET 1: 65 MADISON AVE STREET 2: SUITE 550 CITY: MORRISTOWN STATE: NJ ZIP: 07960 N-CSR 1 e0905ncsr.txt 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 --------------------------------------------- ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 65 Madison Avenue, Morristown, New Jersey 07960-7308 - ------------------------------------------------------------------------------- (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, 2005 ITEM 1. REPORTS TO STOCKHOLDERS. ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND [LOGO] 2005 ANNUAL REPORT SEPTEMBER 30, 2005 2005 ANNUAL REPORT SEPTEMBER 30, 2005 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, 2005 - WITH DIVIDENDS REINVESTED
Calendar Cumulative YTD 1 Year 5 Years 10 Years -------- -------- --------- ---------- Ellsworth market price (a) ..................... (0.28)% 2.45% 14.00% 155.38% Ellsworth net asset value (b) .................. 4.89 10.31 8.73 128.59 Closed-end convertible fund average (b) ........ 3.93 11.20 16.47 108.20 S&P 500 Index (a) .............................. 2.77 12.25 (7.22) 147.47 Russell 2000 Index (a) ......................... 3.44 18.08 37.15 146.91 Lehman Aggregate Bond Total Return Index (b) ... 1.82 2.80 37.80 88.52
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, 2005. - -------------------------------------------------------------------------------- QUARTERLY HISTORY OF NAV AND MARKET PRICE Net Asset Values Market Prices (AMEX, symbol ECF) Qtr. Ended High Low Close High Low Close - ---------- ------ ----- ----- ------ ----- ----- Dec. 04 $9.07 $8.60 $9.07 $8.08 $7.80 $8.08 Mar. 05 9.02 8.70 8.77 8.11 7.47 7.63 Jun. 05 8.80 8.35 8.79 7.74 7.25 7.74 Sep. 05 9.29 8.82 9.29 7.90 7.57 7.84 - -------------------------------------------------------------------------------- DIVIDEND DISTRIBUTIONS (12 MONTHS) Record Payment Capital * Corporate Date Date Income Gains Deduction - -------- ---------- ---------- --------- ----------- 10/28/04 11/24/04 $0.085 -- 13% 2/11/05 2/25/05 0.070 -- 22 5/13/05 5/27/05 0.070 -- 22 8/16/05 8/30/05 0.070 -- 22 ---------- $0.295 ========== * Percentage of each ordinary income distribution qualifying for the corporate dividend received tax deduction. ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- TO OUR SHAREHOLDERS November 4, 2005 As we approach the end of this most eventful year we find our investment strategy to be heavily influenced by the question "Is inflation back?" The Consumer Price Index (CPI) that had been running at a year over year rate of under 2% in 2003 is now over 4.5% (3Q 2005). Any significant inflation can be a very disruptive phenomenon. In the 1970's inflation became embedded in our economy. This came about due to stimulative fiscal policy (government spending), loose monetary policy, imposition of substantial regulation and tax policy that included penalties on savings and investment, and higher tax brackets for those who were simply keeping up with price increases (bracket creep). There were also several supply shocks in energy and mining. In that environment investing in manufacturing did not work while investing in hard assets such as metals and oil did. Our current economy shows some similarities to that of the 1970's: fiscal policy has been stimulative, monetary policy was also stimulative for several years, supply shocks created by national disasters have occurred, a form of bracket creep has returned through a device known as the alternative minimum tax (which includes no adjustment for inflation) and Federal regulations have expanded. There are also differences: technology has increased productivity, Federal tax rates of 50% to 70% in the 1970's are now 15% to 35% on savings and investment, and globalization has expanded competition which limits price increases by companies. It is our opinion that a limited form of inflation is returning, which should benefit the owners of hard assets. However, the lower tax rates, productivity gains, tighter monetary policy and the effects of globalization should keep it from becoming embedded. Of the Fund's major industry exposure, energy continued to contribute positively to performance in its fourth quarter, while exposure to the telecommunications industry has hindered performance. The rise in energy prices has been a direct cause of the strong performance by energy stocks, but has also reduced expectations for growth in other sectors of the economy. 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. For the quarter, nine-month and ten-year periods ended September 30, 2005, Ellsworth's NAV has outperformed the average of the closed-end convertible fund category tracked by Lipper, Inc. and published in the Lipper Closed-End Performance Analysis. However, for the one year and five years ended September 30, 2005, the Fund underperformed the average of the eleven funds in its category. Of these eleven funds, only four, including the Fund, remain unleveraged convertible funds and only five, including the Fund, have more than 65% of their assets in convertible securities. We believe these factors contributed to the difference in performance between Ellsworth and many of the other funds in the group. Independent director William A. Benton is retiring from service at the end of his term in 2006. He was one of Ellsworth's directors in our founding year of 1986. His contributions to the Fund have been many. He will be missed. CONTINUED ON THE FOLLOWING PAGE PAGE 1 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- 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 17, 2005 meeting, the Board of Directors declared a dividend of 9.75 cents ($0.0975) per share. The dividend consists of undistributed net investment income and will be payable on November 23, 2005 to shareholders of record on October 27, 2005. The 2006 annual meeting of shareholders will be held at our offices in Morristown, New Jersey on January 13, 2006. Time and location will be included in the proxy statement, scheduled to be mailed to shareholders on November 28, 2005. All shareholders are welcome to attend, we hope to see you there. /s/ Thomas H. Dinsmore Thomas H. Dinsmore Chairman of the Board
- -------------------------------------------------------------------------------- MAJOR PORTFOLIO CHANGES - BY UNDERLYING COMMON STOCK SIX MONTHS ENDED SEPTEMBER 30, 2005 ADDITIONS REDUCTIONS Best Buy Co., Inc. Agilent Technologies, Inc. Celanese Corp. The Chubb Corp. Cephalon, Inc. Devon Energy Corp. Echostar Communications Corp. Global Marine Corp. FTI Consulting, Inc. Impax Laboratories, Inc. Genworth Financial, Inc. IKON Office Solutions, Inc. (exchangeable from Citigroup Funding, Inc.) (exchangeable from IOS Capital, LLC) LSI Logic Corp. Ivax Corp. Manor Care, Inc. Leucadia National Corp. MetLife, Inc. Ocwen Financial Corp. Nuveen Investments, Inc. Omnicare, Inc. (exchangeable from Merrill Lynch & Co., Inc. and Morgan Stanley, Inc.) Pegasus Solutions, Inc. Oil States International, Inc. Valero Energy Corp. U.S. Bancorp Weatherford International, Ltd.
PAGE 2 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- LARGEST INVESTMENT HOLDINGS - BY UNDERLYING COMMON STOCK Value % Total (Note 1) Net Assets ----------- ---------- Chesapeake Energy Corp. .............................. $ 4,640,875 4.0% PRODUCES OIL AND NATURAL GAS. THE COMPANY'S OPERATIONS ARE FOCUSED ON DEVELOPMENTAL DRILLING AND PRODUCING PROPERTY ACQUISITIONS IN ONSHORE NATURAL GAS PRODUCING AREAS OF THE UNITED STATES AND CANADA. The Walt Disney Company .............................. 3,301,090 2.9 AN ENTERTAINMENT COMPANY WHICH CONDUCTS OPERATIONS IN MEDIA NETWORKS, STUDIO ENTERTAINMENT, THEME PARKS AND RESORTS, CONSUMER PRODUCTS, AND INTERNET AND DIRECT MARKETING. Nuveen Investments, Inc. ............................. 2,717,295 2.4 THE COMPANY'S PRINCIPAL ACTIVITIES ARE ASSET MANAGEMENT AND RELATED RESEARCH, AND THE DEVELOPMENT, MARKETING AND DISTRIBUTION OF INVESTMENT PRODUCTS AND SERVICES. NUVEEN PROVIDES ITS SERVICES THROUGH FINANCIAL ADVISORS WHO SERVE THE AFFLUENT AND HIGH NET WORTH MARKET SEGMENTS. (EXCH. FROM MERRILL LYNCH & Co., Inc. and Morgan Stanley, Inc.) The St. Paul Travelers Companies, Inc. ............... 2,406,000 2.1 PROVIDES A BROAD RANGE OF INSURANCE PRODUCTS AND SERVICES FOR THE COMMERCIAL AND CONSUMER MARKETS. Genworth Financial, Inc. ............................. 2,360,475 2.1 PROVIDES LIFE INSURANCE PRODUCTS, LONG-TERM CARE INSURANCE AND MORTGAGE GUARANTEE INSURANCE COVERAGE ON RESIDENTIAL MORTGAGE LOANS. (EXCH. FROM CITIGROUP FUNDING, INC.) The Williams Companies, Inc. ......................... 2,340,000 2.0 THE COMPANY EXPLORES, PRODUCES, GATHERS, PROCESSES AND TRANSPORTS NATURAL GAS. WILLIAMS ALSO MANAGES A WHOLESALE POWER BUSINESS. Amerada Hess Corp. ................................... 2,332,600 2.0 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. The TJX Companies, Inc. .............................. 2,309,160 2.0 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. MetLife, Inc. ........................................ 2,263,200 2.0 PROVIDES INSURANCE AND FINANCIAL SERVICES TO A RANGE OF INDIVIDUAL AND INSTITUTIONAL CUSTOMERS. Freeport McMoRan Copper and Gold, Inc. ............... 2,218,420 1.9 IS INVOLVED IN MINERAL EXPLORATION AND DEVELOPMENT, ----------- ---------- MINING, AND MILLING OF COPPER, GOLD AND SILVER. THE COMPANY IS ALSO INVOLVED IN SMELTING AND REFINING COPPER CONCENTRATES. Total ................................................ $26,889,115 23.4% =========== ========== PAGE 3 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- MAJOR INDUSTRY EXPOSURE --------------------------- Banking/Savings & Loan 7.2% --------------------------- ------------ Chemicals 3.4% ------------ ----------------------------------------------- Energy 13.7% ----------------------------------------------- ---------------- Entertainment 4.2% ---------------- --------------------------------------------------- Financial & Insurance 15.3% --------------------------------------------------- -------------------- Health Care 5.7% -------------------- ---------------------------------------- Pharmaceuticals 11.6% ---------------------------------------- ----------------------- Retail 6.4% ----------------------- --------------------------------- Technology 8.4% --------------------------------- --------------------- Telecommunications 6.3% --------------------- - -------------------------------------------------------------------------------- DIVERSIFICATION OF ASSETS % Total Net Assets September 30, Value ------------------- Cost (Note 1) 2005 2004 ------------ ------------ -------- -------- Automotive ..................... $ 2,845,190 $ 2,644,188 2.3% 4.7% Banking/Savings and Loan ....... 8,646,599 8,279,613 7.2 11.0 Chemicals ...................... 3,943,044 3,890,520 3.4 -- Consumer Goods ................. 2,463,795 3,207,263 2.8 3.6 Energy ......................... 10,369,642 15,757,845 13.7 10.4 Entertainment .................. 4,902,842 4,791,715 4.2 4.2 Financial and Insurance ........ 17,165,326 17,577,120 15.3 11.1 Foods .......................... 2,071,514 2,060,800 1.8 1.0 Health Care .................... 6,885,292 6,548,522 5.7 4.7 Mining ......................... 1,961,987 2,218,420 1.9 1.4 Multi-Industry ................. 1,593,172 1,438,500 1.3 -- Pharmaceuticals ................ 12,562,777 13,286,207 11.6 11.1 Retail ......................... 7,742,664 7,303,858 6.4 7.9 Technology ..................... 9,642,922 9,695,225 8.4 7.3 Telecommunications ............. 6,497,489 7,196,055 6.3 6.7 Utilities ...................... 1,500,000 1,927,500 1.7 1.1 Other .......................... 2,022,193 2,041,250 1.6 8.7 Short-Term Securities .......... 4,308,677 4,308,683 3.8 3.8 ------------ ------------ -------- -------- TOTAL INVESTMENTS ............ 107,125,125 114,173,284 99.4 98.7 Other Assets, Net of Liabilities .................. -- 650,585 0.6 1.3 ------------ ------------ -------- -------- TOTAL NET ASSETS ........... $107,125,125 $114,823,869 100.0% 100.0% ============ ============ ======== ======== PAGE 4
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - ---------------------------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2005 ------------------ ASSETS: Investments at value (cost $107,125,125) (Note 1) ........................... $114,173,284 Cash ........................................................................ 156,561 Receivable for securities sold .............................................. 2,090,725 Dividends and interest receivable ........................................... 494,204 Other assets ................................................................ 32,676 ------------ Total assets ................................................................ 116,947,450 ------------ LIABILITIES: Payable for securities purchased ............................................ 1,996,882 Accrued management fee (Note 2) ............................................. 68,330 Accrued expenses ............................................................ 19,935 Other liabilities ........................................................... 38,434 ------------ Total liabilities ........................................................... 2,123,581 ------------ NET ASSETS ..................................................................... $114,823,869 ============ NET ASSETS CONSIST OF: Undistributed net investment income ......................................... $ 747,780 Accumulated net realized loss from investment transactions .................. (2,705,037) Unrealized appreciation on investments ...................................... 7,048,159 Capital shares (Note 3) ..................................................... 123,623 Additional paid-in capital .................................................. 109,609,344 ------------ NET ASSETS ..................................................................... $114,823,869 ============ Net asset value per share ($114,823,869 / 12,362,269 outstanding shares) ....... $ 9.29 ============ - ---------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2005 INVESTMENT INCOME (NOTE 1): Interest .................................................................... $ 2,709,465 Dividends ................................................................... 2,287,195 ------------ Total Income .............................................................. 4,996,660 ------------ EXPENSES (NOTE 2): Management fee .............................................................. 785,902 Custodian ................................................................... 23,300 Transfer agent .............................................................. 22,563 Professional fees ........................................................... 154,442 Directors' fees ............................................................. 127,175 Reports to shareholders ..................................................... 51,762 Treasurer's office .......................................................... 25,000 Other ....................................................................... 96,782 ------------ Total Expenses ............................................................ 1,286,926 ------------ NET INVESTMENT INCOME .......................................................... 3,709,734 ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from investment transactions .............................. 1,922,040 Net unrealized appreciation of investments .................................. 5,219,341 ------------ Net gain on investments ..................................................... 7,141,381 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ $ 10,851,115 ============ SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE 5
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - ---------------------------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004 2005 2004 ------------ ------------ Change in net assets from operations: Net investment income ........................................... $ 3,709,734 $ 3,647,400(a) Adjustment for change in amortization policy .................. -- (248,111) ------------ Net investment income, as adjusted .......................... 3,399,289 ------------ Net realized gain from investment transactions .................... 1,922,040 3,243,708(a) Adjustment for change in amortization policy .................... -- 66,057 ------------ Net realized gain from investment transactions, as adjusted ... 3,309,765 ------------ Net unrealized appreciation of investments ........................ 5,219,341 411,096(a) Adjustment for change in amortization policy .................... -- 182,054 ------------ Net unrealized appreciation of investments, as adjusted ....... 593,150 ------------ ------------ Net increase in net assets resulting from operations .............. 10,851,115 7,302,204(a) Adjustment for change in amortization policy .................... -- -- ------------ ------------ Net increase in net assets resulting from operations, as adjusted..................................................... 10,851,115 7,302,204 ------------ ------------ DIVIDENDS TO SHAREHOLDERS FROM: Net investment income ........................................... (3,641,418) (3,681,116) ------------ ------------ Capital share transactions (Note 3) Value of shares issued on reinvestment of distributions ......... 506,725 648,017 Net proceeds from rights offering ............................... -- 13,037,152 ------------ ------------ Total capital share transactions .............................. 506,725 13,685,169 ------------ ------------ CHANGE IN NET ASSETS .............................................. 7,716,422 17,306,257 Net assets at beginning of year ................................... 107,107,447 89,801,190 ------------ ------------ NET ASSETS AT END OF YEAR ......................................... $114,823,869 $107,107,447 ============ ============ Undistributed net investment income at end of year .............. $ 747,780 $ 967,661(a) ============ Adjustment for change in amortization policy .................. (288,197) ------------ Undistributed net investment income at end of year, as adjusted ............................................... $ 679,464 ============
- -------------------- (a) As previously reported. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE 6
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - ---------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING: YEAR ENDED SEPTEMBER 30, ------------------------------------------------ 2005 2004 2003 2002 2001 ------------------------------------------------ OPERATING PERFORMANCE: Net asset value, beginning of year ............. $8.71 $8.58 $7.81 $8.67 $11.82 ------------------------------------------------ Net investment income .......................... 0.29 0.30(a) 0.32(a) 0.34(a) 0.47 Adjustment for change in amortization policy .......................... -- (0.02) (0.01) -- -- ------------------------------------------------ Net investment income, as adjusted ......... 0.29 0.28 0.31 0.34 0.47 ------------------------------------------------ Net realized and unrealized gain (loss) ........ 0.59 0.35(a) 0.75(a) (0.76)(a) (1.88) Adjustment for change in amortization policy .......................... -- 0.02 0.01 -- -- ------------------------------------------------ Net realized and unrealized gain (loss), as adjusted ................... 0.59 0.37 0.76 (0.76) (1.88) ------------------------------------------------ Total from investment operations ............... 0.88 0.65 1.07 (0.42) (1.41) ------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income ........... (0.30) (0.32) (0.30) (0.44) (0.42) Distributions from realized gains .............. -- -- -- -- (1.32) ------------------------------------------------ Total distributions .......................... (0.30) (0.32) (0.30) (0.44) (1.74) ------------------------------------------------ CAPITAL SHARE TRANSACTIONS: Effect of rights offering ...................... -- (0.20) -- -- -- Capital share repurchases ...................... -- -- -- -- -- ------------------------------------------------ Total capital share transactions ............. -- (0.20) -- -- -- ------------------------------------------------ Net asset value, end of year ................... $9.29 $8.71 $8.58 $7.81 $8.67 ================================================ Market value, end of year ...................... $7.84 $7.95 $8.05 $7.55 $8.35 Total Net Asset Value Return (%)(b) ............ 10.3 5.2 14.0 (5.2) (13.3) Total Investment Return (%)(c) ................. 2.5 2.8 10.8 (4.5) 2.2 RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in thousands) ......... $114,824 $107,107 $89,801 $81,125 $88,901 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 3.2(d) 3.8(d) 4.0(d) 5.0 Portfolio turnover rate (%) .................... 82 70 86 89 82
- -------------------- (a) As previously reported. (b) Assumes valuation of the Fund's shares, and reinvestment of dividends, at net asset values. (c) Assumes valuation of the Fund's shares at market price and reinvestment of dividends at actual reinvestment price. (d) Ratios for 2004, 2003 and 2002 reflect ratios adjusted for change in amortization policy. Ratios previously reported for 2004, 2003 and 2002 were 3.4%, 3.9% and 3.9%, respectively. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE 7
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - ---------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 2005 Principal Identified Value Amount Cost (Note 1) - --------- ---------- ---------- CONVERTIBLE BONDS AND NOTES -- 50.8% AEROSPACE AND DEFENSE -- 0.9% $1,000,000 L-3 Communications Holdings, Inc. 3% 2035 CODES (Ba3) (Acquired 07/27/05 - 07/28/05) (1,2) ........................... $1,011,255 $1,026,250 ---------- ---------- AUTOMOTIVE -- 2.3% 625,000 CSK Auto Inc. 3.375% 2025 sr. exch. notes (NR) (conv. into CSK Auto Corp. common stock) (Acquired 07/26/05) (2) ........................................ 637,095 593,875 4,500,000 Lear Corp. 0% 2022 cv. sr. notes (Ba2) ......................... 2,208,095 2,050,313 ---------- ---------- 2,845,190 2,644,188 ---------- ---------- BANKING/SAVINGS AND LOAN -- 2.0% 1,000,000 The Bear Stearns Companies, Inc. 0.25% 2010 medium-term notes (A1)(exch. for Fifth Third Bancorp common stock) (1) ........... 1,152,524 836,800 1,500,000 U.S. Bancorp floating rate 2035 cv. sr. deb. (Aa2) (Acquired 08/10/05) (2) ........................................ 1,483,503 1,479,000 ---------- ---------- 2,636,027 2,315,800 ---------- ---------- CONSUMER GOODS -- 1.6% 1,375,000 Church & Dwight Co., Inc. 5.25% 2033 cv. sr. deb. (Ba2) ........ 1,375,000 1,840,163 ---------- ---------- ENERGY -- 2.4% 750,000 OMI Corp. 2.875% 2024 cv. sr. notes (B+) ....................... 750,000 691,875 1,500,000 Oil States International, Inc. 2.375% 2025 contingent cv. sr. notes (B+) (Acquired 06/16/05) (2) ........................................ 1,485,546 2,011,875 ---------- ---------- 2,235,546 2,703,750 ---------- ---------- ENTERTAINMENT -- 4.2% 1,500,000 EchoStar Communications Corp. 5.75% 2008 cv. sub. notes (B2) ... 1,496,303 1,490,625 3,250,000 The Walt Disney Company 2.125% 2023 cv. sr. notes (Baa1) ....... 3,406,539 3,301,090 ---------- ---------- 4,902,842 4,791,715 ---------- ---------- FINANCIAL AND INSURANCE -- 1.7% 1,000,000 FTI Consulting, Inc. 3.75% 2012 cv. sr. sub. notes (Ba3) (Acquired 07/29/05) (2) ........................................ 1,027,541 1,066,200 1,000,000 Swiss Re America Holding Corp. 3.25% 2021 euro. sub. cv. bonds (A1)(conv. into Swiss Reinsurance Company common stock) (Acquired 11/15/01 - 12/05/01) (2) ............................. 1,006,361 925,950 ---------- ---------- 2,033,902 1,992,150 ---------- ---------- FINANCIAL SERVICES -- 0.9% 1,000,000 Euronet Worldwide, Inc. 3.50% 2025 cv. deb. (NR) (Acquired 09/28/05 - 09/29/05) (1,2) ........................... 1,010,938 1,015,000 ---------- ---------- HEALTH CARE -- 4.9% 1,500,000 Community Health Systems, Inc. 4.25% 2008 cv. sub. notes (B3) .. 1,505,570 1,747,350 1,750,000 Isolagen, Inc. 3.5% 2024 cv. sub. notes (NR) ................... 1,768,669 875,000 2,000,000 Manor Care, Inc. 2.125% 2035 cv. sr. notes (Baa3) (Acquired 07/27/05 - 09/20/05) (2) ............................. 2,044,185 2,050,000 500,000 Mentor Corp. 2.75% 2024 cv. sub. notes (NR) .................... 573,118 952,813 ---------- ---------- 5,891,542 5,625,163 ---------- ---------- MULTI-INDUSTRY -- 0.8% 1,000,000 Lehman Brothers Holdings, Inc. 1% 2011 medium-term notes (A1) (performance linked to Cendant Corp. common stock) (1) ......... 1,031,672 922,500 ---------- ----------
PAGE 8
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - ---------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 2005 (CONTINUED) Principal Identified Value Amount Cost (Note 1) - ---------- ----------- ----------- CONVERTIBLE BONDS AND NOTES -- (CONTINUED) PHARMACEUTICALS -- 7.2% $2,000,000 Amgen, Inc. 0% 2032 LYONs (A2) (1) ............................ $ 1,699,432 $1,599,170 550,000 CV Therapeutics, Inc. 3.25% 2013 sr. sub. cv. notes (NR) ...... 576,509 653,125 1,500,000 Cephalon, Inc. 2% 2015 cv. sr. sub. notes (B-) ................. 1,482,624 1,692,188 1,250,000 Encysive Pharmaceuticals, Inc. 2.5% 2012 cv. sr. notes (NR) .... 1,267,117 1,326,560 1,000,000 Ivax Corp. 4.5% 2008 cv. sr. sub. notes (NR) ................... 1,000,660 1,005,000 1,000,000 Teva Pharmaceutical Finance II, LLC series A 0.5% 2024 cv. sr. deb.(BBB)(exch. for Teva Pharmaceutical Industries Ltd. ADR) 1,000,000 1,000,000 1,000,000 Teva Pharmaceutical Finance II, LLC series B 0.25% 2024 cv. sr. deb.(BBB)(exch. for Teva Pharmaceutical Industries Ltd. ADR) 1,000,000 1,032,500 ----------- ----------- 8,026,342 8,308,543 ----------- ----------- RETAIL -- 6.4% 1,000,000 Amazon.com, Inc. 4.75% 2009 cv. sub. notes (B3) ................ 977,500 982,800 2,000,000 Best Buy Co., Inc. 2.25% 2022 cv. sub. deb. (Ba1) (1) .......... 2,278,507 2,195,960 1,250,000 Casual Male Retail Group, Inc. 5% 2024 cv. sr. sub. notes (NR) . 1,292,855 1,135,938 1,000,000 Dick's Sporting Goods, Inc. 1.6061% 2024 sr. cv. notes (B) ..... 668,889 680,000 3,000,000 The TJX Companies, Inc. 0% 2021 LYONs (Baa1) ................... 2,524,913 2,309,160 ----------- ----------- 7,742,664 7,303,858 ----------- ----------- TECHNOLOGY -- 8.4% 1,250,000 Advanced Micro Devices, Inc. 4.75% 2022 cv. sr. deb. (B3) (1) .. 1,447,925 1,421,875 2,000,000 Citigroup Funding, Inc. 1% 2010 medium-term notes (Aa1) (exch. into cash equivalent of a basket of technology stocks)(1) 2,019,330 1,877,800 2,250,000 International Rectifier Corp. 4.25% 2007 cv. sub. notes (B2) ... 2,242,713 2,216,250 1,500,000 LSI Logic Corp. 4% 2010 cv. sub. notes (B) ..................... 1,483,048 1,588,050 1,500,000 Sybase, Inc. 1.75% 2025 cv. sub. notes (NR) .................... 1,492,164 1,631,250 1,000,000 Vishay Intertechnology, Inc. 3.625% 2023 cv. sub. notes (B3) ... 957,742 960,000 ----------- ----------- 9,642,922 9,695,225 ----------- ----------- TELECOMMUNICATIONS -- 5.4% 1,000,000 Comverse Technology, Inc. 0% 2023 ZYPS (BB-) (3) ............... 1,149,375 1,496,750 1,000,000 Lucent Technologies, Inc. 2.75% 2023 series A cv. sr. deb. (B1). 1,000,000 1,145,240 500,000 Lucent Technologies, Inc. 2.75% 2025 series B cv. sr. deb. (B1). 500,000 599,390 1,250,000 Nortel Networks Corp. 4.25% 2008 cv. sr. notes (B3) ............ 1,274,444 1,182,750 1,500,000 Tekelec, Inc. 2.25% 2008 sr. sub. cv. notes (NR) ............... 1,510,670 1,813,125 ----------- ----------- 5,434,489 6,237,255 ----------- ----------- UTILITIES -- 1.7% 1,500,000 CMS Energy Corp. 2.875% 2024 cv. sr. notes (B1) ................ 1,500,000 1,927,500 ----------- ----------- TOTAL CONVERTIBLE BONDS AND NOTES ..............................$57,320,331 $58,349,060 ----------- ----------- Shares CONVERTIBLE PREFERRED STOCKS -- 23.6% - ---------- BANKING/SAVINGS AND LOAN -- 5.2% 40,000 National Australia Bank Ltd. 7.875% exch. capital units (NR) ... 1,038,700 1,640,000 20,000 New York Community Bancorp, Inc. 6% BONUSES units (Baa2) ....... 1,306,838 966,000 35,000 Sovereign Capital Trust IV 4.375% PIERS (Ba1) (exch. for Sovereign Bancorp, Inc. common stock) (1) ........... 1,891,909 1,544,375 35,000 Washington Mutual Capital Trust 5.375% PIERS units (Baa1) (exch. for Washington Mutual, Inc. common stock) ............... 1,773,125 1,813,438 ----------- ----------- 6,010,572 5,963,813 ----------- ----------- CHEMICALS -- 1.8% 80,000 Celanese Corp. 4.25% cv. perp. pfd. (NR) ....................... 1,931,748 2,112,400 ----------- ----------- PAGE 9
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - ---------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 2005 (CONTINUED) Identified Value Shares Cost (Note 1) - ---------- ----------- ----------- CONVERTIBLE PREFERRED STOCKS -- CONTINUED ENERGY -- 7.9% 16,500 Chesapeake Energy Corp. 5% cum. cv. pfd. (B) .................. $ 1,832,500 $ 2,739,000 17,000 Chesapeake Energy Corp. 4.5% cum. cv. pfd. (B) ................ 1,794,250 1,901,875 10,000 Semco Energy, Inc. 5% series B cv. cum. pfd. (B-) ............. 2,025,096 2,061,250 20,000 The Williams Companies, Inc. 5.5% 2033 jr. sub. cv. deb. (B-) . 1,015,000 2,340,000 ----------- ----------- 6,666,846 9,042,125 ----------- ----------- FINANCIAL AND INSURANCE -- 6.8% 75,000 Citigroup Funding, Inc. variable rate 2008 exch. notes (Aa1) (exch. for Genworth Financial, Inc. common stock) ............. 2,212,500 2,360,475 20 Fannie Mae 5.375% non-cumulative cv. pfd. (Aa3) (Acquired 12/29/04 - 01/11/05) (2) ............................ 2,078,125 1,840,000 20,000 Reinsurance Group of America, Inc. 5.75% PIERS (Baa2) ......... 1,000,000 1,170,000 100,000 The St. Paul Travelers Cos., Inc. 4.5% 2032 cv. jr. sub. notes (Baa1) ..................................... 2,414,175 2,406,000 ----------- ----------- 7,704,800 7,776,475 ----------- ----------- MINING -- 1.9% 2,000 Freeport-McMoRan Copper and Gold, Inc. 5.5% cv. perp. pfd.(B-). 1,961,987 2,218,420 ----------- ----------- TOTAL CONVERTIBLE PREFERRED STOCKS ............................ $24,275,953 $27,113,233 ----------- ----------- MANDATORY CONVERTIBLE SECURITIES -- 17.7% (4) CHEMICALS -- 1.5% 40,000 Huntsman Corp. 5% mand. cv. pfd. 02/16/08 (NR) ................ 2,011,296 1,778,120 ----------- ----------- CONSUMER GOODS -- 1.2% 35,000 Constellation Brands, Inc. dep. shs. representing 5.75% series A mand. cv. pfd. 09/01/06 (B) .......................... 1,088,795 1,367,100 ----------- ----------- ENERGY -- 3.5% 20,000 Amerada Hess Corp. 7% mand. cv. pfd. ACES 12/01/06 (Ba3) ...... 1,015,000 2,332,600 15,000 Valero Energy Corp. 2% mand. cv. pfd. 07/01/06 (BB) ........... 452,250 1,679,370 ----------- ----------- 1,467,250 4,011,970 ----------- ----------- FINANCIAL AND INSURANCE -- 6.8% 25,000 The Chubb Corp. 7% equity units 08/16/06 (A2) (1) ............. 742,084 816,250 30,000 Merrill Lynch & Co., Inc. 6.75% mand. exch. sec. 10/15/07 (Aa3) (exch. for Nuveen Investments, Inc. common stock) ............. 1,020,000 1,124,820 80,000 MetLife, Inc. 6.375% common equity units 08/15/08 (BBB+) ...... 2,084,000 2,263,200 42,500 Morgan Stanley, Inc. 5.875% mand. exch. sec. 10/15/08 (Aa3) (exch. for Nuveen Investments, Inc. common stock) ............. 1,445,000 1,592,475 40,000 The PMI Group, Inc. 5.875% HITS units 11/15/06 (A1) (1) ....... 998,540 988,000 45,000 XL Capital, Ltd. 6.5% equity security units 05/15/07 (A2) ..... 1,137,000 1,023,750 ----------- ----------- 7,426,624 7,808,495 ----------- ----------- FOODS -- 1.8% 40,000 Albertson's, Inc. 7.25% HITS units 05/16/07 (Baa3) (1) ........ 1,013,514 1,012,800 40,000 Lehman Brothers Holdings, Inc. 6.25% PIES 10/15/07 (A1) (exch. for General Mills, Inc. common stock) .................. 1,058,000 1,048,000 ----------- ----------- 2,071,514 2,060,800 ----------- ----------- PHARMACEUTICALS -- 2.9% 20,000 Baxter International, Inc. 7% equity units 02/16/06 (Baa1) (1) .................................................... 973,450 1,144,200 40,000 Schering-Plough Corp. 6% mand. cv. pfd. 09/14/07 (Baa3) ....... 2,050,150 2,169,200 ----------- ----------- 3,023,600 3,313,400 ----------- ----------- TOTAL MANDATORY CONVERTIBLE SECURITIES (4) .................... $17,089,079 $20,339,885 ----------- ----------- PAGE 10
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - ---------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 2005 (CONTINUED) Principal Amount Identified Value or Shares Cost (Note 1) - ---------- ------------ ------------ COMMON STOCKS -- 3.5% HEALTH CARE -- 0.8% 21,115 shs LifePoint Hospitals, Inc. (3) ......................... $ 993,750 $ 923,359 ------------ ------------ MULTI-INDUSTRY -- 0.5% 25,000 shs Cendant Corp. .......................................... 561,500 516,000 ------------ ------------ PHARMACEUTICALS -- 1.4% 26,300 shs Johnson & Johnson ...................................... 1,512,835 1,664,264 ------------ ------------ TELECOMMUNICATIONS -- 0.8% 40,000 shs SBC Communications, Inc. ............................... 1,063,000 958,800 ------------ ------------ TOTAL COMMON STOCKS .................................... $ 4,131,085 $ 4,062,423 ------------ ------------ SHORT-TERM SECURITIES -- 3.8% COMMERCIAL PAPER -- 3.8% $4,300,000 American Express Credit Corp. (P1) (3.70% maturing 10/04/05) .............................. 4,297,790 4,297,790 ------------ ------------ U.S. GOVERNMENT OBLIGATIONS -- 0.0% 11,000 U.S. Treasury notes 2.25% 04/30/06 (Aaa) (5) ........... 10,887 10,893 ------------ ------------ TOTAL SHORT-TERM SECURITIES ............................ $ 4,308,677 $ 4,308,683 ------------ ------------ TOTAL CONVERTIBLE BONDS AND NOTES -- 50.8% ............. 57,320,331 58,349,060 TOTAL CONVERTIBLE PREFERRED STOCKS -- 23.6% ............ 24,275,953 27,113,233 TOTAL MANDATORY CONVERTIBLE SECURITIES -- 17.7% ........ 17,089,079 20,339,885 TOTAL COMMON STOCKS -- 3.5% ............................ 4,131,085 4,062,423 TOTAL SHORT-TERM SECURITIES -- 3.8% .................... 4,308,677 4,308,683 ------------ ------------ TOTAL INVESTMENTS -- 99.4% ..............................$107,125,125 114,173,284 ============ OTHER ASSETS AND LIABILITIES, NET -- 0.6% .............. 650,585 ------------ TOTAL NET ASSETS -- 100.0% ............................. $114,823,869 ============
(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, 2005 was $12,008,150 which represented 10.5% of the Fund's net assets. (3) Non-income producing security. (4) These securities are required to be converted on the dates listed; they generally may be converted prior to these dates at the option of the holder. (5) Collateral for a letter of credit.
ACES Automatic Convertible Equity Securities. LYONs Liquid Yield Option Notes. ADR American Depositary Receipts. PIES Premium Income Exchangeable Securities. BONUSES Bifurcated Option Note Unit Securities. PIERS Preferred Income Equity Redeemable Securities. CODES Convertible Contingent Debt Securities. ZYPS Zero Yield Puttable Securities. HITS Hybrid Income Term Security.
Ratings in parentheses by Moody's Investors Service, Inc. or Standard & Poor's. NR is used whenever a rating is unavailable. PAGE 11 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- 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, 2005. In addition, Federal tax regulations require the Fund to reclassify realized gains on contingent payment debt instruments to interest income. At September 30, 2005 there were unrealized gains of approximately 3 cents per share on contingent payment debt instruments. (C) CHANGES IN METHOD OF ACCOUNTING FOR BOND PREMIUM AND DISCOUNT AMORTIZATION Effective October 1, 2004, the Fund began amortizing discounts and premiums on all debt securities. Prior to October 1, 2004, the Fund amortized discounts on original issue discount debt securities. The new method of amortization was adopted in accordance with the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies and the financial highlights and statement of changes in net assets presented herein have been restated to reflect the new method retroactive to October 1, 2001. The effect of this accounting change is included in the financial highlights for the years ended September 30, 2002, 2003 and 2004, and in the statement of changes in net assets for the year ended September 30, 2004. The cumulative effect of this accounting change had no impact on the total net assets of the Fund or on distributions for tax purposes, but resulted in a $79,579 increase in the cost of securities held and a corresponding $79,579 reduction in the net unrealized gains based on the securities held on October 1, 2001. The impact of this change during the twelve months ended September 30, 2005 was to reduce net investment income by $100,871, increase unrealized gains by $83,316 and increase realized gains by $17,555. These changes had no effect on previously reported total net assets or total returns. PAGE 12 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED (D) 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, 2005, the Fund had a capital loss carryforward of $3,010,788 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 $1,904,485 during the year ended September 30, 2005. (E) 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, 2005 and 2004 were $3,641,418 and $3,681,116, respectively, both from ordinary income. At September 30, 2005 the components of distributable net assets and the federal tax cost were as follows: Unrealized appreciation $ 11,163,962 Unrealized depreciation (4,199,119) ------------ Net unrealized appreciation 6,964,843 Undistributed ordinary income 1,136,847 Tax basis capital loss carryforward (3,010,788) Cost for federal income tax purposes $107,208,441 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 0.75 of 1% of the first $100,000,000 and 0.50 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, the maintenance of files relating to the foregoing, and rent, personnel costs and other overhead expenses allocable to the aforementioned services. PAGE 13 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. CAPITAL STOCK At September 30, 2005 there were 12,362,269 shares of $.01 par value common stock outstanding, (20,000,000 shares authorized). During the years ended September 30, 2005 and 2004, 64,142 shares and 81,307 shares were issued in connection with reinvestment of dividends from net investment income, resulting in an increase in paid-in capital of $506,725 and $648,017, respectively. 4. PORTFOLIO ACTIVITY Purchases and sales of investments, exclusive of corporate short-term notes, aggregated $85,284,439 and $85,383,232, respectively, for the year ended September 30, 2005. - -------------------------------------------------------------------------------- FEDERAL TAX INFORMATION (UNAUDITED) In accordance with subchapter M of the Internal Revenue Code of 1986, as amended, for the year ended September 30, 2005, 22.3% 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, 2005 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 $810,288 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 2005. 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 2006. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Fund. PAGE 14 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC. We have audited the accompanying statement of assets and liabilities, including the portfolio of investments of the Ellsworth Convertible Growth and Income Fund, Inc. (the "Fund"), as of September 30, 2005, and the related statement of operations, the statement of changes in net assets, and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended September 30, 2004 and the financial highlights for each of the years ended September 30, 2004, September 30, 2003, September 30, 2002 and September 30, 2001, have been audited by other auditors, whose reports dated October 29, 2004, October 20, 2003, October 14, 2002 and October 13, 2001 express an unqualified opinion. We conducted our audit 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2005, by correspondence with the custodian and brokers. Where brokers have not replied to our confirmation requests, we have carried out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly in all material respects, the financial position of the Ellsworth Convertible Growth and Income Fund, Inc. as of September 30, 2005, the results of its operations, the changes in its net assets, and its financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER LLP Philadelphia, Pennsylvania November 4, 2005 PAGE 15 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- 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 the Plan Agent in the Plan participant's account. Additionally, a check will be sent for the value of any fractional interest in the Plan participant's account based on the market price of the Fund's Common Stock on that date. PAGE 16 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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 are 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- DISCLOSURE OF PORTFOLIO HOLDINGS TO BROKER-DEALERS From time to time, brokers with whom the Fund's Adviser, Davis-Dinsmore Management Company, has a pre-existing relationship may request that the Adviser disclose Fund portfolio holdings to such broker in advance of the public disclosure of such portfolio holdings. The Adviser may make such disclosure under the following conditions: (i) the specific purpose of the disclosure is to assist the Adviser in identifying potential investment opportunities for the Funds; (ii) prior to the receipt of non-public portfolio holdings, the broker, by means of e-mail or other written communication, shall agree to keep the nonpublic portfolio holdings confidential and not to use the information for the bro-ker's own benefit, except in connection with the above described purpose for which it was disclosed; (iii) the Adviser shall keep written records of its agreement with each broker to which it distributes nonpublic portfolio holdings; and (iv) the Adviser will secure a new agreement with a broker any time the broker directs the nonpublic portfolio holdings to be sent to a new recipient. PAGE 17 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- 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; Information Other Directorship(s) - -------------------------------------------------------------------------------- INDEPENDENT DIRECTORS Gordon F. Ahalt Retired. Prior to 2001, President of G.F.A. Inc. 65 Madison Avenue (a petroleum industry consulting company); Suite 550 Director of Bancroft and CalDive International Morristown, NJ 07960 (a diving service company). Term expires 2007 Director since 1986 Age 77 - -------------------------------------------------------------------------------- William A. Benton Retired. Prior to 2001, Partner of BE Partners 65 Madison Avenue (a small options market maker); Director of Suite 550 Bancroft. Morristown, NJ 07960 Term expires 2006 Director since 1986 Age 72 - -------------------------------------------------------------------------------- Elizabeth C. Bogan, Ph.D. Senior Lecturer in Economics at Princeton 65 Madison Avenue University; Director of Bancroft. Suite 550 Morristown, NJ 07960 Term expires 2007 Director since 1986 Age 61 - -------------------------------------------------------------------------------- Donald M. Halsted, Jr. Retired Business Executive; Director of 65 Madison Avenue Bancroft. Suite 550 Morristown, NJ 07960 Term expires 2008 Director since 1986 Age 78 - -------------------------------------------------------------------------------- Duncan O. McKee Retired Attorney; Director of Bancroft. 65 Madison Avenue Suite 550 Morristown, NJ 07960 Term expires 2008 Director since 1996 Age 74 PAGE 18 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- DIRECTORS (CONTINUED) Personal Principal Occupation(s) During Past Five Years; Information Other Directorship(s) - -------------------------------------------------------------------------------- INDEPENDENT DIRECTORS (CONTINUED) Robert J. McMullan Since 2005, Chief Executive Officer of Control 65 Madison Avenue Point Solutions, Inc. (a telecommunications Suite 550 service provider). Prior to 2004, Senior Vice Morristown, NJ 07960 President and Chief Financial Officer of Term expires 2006 Conexant Systems, Inc. (a semiconductor Director since 2004 manufacturing company); Director of Bancroft Age 51 and Control Point Solutions, Inc. - -------------------------------------------------------------------------------- Nicolas W. Platt Since January 2003, President of CNC-US (an 65 Madison Avenue international consulting company). Prior to Suite 550 January 2003, Senior Partner of Platt & Morristown, NJ 07960 Rickenbach (a public relations firm). Prior to Term expires 2007 May 2001, with WPP Group, UK and its public Director since 1997 relations subsidiaries, Ogilvy Public Relations, Age 52 Burson-Marsteller and Robinson Lehr Montgomery; Director of Bancroft. - -------------------------------------------------------------------------------- INTERESTED DIRECTORS Thomas H. Dinsmore, C.F.A. (1) Chairman and Chief Executive Officer of the 65 Madison Avenue Fund, Bancroft and Davis-Dinsmore; Director of Suite 550 Bancroft and Davis-Dinsmore. Morristown, NJ 07960 Term expires 2008 Director since 1986 Chairman of the Board since 1996 Age 52 - -------------------------------------------------------------------------------- Jane D. O'Keeffe (1) 65 Madison Avenue President of the Fund, Bancroft and Suite 550 Davis-Dinsmore; Director of Bancroft and Morristown, NJ 07960 Davis-Dinsmore. Term expires 2006 Director since 1995 Age 50 - -------------------------------------------------------------------------------- (1) 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 ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- PRINCIPAL OFFICERS The business address of each officer is 65 Madison Avenue, Suite 550, Morristown, NJ 07960. 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 2006, and thereafter until his or her respective successor is duly elected and qualified. - -------------------------------------------------------------------------------- Personal Information Principal Occupation(s) During Past Five Years - -------------------------------------------------------------------------------- Thomas H. Dinsmore, C.F.A. Director, Chairman and Chief Executive Officer (1,2,3) Director, Chairman of the Fund, Bancroft and Davis-Dinsmore. and Chief Executive Officer Officer since 1986 Age 52 - -------------------------------------------------------------------------------- Jane D. O'Keeffe (1,2,3) Director and President of the Fund, Bancroft and Director and President Davis-Dinsmore. Officer since 1994 Age 50 - -------------------------------------------------------------------------------- Gary I. Levine Executive Vice President and Chief Financial Executive Vice President, Officer of the Fund, Bancroft and Davis-Dinsmore Chief Financial Officer and since 2004. Secretary of the Fund, Bancroft and Secretary Davis-Dinsmore since 2003. Treasurer of Officer since 1986 Davis-Dinsmore since 1997. Vice President of the Age 48 Fund, Bancroft and Davis-Dinsmore from 2002 until 2004. Treasurer of the Fund and Bancroft from 1993 until 2004. - -------------------------------------------------------------------------------- H. Tucker Lake, Jr. (2,4) Vice President of the Fund and Bancroft since Vice President 2002, and of Davis-Dinsmore since 1997. Vice Officer since 1994 President, Trading, of the Fund and Bancroft Age 58 from 1994 to 2002. - -------------------------------------------------------------------------------- Germaine M. Ortiz Vice President of the Fund, Bancroft and Vice President Davis-Dinsmore. Officer since 1996 Age 36 - -------------------------------------------------------------------------------- Mercedes A. Pierre Vice President and Chief Compliance Officer Vice President and of the Fund, Bancroft and Davis-Dinsmore since Chief Compliance Officer 2004, and Assistant Treasurer from 1998 to 2004. Officer since 1998 Age 44 - -------------------------------------------------------------------------------- Joshua P. Lake, C.T.P. (3,4) Treasurer of the Fund and Bancroft since 2004. Treasurer and Assistant Assistant Secretary of the Fund, Bancroft and Secretary Davis-Dinsmore since 2002. Assistant Treasurer Officer since 2002 of Davis-Dinsmore, also since 2002. Age 29 - -------------------------------------------------------------------------------- (1) Mr. Dinsmore and Ms. O'Keeffe are brother and sister. (2) Mr. H. Tucker Lake, Jr. 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. H. Tucker Lake, Jr. is the father of Mr. Joshua Lake. PAGE 20
BOARD OF DIRECTORS INTERNET GORDON F. AHALT www.ellsworthfund.com WILLIAM A. BENTON email: info@ellsworthfund.com ELIZABETH C. BOGAN Ph.D. THOMAS H. DINSMORE, C.F.A. INVESTMENT ADVISER DONALD M. HALSTED, JR. Davis-Dinsmore Management Company DUNCAN O. MCKEE 65 Madison Avenue, Suite 550 ROBERT J. MCMULLAN Morristown, NJ 07960 JANE D. O'KEEFFE (973) 631-1177 NICOLAS W. PLATT SHAREHOLDER SERVICES AND TRANSFER AGENT American Stock Transfer & Trust Company OFFICERS 59 Maiden Lane THOMAS H. DINSMORE, C.F.A. New York, NY 10038 Chairman of the Board (800) 937-5449 and Chief Executive Officer www.amstock.com JANE D. O'KEEFFE COMMON STOCK LISTING President American Stock Exchange Symbol: ECF GARY I. LEVINE LEGAL COUNSEL Executive Vice President, Chief Financial Officer Ballard Spahr Andrews & Ingersoll LLP and Secretary INDEPENDENT ACCOUNTANTS H. TUCKER LAKE, JR. Tait, Weller & Baker LLP Vice President GERMAINE M. ORTIZ Vice President MERCEDES A. PIERRE Vice President and Chief Compliance Officer JOSHUA P. LAKE, C.T.P. Treasurer and Assistant Secretary JESSICA K. LAKE Assistant Vice President JOANN VENEZIA Assistant Vice President and Assistant Secretary
- -------------------------------------------------------------------------------- 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. ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC. 65 MADISON AVENUE, SUITE 550 MORRISTOWN, NEW JERSEY 07960 www.ellsworthfund.com [LOGO] AMERICAN STOCK EXCHANGE -------------- 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. Effective November 15, 2004, the Board of Directors determined that Director Robert J. McMullan, who is "independent" as such term is used in Form N-CSR, possesses the attributes required to be considered an audit committee financial expert under applicable federal securities laws. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Set forth in the table below are the aggregate fees billed to the Company by Tait, Weller & Baker LLP ("Tait Weller") for services rendered to the Company during the Company's last fiscal year ended September 30, 2005, and PricewaterhouseCoopers LLP ("PwC") for the fiscal year ended September 30, 2004. Fiscal YE Audit Audit-Related All Other September 30 Fees Fees (1) Tax Fees (4) Fees - ------------- ------- ------------- ------------ --------- 2004 $34,400 $ 9,785 (2) $2,500 $0 2005 $30,000 $10,000 (3) $2,500 $0 (1) 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) Includes 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 in fiscal year 2004. (3) Includes fees billed to the Company by Tait Weller in connection with the Company's change of accounting practice related to amortization of convertible bond premiums and discounts. (4) "Tax Fees" include those fees billed by Tait Weller and PWC in connection with their review of the Company's income tax returns for fiscal years 2005 and 2004, respectively. 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, 2004 and September 30, 2005, PwC and Tait Weller 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 used in Form N-CSR. 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's investment adviser if the engagement relates directly to the operations and financial reporting of the Company and if the Company's 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. 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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. During the period covered by this report, 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. There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant's board of directors since those procedures were last disclosed in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or this Item 10 of Form N-CSR. ITEM 11. CONTROLS AND PROCEDURES. Conclusions of principal officers concerning controls and procedures (a) As of September 26, 2005, 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 September 26, 2005, 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 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 second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12. EXHIBITS (a)(1) 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 are attached hereto. (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 are attached hereto. 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 29, 2005 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 29, 2005 By: /s/Gary I. Levine Gary I. Levine Chief Financial Officer (Principal Financial Officer) Date: November 29, 2005 EX-99.CODE ETH 2 e0905ex-99_code.txt EX-99.CODE ETH Bancroft Convertible Fund, Inc. Ellsworth Convertible Growth and Income Fund, Inc. Code of Ethics for Principal Officers Adopted Effective May 15, 2003 I. Preamble This Code of Ethics ("Code") is adopted by the Board of Directors of Bancroft Convertible Fund, Inc. and Ellsworth Convertible Growth and Income Fund, Inc. (the "Funds") in accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and the code of ethics standards established in applicable rules and regulations under the Investment Company Act of 1940, as amended. The Funds are adopting this Code to establish as a policy of the Funds written standards that are reasonably designed to deter wrongdoing and to promote: 1. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2. Full, fair, accurate, timely, and understandable disclosure in reports and documents that the Funds file with, or submit to, the Securities and Exchange Commission (the "Commission" or "SEC") and in other public communications made by the Funds; 3. Compliance with applicable governmental laws, rules, and regulations; 4. The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and 5. Accountability for adherence to the Code. II. Applicability The provisions of this Code shall apply to all Principal Officers of the Funds. III. Definitions Principal Officer means the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions on behalf of the Funds regardless of whether these individuals are employed by the Funds or by a third party, including Davis- Dinsmore Management Company ("Davis-Dinsmore"). Compliance Officer means the Chief Compliance Officer of the Funds or his/her designee. Independent Directors means the directors of the Funds who are not "interested persons" of the Funds, as defined in the Investment Company Act. Investment Company Act means the Investment Company Act of 1940, as amended. IV. Principal Officers Should Act Honestly and Candidly Each Principal Officer owes a duty to the Funds to act with integrity. Integrity requires, among other things, being honest and candid. Deceit and subordination of principle are inconsistent with integrity. Each Principal Officer must: 1. Act with integrity, including being honest and candid while still maintaining the confidentiality of information where required by law or the Funds' policies; 2. Observe both the form and spirit of laws and governmental rules and regulations, accounting standards and Fund policies; 3. Adhere to a high standard of business ethics; and 4. Place the interests of the Funds before the Principal Officer's own personal interests. All activities of Principal Officers should be guided by and adhere to these fiduciary standards. V. Principal Officers Should Handle Actual and Apparent Conflicts of Interest Ethically A "conflict of interest" occurs when a Principal Officer's private interest interferes with the interests of, or his service to, the Funds. For example, a conflict of interest would arise if a Principal Officer, or a member of his family, receives improper personal benefits as a result of his position in the Funds. Certain conflicts of interest covered by this Code arise out of the relationships between Principal Officers and the Funds that already are subject to conflict of interest provisions in the Investment Company Act and the Investment Advisers Act of 1940. The Funds' and Davis-Dinsmore's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and Davis-Dinsmore of which the Principal Officers are also officers or employees. As a result, this Code recognizes that the Principal Officers will, in the normal course of their duties (whether formally for the Funds or for Davis-Dinsmore, or for both), be involved in establishing policies and implementing decisions which will have different effects on Davis-Dinsmore and the Funds. The participation of the Principal Officers in such activities is inherent in the contractual relationship between the Funds and Davis-Dinsmore and is consistent with the performance by the Principal Officers of their duties as officers of the Funds and, if addressed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, will be deemed to have been handled ethically. In addition, it is recognized by the Board of Directors that the Principal Officers may also be officers or employees of one or more other investment companies covered by this or other Codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. In reading the following examples of conflicts of interest under the Code, Principal Officers should keep in mind that such a list cannot ever be exhaustive by covering every possible scenario. It follows that the overarching principle - that the personal interest of a Principal Officer should not be placed improperly before the interest of the Funds - should be the guiding principle in all circumstances. Each Principal Officer must: 1. Avoid conflicts of interest wherever possible; 2. Handle any actual or apparent conflict of interest ethically; 3. Not use his or her personal influence or personal relationships to influence investment decisions or financial reporting by an investment company whereby the Principal Officer would benefit personally to the detriment of the Funds; 4. Not cause the Funds to take action, or fail to take action, for the personal benefit of the Principal Officer rather than to benefit such Funds; 5. Not use material non-public knowledge of portfolio transactions made or contemplated for the Funds to profit personally, or cause others to profit, from the market effect of such transactions; 6. Discuss any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest with the Compliance Officer; and 7. Complete annually all sections of the Funds' Directors and Officers Questionnaire pertaining to affiliations or other relationships related to conflicts of interest. Types of conflict of interest situations that should be discussed with the Compliance Officer, if material, are: * any outside business activity that detracts from an individual's ability to devote appropriate time and attention to his responsibilities with the Funds; * service as a director on the board of any public or private company; * the receipt of any non-nominal gifts; * the receipt of any entertainment from any company with which the Funds have current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; * any ownership interest in, or any consulting or employment relationship with, any of the Funds' service providers, other than Davis-Dinsmore or any affiliated person thereof; * a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Principal Officer's employment, such as compensation or equity ownership. VI. Disclosure Each Principal Officer must: 1. Familiarize himself with the disclosure requirements applicable to the Funds as well as the business and financial operations of the Funds; and 2. Not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including to the Funds' directors and auditors, and to governmental regulators and self-regulatory organizations. 3. To the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and Davis- Dinsmore and take other appropriate steps with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds. VII. Compliance It is the Funds' policy to comply with all applicable laws and governmental rules and regulations. It is the personal responsibility of each Principal Officer to adhere to the standards and restrictions imposed by those laws, rules and regulations. VIII. Reporting and Accountability Each Principal Officer must: 1. Upon receipt of the Code, sign and submit to the Compliance Officer an Acknowledgement stating that he or she has received, read, and understands the Code. 2. By April 30 of each year submit an Acknowledgement Form to the Compliance Officer confirming that he or she has received, read and understands the Code and has complied with the requirements of the Code as of the date of signing. 3. Not retaliate against any employee or Principal Officer for reports of potential violations that are made in good faith; and 4. Notify the Compliance Officer promptly if he becomes aware of any existing or potential violation of this Code. Failure to do so is itself a violation of this Code. IX. Review and Enforcement Procedures Except as described otherwise below, the Compliance Officer is responsible for applying this Code to specific situations in which questions are presented to it and has the authority to interpret this Code in any particular situation. The following procedures apply in investigating and enforcing this Code, and in reporting on the Code: 1. The Compliance Officer will take all appropriate action to investigate any violations reported to it; 2. Violations and potential violations will be reported to the Audit Committee (the "Committee"), counsel to the Funds and counsel to the Independent Directors after such investigation; 3. If the Committee determines that a violation has occurred, it will inform the Independent Directors who will take all appropriate disciplinary or preventive action; 4. Appropriate disciplinary or preventive action may include a review of and appropriate modifications to applicable policies and procedures, notification of appropriate personnel at Davis- Dinsmore, a letter of censure, or recommendation of suspension or dismissal; 5. The Independent Directors will be responsible for granting waivers, as appropriate; and 6. Any changes to or waivers of this Code will, to the extent required, be disclosed on Form N-CSR as provided by SEC rules. X. Periodic Review At least annually, the Principal Officers and the Compliance Officer will prepare a written report to the Boards of Directors of the Funds describing any issues arising under this Code or procedures, including but not limited to, information about material violations of this Code or procedures and any sanctions imposed in response to those material violations. The Boards of Directors of the Funds will review this Code on an annual basis. XI. Other Policies and Procedures The Funds' and Davis-Dinsmore's codes of ethics under Rule 17j-1 under the Investment Company Act are separate documents applying to Principal Officers and others, and are not part of this Code. XII. Amendments This Code may not be amended except in written form, which is specifically approved by a majority vote of the Funds' Boards of Directors, including a majority of independent directors. XIII. Confidentiality All reports and records prepared or maintained pursuant to this Code shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Funds, Davis-Dinsmore, the Board of Directors, and counsel to the foregoing. XIV. Internal Use The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of the Funds, as to any fact, circumstance, or legal conclusion. EX-99.CERT 3 e0905ex-99_cert.txt EX-99.CERT EXHIBIT 99.CERT CERTIFICATION CERTIFICATIONS -------------- I, Thomas H. Dinsmore, certify that: 1. I have reviewed this report on Form N-CSR of Ellsworth Convertible Growth and Income Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 29, 2005 /s/Thomas H. Dinsmore Thomas H. Dinsmore Chairman of the Board and Chief Executive Officer (Principal Executive Officer) CERTIFICATIONS -------------- I, Gary I. Levine, certify that: 1. I have reviewed this report on Form N-CSR of Ellsworth Convertible Growth and Income Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (e) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (f) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (g) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (h) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (c) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (d) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 29, 2005 /s/Gary I. Levine Gary I. Levine Chief Financial Officer (Principal Financial Officer) EX-99.906 CERT 4 e0905ex-99_906cert.txt Exhibit 99.906CERT Certification of Principal Executive Officer In connection with the Certified Shareholder Report of Ellsworth Convertible Growth and Income Fund, Inc. (the "Company") on Form N-CSR for the period ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas H. Dinsmore, Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 29, 2005 /s/Thomas H. Dinsmore Thomas H. Dinsmore Chairman of the Board and Chief Executive Officer (Principal Executive Officer) A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 99.906CERT Certification of Principal Financial Officer In connection with the Certified Shareholder Report of Ellsworth Convertible Growth and Income Fund, Inc. (the "Company") on Form N-CSR for the period ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary I. Levine, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 29, 2005 /s/Gary I. Levine Gary I. Levine Chief Financial Officer (Principal Financial Officer) A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----