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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[_] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Ellsworth Convertible Growth and Income Fund, Inc.
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(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
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ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
65 Madison Avenue, Morristown, New Jersey 07960
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 25, 1996
---------------------
To the Shareholders:
A special meeting of shareholders of Ellsworth Convertible Growth and Income
Fund, Inc. (the "Company") will be held on Wednesday, September 25, 1996 at
11:30 a.m. local time at the Morris County Golf Club, 39 Punchbowl Road,
Convent Station, New Jersey 07961, for the following purposes:
(1) To approve a new Investment Advisory Agreement between the Company
and Davis-Dinsmore Management Company.
(2) To approve a proposed change to the Company's fundamental investment
policy regarding the purchase of securities of foreign issuers.
(3) To approve a proposed change to the Company's fundamental investment
policy imposing a history of operations requirement.
(4) To approve a proposed change to the Company's fundamental investment
policy regarding illiquid and restricted securities.
(5) To approve an amendment to the Amended and Restated Articles of
Incorporation, as amended, of the Company regarding the right of
shareholders to tender their shares to the Company under certain
circumstances.
(6) To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on August 1, 1996 are
entitled to vote at the special meeting and any adjournments. If you attend
the special meeting, you may vote your shares in person. If you do not expect
to attend the special meeting, please fill in, date, sign and return the proxy
in the enclosed envelope which requires no postage if mailed in the United
States.
It is important that you return your signed proxy promptly so that a quorum
may be assured.
August 5, 1996
Ronald E. Dinsmore
Chairman of the Board of Directors
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ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
65 Madison Avenue, Morristown, New Jersey 07960
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PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 25, 1996
---------------------
The accompanying proxy is solicited by the Board of Directors of Ellsworth
Convertible Growth and Income Fund, Inc. (the "Company"), in connection with a
special meeting of shareholders of the Company to be held at the Morris County
Golf Club, 39 Punchbowl Road, Convent Station, New Jersey 07961 on September
25, 1996 (the "Special Meeting"). A shareholder can revoke the proxy prior to
its use by appearing at the Special Meeting and voting in person, by giving
written notice of such revocation to the Secretary of the Company, or by
returning a subsequently dated proxy.
The Company has engaged the services of Shareholder Communications
Corporation ("SCC") to assist it in the solicitation of proxies for the
Special Meeting. The cost of soliciting proxies will be borne by the Company,
and is estimated to be approximately $25,000. The Company expects to solicit
proxies principally by mail, but the Company or SCC may also solicit proxies
by telephone or personal interview. The Company may also pay persons holding
stock in their names, or those of their nominees, for their expenses in
sending proxies and proxy materials to beneficial owners or principals.
The Board of Directors has named Thomas H. Dinsmore, President, Jane D.
O'Keeffe, Executive Vice President, and Sigmund Levine, Senior Vice President
and Secretary, of the Company, as proxies. Unless specific instructions are
given to the contrary in the accompanying proxy, the proxies will vote FOR the
approval of the Investment Advisory Agreement, FOR each of the proposals to
change certain fundamental investment policies of the Company, and FOR the
proposal to amend the Company's Amended and Restated Articles of
Incorporation, as amended (the "Charter"). Abstentions received and broker
non-votes with respect to any proposal will be counted for purposes of
determining whether a quorum is present at the Special Meeting. Abstentions
and broker non-votes do not count as votes received but have the same effect
as casting a vote against proposals that require the vote of a majority of the
shares present at the Special Meeting, provided a quorum exists.
The Board of Directors currently knows of no other matters to be presented
to the Special Meeting. If any other matters properly come before the Special
Meeting, the proxies will vote in accordance with their best judgment. The
proxies may propose to adjourn the meeting to permit further solicitation of
proxies. Any such adjournment will require the affirmative vote of a majority
of the shares present in person or by proxy at the meeting. The proxies will
vote in favor of adjournment those proxies which instruct them to vote in
favor of any of the proposals to be considered at the adjourned meeting, and
will vote against adjournment those proxies which instruct them to vote
against or to abstain from voting on all of the proposals to be considered at
the adjourned meeting. Shareholders will be notified of any adjournment that
is later than November 29, 1996.
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Shareholders of record at the close of business on August 1, 1996 (the
"Record Date") will be entitled to one vote per share on all business of the
Special Meeting. The Company had 6,643,517 shares of its Common Stock
outstanding on the Record Date. It is expected that this proxy statement and
the accompanying proxy will be first sent to shareholders on or about August
5, 1996. Upon the request of any shareholder, the Company will furnish,
without charge, a copy of the Company's annual report for the fiscal year
ended September 30, 1995, together with the Company's semi-annual report for
the six months ended March 31, 1996. All such requests should be directed to
SCC at 1-800-733-8481 ext. 485.
The favorable vote of the holders of a "majority of the outstanding voting
securities" of the Company, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act") is required to approve the new Investment Advisory
Agreement for the Company (Proposal 1) and each of the proposed changes to the
Company's fundamental investment policies (Proposals 2, 3, and 4). The 1940
Act defines a "majority of the outstanding voting securities" of the Company
to mean the lesser of (a) the vote of holders of 67% or more of the shares of
Common Stock of the Company present in person or by proxy at the Special
Meeting, if the holders of more than 50% of the outstanding voting shares of
the Company are present in person or by proxy, or (b) the vote of the holders
of more than 50% of the outstanding Common Stock of the Company.
The favorable vote of the holders of two-thirds of the outstanding Common
Stock of the Company is required to approve the proposed amendment to the
Company's Charter (Proposal 5).
PROPOSAL 1 --
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
INTRODUCTION
Shareholders are being asked to approve an Investment Advisory Agreement,
described below (the "New Advisory Agreement"), that has no changes in terms
and conditions, no changes in fees and no changes in the way the Company is
managed, advised or operated. The necessity for obtaining shareholder approval
of the New Advisory Agreement arises because of the technical requirements of
the 1940 Act that apply to the transactions described below under "Change in
Ownership of Davis-Dinsmore". As discussed under that caption, there have been
no changes in the operation of Davis-Dinsmore Management Company ("Davis-
Dinsmore"), the Company's investment advisor, which resulted from such
transactions.
The New Advisory Agreement will become effective upon its approval by the
Company's shareholders.
Davis-Dinsmore has served as investment advisor to the Company since June
18, 1986, pursuant to an Investment Advisory Agreement (the "Prior Advisory
Agreement") dated June 18, 1986 with the Company. Public shareholders of the
Company approved the Prior Advisory Agreement on January 23, 1987, the first
annual meeting of shareholders following completion of the initial public
offering of the Company's Common Stock. On October 26, 1995, the Board of
Directors of the Company, including a majority of the directors who are not
interested persons of the Company or
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Davis-Dinsmore (the "Independent Directors"), voted to continue the Prior
Advisory Agreement for an additional year. As of such date, two of the
Company's directors owned shares of Davis-Dinsmore's outstanding voting Common
Stock: Mr. Ronald Dinsmore (85% of such stock); and Mr. Thomas Dinsmore (10%
of such stock).
As described more fully below, on July , 1996, Mr. Ronald Dinsmore
transferred ownership of his shares of Common Stock of Davis-Dinsmore to
certain family members and to a marital trust (the "Transaction"). Since Mr.
Ronald Dinsmore owned at the time of such transfer more than 25% of the
outstanding voting shares of Common Stock of Davis-Dinsmore, the Transaction
resulted in an "assignment" of the Prior Advisory Agreement under the 1940
Act. The Prior Advisory Agreement terminated automatically upon its assignment
as required by the 1940 Act. At a meeting held on June 5, 1996, the Board of
Directors of the Company, including a majority of the Independent Directors,
approved an interim investment advisory agreement (the "Interim Advisory
Agreement") in accordance with Rule 15a-4 under the 1940 Act, which agreement
became effective as of the date of the Transaction. The terms of the Interim
Advisory Agreement are identical to those of the Prior Advisory Agreement,
although the Interim Advisory Agreement automatically terminates upon the
earlier of (1) 120 days after its effective date (or November , 1996) and (2)
shareholder approval of the New Advisory Agreement. Accordingly, the Company
is submitting the New Advisory Agreement to shareholders for their approval.
In the event shareholders do not approve the New Advisory Agreement, the Board
of Directors will be required to approve, subject to shareholder approval,
another advisory agreement for the Company.
On June 5 and August 1, 1996, the Board of Directors of the Company,
including a majority of the Independent Directors, approved, subject to
shareholder approval, the New Advisory Agreement. A copy of the New Advisory
Agreement is attached hereto as Exhibit A. The provisions of the Prior
Advisory Agreement and the New Advisory Agreement are identical. A description
of both such agreements (collectively, the "Advisory Agreements") is provided
below under "Terms of the Advisory Agreements". Such description is only a
summary and is qualified by reference to the attached Exhibit.
CHANGE IN OWNERSHIP OF DAVIS-DINSMORE
Mr. Ronald Dinsmore and Mr. Bancroft G. Davis (now deceased) formed Davis-
Dinsmore in 1970 to serve as the investment advisor to Bancroft Convertible
Fund, Inc. ("Bancroft"), a closed-end management investment company whose
shares are traded on the American Stock Exchange. Mr. Ronald Dinsmore and Mr.
Davis each owned 50% of Davis-Dinsmore's outstanding voting stock until the
death of Mr. Davis in 1981. Upon Mr. Davis' death, Davis-Dinsmore repurchased
the shares of Davis-Dinsmore then owned by Mr. Davis' estate. From 1981 until
1993, Mr. Ronald Dinsmore was the sole owner of Davis-Dinsmore. In each of
1993 and 1994, Mr. Ronald Dinsmore gave 5% of the outstanding voting stock of
Davis-Dinsmore to his son, Thomas H. Dinsmore. In 1995, Mr. Ronald Dinsmore
gave 2.4%, and in 1996, gave 2.6%, of the outstanding voting stock to Mr.
Thomas Dinsmore. In 1994, Mr. Ronald Dinsmore gave 5% of the outstanding
voting stock to a daughter, Jane D. O'Keeffe. In 1995, Mr. Ronald Dinsmore
gave 2.4%, and in 1996, gave 2.6%, of the outstanding voting stock to Ms.
O'Keeffe. Such gifts were made in recognition of past services rendered by Mr.
Thomas Dinsmore and Ms. O'Keeffe to Davis-Dinsmore and services to be provided
by such individuals to Davis-Dinsmore in the future. Mr. Thomas Dinsmore has
been President of Davis-Dinsmore since
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August 1988 and has been a director of Davis-Dinsmore since April 1994. Ms.
O'Keeffe has served as the Executive Vice President of Davis-Dinsmore since
April 1994 and has been a director of Davis-Dinsmore since July 1996.
On June 28, 1996, the Board of Directors of Davis-Dinsmore declared and paid
a stock dividend of one share of non-voting Common Stock ("Class B Shares")
for every share of voting Common Stock ("Class A Shares") outstanding. As a
result of such stock dividend, as of June 30, 1996, Mr. Ronald Dinsmore owned
75% of the outstanding Class A Shares and 75% of the outstanding Class B
Shares, Mr. Thomas Dinsmore owned 15% of the outstanding Class A Shares and
15% of the outstanding Class B Shares, and Ms. O'Keeffe owned 10% of the
outstanding Class A Shares and 10% of the outstanding Class B Shares.
Pursuant to the Transaction, Mr. Ronald Dinsmore gave 68% of the remaining
Class A Shares he owned to Mr. Thomas Dinsmore and to Ms. O'Keeffe, and
transferred the balance of the Class A Shares (representing 24% of the
outstanding Class A Shares) and all Class B Shares he owned to a marital
trust, the trustees of which are Mrs. Jean Dinsmore (Mr. Ronald Dinsmore's
wife), Mr. Thomas Dinsmore and Ms. O'Keeffe. Upon the death of Mrs. Jean
Dinsmore, the Class A Shares held by the marital trust will be given to Mr.
Thomas Dinsmore and Ms. O'Keeffe, two-thirds of the Class B Shares held by the
marital trust will be given to Ms. Sally Finnican, a daughter of Mr. and Mrs.
Ronald Dinsmore, and the remaining Class B Shares will be given equally to Mr.
Thomas Dinsmore and Ms. O'Keeffe.
As a result of the Transaction, Mr. Thomas Dinsmore now owns 40.5% of the
outstanding Class A Shares and 15% of the outstanding Class B Shares; Ms.
O'Keeffe owns 35.5% of the outstanding Class A Shares and 10% of the
outstanding Class B Shares, and the marital trust owns 24% of the outstanding
Class A Shares and 75% of the outstanding Class B Shares.
Mr. Ronald Dinsmore remains a director and Chairman of Davis-Dinsmore. The
Board of Directors of Davis-Dinsmore was increased from three to four
directors in July 1996. Such directors are Mr. Ronald Dinsmore, Mrs. Jean
Dinsmore, Mr. Thomas Dinsmore and Ms. O'Keeffe. Ms. O'Keeffe was elected to
fill the vacancy created by the increase in such board. Mr. Thomas Dinsmore,
Ms. O'Keeffe and the marital trust have entered into an agreement pursuant to
which they have agreed for the next ten years to vote the Class A Shares they
own in favor of Mr. Ronald Dinsmore and Mrs. Jean Dinsmore as directors of
Davis-Dinsmore.
Davis-Dinsmore has represented to the Board of Directors of the Company that
it does not contemplate any changes to the management or operation of Davis-
Dinsmore relating to the Company, the personnel managing the Company or other
services to, or business activities with respect to, the Company as a result
of the Transaction. Davis-Dinsmore does not expect the Transaction to result
in changes in the business, corporate structure, financial condition or senior
management or personnel of Davis-Dinsmore or in the manner in which Davis-
Dinsmore renders services to the Company, although changes in the ordinary
course of business may occur.
BOARD OF DIRECTORS EVALUATION
The Board of Directors of the Company, including a majority of the
Independent Directors, has determined that by approving the New Advisory
Agreement on behalf of the Company, the Company
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can best assure itself that the services currently provided by Davis-Dinsmore
will continue after the Transaction without interruption or change. The Board
of Directors has determined that, as with the Prior Advisory Agreement, the New
Advisory Agreement will enable the Company to continue to obtain services of
high quality at a cost deemed appropriate, reasonable and in the best interest
of the Company and its shareholders.
In evaluating the New Advisory Agreement, the Board of Directors of the
Company took into account that there are no differences between the terms and
conditions of the Company's Prior Advisory Agreement and the New Advisory
Agreement, including the terms relating to the services to be provided by
Davis-Dinsmore and the fees and expenses payable by the Company.
The Board of Directors also considered the terms of the Transaction,
including the possible effects of the Transaction upon Davis-Dinsmore and upon
the ability of Davis-Dinsmore to provide advisory services to the Company. The
Board of Directors also considered the effect on the continuing management of
Davis-Dinsmore of its ownership in Davis-Dinsmore.
Based upon its review, the Board of Directors of the Company concluded that
the New Advisory Agreement is in the best interest of the Company and the
Company's shareholders. The Board also concluded that as a consequence of the
Transaction, the operations of Davis-Dinsmore and its ability to provide
services to the Company would not be diminished. Accordingly, after considering
the factors they deemed relevant, the Board of Directors of the Company,
including a majority of the Independent Directors, approved the New Advisory
Agreement to take effect upon receipt of shareholder approval and voted to
recommend its approval to the shareholders of the Company.
As of the dates on which the Board of Directors evaluated the New Advisory
Agreement, three of the Company's eight directors owned Class A Shares of
Davis-Dinsmore: Mr. Ronald Dinsmore (75% of Class A Shares); Mr. Thomas
Dinsmore (15% of Class A Shares); and Ms. O'Keeffe (10% of Class A Shares).
TERMS OF THE ADVISORY AGREEMENTS
Under the Advisory Agreements, Davis-Dinsmore furnishes the Company with
investment information and advice and makes recommendations with respect to the
purchase and sale of investments based upon the Company's investment policies.
Although the Company's investment decisions are based in large measure upon
recommendations of Davis-Dinsmore, the Company's officers have sole
responsibility for investment decisions, subject to the control of the Board of
Directors.
Davis-Dinsmore pays for the Company's office space and facilities and the
salaries of the Company's executive officers and furnishes clerical,
bookkeeping and statistical services to the Company. Under the Advisory
Agreements, the Company reimburses Davis-Dinsmore for all of the costs
associated with certain personnel and non-personnel expenses of the office of
the Treasurer, up to a maximum of $25,000 per year. The Company pays all of its
expenses not assumed by Davis-Dinsmore, including expenses in connection with
the offering of its securities, fees and expenses of unaffiliated directors,
salaries of any employees other than executive officers, taxes, fees and
commissions of all types, fees of its custodian, registrar, transfer agent and
dividend disbursing agent and interest, brokerage commissions, legal and
accounting expenses and the like. The Company is
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required to pay or reimburse Davis-Dinsmore for the direct costs of postage,
printing, copying and travel expenses attributable to the conduct of the
business of the Company. In fiscal 1995, the Company reimbursed Davis-Dinsmore
$684 for such expenses.
The Advisory Agreements provide for a monthly fee to Davis-Dinsmore computed
at an annual rate of 3/4 of 1% of the first $100,000,000 of net assets and 1/2
of 1% of the excess over $100,000,000. An advisory fee of .75% is higher than
that paid by many other open-end and closed-end investment companies. Of the
three other comparable closed-end convertible funds, the fee paid by the
Company is approximately the same as two and slightly higher than the third.
The Advisory Agreements provide that the annual fee payable by the Company to
Davis-Dinsmore shall be reduced to the extent that the Company's ordinary
expenses for the year (including the advisory fee, but excluding interest,
local, state and Federal taxes and extraordinary expenses as determined by a
majority of the Company's directors who are not interested persons of the
Company or Davis-Dinsmore) exceed 1.5% of the first $100,000,000, and 1% of the
excess over $100,000,000, of the average of the monthly net asset values for
the twelve months of each fiscal year. For the Company's fiscal year ended
September 30, 1995, the Company paid Davis-Dinsmore $474,860 for advisory fees
and reimbursed Davis-Dinsmore $25,000 for expenses associated with the
Treasurer's Office. The Company did not exceed the Expense Limitations during
the last fiscal year.
The Advisory Agreements may be terminated without penalty either by the
Company, by the action of the shareholders or Board of Directors, or Davis-
Dinsmore on 60 days written notice and will terminate automatically in the
event of any assignment, as defined by the 1940 Act. The Advisory Agreements
continue from year to year so long as their continuance is specifically
approved at least annually either (i) by the Board of Directors of the Company
or (ii) by the vote of a majority of the Company's outstanding voting
securities, as defined by the 1940 Act, provided that in either event the
continuance is also approved by the vote of a majority of the directors of the
Company who are not interested persons of the Company or of Davis-Dinsmore,
cast in person at a meeting called for the purpose of voting on such approval.
INFORMATION CONCERNING DAVIS-DINSMORE
Davis-Dinsmore was organized in 1970, and advises the Company and Bancroft.
As of July 26, 1996, total assets of the Company were approximately , and
total assets of Bancroft were approximately . The advisory agreement between
Bancroft and Davis-Dinsmore (the "Bancroft Advisory Agreement") provides for a
monthly fee to Davis-Dinsmore computed at an annual rate of 3/4 of 1% of the
first $100,000,000 of net assets and 1/2 of 1% of the excess over $100,000,000.
The Bancroft Advisory Agreement provides that the annual fee payable by
Bancroft to Davis-Dinsmore shall be reduced to the extent that Bancroft's
ordinary expenses for the year (including the advisory fee, but excluding
extraordinary items, interest and local, state and Federal taxes) exceed 1.5%
of the first $100,000,000 of the average of the monthly net asset values for
the twelve months of each year and 1% of the excess over $100,000,000 of the
average of the monthly net asset values. What constitutes an "extraordinary
item" rather than an ordinary expense is conclusively determined by the
independent directors of Bancroft (directors who are not interested persons of
Bancroft or Davis-Dinsmore) and does not involve the participation of
Bancroft's auditors.
Davis-Dinsmore pays for Bancroft's office space and facilities and the
salaries of Bancroft's officers. Under the Bancroft Advisory Agreement, all of
the costs associated with personnel and
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certain non-personnel expenses of the office of the Treasurer, up to a maximum
of $50,000 a year, are reimbursed by Bancroft. Davis-Dinsmore is currently
voluntarily waiving its right to be reimbursed to the extent such expenses of
the office of the Treasurer exceed $25,000 a year. Such waiver may be revoked
by Davis-Dinsmore at any time. Bancroft pays all of its expenses not assumed by
Davis-Dinsmore including expenses in connection with the offering of its
securities, fees and expenses of unaffiliated directors, taxes, fees and
commissions of all types, fees of its custodian, registrar, transfer agent and
dividend disbursing agent, and interest, brokerage commissions, legal and
accounting expenses and the like. Bancroft is required to pay or reimburse
Davis-Dinsmore for the direct costs of postage, printing, copying and travel
expenses attributable to the conduct of the business of Bancroft. For
Bancroft's fiscal year ended October 30, 1995, Bancroft paid Davis-Dinsmore
$504,164 for advisory fees, and reimbursed Davis-Dinsmore $25,000 for expenses
associated with the Treasurer's office and $724 for expenses associated with
postage, printing, copying and travel expenses attributable to the conduct of
the business of Bancroft.
Davis-Dinsmore's offices are located at 65 Madison Avenue, Morristown, New
Jersey 07960. The directors of Davis-Dinsmore are Mr. Ronald E. Dinsmore, Mr.
Thomas H. Dinsmore, Mrs. Jean Dinsmore and Ms. Jane O'Keeffe. Mr. Ronald
Dinsmore is Chairman of each of Davis-Dinsmore, the Company and Bancroft. Mr.
Thomas Dinsmore is President and Senior Analyst of Davis-Dinsmore, and is a
director and President of each of the Company and Bancroft. Mrs. Jean Dinsmore
is a former Republican committeewoman for the State of New Jersey. Ms. Jane
O'Keeffe is Executive Vice President of Davis-Dinsmore and is a director and
Executive Vice President of each of the Company and Bancroft. All of such
persons can be reached c/o Davis-Dinsmore, 65 Madison Avenue, Morristown, New
Jersey 07960. Certain officers of Davis-Dinsmore are also officers of the
Company. The names, principal occupations and affiliations of the executive
officers of the Company are shown below under "General Information--Directors
and Executive Officers of the Company".
Davis-Dinsmore is a privately held corporation. See "Change of Ownership of
Davis-Dinsmore".
RECOMMENDATION OF DIRECTORS
The Board of Directors recommends that you vote FOR the approval of the New
Investment Advisory Agreement.
BACKGROUND TO CONSIDERATION OF PROPOSALS TO CHANGE
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
The Company invests primarily in convertible securities with the objective of
providing a high level of total return on its assets through a combination of
current income and capital appreciation. The markets for and the features of
convertible securities have changed dramatically in recent years. In the first
half of 1996, in response to these changes, management of the Company undertook
a comprehensive review of the Company's fundamental investment policies.
The Company's fundamental investment policies limit the investment practices
of the Company. All of these investment policies have been in effect since the
organization of the Company in 1986. Management of the Company believes that
certain of the Company's fundamental investment policies unduly restrict the
types of convertible securities issues that the Company may purchase. As a
result,
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the Company may have fewer investment options available to it and may be forced
to acquire securities that management believes are less attractive in terms of
risk and return than are newer types of instruments currently offered in the
market. Accordingly, on June 5, 1996, the Board of Directors of the Company
unanimously approved three proposals to change certain of the Company's
fundamental investment policies to enable the Company to participate fully in
convertible securities issues being offered in today's markets and to engage in
certain trading practices. If any proposal is approved, the applicable change
discussed below to the Company's fundamental investment policy will become
effective immediately.
The Board of Directors believes that the proposed changes to the Company's
fundamental investment policies are in the best interests of the Company and
its shareholders.
The Board of Directors recommends that you vote FOR each of the proposals to
change certain fundamental investment policies of the Company.
PROPOSAL 2 --
APPROVAL OF A CHANGE TO THE COMPANY'S
FUNDAMENTAL INVESTMENT POLICY REGARDING FOREIGN INVESTMENTS
INTRODUCTION. The Board of Directors proposes to change the Company's
fundamental investment policy which limits investment in securities of foreign
issuers to permit the purchase of U.S. dollar-denominated securities
convertible into American Depositary Receipts.
CURRENT POLICY. The Company's current fundamental investment policy provides
that the Company will not:
invest more than 10% of its total assets, taken at market value, in the
securities of foreign issuers, except that this limitation shall not apply
to securities convertible or exchangeable into common stock of U.S.
companies.
PROPOSED CHANGE. The Board of Directors proposes to modify this investment
policy to provide that the Company will not:
invest more than 10% of its total assets, taken at market value, in the
securities of foreign issuers, except that this limitation shall not apply
to (a) securities convertible into or exchangeable for common stock of U.S.
companies, or (b) U.S. dollar-denominated securities convertible into or
exchangeable for American Depositary Receipts that at the time of purchase
(i) are listed on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market, or (ii) the underlying issuers of which met
the then prevailing earnings requirement for listing on the New York Stock
Exchange and also file Form 20-F (or comparable form) with the Securities
and Exchange Commission.
REASONS FOR PROPOSED CHANGE. Historically, financial statements of foreign
issuers have not been prepared in accordance with generally accepted accounting
principles ("GAAP") that are applicable to issuers in the United States. The
Company consequently has frequently limited its investment in the securities of
such issuers when it has been unable to obtain financial information about such
issuers that is comparable to financial information provided by domestic
issuers.
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Many foreign corporations whose stocks are listed on their home country's
exchanges are traded in the U.S. markets as American Depositary Receipts
("ADRs"). These companies have increasingly issued dollar-denominated
securities that are convertible into ADRs. ADRs are certificates representing
an ownership interest in a security or a pool of securities issued by a foreign
issuer and deposited with the depositary, typically a bank, and held in trust
for the investor. The financial information provided with respect to ADRs that
are listed on the New York Stock Exchange ("NYSE"), the American Stock Exchange
(the "AMEX"), or the Nasdaq National Market ("Nasdaq") is reconciled with
United States GAAP accounting. Companies reconcile such financial statements on
a Form 20-F that is filed with the Securities and Exchange Commission (the
"Commission"). Accordingly, management believes that the limitation on the
purchase of securities of foreign issuers should not extend to U.S. dollar-
denominated securities that are convertible into ADRs that are listed on the
NYSE, the AMEX or Nasdaq, or to foreign companies that meet the earnings
requirements for listing on the NYSE provided that such issuers file a Form 20-
F with the Commission. Permitting the Company to invest in such securities
would enhance investment opportunities for the Company.
Investments by the Company in securities convertible into ADRs may entail
certain risks. The economies of many of the countries in which the issuer of a
security convertible into an ADR principally engages in business may not be as
developed as the United States' economy and may be subject to significantly
different forces. Political or social instability, expropriation or
confiscatory taxation, and limitations on the removal of funds or other assets
could adversely affect the value of the Company's investments in such
securities. The value of ADRs that underlie a convertible security could
fluctuate as exchange rates change between U.S. dollars and the currency of the
country in which the foreign company is located.
Foreign companies are not registered with the Commission and are generally
not subject to the regulatory controls imposed on United States issuers and, as
a consequence, there is generally less publicly available information about
foreign companies than is available about domestic companies. Foreign companies
are not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to
domestic companies.
PROPOSAL 3 --
APPROVAL OF A CHANGE TO THE COMPANY'S
FUNDAMENTAL INVESTMENT POLICY IMPOSING
A HISTORY OF OPERATIONS REQUIREMENT
INTRODUCTION. The Board of Directors proposes to change the Company's
fundamental investment policy which imposes a history of operations requirement
on investments by the Company to apply such requirement to either the issuer or
a guarantor of securities.
CURRENT POLICY. The Company's current fundamental investment policy provides
that the Company will not:
invest more than 5% of its total assets, taken at market value, in
securities of issuers having a record, together with predecessors, of less
than three years of continuous operation.
9
<PAGE>
PROPOSED CHANGE. The Board of Directors proposes to modify this investment
policy to provide that the Company will not:
(a) purchase securities (i) of companies which, with their predecessors, or
(ii) which are guaranteed by companies which, with their predecessors, have
a record of less than three years' continuous operations, if such purchase
would cause more than 5% of the market value of the Company's total assets
to be invested in the securities of such companies, or (b) invest in more
than 10% of the outstanding voting securities of any one issuer. This
restriction does not apply to Government Securities.
REASONS FOR PROPOSED CHANGE. The proposed amendment clarifies that the
Company may look either to the issuer or the guarantor of securities to satisfy
the Company's history of operations requirement. For example, over the past
several years, many large corporations have formed wholly-owned finance
subsidiaries to fund capital requirements. These subsidiaries often issue
convertible securities which are guaranteed by the parent corporation. In many
instances, the subsidiary has had less than three years of operations at the
time it issues its securities. In determining whether to invest in such
security, management of the Company will analyze the creditworthiness of both
the issuer subsidiary and the parent corporation providing the guaranty. The
same analysis would apply with respect to securities that are guaranteed by an
unrelated guarantor. The Board of Directors accordingly believes that it would
be appropriate for management to look either to the issuer or the guarantor to
satisfy the history of operations requirement.
PROPOSAL 4 --
APPROVAL OF A CHANGE TO THE COMPANY'S
FUNDAMENTAL INVESTMENT POLICY REGARDING
PURCHASE OF ILLIQUID AND RESTRICTED SECURITIES
INTRODUCTION. The Board of Directors proposes to change the Company's
fundamental investment policy regarding the purchase of illiquid and restricted
securities.
CURRENT POLICY. The Company's current fundamental investment policy provides
that the Company will not:
invest more than 10% of its total assets, taken at market value, in
restricted securities, including any restricted fixed-income security or
any restricted common stock acquired upon conversion or exchange of other
securities held by the Company.
PROPOSED CHANGE. The Board of Directors proposes to eliminate this investment
policy. The Company will instead have a nonfundamental investment policy which
provides that the Company may not purchase the securities of an issuer if,
after giving effect to such purchase, more than 20% of its net assets would be
invested in illiquid securities.
REASONS FOR PROPOSED CHANGE. Historically, investment companies limited their
purchase of securities that were sold in private placements. Such securities
were not registered under federal and state securities laws and could not be
sold without registration under the securities laws or were otherwise subject
to restrictions on resale. These securities are generally referred to as
"restricted securities".
10
<PAGE>
During the past decade, however, the market for privately placed securities
has evolved dramatically. The primary participants in this market are
institutions, including investment companies such as the Company. The evolution
of this market has in part resulted from the adoption by the Commission of Rule
144A under the Securities Act of 1933, as amended, which provides a
registration exemption to qualified institutional buyers (such as the Company)
upon the resale of privately placed (restricted) securities, provided the
conditions set forth in such rule are satisfied. As a result of the adoption of
such rule, many companies are financing their capital needs through the
issuance of privately placed securities which are eligible for resale under
Rule 144A ("Rule 144A Securities") (many of which are convertible securities)
and an institutional trading market has developed for such securities.
Because of this market evolution, management of the Company believes that the
correct focus by the Company when it seeks to purchase a restricted security
(including a Rule 144A Security) should be whether the security is liquid (that
is, whether it can be disposed of within seven days at the price at which it is
valued), and not whether it is restricted. The Company's investment policy
currently focuses on whether a security is restricted and does not take into
account liquidity, and therefore prevents the Company from investing in many
convertible securities issues which are being offered in today's market.
The Board of Directors believes that the Company should have the ability to
purchase the full range of convertible securities that are available in today's
market. If the shareholders approve the proposed change to the Company's
investment policy, the Company will be able to purchase restricted securities
provided that (1) the Board of Directors has determined that such securities
are liquid, or (2) if such security is illiquid, after giving effect to such
purchase, not more than 20% of the Company's net assets would be invested in
illiquid securities.
The proposed change will not affect the Company's fundamental investment
policy that generally prohibits it from acting as an underwriter of securities
of other issuers. It will make non-fundamental, however, the Company's
investment policy regarding the purchase of illiquid securities and will
increase to 20% the value of the Company's net assets that may be invested in
illiquid securities. Increasing the percentage of the Company's net assets that
may be invested in illiquid securities may present additional risk to the
Company as it may be more difficult for the Company to dispose of an illiquid
security when management believes it is advantageous to do so. Because this
policy is nonfundamental, it could be changed in the future by the Board of
Directors without shareholder approval in response to regulatory or market
developments.
In determining whether a Rule 144A Security or other restricted security
purchased in a private placement is liquid, the Board of Directors is
responsible for taking into account such factors as the frequency of trades and
quotes for the security, the number of dealers willing to purchase or sell the
security and the number of other potential purchasers, dealer undertakings to
make a market in the security and the nature of the security and the nature of
the marketplace trades (for example, the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer). The
Board of Directors intends to establish guidelines for Davis-Dinsmore to follow
in determining the liquidity of each Rule 144A Security and other privately
placed securities purchased by the Company, subject to the oversight and review
by the Board of Directors.
11
<PAGE>
PROPOSAL 5 --
APPROVAL OF AMENDMENT TO THE COMPANY'S CHARTER
INTRODUCTION
Article IX of the Company's Charter provides:
Commencing with the fiscal year of the Corporation which begins on October
1, 1991, and in each fiscal year thereafter, if (i) the Corporation has not
adopted for said fiscal year the amendment described in this Article, and
(ii) shares of the Corporation's common stock have traded on the principal
securities exchange where listed at an average discount from net asset
value of more than 5%, determined on the basis of the discount as of the
end of the last trading day in each week during the period of 12 calendar
weeks next preceding November 15 in each year, the Corporation will submit
to its stockholders at the next succeeding annual meeting of stockholders a
proposal, to the extent consistent with the Investment Company Act of 1940,
to amend the Charter of the Corporation to provide that, upon the adoption
of such amendment by the holders of two-thirds of the Corporation's
outstanding shares of common stock, each share of the Corporation's common
stock may be presented to the Corporation as of the last trading day of
each fiscal quarter, upon written notice delivered to the Corporation's
transfer agent not less than 30 days prior thereto, for payment to the
holder at net asset value per share at the close of business on the date of
presentment.
At a meeting of the Board of Directors held on June 5, 1996, as more fully
discussed below, the directors determined that it was desirable to eliminate
the provisions of this Article from the Company's Charter. As a result, the
Company's Board of Directors adopted, subject to shareholder approval, an
amendment to the Company's Charter (the "Charter Amendment") that would delete
the text of Article IX. At the Special Meeting, the following resolution will
be submitted to a vote of shareholders:
RESOLVED, that the Charter of the Company be and it hereby is amended by
deleting the text of Article IX in its entirety and replacing it with the
phrase "Intentionally Omitted".
REASONS FOR CHARTER AMENDMENT
LONG-TERM INTERESTS OF SHAREHOLDERS. Shares of closed-end investment
companies frequently trade at market prices which reflect a discount to the
shares' underlying net asset value. The Company included the provisions of
Article IX in its Charter in 1986 in conformity with the prevailing view at
such time that the existence of such provisions would minimize the extent to
which the Company's shares traded at a discount to their net asset value and
thus would make the shares a more attractive investment option to investors.
The Company believes that such provision has not reduced the market discount
for the Company's shares. During the past five calendar years, the market
discount has averaged 11.52%. During the same time period, closed-end
convertible funds have traded at an average discount of 8.40%. The Company also
believes that the market discount makes the Company attractive to investors. As
a result, the Board of Directors has concluded that the future of the Company
should not be tied to whether the Company's shares have traded at a discount to
net asset value. Instead, the Company's future should be based on its success
in meeting its investment objective.
The Company was established as a vehicle for long-term investment through
participation in a professionally managed portfolio of convertible bonds and
preferred stocks. The Company's
12
<PAGE>
investment objective is to seek a high level of total return on its assets
through a combination of current income and capital appreciation. The Board of
Directors believes that the Company has succeeded in its objective. During the
period beginning as of the commencement of the Company's operations in July
1986 through September 30, 1995, the net asset value per share of the Company,
with dividends and capital gains reinvested at net asset value, increased by
130.5%. For the fiscal year ended September 30, 1995, the Company's net asset
value per share increased 21.9%, and for the twelve months ended March 31,
1996, the Company's net asset value per share increased 24.56%.
For the twelve months ended March 31, 1996, the Company's shareholders
received distributions from investment income and capital gains of 77 cents per
share, equalling approximately 7.95% based on the Company's net asset value and
approximately 9.19% based on the Company's market price, both as of March 31,
1995. Although past performance is no guarantee of future performance, based on
the Company's performance, the Board of Directors expects that the Company will
continue to serve as an appropriate investment vehicle for its shareholders by
providing a high level of total return on its assets through a combination of
current income and capital appreciation.
The Board of Directors believes that since the Company was formed in 1986,
investors in closed-end investment companies have become accustomed to market
discounts and have taken advantage of the opportunities such discounts present.
As noted above, during the past five calendar years, the Company has traded at
an average discount to net asset value of 11.52%. Investors who purchased
shares of the Company for this period received a return on $123.38 of assets
for every $100 they invested.
The Board of Directors of the Company believes that implementation of the
provisions of Article IX could threaten the viability of the Company and thus
is not in the best interests of the Company and its shareholders. In reaching
such decision, the Directors took into account the effect that mandatory
repurchases by the Company of its shares ("share repurchases") would have on:
the discount of the Common Stock's market price from net asset value; the
continued listing of the Common Stock by the American Stock Exchange (the
Exchange will consider delisting if the aggregate market value of the Company's
outstanding shares is less than $1,000,000, the number of publicly held shares
falls below 200,000 or the number of round-lot holders falls below 300); the
Company's expense ratio, since share repurchases would result in the allocation
of the Company's fixed expenses over a smaller base of assets; the Company's
ability to achieve its investment objective and the Company's investment
performance; and the Company's status as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code").
At this time, the Company would be required to liquidate portfolio securities
to fund any share repurchases since it has limited ability to borrow. In
liquidating securities, the Company would incur transaction costs. If the
Company were required to liquidate a significant portion of its portfolio, it
would have lesser bargaining power in disposing its securities. The transaction
costs and the possible lower prices received would likely reduce the net asset
value, and, therefore, the net proceeds distributed to tendering shareholders.
In addition, as a result of share repurchases, the Board of Directors may be
required to recommend the liquidation, merger or other reorganization of the
Company.
If, as a result of share repurchases, the Company did not qualify as a
regulated investment company under the Code, the Company's income would be
taxed at the corporate level in addition to
13
<PAGE>
the taxation of shareholders who receive dividends from the Company. Generally,
shareholders who tender their shares would recognize a capital gain (or loss)
to the extent the amount they receive exceeds (or is less than) the amount they
paid for their shares. Such capital gain (or loss) will be long term capital
gain (or loss) only if shares have been held more than one year.
ABILITY TO RETAIN AND ATTRACT QUALIFIED DIRECTORS. The provisions of Article
IX of the Charter are subject to interpretation and are not required to be
implemented if they are inconsistent with the provisions of the 1940 Act. The
Board of Directors of the Company has in past years determined that an
amendment to the Charter to provide for automatic repurchases of shares through
periodic tender offers would be inconsistent with the fiduciary duties of
directors under the 1940 Act. Because of the discretion afforded directors
under the Charter, the provider of the Company's Directors and Officers Errors
and Omissions insurance policy ("D & O Insurance") has informed the Company
that it is no longer providing coverage for any claims arising under Article IX
of the Charter.
The directors of the Company have expressed their concerns regarding their
willingness to continue to serve as directors if this lack of coverage
continues. The Company believes that its ability to retain its current
directors as well as to attract other qualified directors will be impaired
unless directors have comprehensive D & O Insurance. Management of the Company
believes that the best means of ensuring that the Company has qualified
directors is to eliminate the provisions of Article IX.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors strongly recommends that you vote FOR the proposed
Charter Amendment (Item No. 5) on the proxy.
14
<PAGE>
GENERAL INFORMATION
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors of the Company are elected to serve for a three year term and until
their successors are elected and qualified. Officers of the Company serve at
the pleasure of the Board and until their successors are elected and qualified.
Set forth below is certain information regarding the directors and executive
officers of the Company.
<TABLE>
<CAPTION>
(1) PRINCIPAL OCCUPATION OR BUSINESS DURING PAST
NAME AGE FIVE YEARS AND (2) CURRENT DIRECTORSHIPS DIRECTOR SINCE
---- --- ------------------------------------------------ --------------
<S> <C> <C> <C>
Ronald E. Dinsmore*..... 70 (1) Since August 1996, Chairman of the Company 1986
and Bancroft. From May 1986 to August 1996,
Chairman of the Board and Chief Executive
Officer of the Company. From November 1985
to August 1996, Chairman of the Board and
Chief Executive Officer of Bancroft. Since
August 1988, Chairman of Davis-Dinsmore.
(2) Director of Bancroft.
Thomas H. Dinsmore*..... 43 (1) Since May 1986, President of the Company. 1986
Since November 1985, President of Bancroft.
Since April 1994, Director of Davis-Dins-
more. Since August 1988, President of Davis-
Dinsmore. Since February 1983, Senior Ana-
lyst of Davis-Dinsmore.
(2) Director of Bancroft.
Jane D. O'Keeffe*....... 41 (1) Since January 1996, Executive Vice President 1995
of the Company. Since February 1996, Execu-
tive Vice President of Bancroft. From April
1994 to January 1996, Vice President of the
Company. From April 1994 to February 1996,
Vice President of Bancroft. Since July 1996,
Director of Davis-Dinsmore. Since April,
1994, Executive Vice President of Davis-
Dinsmore. From October 1988 to March 1994,
Vice President, Fiduciary Trust Internation-
al.
(2) Director of Bancroft.
Gordon F. Ahalt......... 68 (1) Since January 1982, President, G.F.A., Inc. 1986
(petroleum industry consulting). Since 1987,
Consultant, W.H. Raves & Co., Inc. (asset
management).
(2) Director of Bancroft; The Harbinger Group
(investments); Cal Dive International (div-
ing service); and The Houston Exploration
Company (oil and gas exploration).
William A. Benton....... 62 (1) Since January 1991, limited partner of Gav- 1986
in, Benton & Co. (New York Stock Exchange
specialist firm). Since January 1991, Part-
ner in BE Partners (small options market
maker). From June 1986 to December 1990,
partner of Benton & Co. (New York Stock Ex-
change specialist firm).
(2) Director of Bancroft.
Elizabeth C. Bogan,
Ph.D................... 51 (1) Since September 1992, Senior Lecturer in Ec- 1986
onomics at Princeton University. From Sep-
tember 1971 to July 1992, Professor of Eco-
nomics at Fairleigh Dickinson University.
(2) Director of Bancroft.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
(1) PRINCIPAL OCCUPATION OR BUSINESS DURING PAST
NAME AGE FIVE YEARS AND (2) CURRENT DIRECTORSHIPS DIRECTOR SINCE
---- --- ------------------------------------------------ --------------
<S> <C> <C> <C>
Donald M. Halsted, Jr... 69 (1) Since October 1983, self employed business- 1986
man. From January 1983 to October 1983, Vice
Chairman-Special projects, Lone Star Indus-
tries (cement and concrete materials). From
April 1979 to January 1983, President and
Chief Operating Officer, Lone Star Indus-
tries.
(2) Director of Bancroft and Aquarion Company
(water company).
George R. Lieberman..... 73 (1) Retired; Prior to January 1988, Chief Execu- 1990
tive Officer, Lieberman-Appalucci (advertis-
ing); and President, Interspace Airport Ad-
vertising (advertising).
(2) Director of Bancroft.
Sigmund Levine.......... 70 (1) Since January 1996, Senior Vice President of Not
the Company. From April 1993 to January Applicable
1996, Executive Vice President, and since
May 1986 Secretary of the Company. Since
February 1996, Senior Vice President, and
from April 1993 to February 1996, Executive
Vice President of Bancroft. Since November
1982, Secretary of Bancroft and Secretary
and Treasurer of Davis-Dinsmore. From May
1986 to April 1993, Treasurer of the Compa-
ny. From November 1982 to April 1993, Trea-
surer of Bancroft.
H. Tucker Lake.......... 49 (1) Since April 1994, Vice President, Trading of Not
the Company and of Bancroft. Prior thereto, Applicable
Sales Associate, Coldwell Banker, Schlott
Realtors.
Gary I. Levine.......... 39 (1) Since April 1993, Treasurer of the Company Not
and of Bancroft. Since June 1986, Assistant Applicable
Secretary of the Company and of Bancroft.
Since April 1994, Assistant Secretary and
Assistant Treasurer of Davis-Dinsmore.
</TABLE>
- --------
* Mr. Ronald Dinsmore is an "interested person", as defined by the 1940 Act of
the Company and Davis-Dinsmore because he is an officer of the Company and
an officer, director and holder of 75% of the issued and outstanding Class A
Shares of Davis-Dinsmore. Mr. Thomas Dinsmore is an interested person of the
Company and Davis-Dinsmore because he is an officer of the Company and an
officer, director and holder of 15% of the issued and outstanding Class A
Shares of Davis-Dinsmore. Ms. Jane O'Keeffe is an interested person of the
Company and Davis-Dinsmore because she is an officer of the Company and an
officer, director and holder of 10% of the issued and outstanding Class A
Shares of Davis-Dinsmore.
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth certain
information regarding the ownership of the Company's shares of Common Stock by
directors and officers of the Company.
16
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMPANY OWNED
BENEFICIALLY
AUGUST 1, 1996*
---------------
<S> <C>
Ronald E. Dinsmore........................................... 19,206(1)
Thomas H. Dinsmore........................................... 9,775(2)
Gordon F. Ahalt.............................................. 1,154
William A. Benton............................................ 2,307
Elizabeth C. Bogan, Ph.D. ................................... 4,615
Donald M. Halsted, Jr........................................ 2,298
George R. Lieberman.......................................... 854
Jane D. O'Keeffe............................................. 1,750
Duncan O. McKee.............................................. 2,563
Sigmund Levine............................................... 2,731
H. Tucker Lake............................................... 1,446(3)
Gary I. Levine............................................... 224(4)
</TABLE>
- --------
* Represents for each director and officer less than 1% of the outstanding
shares of Common Stock of the Company. As of August 1, 1996, directors and
officers of the Company beneficially owned in the aggregate 48,923 shares
of Common Stock of the Company representing approximately 0.7% of the
shares outstanding. Except as otherwise indicated, each director and
officer possessed sole investment and voting power with respect to shares
of Common Stock beneficially owned.
(1) Mr. Ronald Dinsmore possessed sole investment and voting power with
respect to 13,725 shares of Common Stock beneficially owned by him and
possessed shared investment and voting power with respect to 5,481 shares
of Common Stock beneficially owned by him. The number of shares of Common
Stock beneficially owned by Mr. Ronald Dinsmore does not include 265
shares owned by his wife, as to which shares Mr. Ronald Dinsmore disclaims
beneficial ownership.
(2) Mr. Thomas Dinsmore possessed sole investment and voting power with
respect to 7,938 shares of Common Stock beneficially owned by him and
possessed shared investment and voting power with respect to 1,697 shares
of Common Stock beneficially owned by him and possessed shared investment
power with respect to 140 shares of Common Stock beneficially owned by
him. The number of shares of Common Stock of the Company owned by Mr.
Thomas Dinsmore does not include 483 shares owned by his wife, as to which
shares Mr. Thomas Dinsmore disclaims beneficial ownership.
(3) Mr. H. Tucker Lake possessed sole investment and voting power with respect
to 734 shares of Common Stock beneficially owned by him and possessed
shared investment and voting power with respect to 523 shares of Common
Stock beneficially owned by his wife and 189 shares of Common Stock
beneficially owned by his children.
(4) Mr. Gary Levine possessed sole investment and voting power with respect to
116 shares of Common Stock beneficially owned by him and possessed shared
investment and voting power with respect to 108 shares of Common Stock
beneficially owned by him.
PRINCIPAL HOLDERS OF THE COMPANY'S STOCK. The Company knows of no beneficial
owners of more than 5% of the Company's outstanding Common Stock.
SHAREHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy statement and proxy
for the 1998 annual meeting of shareholders, shareholder proposals must be
received no later than August 1, 1997.
17
<PAGE>
OTHER BUSINESS
The management knows of no business to be presented to the Special Meeting
other than the matters set forth in this proxy statement.
By order of the Board of Directors,
Ronald E. Dinsmore
Chairman of the Board of Directors
August 5, 1996
18
<PAGE>
EXHIBIT A
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
INVESTMENT ADVISORY AGREEMENT
August 1, 1996
DAVIS-DINSMORE MANAGEMENT COMPANY
65 Madison Avenue
Morristown, New Jersey 07960
Gentlemen:
The undersigned, Ellsworth Convertible Growth and Income Fund, Inc., a
Maryland corporation (the "Company"), is an investment company registered
under the Investment Company Act of 1940 (the "Act"). The Company is a
diversified closed-end management investment company, and invests and
reinvests its assets. The Company hereby engages you to act as its Investment
Adviser and to supervise certain of its affairs, subject to the terms and
conditions herein set forth.
Section 1. Advisory Services. The Company will from time to time furnish to
you detailed statements of its investments and resources and information as to
its investment needs, and will make available to you such financial reports,
proxy statements, legal and other information relating to its investments as
may be in the possession of the Company or available to it. You shall, at your
expense, furnish to the Company, at the regular executive offices of the
Company, continuing investment information, advice and recommendations with
respect to the purchase and sale of investments and the making of commitments
with respect thereto. In giving such advice and making such recommendations,
you shall be guided by the Company's investment policy as delineated by the
statements contained in the various documents filed with the Securities and
Exchange Commission as such documents may from time to time be amended. You
shall place at the disposal of the Company such statistical, research,
analytical and technical services, information and reports as may reasonably
be required. Your advice and recommendations with respect to the purchase and
sale of investments and the making of investment commitments shall be
submitted at the principal office of the Company to an officer or officers of
the Company designated for that purpose by the Board of Directors of the
Company. Such officer or officers shall have, subject to the control of the
Company's Board of Directors, sole responsibility for investment decisions,
and full authority to act upon your advice and recommendations and to place
orders on behalf of the Company for the purchase and sale of portfolio
securities. Reports of portfolio transactions shall be made monthly to the
Board of Directors.
You have an obligation, in placing portfolio transactions for the Company,
to obtain the most favorable price and execution available under the
circumstances and to keep true, accurate and current books and records
containing sufficient detail to demonstrate compliance with this obligation.
In determining the most favorable price and execution in each transaction the
determinative factor is not necessarily the lowest possible commission cost.
You should consider the full range and quality of the services of broker-
dealers in placing brokerage including, but not by way of limitation, the
value of research provided as well as execution capability, commission rate,
financial responsibility and responsiveness of the broker-dealer to you.
Accordingly, to the extent provided by law, in executing
<PAGE>
portfolio transactions, you may pay a broker-dealer which provides brokerage
and research services a commission in excess of that which another broker-
dealer would have charged for the same transaction.
Section 2. Independent Contractor. You shall, for all purposes hereof, be
deemed to be an independent contractor and shall have no authority to act for
or represent the Company unless otherwise provided. No agreement, bid, offer,
commitment, contract or other engagement entered into by you, whether on your
behalf or whether purported to have been entered into on behalf of the
Company, shall be binding upon the Company, and all acts authorized to be done
by you under this contract shall be done by you as an independent contractor
and not as agent.
Section 3. Expenses. To the extent described in this Section 3, you shall
provide the Company with office space and facilities, pay the salaries of its
executive officers and furnish clerical, bookkeeping and statistical services
to the Company, and pay all expenses incurred by you in the performance of
this contract.
The Company will pay all expenses incurred by it and not assumed by you
including, but not by way of limitation, expenses in connection with its
organization and with the offering of its securities; fees and expenses of its
unaffiliated directors; legal and accounting fees, fees of its custodian,
registrar, transfer agent; dividend disbursing agent and Automatic Dividend
Investment Plan Agent; taxes, interest, brokerage commissions; and direct
costs of postage, printing, copying and travel expenses attributable to the
conduct of the business of the Company. In addition, the Company 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
Company, including the valuation of securities owned by the Company, the
preparation of financial statements and schedules of the Company's investments
for inclusion in certain periodic reports to the Company's Board of Directors
and to the 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. Subject to approval of the
Company's directors who are not "interested persons" of either you or the
Company, as defined by the Act, the Company may also pay the costs of any
additional services performed in the future by the Treasurer's office in lieu
of similar services previously performed by third party contractors at the
Company's expense.
Section 4. Compensation. As compensation for the services performed by you,
the Company will pay you on the last day of each month a fee for such month
computed at an annual rate of .75% of the first $100,000,000 of the Company's
average net assets and .50% of the Company's average net assets in excess of
$100,000,000. The annual fee will be reduced to the extent that the Company's
ordinary expenses for the year (including your fee but excluding interest,
local, state and federal taxes and extraordinary expenses as determined by the
directors of the Company who are not "interested persons" of either you or the
Company, as defined by the Act) exceed 1.5% of the first $100,000,000, and 1%
of the excess over $100,000,000, of the average of the monthly net asset
values of the Company for the twelve months of each fiscal year. You will
promptly refund any amount theretofore paid in excess of the fee determined to
be due for such year.
For the purpose of calculation of the fee, the net asset value for a month
will be the average of the Company's net asset values at the close of business
on the last business day on which the New York Stock Exchange is open in each
week in the month. The determination of what constitutes an
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"extraordinary item" rather than an ordinary expense shall be conclusively
determined by the directors of the Company who are not "interested persons" of
either the Company or you, as defined by the Act.
If this contract shall become effective subsequent to the first day of a
month, or shall terminate before the last day of a month, your compensation
for such fraction of the monthly period shall be determined by applying the
foregoing percentage to the net asset value of the Company during such
fraction of a monthly period (which net asset value shall be determined in
such reasonable manner as the Board of the Company shall deem appropriate) and
in the proportion that such fraction of a monthly period bears to the entire
month.
Compensation under this contract will begin to accrue on its effective date.
Section 5. Approval of Contract; Termination. This contract will be
submitted to the Company's stockholders for approval. If approved by the vote
of a "majority of the outstanding voting securities" of the Company as such
term is defined in the Act, the contract will be in effect from the date of
approval. Unless terminated by either party, this contract will remain in
effect thereafter if approved annually (i) by the Board of Directors of the
Company or by the holders of a majority of the outstanding voting securities
of the Company and (ii) by a majority of the directors who are not parties to
this contract or "interested persons," as defined in the Act, of any such
party. The contract is terminable without penalty by either party on 60 days'
written notice and will terminate automatically in the event of its
assignment.
Except as specified above, this contract may not be amended, transferred,
assigned, sold or in any other manner hypothecated or pledged; provided,
however, that this limitation shall not prevent any minor amendments to the
contract which may be required by Federal or state regulatory bodies.
Section 6. Liability. You shall give the Company the benefit of your best
judgment and efforts in rendering the services set forth herein, and the
Company agrees as an inducement to the undertaking of these services by you
that you shall not be liable for any error of judgment or for any loss
suffered by the Company in connection with any matters to which this contract
relates except that nothing herein contained shall be construed to protect you
against any liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties or reckless disregard of your
obligations or duties under this contract.
Section 7. Multiple Capacities. Except to the extent necessary for
performance of your obligations hereunder, nothing shall restrict your right
or the right of any of your directors, officers or employees who may be
directors, officers or employees of the Company to engage in any other
business or to devote time and attention to the management or other aspects of
any other business whether of a similar or dissimilar nature or to render
services of any kind to any other corporation, firm, individual or
association.
It is understood and agreed that the directors, officers, agents, employees
and stockholders of the Company may be interested in your company as
directors, officers, stockholders, employees, agents or otherwise, and that
the directors, officers, agents, employees and stockholders of your company
may be interested in the Company as a stockholder or otherwise.
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Section 8. Concerning Applicable Provisions of Law, Etc. This contract shall
be subject to all applicable provisions of law, including, but not limited to,
the applicable provisions of the Act; and, to the extent that any provisions
herein contained conflict with any such applicable provisions of law, the
latter shall control.
The laws of the State of New York shall, except to the extent that any
applicable provisions of some other law shall be controlling, govern the
construction, validity and effect of this contract.
The headings preceding the text of the several sections herein are inserted
solely for convenience of reference and shall not affect the meaning,
construction or effect of this contract.
If the contract set forth herein is acceptable to you, please so indicate by
executing the enclosed copy of this letter and returning the same to the
undersigned, whereupon this letter shall constitute a binding contract between
the parties hereto, subject to approval provided for in Section 5.
Yours very truly,
ELLSWORTH CONVERTIBLE GROWTH AND
INCOME FUND, INC.
/s/ Thomas H. Dinsmore
By __________________________________
(President)
(Corporate Seal)
/s/ Sigmund Levine
Attest ______________________________
(Secretary)
DAVIS-DINSMORE MANAGEMENT COMPANY
/s/ Thomas H. Dinsmore
By __________________________________
(President)
/s/ Sigmund Levine
Attest ______________________________
(Secretary)
(Corporate Seal)
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ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
Special Meeting To Be Held September 25, 1996
This Proxy is being solicited on behalf of the Board of Directors
The undersigned appoints Thomas H. Dinsmore, Jane D. O'Keeffe and
Sigmund Levine, and each of them, attorneys and proxies, with power of
substitution in each, to vote and act on behalf of the undersigned at the
special meeting of shareholders of Ellsworth Convertible Growth and Income Fund,
Inc. (the "Company") at the Morris County Golf Club, 39 Punchbowl Road, Convent
Station, New Jersey 07961 on September 25, 1996, at 11:30 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 confers
authority to vote FOR the proposal to approve the New Investment Advisory
Agreement, FOR each of the proposals to change certain fundamental investment
policies of the Company and FOR the proposal to amend the Company's Charter.
(Continued, and to be signed and dated, on the reverse side.)
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
P.O. BOX 11118
NEW YORK, N.Y. 10203-0118
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<PAGE>
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[___]
The Board of Directors recommends that you vote "FOR" all of the Proposals.
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<S> <C>
1. Proposal to approve a new Investment Advisory Agreement 2. Proposal to change the Company's fundamental investment
between the Company and Davis-Dinsmore Management policy regarding the purchase of securities of foreign issuers.
Company.
FOR [X] AGAINST [X] ABSTAIN [X] FOR [X] AGAINST [X] ABSTAIN [X]
3. Proposal to change the Company's fundamental investment 4. Proposal to change the Company's fundamental investment policy
policy imposing a history of operations requirement. regarding illiquid and restricted securities.
FOR [X] AGAINST [X] ABSTAIN [X] FOR [X] AGAINST [X] ABSTAIN [X]
5. Proposal to amend the Company's Charter.
Change of Address and [X]
or Comments Mark Here
FOR [X] AGAINST [X] ABSTAIN [X]
If shares are held jointly each shareholder named
should sign. Legal representatives of shareholders
should add their titles when signing.
Dated: , 19
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Signature
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---------- Signature, if held jointly
Votes MUST be Indicated [X]
(X) in Black or Blue Ink.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>
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