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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.1)
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 Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)(S)240.14a-11(c) or (S)(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):
[_] $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:
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(5) Total fee paid:
- --------------------------------------------------------------
[X] 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:
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(2) Form, Schedule or Registration Statement No.:
- ----------------------------
(3) Filing Party:
- ----------------------------
(4) Date Filed:
- ----------------------------
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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 OCTOBER 25, 1996
---------------------
To the Shareholders:
A special meeting of shareholders of Ellsworth Convertible Growth and Income
Fund, Inc. (the "Company") will be held on Friday, October 25, 1996 at 10:30
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 the proposed elimination of 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 26, 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.
September 3, 1996
Thomas H. 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 OCTOBER 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 October 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.
It is estimated that the cost of SCC's services will 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, Chairman and Chief
Executive Officer, Jane D. O'Keeffe, 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 (or eliminate) 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 December 24, 1996.
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Shareholders of record at the close of business on August 26, 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
September 3, 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), each of the proposed changes to the
Company's fundamental investment policies (Proposals 2 and 3) and the proposal
to eliminate a fundamental investment policy (Proposal 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 share transfers 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 share
transfers.
Davis-Dinsmore served as investment advisor to the Company from June 18,
1986 until August 11, 1996, pursuant to an Investment Advisory Agreement (the
"Prior Advisory Agreement") dated June 18, 1986. 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 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 then-current directors owned
shares of
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Davis-Dinsmore's outstanding voting Common Stock: Mr. Ronald Dinsmore (85% of
such stock); and Mr. Thomas Dinsmore (10% of such stock).
Mr. Ronald Dinsmore passed away on August 11, 1996. Since he owned on such
date more than 25% of the outstanding voting shares of Common Stock of Davis-
Dinsmore, and such shares were automatically transferred to his estate, an
"assignment" of the Prior Advisory Agreement under the 1940 Act occurred. The
Prior Advisory Agreement terminated automatically upon its assignment as
required by the 1940 Act. As described more fully below, in accordance with
inheritance laws and the terms of Mr. Ronald Dinsmore's will, transfers of the
outstanding shares of Davis-Dinsmore now held by Mr. Ronald Dinsmore's estate
are expected to be made approximately as of the time of shareholder approval
of the New Advisory Agreement. Certain gifts of such shares are also expected
to be made as of the same time. See "Change in Ownership of Davis-Dinsmore."
At a meeting held on August 1, 1996, the Board of Directors of the Company,
including a majority of the Independent Directors, recognizing the health
problems of Mr. Ronald Dinsmore, approved an interim investment advisory
agreement (the "Interim Advisory Agreement") in accordance with Rule 15a-4
under the 1940 Act, to become effective in the event of Mr. Ronald Dinsmore's
death. Such agreement became effective as of August 11, 1996. 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 December 9,
1996) or (2) shareholder approval of the New Advisory Agreement.
On August 1, 1996, the Board of Directors of the Company, including a
majority of the Independent Directors, also approved, subject to shareholder
approval, the New Advisory Agreement. A copy of the New Advisory Agreement is
attached hereto as Exhibit A. In approving the New Advisory Agreement, the
Board of Directors took into account the share transfers described below under
"Change in Ownership of Davis-Dinsmore". 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. The New Advisory
Agreement will become effective upon its approval by the Company's
shareholders. 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.
CHANGE IN OWNERSHIP OF DAVIS-DINSMORE
Mr. Ronald Dinsmore and Mr. Bancroft G. Davis 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 Dinsmore O'Keeffe. In 1995, Mr. Ronald Dinsmore gave 2.4%,
and in 1996, gave 2.6%, of the outstanding voting stock to
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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. Ronald Dinsmore was Chairman of Davis-Dinsmore from August 1988 until
his death in August 1996. Mr. Thomas Dinsmore was President of Davis-Dinsmore
from August 1988 through August 1996 and now serves as its Chairman and Chief
Executive Officer. Mr. Thomas Dinsmore has been a director of Davis-Dinsmore
since April 1994. Ms. O'Keeffe was Executive Vice President of Davis-Dinsmore
from April 1994 through August 1996 and now serves as its President. Ms.
O'Keeffe 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.
Mr. Ronald Dinsmore passed away on August 11, 1996. As of such date, Mr.
Dinsmore's estate owned 75% of the outstanding Class A shares and 75% of the
outstanding Class B Shares. Mr. Thomas Dinsmore and Ms. Jane O'Keeffe each
will receive directly from Mr. Ronald Dinsmore's estate approximately 14.4% of
the outstanding Class A Shares. Ms. Sally Dinsmore Finnican will receive
directly from such estate approximately 14.4% of the outstanding Class B
Shares. Mrs. Jean Dinsmore, Mr. Ronald Dinsmore's widow, will receive the
balance of the Class A Shares and the Class B Shares, but intends to give to
each of Mr. Thomas Dinsmore and Ms. Jane O'Keeffe approximately 11.2% of the
outstanding Class A Shares.
As a result of these transfers (the "Transfers"), all of which are scheduled
to occur approximately as of the time of shareholder approval of the New
Advisory Agreement, Mr. Thomas Dinsmore will own 40.6% of the outstanding
Class A Shares and 15% of the outstanding Class B Shares; Ms. O'Keeffe will
own 35.6% of the outstanding Class A Shares and 10% of the outstanding Class B
Shares; Mrs. Jean Dinsmore will own 23.8% of the outstanding Class A Shares
and 60.6% of the outstanding Class B Shares and Ms. Sally Finnican will own
14.4% of the outstanding Class B Shares.
Davis-Dinsmore has represented to the Board of Directors of the Company that
it does not contemplate any changes to the day-to-day 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 Transfers. Davis-Dinsmore does not expect the Transfers 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 Transfers 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 Transfers, including
the possible effects of the Transfers 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
Transfers, 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 then-current 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
Although the Prior Advisory Agreement has terminated and the New Advisory
Agreement has not become effective, both Advisory Agreements are described
below as if they are in effect. 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 August 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. Thomas H. Dinsmore, Mrs.
Jean Dinsmore and Ms. Jane D. O'Keeffe. Mr. Thomas Dinsmore is Chairman, Chief
Executive Officer and Senior Analyst of Davis-Dinsmore, and is a director,
Chairman and Chief Executive Officer of each of the Company and Bancroft. Mrs.
Jean Dinsmore is a Republican committeewoman for the State of New Jersey. Ms.
Jane O'Keeffe is President of Davis-Dinsmore and is a director and 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 (OR ELIMINATE)
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, the Company may have fewer investment options available to it and may
be forced to acquire
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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 two proposals to change certain of the Company's
fundamental investment policies and one proposal to eliminate a fundamental
investment policy. Such action was designed 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 to (or elimination of) the Company's
fundamental investment policy described below will become effective
immediately.
The Board of Directors believes that the proposed changes to the Company's
fundamental investment policies and the proposed elimination of a fundamental
investment policy 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 (or eliminate) 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 THE ELIMINATION OF THE COMPANY'S
FUNDAMENTAL INVESTMENT POLICY REGARDING
PURCHASE OF ILLIQUID AND RESTRICTED SECURITIES
INTRODUCTION. The Board of Directors proposes to eliminate 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 $113.02
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>
Thomas H. Dinsmore*..... 43 (1) Since August 1996, Chairman and Chief Execu- 1986
tive Officer of the Company, Bancroft and
Davis-Dinsmore. From May 1986 to August
1996, President of the Company. From Novem-
ber 1985 to August 1996, President of
Bancroft. Since April 1994, Director of Da-
vis-Dinsmore. From August 1988 to August
1996, President of Davis-Dinsmore. Since
February 1983, Senior Analyst of Davis-Dins-
more.
(2) Director of Bancroft.
Jane D. O'Keeffe*....... 41 (1) Since August 1996, President of the Company, 1995
Bancroft and Davis-Dinsmore. From January
1996 to August 1996, Executive Vice Presi-
dent of the Company. From February 1996 to
August 1996, Executive 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 Da-
vis-Dinsmore. From April 1994 to August
1996, 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. Reaves & 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-
(2) nomics at Fairleigh Dickinson University.
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. Thomas 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 more than 5% 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 more than 5% 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
the directors, director emeritus and officers of the Company.
16
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMPANY OWNED
BENEFICIALLY
AUGUST 26, 1996*
----------------
<S> <C>
Thomas H. Dinsmore.......................................... 9,775(1)
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).......................................... 2,563
Sigmund Levine.............................................. 2,731
H. Tucker Lake.............................................. 1,446(3)
Gary I. Levine.............................................. 224(4)
</TABLE>
- --------
* Represents for each director, director emeritus and officer less than 1% of
the outstanding shares of Common Stock of the Company. As of August 26,
1996, directors, director emeritus and officers of the Company beneficially
owned in the aggregate 29,717 shares of Common Stock of the Company
representing approximately 0.4% of the shares outstanding. Except as
otherwise indicated, each director, director emeritus and officer possessed
sole investment and voting power with respect to shares of Common Stock
beneficially owned.
(1) 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.
(2) Mr. Duncan McKee has served as Director Emeritus of the Company since
1988. As Director Emeritus, Mr. McKee attends Board of Directors meetings
but does not vote on any matters before the Board. Mr. McKee, who is
presently retired, was previously a partner in the law firm of Ballard
Spahr Andrews & Ingersoll.
(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,
Thomas H. Dinsmore
Chairman of the Board of Directors
September 3, 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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<PAGE>
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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<PAGE>
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ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
Special Meeting To Be Held October 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 October 25, 1996, at 10:30 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 (or eliminate) certain funda-
mental 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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