SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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ELLSWORTH CONVERTIBLE GROWTH
AND INCOME FUND, INC.
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(Name of Registrant as Specified In Its Charter)
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ELLSWORTH CONVERTIBLE
GROWTH AND INCOME FUND, INC.
65 Madison Avenue
Morristown, New Jersey 07960
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
Saturday, February 14, 2004
10:00 a.m., Eastern Time
at
Trianon Hotel, 3401 Bay Commons Drive, Bonita Springs, Florida 34134
To Shareholders of Ellsworth Convertible Growth and Income Fund, Inc.:
We cordially invite you to attend our 2004 Annual Meeting of Shareholders
to:
1. Elect three directors to three-year terms.
2. Ratify the Audit Committee's appointment of PricewaterhouseCoopers LLP
as independent auditors for fiscal year 2004.
3. Vote on an amendment to the Company's Charter to give shareholders the
right to tender their shares during fiscal year 2004.
4. Transact any other business that properly comes before the meeting.
We are holding the Annual Meeting on Saturday, February 14, 2004 at 10:00
a.m., Eastern Time, at the Trianon Hotel, 3401 Bay Commons Drive, Bonita
Springs, Florida 34134.
You may vote on these proposals in person or by proxy. If you cannot attend
the meeting, we urge you to complete and return the enclosed proxy promptly in
the enclosed, self-addressed, stamped envelope so that your shares will be
represented and voted at the meeting according to your instructions. If you are
the record owner of your shares on the books of the Company's transfer agent,
then you may also submit your proxy vote by telephone or via the Internet, by
following the instructions accompanying this Proxy Statement. If your broker
holds your shares in its name, you may submit your proxy vote by any other means
specified in the instructions that accompany this Proxy Statement. Of course, if
you attend the meeting, you may withdraw your proxy and vote your shares. Only
shareholders of record on December 18, 2003 will be entitled to vote at the
meeting or any adjournment of the meeting.
Thomas H. Dinsmore
Chairman of the Board of Directors
December 29, 2003
ELLSWORTH CONVERTIBLE
GROWTH AND INCOME FUND, INC.
65 Madison Avenue
Morristown, New Jersey 07960
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
February 14, 2004
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Proxy Statement
We are sending you this Proxy Statement and the enclosed proxy card because
the Company's Board of Directors is soliciting your proxy to vote at the 2004
Annual Meeting of Shareholders. This Proxy Statement summarizes the information
you need to know to cast an informed vote at the Annual Meeting. However, you do
not need to attend the Annual Meeting to vote your shares. Instead, you may
simply complete, sign and return the enclosed proxy card or use any of the
available alternative proxy voting methods specified in the instructions that
accompany this Proxy Statement.
If you are the record owner of your shares, the available alternative proxy
voting methods are telephone and Internet voting. If your shares are held by a
broker, the alternative proxy voting methods may include telephone, Internet and
any alternative method of voting permitted by your broker.
This Proxy Statement, the attached Notice of Annual Meeting and the
enclosed proxy card will first be sent on or about December 29, 2003 to all
shareholders entitled to vote. Shareholders who owned shares of the Company's
common stock on December 18, 2003 are entitled to vote. On this record date,
there were 12,298,127 shares outstanding. We know of no beneficial owner of more
than five percent of those shares. Each share of the Company's common stock that
you own entitles you to one vote. (A fractional share has a fractional vote.)
We have previously sent to shareholders the Company's 2003 Annual Report
including financial statements. If you have not received such report or would
like to receive an additional copy, please contact Gary I. Levine at 65 Madison
Avenue, Morristown, NJ 07960 or call collect (973) 631-1177. The Company will
furnish such report free of charge.
Time and Place of Meeting
We are holding the Annual Meeting on Saturday, February 14, 2004 at 10:00
a.m., Eastern Time, at the Trianon Hotel, 3401 Bay Commons Drive, Bonita
Springs, Florida 34134.
Voting by Proxy
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. If you are the record owner of your shares on the books of
the Company's transfer agent, then you may also submit your proxy vote by
telephone or via the Internet, by following the instructions accompanying this
Proxy Statement. If your
broker holds your shares in its name, you may submit your proxy vote by any
other means specified in the instructions that accompany this Proxy Statement.
Returning the proxy card or using any of the available alternative proxy voting
methods will not affect your right to attend the Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote
or use any of the available alternative proxy voting methods, your "proxy" (one
of the individuals named on your proxy card) will vote your shares as you have
directed. If you sign the proxy card or use any of the available alternative
proxy voting methods but do not make specific choices, your proxy will vote your
shares as recommended by the Board as follows:
o FOR the election of all three nominees for director.
o FOR ratification of the appointment of independent auditors for 2004.
o AGAINST the amendment to the Company's Charter.
Your proxy will have authority to vote and act on your behalf at any
adjournment of the meeting.
If you give a proxy, you may revoke it at any time before it is exercised.
You can do this in one of four ways:
o You may send in another proxy with a later date.
o If you submitted a proxy by telephone, via the Internet or via an
alternative method of voting permitted by your broker, you may submit
another proxy by telephone, via the Internet, or via such alternative
method of voting, or send in another proxy with a later date.
o You may notify the Company's Secretary in writing before the Annual
Meeting that you have revoked your proxy.
o You may vote in person at the Annual Meeting.
Voting in Person
If you do attend the Annual Meeting and wish to vote in person, we will
give you a ballot when you arrive. However, if your shares are held in the name
of your broker, bank or other nominee, you must bring a letter from the nominee
indicating that you are the beneficial owner of the shares on December 18, 2003,
the record date for voting, and authorizing you to vote.
Quorum Requirement
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote a majority of all shares outstanding
on the record date are present in person or by proxy.
Under rules applicable to broker-dealers, if your broker holds your shares
in its name, we expect that the broker will be entitled to vote your shares on
Proposals 1 and 2 even if it has not received instructions from you. However,
your broker will not be entitled to vote on Proposal 3 unless it has received
instructions from you. If your broker does not vote your shares on Proposal 3
because it has not received instructions from you, these shares will be
considered "broker non-votes."
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Broker non-votes, if any, and abstentions will count as present for
establishing a quorum.
Vote Necessary to Approve a Proposal
Proposal 1. Directors are elected by a plurality vote of shares present at
the meeting, meaning that the director nominee with the most affirmative votes
for a particular slot is elected for that slot. In an uncontested election for
directors, the plurality requirement is not a factor. Abstentions will not count
as votes cast and will have no effect on the outcome of this proposal. We expect
that brokers will be entitled to vote on this proposal, but any broker non-vote
will have no effect on the outcome of this proposal.
Proposal 2. The affirmative vote of the majority of votes cast is needed to
approve the ratification of the Audit Committee's appointment of the independent
auditors. Abstentions will not count as votes cast and will have no effect on
the outcome of this proposal. We expect that brokers will be entitled to vote on
this proposal, but any broker non-vote will have no effect on the outcome of
this proposal.
Proposal 3. The affirmative vote of two-thirds of all outstanding shares of
the Company, whether or not present at the Annual Meeting, is needed to approve
the amendment of the Company's Charter. Broker non-votes and abstentions will
not count as votes cast and will have the effect of votes against this proposal.
PROPOSAL 1
ELECTION OF DIRECTORS
Structure of the Board of Directors
The Company's Board of Directors is divided into three classes for purposes
of election. One class is elected at each annual meeting of shareholders.
Directors in each class serve for a three-year term.
The Board of Directors currently consists of nine persons. Seven of the
directors are "independent," meaning they are not "interested persons" of the
Company within the meaning of the Investment Company Act of 1940, as amended
(the Investment Company Act). Two of the Company's directors are "interested
persons" because of their business and financial relationships with the Company
and Davis-Dinsmore Management Company (Davis-Dinsmore), its investment adviser.
At the 2004 Annual Meeting, the terms of three directors are expiring. The
directors nominated for election at this Annual Meeting would each hold office
for a three-year term expiring in 2007. Other directors are not up for election
this year and will continue in office for the rest of their terms. Each of the
nominees is willing to serve as a director. However, if a nominee becomes
unavailable for election, proxies will vote for another nominee proposed by the
Board or, as an alternative, the Board may keep the position vacant or reduce
the number of directors.
Nominees for Directors
The Board has approved the nomination of the following people to serve as
directors until the annual meeting of shareholders to be held in 2007. Each of
the nominees is currently a director of the Company. The business address of
each nominee and director listed below is Ellsworth Convertible Growth and
Income Fund, Inc., 65 Madison Avenue, Suite 550, Morristown, NJ 07960.
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Nominees Who Are Independent Directors
Gordon F. Ahalt, 75, is currently retired. Prior to his retirement, Mr.
Ahalt was President of G.F.A. Inc., a petroleum industry consulting company,
from 1982 until 2000. From 1987 until 1998, Mr. Ahalt was a consultant with W.
H. Reaves & Co., Inc., an asset management company. Mr. Ahalt has spent his
career as an analyst of and a consultant to the petroleum industry, and has
previously served as a director or executive officer of several energy
companies. Mr. Ahalt has been a director of the Company since 1986. He is also a
director of Bancroft Convertible Fund, Inc. (Bancroft), a closed-end investment
company, Cal Dive International, a diving service company, and The Houston
Exploration Company, an oil and gas exploration company, as well as several
private investment funds. Mr. Ahalt received a B.S. in Petroleum Engineering
from the University of Pittsburgh.
Elizabeth C. Bogan, Ph.D., 59, has been a Senior Lecturer in Economics at
Princeton University since 1992. Before joining the faculty at Princeton she was
the Chairman of The Economics and Finance Department at Fairleigh Dickinson
University and a member of the Executive Committee for the College of Business
Administration. Dr. Bogan has chaired numerous administrative and academic
committees. Dr. Bogan has been a director of the Company since 1986 and is also
a director of Bancroft. Dr. Bogan received an A.B. in Economics from Wellesley
College, an M.A. in Quantitative Economics from the University of New Hampshire,
and a Ph.D. in Economics from Columbia University. Her writings on finance have
been published in The Financial Analysts Journal and in other journals.
Nicolas W. Platt, 50, has been President of CNC-US, an international
consulting company, since January 2003. From May 2001 to January 2003, he was a
Senior Partner of Platt & Rickenbach, a New York based financial relations firm.
From December 2000 to April 2001, he was the Executive Vice President of Ogilvy
Public Relations Worldwide, a division of Ogilvy & Mather, WPP Group, UK. From
January 1997 to December 2000, he was the Managing Director of the Corporate
Financial Practice at the public relations firm of Burson-Marsteller, a division
of Young & Rubicam, WPP Group, UK, where he ran the financial/investor relations
practice. From 1995 to 1997, he was Senior Managing Director at Bozell-Sawyer
Miller, a division of True North Communications, a public relations firm. From
1993 to 1995, he was Executive Vice President of NovAtel Communications Ltd.
Before joining NovAtel, Mr. Platt was Managing Director and Corporate Vice
President of the American Stock Exchange from 1983-1993. He has been a director
of the Company since 1997 and is also a director of Bancroft. Mr. Platt received
a B.A. from Skidmore College and an M.A. in Economics from Columbia University.
The Board of Directors recommends that you vote FOR these nominees.
Information about the Company's Other Directors
Information about the Company's other directors is presented below.
Continuing Independent Directors
William A. Benton, 70, is currently retired. Formerly, Mr. Benton was a
partner in BE Partners, a small options market maker, from 1991 until the
business was sold on November 1, 2000. From 1991 to November 1999, he was a
limited partner of Gavin, Benton, & Co., a New York Stock Exchange specialist
firm. Mr. Benton has been a member of the New York Stock Exchange for more than
45 years, and has previously been a director of a discount brokerage firm and a
brokerage firm making markets in derivative instruments. Mr. Benton has been a
director of the Company since 1986 and is also a director of Bancroft. Mr.
Benton graduated from Bucknell University with a B.S. in Commerce and Finance.
Mr. Benton's term as director expires in 2006.
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Donald M. Halsted, Jr., 76, was a self-employed businessman from 1983 until
his retirement in 2003. Mr. Halsted has had more than thirty years experience in
management and marketing for cement companies, including several senior
management positions. Mr. Halsted served in the Army Air Force in World War II.
Mr. Halsted has been a director of the Company since 1986 and is also a director
of Bancroft. Mr. Halsted received an A.B. in Economics from Princeton
University. Mr. Halsted's term as director expires in 2005.
George R. Lieberman, 81, is a retired businessman. Prior to his retirement,
Mr. Lieberman had more than 30 years experience in advertising. He was founder
and President of Lieberman Associates, an advertising agency, and also founder
and President of Interspace Airport Advertising. In addition, Mr. Lieberman was
a director of Merchants National Bank for over twenty years. Mr. Lieberman
served in the U.S. Navy during World War II as a fighter pilot and received
several citations and commendations. Mr. Lieberman has been a director of the
Company since 1990 and is also a director of Bancroft. Mr. Lieberman received a
B.A. from Muhlenberg College. Mr. Lieberman's term as director expires in 2006.
Duncan O. McKee, 72, retired in 1988 from the practice of law as a partner
at the law firm of Ballard Spahr Andrews & Ingersoll, LLP (Ballard Spahr).
During his career at Ballard Spahr, Mr. McKee represented publicly owned
companies, including closed-end and open-end investment companies, in mergers,
acquisitions and securities offerings. Mr. McKee was Director Emeritus of the
Company and Bancroft from 1988 to 1996. Mr. McKee has been a director of the
Company since 1996 and is also a director of Bancroft. Mr. McKee received his
undergraduate degree from the College of Wooster and his law degree from Duke
University School of Law. Mr. McKee's term as director expires in 2005.
Continuing Directors Who Are Interested Persons
Thomas H. Dinsmore, 50, has been Chairman and Chief Executive Officer of
the Company, Bancroft and Davis-Dinsmore (investment adviser to the Company and
Bancroft) since August 1996. From 1986 to August 1996, Mr. Dinsmore was
President of the Company; from 1985 to 1996, he was President of Bancroft; and
from 1988 to 1996, he was President of Davis-Dinsmore. Mr. Dinsmore is a
Chartered Financial Analyst. Mr. Dinsmore has been a director of the Company
since 1986 and is also a director of Bancroft and Davis-Dinsmore. Mr. Dinsmore
received a B.S. in Economics from the Wharton School of Business at the
University of Pennsylvania, and an M.A. in Economics from Fairleigh Dickinson
University. Mr. Dinsmore's term as director expires in 2005.
Mr. Dinsmore is an interested person (within the meaning of the Investment
Company Act) of the Company and Davis-Dinsmore because he is an officer of the
Company and an officer, director and holder of more than 5% of the outstanding
shares of voting common stock of Davis-Dinsmore.
Jane D. O'Keeffe, 48, has been President of the Company, Bancroft and
Davis-Dinsmore since August 1996. In 1996, before becoming President of the
Company and Bancroft, she was Executive Vice President of the Company and
Bancroft. From 1994 to 1996, Ms. O'Keeffe was Vice President of the Company and
Bancroft and Executive Vice President of Davis-Dinsmore. Ms. O'Keeffe has been
in the investment business since 1980. Ms. O'Keeffe has been a director of the
Company since 1995 and is also a director of Bancroft and Davis-Dinsmore. Ms.
O'Keeffe has a B.A. from the University of New Hampshire and attended the Lubin
Graduate School of Business at Pace University. Ms. O'Keeffe's term as director
expires in 2006.
Ms. O'Keeffe is an interested person (within the meaning of the Investment
Company Act) of the Company and Davis-Dinsmore because she is an officer of the
Company and an officer, director and holder of more than 5% of the outstanding
shares of voting common stock of Davis-Dinsmore.
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Certain Relationships
Thomas H. Dinsmore and Jane D. O'Keeffe are brother and sister.
Committees of the Board
The Board has three committees: an Audit Committee, a Nominating and
Administration Committee and a Pricing Committee.
Audit Committee
The Company has a separately designated Audit Committee as that term is
defined in the Securities Exchange Act of 1934, as amended. The Audit Committee
is comprised entirely of independent directors (Mr. Benton, Dr. Bogan, Mr.
Halsted and Mr. Lieberman, with Dr. Bogan serving as Chairperson). In addition,
all such members are independent as such term is defined by the American Stock
Exchange's listing standards.
In accordance with its charter, attached as Appendix A to this Proxy
Statement, the Committee oversees the Company's accounting and financial
reporting policies and practices, as well as the quality and objectivity of the
Company's financial statements and the independent audit of the financial
statements. Among other duties, the Committee selects independent auditors for
the Company, evaluates their independence and meets with them to review the
scope and results of the audit. The Audit Committee also (i) serves as the
Company's qualified legal compliance committee within the meaning of Part 204 of
the Securities and Exchange Commission's Attorney Conduct Rules, and (ii)
receives reports of violations and potential violations of the Company's Code of
Ethics for Principal Officers. The Audit Committee has also established
procedures for (i) the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting controls or auditing
matters; and (ii) the confidential, anonymous submission by employees of the
Company or Davis-Dinsmore, of concerns regarding questionable accounting or
auditing matters.
Audit Committee Report
The Audit Committee reviewed and discussed the Company's audited financial
statements with its independent auditors, PricewaterhouseCoopers LLP (PwC).
These discussions included the auditor's judgments about the quality, not just
acceptability, of the Company's accounting principles as applied in its
financial reporting. PwC, the Audit Committee and management also discussed
matters such as the clarity, consistency and completeness of the accounting
policies and disclosures, with a particular focus on critical accounting
policies.
The Audit Committee has received a letter from PwC required by Independence
Standards Board Standard No. 1 disclosing all relationships between PwC and its
related entities and the Company. The Audit Committee discussed with PwC their
independence as the Company's independent auditors. In addition, the Audit
Committee has considered whether the provision of non-audit services by PwC is
compatible with maintaining PwC's independence. The Audit Committee also
reviewed and discussed the Company's audited financial statements with
management.
Based on the review and discussions described above, the Audit Committee
has recommended to the Company's Board of Directors that the audited financial
statements be included in the Company's annual report to shareholders for the
fiscal year ended September 30, 2003 for filing with the Securities and Exchange
Commission.
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Elizabeth C. Bogan, Ph.D., Chairperson
William A. Benton
Donald M. Halsted
George R. Lieberman
Nominating and Administration Committee
The Nominating and Administration Committee is also comprised entirely of
independent directors (Mr. Ahalt, Mr. Halsted and Mr. Lieberman, with Mr.
Halsted serving as Chairman). In accordance with its charter, the Committee,
among other duties, recommends nominees as independent directors for the Company
and nominees for Board committees, reviews Board governance issues and Board
compensation and monitors the performance of legal counsel. In recommending
nominees, the Committee considers the diversity of experience and backgrounds of
nominees and directors. The Nominating and Administration Committee will
consider a shareholder's suggestion for a nominee for director, but the final
decision for all nominees will be made by the Committee.
A shareholder may nominate an individual for election to the Board of
Directors at the 2005 Annual Meeting of shareholders if the shareholder: (1) is
a shareholder of record at the time of giving notice to the Company; (2) is a
shareholder of record at the time of the 2005 Annual Meeting; (3) is entitled to
vote at the 2005 Annual Meeting; and (4) has complied with the notice procedures
in the Company's Bylaws. The notice procedures require that a shareholder submit
the nomination in writing to the Secretary of the Company no earlier than
September 12, 2004 but no later than October 13, 2004. The notice must contain
all information relating to the nominee required for proxy solicitations by
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
the individual's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected). The notice must also contain
the shareholder's name and address as they appear on the Company's books (and
the name and address of any beneficial owner, on whose behalf the nomination is
made) and the number of shares of stock owned beneficially and of record by such
shareholder and shareholder nominee.
Pricing Committee
The Pricing Committee is comprised of three members, two of whom are
independent directors (Mr. Ahalt and Mr. Platt, with Mr. Ahalt serving as
Chairman) and one of whom is an interested person (Mr. Dinsmore). In accordance
with its charter, the Committee assists the Company's investment adviser,
Davis-Dinsmore, in its valuation of the Company's portfolio securities when
pricing anomalies arise and the full Board is not available to assist
Davis-Dinsmore in making a fair value determination.
It is anticipated that the Committee will meet only as pricing anomalies or
issues arise that cannot be resolved by the entire Board due to time
constraints.
Board and Committee Meeting Attendance
During the 2003 fiscal year, the Board met eight times, the Audit Committee
met three times and the Nominating and Administration Committee met three times.
The Pricing Committee did not meet. All directors attended at least 75% of all
Board and Committee meetings held during the 2003 fiscal year.
Directors' Compensation
Mr. Dinsmore and Ms. O'Keeffe are the only officers of the Company or
Davis-Dinsmore who serve on the Board of Directors. Each director who is not an
officer of the Company or Davis-Dinsmore currently receives (1) an annual fee of
$5,000, (2) $1,000 plus expenses for each Board meeting attended,
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(3) $1,000 for each shareholders' meeting attended, (4) $1,000 plus expenses for
each Committee meeting attended that is not held in conjunction with a Board
meeting, and (5) $500 for each Committee meeting attended that is held in
conjunction with a Board meeting. The chairperson of each Committee receives an
additional $200 per Committee meeting.
Davis-Dinsmore is the Company's investment adviser and is also the
investment adviser to Bancroft. Because of this connection, Bancroft and the
Company make up a "fund complex" (Fund Complex). The following table shows the
compensation that was paid to the directors solely by the Company as well as by
the Fund Complex as a whole during the 2003 fiscal year.
Aggregate Compensation Total Compensation
From Company From Fund Complex
---------------------- ------------------
Thomas H. Dinsmore................ $ -0- $ -0-
Jane D. O'Keeffe.................. $ -0- $ -0-
Gordon F. Ahalt................... $14,500 $29,000
William A. Benton................. $15,500 $31,500
Elizabeth C. Bogan, Ph.D.......... $15,100 $30,700
Donald M. Halsted, Jr............. $17,600 $35,700
George R. Lieberman............... $17,000 $34,500
Duncan O. McKee................... $14,000 $28,000
Nicolas W. Platt.................. $14,000 $28,000
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Although not required to do so, the Board of Directors seeks your
ratification of the Audit Committee's appointment of PricewaterhouseCoopers LLP
(PwC) as the Company's independent auditors for the 2004 fiscal year. The Board
of Directors believes that the shareholders should have the opportunity to vote
on this matter. If the appointment is not ratified, the Audit Committee will
meet to select new independent auditors. Such selection of new auditors will be
submitted to shareholders for their ratification at either the Annual Meeting or
at a future meeting of shareholders. We do not expect that a representative from
PwC will be present at the Annual Meeting. However, should a PwC representative
choose to attend, he or she will have an opportunity to make a statement and to
respond to appropriate questions.
Fees Paid to PwC by the Company (For the 2003 Fiscal Year)
For the 2003 fiscal year, PwC billed the Company aggregate fees for
professional services as follows:
Audit Fees........................................................... $ 39,585
Financial Information Systems Design and Implementation Fees......... $ 0
All Other Fees....................................................... $ 3,000*
--------
Total Fees........................................................... $ 42,585
* All Other Fees includes fees billed for reviewing the Company's tax return.
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Fees Paid to PwC by Davis-Dinsmore (For the 2003 Fiscal Year)
For the 2003 fiscal year, PwC billed Davis-Dinsmore aggregate fees for
professional services as follows:
Financial Information Systems Design and Implementation Fees........ $ 0
All Other Fees...................................................... $ 11,896**
--------
Total Fees.......................................................... $ 11,896
** All Other Fees consists of amounts paid to PwC by the Company's adviser in
connection with the audit of Davis-Dinsmore's financial statements.
The Board of Directors recommends that you vote FOR Proposal 2.
PROPOSAL 3
AMENDMENT TO COMPANY'S CHARTER
Background
The Company's common stock trades on the American Stock Exchange. For the
12 weeks that ended on November 14, 2003, the average market price for each
share was approximately 7.54% less than its weekly net asset value. In this
circumstance, Article IX of the Company's Charter requires the Board to adopt a
proposal, to the extent consistent with the Investment Company Act, to submit a
Charter amendment to shareholders that would permit shareholders to sell their
shares back to the Company at their net asset value on March 31, June 30, and
September 30, 2004.
At the Annual Meeting, you will be asked to approve or disapprove the
following resolution:
RESOLVED, that the Company's Charter be and it is hereby amended by
adding a new Article XII to read in full as follows:
ARTICLE XII
Each holder of shares of common stock of the Corporation shall
have the right to tender all of such shares to the Corporation
for purchase on March 31, 2004, June 30, 2004 and September 30,
2004 (each, a "Purchase Date") at net asset value as of the close
of business on each such Purchase Date; provided, however, that
no such right shall exist unless the Corporation receives a
"no-action" letter or interpretive or exemptive relief from the
Securities and Exchange Commission permitting such right; and
provided further, however, that the Corporation may suspend such
right (a) for any period (i) during which the New York Stock
Exchange is closed other than customary week-end and holiday
closings or (ii) during which trading on the New York Stock
Exchange is restricted; (b) for any period during which an
emergency exists as a result of which (i) disposal by the
Corporation of securities owned by it is not reasonably
practicable or (ii) it is not reasonably practicable for the
Corporation fairly to determine the value of its net assets; or
(c) for such other periods as the Securities and Exchange
9
Commission may by order permit for the protection of security
holders of the Corporation.
The Board of Directors, including all the directors who are not affiliated with
Davis-Dinsmore Management Company, recommends that you vote AGAINST Proposal 3.
Factors Considered by the Board of Directors
In opposing the adoption of the proposed amendment to the Company's
Charter, the Board of Directors considered the following factors:
Past Performance of the Company
The Company was established as a vehicle for long-term investment through
participation in a professionally managed portfolio of convertible securities.
The Company's investment objectives are to provide for income and potential for
capital appreciation (which objectives the Company considers to be relatively
equal, over the long term, due to the nature the securities in which it
invests). The Board believes that the Company has succeeded in meeting its
objectives. The following table illustrates the growth in the net asset value
and market price of the Company's common stock:
---------------------------------------------------------------------------------------------------
Percentage Increase in Net Asset
Value with Dividends and Capital Total Investment Return
Period Gains Reinvested at Net Asset Value Based on Market Price*
---------------------------------------------------------------------------------------------------
Year Ended September 30, 2003 14.02% 10.81%
---------------------------------------------------------------------------------------------------
Five years ended September 30, 2003 33.88% 50.20%
---------------------------------------------------------------------------------------------------
Ten Years ended September 30, 2003 133.72% 175.13%
---------------------------------------------------------------------------------------------------
June 1986 (beginning of operations) 349.41% 395.68%
through September 30, 2003
---------------------------------------------------------------------------------------------------
* Assumes reinvestment of dividends and capital gains at prices obtained by
the Company's dividend reinvestment plan.
The Board also looked at the following measurements of the Company's
performance:
o During the 2003 fiscal year, the Company paid distributions of $0.301
per share from investment income. This represented approximately 3.7%
of the shares' average weekly net asset value and approximately 3.8%
of their average weekly closing market price.
o In addition, on October 20, 2003, the Company declared a distribution
payable on November 26, 2003 of $0.105 per share from investment
income. On the date it was declared, this distribution represented
approximately 1.3% of the closing market price of the Company's
shares.
How the Company has performed in the past is not a guarantee of how it will
perform in the future. However, the Board believes that the Company will
continue to serve as an appropriate investment vehicle for its shareholders by
providing for income and the potential for capital appreciation.
10
Market Discounts May Provide Investment Opportunities
Over the past several years, numerous closed-end funds whose shares are
traded on exchanges have seen their shares trade at a discount to net asset
value. In many instances these discounts have increased in recent years. A
number of factors can influence the size of the discount, including demand for a
fund's shares, the extent to which analysts report on a fund, and a fund's
performance.
When an investor buys shares of a closed-end fund at a price that is lower
than the fund's net asset value, the investor gets an ownership interest in an
investment portfolio valued at more per share than the investor paid for the
shares. For example, if a fund has a net asset value per share of $10.00, but a
market value per share of $9.00, an investor will earn a return on securities
with a value ($10.00) that is higher than his or her investment ($9.00). This
will result in a higher return on the investor's money than would have been the
case if the investor paid net asset value. For this reason, the Board believes
that market discounts may present investment opportunities for investors. To the
extent investors act upon this investment opportunity, they may increase the
demand for and liquidity of a closed-end fund's shares.
In making its recommendation, that shareholders vote against the Charter
amendment, the Board recognized that so long as the market discount remains
stable (or is reduced), investors who sell their shares are not in a worse
position than when they purchased their shares as a result of the discount. For
example, if on a given date the Company has a net asset value per share of
$10.00 and a market value per share of $8.50, investors who purchased shares on
that date bought them at a 15% discount from net asset value. Assume the net
asset value per share later increased to $11.00. If the market value per share
concurrently increased to $9.35, the discount would have remained at 15%. In
examining the return to investors, based upon net asset value, the shares
increased in value from $10.00 to $11.00, or 10%. Based upon market value, the
shares increased in value from $8.50 to $9.35, or 10%. In this example,
investors who sold their shares on the later date were not in a worse position
because of the discount.
The Board also recognized that if the market price did not increase to the
same extent that the net asset value increased (thereby resulting in an increase
in the market discount), investors who sell their shares would receive a return
on their investment, based upon market value, that is lower than the return on
investment, based upon net asset value. In addition, if the market price
declines to a price that is lower than the market price when the investor
purchased their shares, investors who sell their shares would recognize a loss
on their investment. For example, assume the net asset value per share of the
Company's stock increased from $10.00 to $11.00, while the market value per
share increased from $8.50 to $9.00. This would result in a market value that is
at an 18.2% discount from the $11.00 per share net asset value. This increase in
market value from $8.50 to $9.00, or 5.9%, would be lower than the 10% increase
in net asset value. Investors who sold their shares would still recognize a gain
on their investment, but not to the extent that the net asset value increased.
If the discount increased to more than 22.7%, so that the market price was less
than $8.50, investors who purchased their shares at $8.50 and sold at a lower
price would recognize a loss upon the sale.
The Board of Directors has concluded that the future of the Company should
not be tied to whether its shares have traded at a market discount. Instead, the
Company's future should be based on its success in meeting its investment
objective. In making its recommendation, the Board recognized that it had
reached the same conclusion in prior years.
Tenders Would Adversely Affect the Company's Operations and Performance
The Board believes that to require the Company to repurchase its shares
would not be in the best interests of the Company and its shareholders as a
whole because of the effect that repurchases would have on-
11
o The Company's expense ratio. Fewer shareholders would have to bear the
Company's fixed expenses.
o The Company's investment performance and its ability to achieve its
investment objective. The Company might have to sell some of its more
liquid and more desirable portfolio securities to raise the cash it
would need to repurchase its shares. This could leave the Company with
less desirable holdings.
o The Company's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended. In order to maintain its
status as a regulated investment company under the Code, the Company
must satisfy certain quarterly diversification and annual distribution
requirements. The sale of securities to pay the purchase price for the
tendered shares might cause the Company's portfolio to lack sufficient
diversification for purposes of the Code requirement. In addition,
payment of the purchase price for the tendered shares might eliminate
cash and other liquid investments that would otherwise be available to
pay dividends in satisfaction of the distribution requirement of the
Code.
o The Company's continued existence. The Board might have to recommend
the liquidation, merger or other reorganization of the Company if the
Company were to become too small to be operated efficiently.
Value of the Company's Portfolio
The Company would have to sell securities from its portfolio to pay for
shares that it would be required to repurchase. In doing so, the Company would
have to pay transaction costs. In addition, the Company would have less
bargaining power if it had to sell its portfolio securities and might have to
sell them at lower prices than it otherwise would. These transaction costs and
lower prices might reduce the net asset value of the Company's shares and,
therefore, the amounts payable to shareholders who sell their shares back to the
Company at their net asset value.
Compliance with the Investment Company Act May Delay or Prevent Implementation
The Company's Charter requires that, if the conditions of Article IX of the
Charter are met, the Board will adopt a proposal, to the extent consistent with
the Investment Company Act, to amend the Charter to give the shareholders the
right to tender their shares to the Company. The proposed Charter amendment
provides that shareholders will not have the right to tender their shares unless
the Company receives a no-action letter or interpretive or exemptive relief from
the Securities and Exchange Commission (Commission) permitting such right to
tender.
In previous years, the staff of the Division of Investment Management at
the Commission has advised the Company that, if the Charter amendment is
approved, the Company would need to comply with the provisions of Rule 23c-3
under the Investment Company Act to avoid the possible characterization of the
Company's shares as redeemable securities. Rule 23c-3 permits a closed-end fund
such as the Company to conduct periodic repurchases of its shares, subject to
compliance with the conditions of the Rule, without being deemed to be an issuer
of redeemable securities. One of the conditions of the Rule is that the share
repurchases be conducted pursuant to a fundamental policy, changeable only by an
Investment Company Act Majority vote of the shareholders. Compliance with this
condition would require shareholder approval of the fundamental policy. If a
closed-end company engages in share repurchases under the Rule but does so other
than pursuant to a fundamental policy, share repurchases may not be made any
earlier than two years after a prior share repurchase.
12
The Company cannot predict at this time whether, if the shareholders
approve the Charter amendment, it will be able or willing to comply with the
provisions of Rule 23c-3. As a result, even if the shareholders approve the
Charter amendment, shareholders will not have the right to tender their shares
to the Company until the Company takes further action to comply with the
Investment Company Act by obtaining a no-action letter or exemptive or
interpretive relief from the Commission so that it can conduct share repurchases
in accordance with the provisions of its Charter. There can be no assurance that
the Company would be able to obtain any such no-action letter or interpretive or
exemptive relief from the Commission.
Continued Listing on the American Stock Exchange
The Company's shares are listed on the American Stock Exchange. Although
unlikely, the shares could be delisted if the total market value of publicly
held shares and the Company's net assets are each less than $5 million for more
than 60 consecutive days, or less than 200,000 shares are publicly traded, or
there are less than 300 round-lot holders of the shares, or the Company ceases
to qualify as a closed-end fund under the Investment Company Act. Share
repurchases will not reduce the Company's authorized capital.
Potential Advantages to Shareholders
In making its recommendation, the Board recognized that the Company's
market discount has been greater than 5% in three of the past five years. For
example, the market price per share was 16.5% less than the Company's net asset
value per share at September 30, 1999, the market price per share was 16.5% less
than the Company's net asset value per share at September 30, 2000, was 3.7%
less than the net asset value per share at September 30, 2001, was 3.3% less
than net asset value per share at September 30, 2002 and was 6.2% less than net
asset value per share at September 30, 2003. The Board also recognized that the
average trading volume for the Company's shares is less than the average trading
volume for companies generally on the American Stock Exchange. The Board
considered two potential advantages for shareholders in adopting the proposed
Charter amendment:
o If shareholders wanted to sell shares, they would be able to do so at
their net asset value instead of at their market price, which averaged
4.0% less than their net asset value for the last fiscal year, and has
averaged 10.5% less than net asset value over the past five fiscal
years. By doing this, shareholders would maximize the return on their
investment in the near term.
o The market price for the shares may increase, thereby reducing the
market discount.
However, the effect of the Company's transaction costs and reduced bargaining
power if it had to sell its portfolio securities might decrease the net asset
value of the Company's shares and, therefore, the amounts paid to shareholders
who sell their shares back to the Company.
Potential Conflicts Disclosed
Two of the directors who considered this proposal (Mr. Dinsmore and Ms.
O'Keeffe) are interested directors because they are directors, officers and
shareholders of Davis-Dinsmore Management Company, the Company's investment
adviser. If the Company repurchased its shares, the Company would become smaller
and this would result in a reduction of the fees that the Company pays to
Davis-Dinsmore. The interested directors acknowledged the effect that the
Charter amendment would have on Davis-Dinsmore, but indicated that, in
considering their recommendation, they focused on the
13
long-term interests of the Company and its shareholders as a whole and believed
that the Charter amendment was not in the best interests of the Company and its
shareholders as a whole.
Federal Income Tax Treatment
Generally, shareholders who tender all their shares would recognize a
capital gain (or loss) for federal income tax purposes to the extent the amount
they receive is greater (or less) than the amount they paid for their shares.
This capital gain (or loss) will be taxed as long-term capital gain (or loss) if
shares tendered have been owned for more than one year. A shareholder that is
not a corporation is subject to federal income tax on long-term capital gain at
a maximum rate of 15%. However, amounts received by tendering shareholders could
be taxed as dividends in circumstances where, after application of the
constructive ownership rules of the Code, the purchase of their shares by the
Company did not constitute a complete termination of their interest, a
substantially disproportionate redemption or a distribution that was not
essentially equivalent to a dividend. Because the Company is unaware of the
number of shares constructively owned by each of its shareholders, the Company
will be unable to designate amounts paid to repurchase its shares as "qualified
dividend income." Accordingly, any such amounts that are treated as dividends
will be taxed at regular ordinary income tax rates.
Noncorporate shareholders who tender their shares may be subject to backup
withholding at a 28% rate on the cash received in exchange. Backup withholding
generally will not apply, however, to a shareholder who furnishes a correct
taxpayer identification number and certifies under penalties of perjury that
such number is correct.
How Shares Would Be Tendered
If the proposed Charter amendment is adopted and the shareholders have the
right to tender their shares, the Company will make a tender offer to
shareholders in accordance with the requirements of the Securities Exchange Act
of 1934 and the Investment Company Act by publication or mailing, or both. We
will establish procedures to make the current net asset value of the Company's
shares publicly available throughout the period of the tender offer. If you wish
to accept the tender offer, you may be required to tender all your shares (or
all shares attributed to you for federal income tax purposes under Section 318
of the Code). The Company will purchase shares tendered in accordance with the
offer unless it suspends the tender offer as described above.
If you tender your shares, you will be required to pay a fee directly to
the Company's transfer agent to help to defray processing costs. We anticipate
that the fee will be $25 but it could be higher or lower.
The Company will charge against capital, costs incurred by it in connection
with the tender offer. Shares that have been tendered and purchased by the
Company will become authorized but unissued shares.
Limitation on Tenders
If the proposed Charter amendment is adopted and the shareholders have the
right to tender their shares, the Company will be able to suspend your rights to
tender your shares during periods -
o In which the New York Stock Exchange is closed (other than customary
weekend and holiday closings) or trading on it is restricted.
14
o In which, because of an emergency, it is not reasonably practicable
for the Company to sell its portfolio securities or to fairly
determine the net asset value of its shares.
o In which the Securities and Exchange Commission permits the Company to
suspend rights to tender for the protection of its shareholders.
In addition, if the proposed Charter amendment is adopted and the
shareholders have the right to tender their shares, the Company intends to
follow a policy (which it may change) of suspending your rights to tender your
shares if, in the Board's judgment, at the time the tender offer commences, or
during the tender offer period-
o Legal action is begun or threatened that challenges the tender of the
Company's shares or otherwise materially adversely affects the ability
of the Company to conduct the tender offer.
o Federal, state or foreign authorities declare a banking moratorium on
banks in the United States, New York or in foreign countries in which
the Company invests, and such moratorium materially adversely affects
the ability of the Company to obtain liquid assets necessary to honor
tenders.
o Federal, state or foreign authorities limit the extension of credit by
lending institutions or the exchange of foreign currency and those
limitations materially adversely affect the ability of the Company to
obtain liquid assets necessary to honor tenders.
o War, armed hostilities, terrorist attacks or other calamity occurs
that directly or indirectly involves the United States or other
countries in which the Company invests and such calamity materially
adversely affects the ability of the Company to obtain liquid assets
necessary to honor tenders.
The Company will reinstate your rights to tender your shares once any of
the above events no longer materially adversely affects the Company's ability
either to conduct the tender offer, or obtain liquid assets necessary to honor
tenders, as applicable.
15
ADDITIONAL INFORMATION
Investment Adviser
Davis-Dinsmore Management Company, 65 Madison Avenue, Morristown, New
Jersey 07960, is the Company's investment adviser.
Executive Officers
The Company's executive officers are elected by the Board of Directors and
receive no compensation from the Company. Information about these officers is
presented below.
Thomas H. Dinsmore is Chairman and Chief Executive Officer of the Company.
Mr. Dinsmore is also a director of the Company and information about him is
presented earlier in this proxy statement under "Proposal 1, Election of
Directors - Information about the Company's Other Directors - Continuing
Directors Who Are Interested Persons."
Jane D. O'Keeffe is President of the Company. Ms. O'Keeffe is also a
director of the Company. Information about Ms. O'Keeffe is presented earlier in
this proxy statement under "Proposal 1, Election of Directors - Information
about the Company's Other Directors - Continuing Directors Who Are Interested
Persons."
H. Tucker Lake, Jr., 56, has been Vice President of the Company and of
Bancroft since 2002. From 1994 until 2002, he was Vice President, Trading of the
Company. He has been a Vice President of Davis-Dinsmore since 1997.
Gary I. Levine, 46, has been Secretary of the Company and Bancroft since
November 2003, and Vice President and Chief Financial Officer of the Company and
Bancroft since 2002. In addition, Mr. Levine has been Treasurer of the Company
and Bancroft since 1993. Previously, Mr. Levine was Assistant Secretary of the
Company and Bancroft from 1986 until 2002. He has been Vice President of
Davis-Dinsmore since 2002 and Treasurer since 1997. He was Assistant Secretary
of Davis-Dinsmore from 1994 to 2002, and Assistant Treasurer from 1994 to 1997.
Germaine M. Ortiz, 33, has been a Vice President of the Company since 1999.
She has also been a Vice President of Davis-Dinsmore since 1999. She was
Assistant Vice President of the Company, Bancroft and Davis-Dinsmore from 1996
to 1999. From 1993 to 1996, Ms. Ortiz was an Assistant Analyst with
Davis-Dinsmore.
Certain Relationships
H. Tucker Lake, Jr. is the cousin of Thomas H. Dinsmore and Jane D.
O'Keeffe.
16
Security Ownership of Management
The Company's directors, nominees for director and officers own the shares
of the Company's common stock shown on the following table as of December 18,
2003:
Shares of Company
Owned Beneficially*
Gordon F. Ahalt............................................ 3,600(1)
William A. Benton.......................................... 6,962
Elizabeth C. Bogan, Ph.D................................... 23,758
Thomas H. Dinsmore......................................... 35,468(2)
Donald M. Halsted, Jr...................................... 2,489
George R. Lieberman........................................ 3,540
Duncan O. McKee............................................ 4,273
Jane D. O'Keeffe........................................... 10,890(3)
Nicolas W. Platt........................................... 1,193
H. Tucker Lake, Jr......................................... 14,270(4)
Gary I. Levine............................................. 2,495(5)
Germaine M. Ortiz.......................................... 1,575(6)
* Represents for each director and officer less than 1% of the outstanding
shares of the Company. As of December 18, 2003, directors and officers of
the Company beneficially owned in the aggregate 110,513 shares of the
Company representing approximately 0.9% of the outstanding shares. Except
as otherwise indicated, each director and officer possesses sole investment
and voting power with respect to shares beneficially owned.
(1) Includes 1,200 shares owned by his wife as to which shares Mr. Ahalt
disclaims beneficial ownership.
(2) Includes (i) 833 shares held in trust for the benefit of Mr. Dinsmore's
minor children, and (ii) 3,046 shares owned by his wife, as to which shares
Mr. Dinsmore disclaims beneficial ownership.
(3) Includes (i) 1,332 shares held in trust for the benefit of Ms. O'Keeffe's
minor children, and (ii) 666 shares owned by her husband, as to which
shares Ms. O'Keeffe disclaims beneficial ownership.
(4) Includes (i) 11,399 shares as to which Mr. Lake possesses shared investment
and voting power, and (ii) 175 shares held in trust for Mr. Lake's child.
(5) Includes (i) 315 shares as to which Mr. Levine possesses shared investment
and voting power, (ii) 506 shares held in trust for the benefit of Mr.
Levine's minor children, and (iii) 1,674 shares owned by his wife, as to
which shares Mr. Levine disclaims beneficial ownership.
(6) Includes 541 shares as to which Ms. Ortiz possesses shared investment and
voting power.
17
Set forth below is the dollar range of equity securities beneficially
owned(1) in both the Company and Fund Complex by each director and each nominee
for election as a director of the Company as of December 18, 2003.(2)
Aggregate Dollar Range of
Equity Securities in All
Funds Overseen or to be
Dollar Range of Equity Overseen by the Director or
Securities in Nominee
the Company(3) in Fund Complex(4)
---------------------- ---------------------------
Gordon F. Ahalt............ $10,001-$50,000 $50,001-$100,000
William A. Benton.......... $50,001-$100,000 over $100,000
Elizabeth C. Bogan, Ph.D... over $100,000 over $100,000
Thomas H. Dinsmore......... over $100,000 over $100,000
Donald M. Halsted, Jr...... $10,001-$50,000 $50,001-$100,000
George R. Lieberman........ $10,001-$50,000 $50,001-$100,000
Duncan O. McKee............ $10,001-$50,000 $50,001-$100,000
Jane D. O'Keeffe........... $50,001-$100,000 over $100,000
Nicolas W. Platt........... $1-$10,000 $10,001-$50,000
1 Beneficial ownership has been determined based upon the director's or
nominee's direct or indirect pecuniary interest in the equity securities.
2 The dollar ranges are: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000,
or over $100,000.
3 The dollar range of equity securities owned in the Company is based on the
closing price of $7.98 on December 18, 2003 on the American Stock Exchange.
4 The dollar range of equity securities owned in the Fund Complex is based on
the closing price of $7.98 for the Company and $18.84 for Bancroft on
December 18, 2003 on the American Stock Exchange.
Proxy Solicitation
The Company expects to solicit proxies principally by mail. The Company
will pay the cost of soliciting proxies and may reimburse firms and others for
their expenses in forwarding solicitation materials to the beneficial owners of
the Company's shares. Officers of the Company may also solicit proxies by
telephone, facsimile, the Internet or personal interview, and will not receive
any additional compensation for such solicitation.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, Section 30(h) of the
Investment Company Act, and the regulations of the Securities and Exchange
Commission thereunder require the Company's officers and directors and direct or
indirect beneficial owners of more than 10% of the Company's Common Stock, as
well as Davis-Dinsmore, its directors and officers and certain of its other
affiliated persons (collectively, Reporting Persons), to file initial reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Reporting Persons are required to furnish the Company with copies of all Section
16(a) forms they file.
18
Based solely on its review of the copies of such forms received by it and
written representations, the Company believes that all filing requirements
applicable to the Reporting Persons have been complied with during the fiscal
year ended September 30, 2003 except that (i) a Form 5 report covering a 1997
gift of 400 shares by Mrs. Jean Dinsmore (a director of Davis-Dinsmore) to her
grandson was not filed in a timely manner, and (ii) a Form 5 report covering a
1997 gift of 400 shares received by Mrs. Sally Finnican (a director of
Davis-Dinsmore) as indirect beneficial owner of shares held by an UTMA trust for
her son's benefit was not filed in a timely manner.
Shareholder Proposals
If you want us to consider including a shareholder proposal in the
Company's proxy statement for the 2005 annual meeting of shareholders, we must
receive it from you no later than August 26, 2004.
A shareholder may bring other business before the 2005 Annual Meeting of
shareholders if the shareholder: (1) is a shareholder of record at the time of
giving notice to the Company; (2) is a shareholder of record at the time of the
2005 Annual Meeting; (3) is entitled to vote at the 2005 Annual Meeting; and (4)
has complied with the notice procedures in the Company's Bylaws. The notice
procedures require that a shareholder submit the proposal in writing to the
Secretary of the Company no earlier than September 12, 2004 but no later than
October 13, 2004. The notice must include a brief description of the business
desired to be brought before the 2005 Annual Meeting, the reasons for conducting
such business at the 2005 Annual Meeting and any material interest the
shareholder may have in such business. The notice must also include the
shareholder's name and address as they appear on the Company's books (and the
name and address of any beneficial owner on whose behalf the proposal is made),
as well as the number of shares of stock owned beneficially and of record by
such shareholder and beneficial owner.
By order of the Board of Directors,
/s/ THOMAS H. DINSMORE
-------------------------------------
Thomas H. Dinsmore
Chairman of the Board of Directors
December 29, 2003
19
Appendix A
BANCROFT CONVERTIBLE FUND, INC.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
(THE "FUNDS")
AMENDED AND RESTATED
AUDIT COMMITTEES CHARTER
(Effective July 17, 2003)
1. Each member of the Audit Committees shall meet the audit committee
composition requirements for serving on audit committees, and any related
requirements regarding the financial sophistication or financial expertise
of audit committee members, as set forth from time to time in the AMEX
listing standards and in any applicable rules promulgated by the Securities
and Exchange Commission (the "SEC").
2. Each member of the Audit Committees shall be free of any relationship that,
in the opinion of the Boards of Directors of the Funds, would interfere
with his or her individual exercise of independent judgment. Each member of
the Audit Committees also shall meet the director independence requirements
for serving on audit committees as set forth from time to time in the AMEX
listing standards and in any applicable rules promulgated by the SEC and
shall be "independent" from the Funds, as defined in Section 10A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (members
that meet such requirements are referred to herein as the "independent
directors"). In addition, no member shall be an "interested person" of the
Funds, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
3. The purposes of the Audit Committees are:
(a) in their capacity as committees of the Boards of Directors, to be
directly responsible for the appointment (subject to ratification by a
majority of the Boards of Directors of the Funds who are not
"interested persons" of the Funds as defined in the 1940 Act
("disinterested directors")), compensation and oversight of the work
of any independent auditors employed by the Funds (including
resolution of disagreements between management and the auditor
regarding financial reporting) for the purpose of preparing or issuing
an audit report or related work;
(b) to oversee the Funds' accounting and financial reporting policies and
practices, its internal controls and, as appropriate, the internal
controls of certain service providers;
(c) to oversee the quality and objectivity of the Funds' financial
statements and the independent audit thereof;
(d) to the extent required by Section 10A of the Exchange Act, to
preapprove all permissible non-audit services that are provided to the
Funds by their independent auditors; and
(e) to serve as the Funds' qualified legal compliance committee ("QLCC")
within the meaning of Part 205 of the Commission's Rules of Practice -
Standards of Professional Conduct for Attorneys Appearing and
Practicing before the Commission in the Representation of an Issuer
(the "Attorney Conduct Rules").
The function of the Audit Committees is oversight; it is management's
responsibility to maintain appropriate systems for accounting and internal
control, and the independent auditors' responsibility to plan and carry out
a proper audit. The independent auditors shall report directly to the Audit
Committees.
A-1
4. To carry out their purposes, the Audit Committees shall have the following
duties and powers:
(a) to appoint (subject to ratification by a majority of the Boards of
Directors of the Funds who are disinterested directors), compensate,
oversee and, where appropriate, terminate the Funds' independent
auditors and, in connection therewith, to evaluate the independence of
such auditors, including whether such auditors provide any consulting
services to the Funds' investment adviser, and to receive from such
auditors a formal written statement delineating all relationships
between such auditors and the Funds;
(b) to meet with the Funds' independent auditors, including private
meetings, as necessary (i) to review the arrangements for and scope of
the annual audit and any special audits and any audit plans prepared
by the independent auditors for the Funds; (ii) to discuss any matters
of concern relating to the Funds' financial statements, including any
adjustments to such statements recommended by the independent
auditors, or other results of said audit(s); (iii) to consider the
independent auditors' comments with respect to the Funds' financial
policies, procedures and internal accounting controls and management's
responses thereto; and (iv) to review the form of opinion the
independent auditors propose to render to the Boards of Directors and
shareholders;
(c) to receive and review the written disclosures and the letter from the
independent auditors regarding their independence, to discuss with
such auditors their independence, and to consider whether the
provision by such auditors of non-audit services to (i) the Funds,
(ii) their advisor or (iii) any person that controls, is controlled by
or is under common control with such advisor that provides services to
the Funds, is compatible with maintaining such auditors' independence;
(d) to review and discuss audited financial statements contained in annual
and other periodic reports to shareholders with management and the
independent auditors to determine that such auditors are satisfied
with the disclosure and content of the annual financial statements and
the quality of the Funds' accounting principles as applied in their
financial reporting, and also to discuss with management and the
independent auditors the clarity, consistency and completeness of
accounting policies and disclosures;
(e) based upon a review of the items discussed in (c) and (d) above, to
recommend to the Boards of Directors that the Funds' audited financial
statements be included in the Funds' annual reports to shareholders;
(f) to consider the effect upon the Funds of any changes in accounting
principles or practices proposed by management or the independent
auditors and to review information received from management and such
auditors regarding regulatory changes and new accounting
pronouncements that affect net asset value calculations and financial
statement reporting requirements;
(g) to the extent that certifications by officers of the Funds (the
"signing officers") as to the Funds' financial statements or other
financial information are required by applicable law to be included
with or in the Funds' periodic reports filed with the SEC, to receive
from such officers notifications if such certifications are not
included for any reason;
(h) to meet as necessary with counsel to the Funds, counsel to the
disinterested directors of the Funds and, if applicable, independent
counsel or other advisers to the Audit Committees and to review
information provided by all such persons on legal issues
A-2
having the possibility of impacting the financial reporting process,
including items of industry-wide importance and internal issues such
as litigation;
(i) to the extent required by Section 10A of the Exchange Act, to
preapprove all permissible non-audit services that are provided to the
Funds by their independent auditors; provided, however, that such
preapproval may be delegated to one or more members of the Audit
Committees who are both independent directors and disinterested
directors so long as any such member's decision to preapprove is
presented to the full Audit Committees at their next scheduled
meeting;
(j) to review and approve the fees charged by the independent auditors for
audit and permissible non-audit services;
(k) to investigate improprieties or suspected improprieties in fund
operations, including but not limited to receiving and reviewing
disclosures by the Funds' signing officers to the Audit Committees of
(i) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Funds' ability to
record, process, summarize, and report financial data and (ii) any
fraud, whether or not material, that involves management or other
employees who have a significant role in the Funds' internal controls;
(l) to establish procedures for (i) the receipt, retention and treatment
of complaints received by the Funds regarding accounting, internal
accounting controls or auditing matters and (ii) the confidential,
anonymous submission by employees of the Funds (or the Funds'
investment adviser) of concerns regarding questionable accounting or
auditing matters;
(m) to receive and review information provided by management and the
independent auditors regarding the Funds' accounting system and
controls, including but not limited to receiving from the Funds'
independent auditors information concerning (i) all critical
accounting policies and practices to be used, (ii) all alternative
treatments of financial information within generally accepted
accounting principles that have been discussed with management
officials of the Funds, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by such
independent auditors, and (iii) other material written communications
between such independent auditors and the management of the Funds such
as the management letter or schedule of unadjusted differences;
(n) to carry out the responsibilities of a QLCC as set forth in the
Attorney Conduct Rules, and in connection therewith: (i) to adopt
written procedures for the confidential receipt, retention and
consideration of any report of evidence of a material violation of an
applicable United States federal or state securities law, a material
breach of fiduciary duty arising under United States federal or state
law, or a similar material violation of any United States federal or
state law (a "Material Violation"); (ii) to report to the Fund's chief
executive officer any report of evidence of a Material Violation (iii)
to determine whether an investigation is necessary regarding any
report of evidence of a Material Violation by the Fund, its officers,
directors, employees or agents and, if it determines an investigation
is necessary or appropriate, to: (A) notify the full Board of
Directors; (B) initiate an investigation, which may be conducted by
outside attorneys; and (C)retain such additional expert personnel as
the Audit Committee deems necessary; and (iv) at the conclusion of any
such investigation, to: (A) recommend, by majority vote, that the Fund
implement an appropriate response to evidence of a Material Violation;
and (B) inform
A-3
the chief executive officer and the Board of Directors of the results
of any such investigation and the appropriate remedial measures to be
adopted; and (v) acting by majority vote, to take all other
appropriate action, including the authority to notify the Commission
in the event that the Fund fails in any material respect to implement
an appropriate response the Audit Committee has recommended the Fund
to take;
(o) to receive reports of violations and potential violations of the
Funds' Code of Ethics for Principal Financial Officers (the "Code")
from the Funds' Compliance Officer or his/her designee, and determine
whether a violation has occurred;
(p) to inform the disinterested directors of the Funds of any violation of
the Code; and
(q) to report their activities to the full Boards of Directors on a
regular basis and to make such recommendations and/or decisions with
respect to the above and other matters as the Audit Committees may
deem necessary or appropriate.
5. The Audit Committees shall appoint the Funds' independent auditors at an
in-person meeting. If, at any time, the approval by the Audit Committees of
the Funds' independent auditors constitutes an approval of such auditors by
less than a majority of the disinterested directors, such approval shall be
ratified by a majority of the Funds' disinterested directors at the next
regularly scheduled in-person meeting of the Boards of Directors.
6. The Audit Committees shall meet on a regular basis and are empowered to
hold special meetings as circumstances require. The Audit Committees may
meet either on their own or in conjunction with meetings of the full Boards
of Directors. Meetings of the Audit Committees may be held in person or by
conference telephone. Where appropriate, the Audit Committees may take
action by unanimous written consent in lieu of a meeting.
7. The Audit Committees shall regularly meet with the Treasurer of the Funds.
8. The Audit Committees shall prepare the audit committee report that SEC
rules require to be included in the Funds' annual proxy statement.
9. The Audit Committees shall have the resources and authority appropriate to
carry out their duties, including the authority to engage independent
counsel and other advisers, experts or consultants as they deem necessary
to carry out their duties, all at the expense of the appropriate Fund(s).
10. The Funds shall provide for appropriate funding, as determined by the Audit
Committees, in their capacity as committees of the Boards of Directors, for
payment of compensation (i) to the independent auditors employed by the
Funds for the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the Funds and (ii) to any
independent counsel or other advisers employed by the Audit Committees.
11. The Audit Committees shall review this Charter at least annually and
recommend any changes to the full Boards of Directors. This Charter may be
amended only by the Boards of Directors, with the approval of a majority of
the disinterested directors.
12. Each Fund shall maintain and preserve in an easily accessible place a copy
of this Charter and any modification to this Charter.
A-4
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
ANNUAL MEETING TO BE HELD FEBRUARY 14, 2004
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas H. Dinsmore, Gary I. Levine, and
Jane D. O'Keeffe, and each of them, attorneys and proxies with power of
substitution in each, to vote and act on behalf of the undersigned at the annual
meeting of stockholders of Ellsworth Convertible Growth and Income Fund, Inc.
(the "Company") at the Trianon Hotel, 3401 Bay Commons Drive, Bonita Springs,
Florida 34134 on February 14, 2004 at 10:00 a.m., and at all adjournments,
according to the number of shares of Common Stock which the undersigned could
vote if present, upon such subjects as may properly come before the meeting, all
as set forth in the notice of the meeting and the proxy statement furnished
therewith. UNLESS OTHERWISE MARKED ON THE REVERSE HEREOF, THIS PROXY IS GIVEN
WITH AUTHORITY TO VOTE FOR THE DIRECTORS LISTED, FOR THE PROPOSAL TO RATIFY THE
BOARD'S SELECTION OF AUDITORS AND AGAINST THE PROPOSAL TO AMEND THE COMPANY'S
CHARTER.
PLEASE FILL IN, DATE AND SIGN THE PROXY ON THE OTHER SIDE
AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE
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PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE /X/
1. Election as directors of all nominees listed below for the terms specified in
the proxy statement.
Nominees:
/ / FOR ALL NOMINEES / / Gordon F. Ahalt
/ / Elizabeth C. Bogan, Ph.D.
/ / Nicolas W. Platt
/ / WITHHOLD AUTHORITY FOR ALL NOMINEES
/ / FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: /X/
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THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSAL 2 AND "AGAINST"
PROPOSAL 3.
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FOR AGAINST ABSTAIN
2. Proposal to ratify selection of auditors. / / / / / /
FOR AGAINST ABSTAIN
3. Proposal to amend the Company's Charter. / / / / / /
YOUR VOTE IS IMPORTANT TO US. PLEASE FILL IN, DATE AND SIGN YOUR PROXY AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE PROVIDED FOR YOUR CONVENIENCE.
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that / /
changes to the registered name(s) on the account may not be submitted via
this method.
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Signature of Stockholder Date
--------------------------------- ------------------
Signature of Stockholder Date
--------------------------------- ------------------
NOTE: Please sign as name appears hereon. Joint owners each sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such.