<PAGE> 1
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
1997 Annual Report September 30, 1997
TO OUR SHAREHOLDERS:
The U.S. stock market and stock markets around the world became volatile
again during the month of October. Ten years after the Crash of '87 we have the
Scare of '97. It is fascinating to note that market participants now jump into
the market after a big downturn because recent history shows that this is the
smart thing to do. But this still leaves open an important question: Is this
volatility the prelude to a bear market or is this just the market's way of
disciplining the "irrational exuberance" of some sectors in the market? We
believe it is the latter.
Bear markets usually occur when most investors are fully invested and
over-leveraged at a time when monetary authorities change to a more restrictive
policy. Although investors may well be fully invested, more money is coming in
via pension plans and other savings programs. These programs are rarely
leveraged, however, so investors do not appear to be dangerously leveraged.
Further, monetary policy has been well controlled for many years now so any move
to a more restrictive policy is likely to be a modest one that results in only a
small change.
In our opinion, if there is to be a bear market, it will most likely be
caused by some breakdown in foreign markets or foreign trade. Given the current
weakness of several Asian currencies and markets, U.S. companies have had to
recalculate their future growth and this has affected stock prices. Raw
materials, products and parts for these nations are likely to be cheaper than
expected, but fewer goods are likely to be exported to these countries. With
this lowering of demand and reduction in price coming from these events,
inflation may be less of a factor than the low U.S. unemployment rate implies.
This is good for the bond market. We anticipate that there will continue to be
some volatility in the stock market, including the possibility of another drop,
but we remain optimistic that long-term equity returns will continue to be
attractive.
We have determined that the Fund's net asset value (NAV) rose 8.70%,
27.77%, 111.38% and 205.63% for the three-month, one-year, five-year and
ten-year periods ended September 30, 1997 (assuming all dividends reinvested at
NAV). The value of the Fund's shares rose 5.68%, 30.93%, 108.65% and 243.22% for
those same three-month, one-year, five-year and ten-year periods (assuming
dividends reinvested at actual reinvestment price). As quoted in Barron's,
Lipper Analytical Services reported that the average open-end convertible fund's
NAV* rose 8.48%, 24.03%, 94.99% and 191.69% for those same periods (also
assuming all dividends reinvested).
At its October meeting, The Board of Directors declared a record dividend
of $1.55 per share. This dividend consists of 6.7 cents from net investment
income, 19.9 cents per share from short-term capital gains, and $1.284 from
long-term capital gains (of which approximately 72.9 cents is taxable at a 28%
rate and 55.5 cents at 20%; please wait for your Form 1099 in January for exact
numbers). The dividend is payable November 29, 1997 to shareholders of record
November 3, 1997.
The 1998 annual meeting of shareholders will be held at the Bonita Bay Club
in Bonita Springs, Florida on January 9, 1998 at 12:30 p.m. All shareholders are
welcome to attend.
/s/ THOMAS H. DINSMORE
- ----------------------
Thomas H. Dinsmore
Chairman of the Board
November 10, 1997
*Average NAV of the fifty-eight open-end convertible funds followed by Lipper
Analytical Services, Inc.
Important Factors Regarding Forward-Looking Statements
Information contained within the letter to Shareholders constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes its expectations
are based on reasonable assumptions, the Company's actual results could differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include, among others, lack of availability of
convertible securities with characteristics that are most attractive to the
Company, changes in the Federal Reserve Board's monetary policy, changes to
foreign and domestic markets in general or changes to the market for convertible
securities.
<PAGE> 2
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IDENTIFIED VALUE
OR SHARES COST (NOTE A)
----------- ------------- -------------
<S> <C> <C>
ADVERTISING -- 0.4%
$ 500,000 Interpublic Group Cos., Inc. 1.80% 2004 cv. sub. deb.* (Aa) ... $ 400,785 $ 415,000
------------ ------------
AEROSPACE -- 4.0%
2,000,000 Morgan Stanley Dean Witter Discover & Co. 0% 2000
medium-term exch. notes (A1) ................................ 1,886,401 2,447,500
(exch. for Boeing Company common stock)
350,000 Orbital Sciences Corp. 5% 2002 cv. sub. notes* (NR) ........... 350,000 382,375
750,000 Simula, Inc. 8% 2004 sr. cv. sub. notes (NR) .................. 750,000 922,500
------------ ------------
2,986,401 3,752,375
------------ ------------
AUTOMOTIVE -- 0.6%
500,000 Tower Automotive, Inc. 5% 2004 cv. sub. notes* (NR) ........... 500,000 536,875
------------ ------------
BANKING -- 14.2%
14,200 shs Barnett Banks, Inc. common stock .............................. 223,353 1,004,650
12,600 shs First Commerce Corp. common stock ............................. 273,860 707,175
40,000 shs National Australia Bank Ltd. 7 7/8% exch. capital units (A1) .. 1,038,700 1,180,000
(exch. for ADR's representing National Australia Bank
Ltd. common stock)
13,400 shs National City Corp. common stock .............................. 337,591 826,613
15,300 shs Washington Mutual Savings Bank common stock ................... 382,412 1,067,175
75,000 shs WBK Trust 10% STRYPES*#+ (NR) ................................. 2,351,250 2,409,375
(exch. for Westpac Banking Corp. common stock)
1,225,000 BankAtlantic Bancorp 6 3/4% 2006 cv. sub. deb. (NR) ........... 1,284,563 2,373,438
500,000 First State Bancorp 7 1/2% 2017 cv. sub. deb. (NR) ............ 500,000 615,000
1,000,000 Goldman Sachs Financial Products U.S., L.P. 3% 2002
medium-term exch. notes. (NR) ............................... 1,000,000 983,100
(exch. for Citicorp common stock)
20,600 Jefferson-Pilot Corp. 7 1/4% 2000 Automatic Common
Exchange Securities+ (A1) .................................. 1,853,661 2,266,000
(exch. for NationsBank Corp. common stock) ------------ ------------
9,245,390 13,432,526
------------ ------------
BUILDING & REAL ESTATE -- 1.7%
15,000 shs The Rouse Company 6% series B cv. pfd. (Baa3) ................. 741,275 746,250
750,000 The Rouse Company 5 3/4% 2002 euro. cv. sub. deb. (Baa2) ...... 803,750 836,250
------------ ------------
1,545,025 1,582,500
------------ ------------
CAPITAL GOODS -- 3.5%
10,000 shs Greenfield Capital Trust 6% cv. pfd. (B1) ..................... 461,250 480,000
(conv. into Greenfield Industries, Inc. common stock)
1,000,000 CS First Boston, Inc. 3 1/2% 2001 sr. medium-term
exch. notes* (Aa) .......................................... 1,000,000 1,372,500
(exch. for General Electric Corp. common stock)
960,000 Robbins & Myers, Inc. 6 1/2% 2003 cv. sub. notes (NR) ......... 1,005,600 1,440,000
------------ ------------
2,466,850 3,292,500
------------ ------------
COMMUNICATIONS -- 9.9%
50,000 shs Nextel Trust 7 1/4% STRYPES*#+ (NR) ........................... 700,000 1,300,000
(exch. for Nextel Communications, Inc. class A common stock)
22,000 shs QUALCOMM Financial Trust 5 3/4% trust cv. pfd.* (B1) .......... 1,100,500 1,179,750
(conv. into QUALCOMM, Inc. common stock)
10,000 shs WorldCom, Inc. GA depositary shares (representing 8% cum.
cv. A pfd.) (B1) ........................................... 335,000 1,230,000
2,000,000 NatWest Markets 0% 2003 exch. trust securities* (AA2) ......... 1,825,366 2,195,000
(exch. for Lucent Technologies, Inc. common stock)
500,000 Premiere Technologies, Inc. 5 3/4% 2004 cv. sub. notes* (NR) .. 500,000 598,750
10,000 Salomon, Inc. 6 1/4% 2001 FCENS (C)+ (Baa1) ................... 567,125 562,500
(exch. for Cincinnati Bell, Inc. common stock)
25,000 Sprint Corp. 8 1/4% 2000 FCENS (C)+ (Baa3) .................... 815,788 940,625
(exch. for Southern New England Telecommunications
Corp. common stock)
1,000,000 Telefonica De Espana 2% 2002 gtd. exch. deb.* (NR) ............ 1,000,000 1,082,500
250,000 World Access, Inc. 4 1/2% 2002 cv. sub. notes* (NR) ........... 250,000 268,125
------------ ------------
7,093,779 9,357,250
------------ ------------
DATA-PROCESSING SERVICES -- 2.9%
1,000,000 First Financial Management Corp. 5% 1999 cv. sub. deb. (A2) ... 1,000,000 1,745,000
(exch. for First Data Corp. common stock)
1,000,000 National Data Corp. 5% 2003 cv. sub. notes (NR) ............... 1,010,000 1,026,250
------------ ------------
2,010,000 2,771,250
------------ ------------
ENERGY -- 14.2%
36,000 shs AES Trust I $2.6875 term cv. securities, series A (Ba1) ....... 1,800,000 2,457,000
(exch. for AES Corp. common stock)
19,000 shs Chieftain International Funding Corp. 7 1/4% cv.
redeemable pfd. (B3) ....................................... 528,905 617,500
10,000 shs Devon Financing Trust 6 1/2% trust cv. pfd.* (NR) ............. 507,500 806,250
(conv. into Devon Energy Corp. common stock)
10,000 shs MCN Energy Group, Inc. 8% FELINE++ PRIDES**+ (Ba2) ............ 502,800 540,625
12,500 shs Unocal Capital Trust 6 1/4% trust cv. pfd. (Ba1) .............. 679,688 762,500
1,000,000 Diamond Offshore Drilling, Inc. 3 3/4% 2007 cv. sub.
notes (Baa2) ................................................ 1,015,000 1,460,000
1,000,000 Enserch Corp. 6 3/8% 2002 euro. cv. sub. deb. (Baa3) .......... 1,012,250 1,015,000
375,000 Halter Marine Group, Inc. 41/2% 2004 cv. sub. notes* (B2) ..... 375,000 438,281
1,000,000 Nabors Industries, Inc. 5% 2006 cv. sub. notes (Baa2) ......... 1,051,437 2,215,000
500,000 Parker Drilling Co. 5 1/2% 2004 cv. sub. notes (B3) ........... 500,000 600,000
1,800,000 Pennzoil Company 4 3/4% 2003 exch. sr. deb. (Baa2) ............ 1,978,500 2,547,000
(exch. for Chevron Corp. common stock) ------------ ------------
9,951,080 13,459,156
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE> 3
INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IDENTIFIED VALUE
OR SHARES COST (NOTE A)
----------- ------------- -------------
<S> <C> <C>
ENTERTAINMENT -- 8.7%
10,000 shs Chancellor Media Corp. 7% cv. pfd. (Caa) .................... $ 500,000 $ 803,750
5,000 shs Chancellor Media Corp. 6% cv. exch. pfd.* (B) 250,000 300,625
45,000 shs Hollinger International, Inc. depositary shares (representing
9 3/4% cv. B pfd.) (B2) ................................... 441,063 554,063
20,000 shs Houston Industries, Inc. 7% 2000 Automatic Common Exchange
Securities+ (Baa1) ...................................... 918,750 1,040,000
(exch. for Time Warner, Inc. common stock)
10,000 shs News Corporation Exchange Trust 5% cv. trust originated
pfd.* (Ba2) ............................................... 1,000,000 888,750
(exch. for British Sky Broadcasting Group plc American
Depositary Shares)
4,000 shs SFX Broadcasting, Inc. 6 1/2% cum. cv. exch. D pfd.* (Caa) ... 204,500 330,000
50,000 shs Triathlon Broadcasting Co. depositary shares (representing 9%
mandatory cv. pfd.) (NR) ................................. 525,000 468,750
$1,000,000 Credit Suisse 3% 2001 equity linked certificates+ (Aa) ..... 1,000,000 1,107,500
(exch. for the cash equivalent of Walt Disney Co.
common stock)
1,000,000 Imax Corp. 5 3/4% 2003 cv. sub. notes* (B3) ................. 1,000,000 1,360,000
750,000 International CableTel, Inc. 7% 2008 cv. sub. notes* (Caa) .. 750,000 727,500
(conv. into NTL, Inc. common stock)
600,000 International CableTel, Inc. 7 1/4% 2005 cv. sub. notes* (Caa) 600,000 672,000
(conv. into NTL, Inc. common stock)
------------ ------------
7,189,313 8,252,938
------------ ------------
FINANCIAL & INSURANCE -- 9.2%
15,000 shs American Bankers Insurance Group, Inc. series B cum. cv.
pfd. (Baa1) ............................................... 751,250 1,222,500
20,000 shs American General Delaware, L.L.C. 6% cv. A monthly income
preferred securities (A1) ................................ 1,015,875 1,345,000
25,000 shs Frontier Financing Trust 6 1/4% cv. trust originated pfd.*
(Baa3) .................................................... 1,296,875 2,156,250
(conv. into Frontier Insurance Group, Inc. common stock)
500,000 American International Group 2 1/4% 2004 cv. notes* (AAA) ... 500,000 500,000
774,000 First Central Financial Corp. 9% 2000 cv. sub. deb. ## (NR) 784,125
1,375,000 Penn Treaty American Corp. 6 1/4% 2003 cv. sub. notes* (BB+) 1,406,875 1,828,750
35,000 US West, Inc. 7 5/8% 1998 FCENS (C) (A2) ................... 840,000 1,662,500
(exch. for Enhance Financial Services Group, Inc. common ------------ ------------
stock) 6,595,000 8,715,000
------------ ------------
FOODS -- 3.3%
10,000 shs Apple South Financing I 7% cv. A pfd.* (NR) ................. 500,000 726,250
(conv. into Apple South, Inc. common stock)
7,900 shs Dole Food Co., Inc. 7% 1999 Automatic Common Exchange
Securities+ (NR) ......................................... 296,241 341,675
30,000 Ralston Purina Co. 7% 2000 Stock Appreciation Income Linked
Securities+ (A1) ......................................... 1,861,638 2,025,000
(exch. for Interstate Bakeries Corp. common stock) ------------ ------------
2,657,879 3,092,925
------------ ------------
HEALTH CARE & DRUGS -- 11.2%
15,000 shs Kapson Senior Quarters Corp. 8% cv. exch. pfd.* (NR) ........ 375,000 423,750
1,000,000 American Retirement Corp. 5 3/4% 2002 cv. sub. deb. (NR) .... 1,001,875 1,012,500
1,800,000 Ciba Geigy Corp. 6 1/4% 2016 exch. sub. deb.* (Aa3) ......... 1,809,750 1,854,000
(exch. for ALZA Corp. common stock)
250,000 Medco Containment Services, Inc. 6% 2001 cv. sub. deb. (AAA) 326,875 752,500
1,000,000 Morgan Stanley Dean Witter Discover & Co. 0% 2001
medium-term exchangeable notes (A1) ....................... 1,196,414 1,276,250
(exch. for ADR's representing SmithKline Beecham plc
common stock)
1,500,000 Republic National Bank of NY 1 7/8% 2002 sr. exch. notes (Aa1) 1,449,253 1,425,000
(exch. for the cash equivalent of Merck & Co., Inc.
common stock)
750,000 Rite Aid Corp. 5 1/4% 2002 cv. sub. notes* (Baa1) ........... 750,000 767,813
3,500,000 Roche Holdings, Inc. 0% 2010 liquid yield option notes* (Aa2) 1,523,238 1,793,750
500,000 Sandoz Capital BVI Ltd. 2% 2002 cv. sub. notes* (AAA) ....... 526,250 732,500
(conv. into Novartis AG common stock)
500,000 Union Bank of Switzerland Finance N.V. 2 1/2% 2001 euro. cv.
deb. (AAA) ................................................ 533,750 611,250
(conv. into Novartis AG common stock) ------------ ------------
9,492,405 10,649,313
------------ ------------
HOTEL SERVICES -- 2.9%
5,000 shs Royal Caribbean Cruises Ltd. $3.625 cv. A pfd. (Ba2) ........ 269,838 368,281
1,500,000 Hilton Hotels Corp. 5% 2006 cv. sub. notes (Baa2) ........... 1,522,500 1,770,000
500,000 Signature Resorts, Inc. 5 3/4% 2007 cv. sub. notes (B - ) ... 500,000 605,000
------------ ------------
2,292,338 2,743,281
------------ ------------
OFFICE EQUIPMENT -- 0.5%
500,000 Xerox Credit 2 7/8% 2002 medium-term notes (A1) ............. 500,000 516,250
------------ ------------
RETAIL -- 3.2%
1,000,000 Costco Companies, Inc. 0% 2017 cv. sub. notes* (A1) ......... 513,500 537,500
2,000,000 Home Depot, Inc. 3 1/4% 2001 cv. sub. notes (A1) ............ 2,003,125 2,490,000
------------ ------------
2,516,625 3,027,500
------------ ------------
TECHNOLOGY -- 7.7%
5,000 shs Microsoft Corp. 2 3/4% cv. exch. series A pfd. .............. 399,375 438,438
1,500,000 The Bear Stearns Companies, Inc. 6 3/4% 2000 medium-term
notes* (Aa2) .............................................. 1,500,000 1,342,500
(exch. for Seagate Technology, Inc. common stock)
500,000 EMC Corp. 3 1/4% 2002 cv. sub. notes* (Ba3) ................. 500,000 701,875
7,500 Morgan Stanley Dean Witter Discover & Co. 6% 1998 FCENS
(C)+(A1) .................................................. 498,750 542,813
(exch. for Cisco Systems, Inc. common stock)
1,000,000 Morgan Stanley Dean Witter Discover & Co.
0% 2001 technology exch. note trust certificates* (A1) .... 914,290 1,121,250
(exch. for technology basket common stocks++)
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE> 4
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IDENTIFIED VALUE
OR SHARES COST (NOTE A)
----------- ------------- -------------
<S> <C> <C>
TECHNOLOGY -- (CONTINUED)
$ 500,000 Reptron Electronics, Inc. 6 3/4% 2004 cv. sub. deb. (NR) .... $ 500,000 $ 472,500
1,000,000 Thermo Electron Corp. 4 1/4% 2003 cv. sub. deb.* (Ba2) ...... 1,244,613 1,166,250
375,000 Thermo Instruments Corp. 4 1/2% 2003 cv. sub. deb.* (Ba1) 380,000 421,875
1,000,000 VLSI Technology, Inc. 8 1/4% 2005 cv. sub. notes (B) ........ 1,012,750 1,050,000
------------ ------------
6,949,778 7,257,501
------------ ------------
TRANSPORTATION -- 0.6%
550,000 Mercury Air Group, Inc. 7 3/4% 2006 cv. sub. deb. (B-) ...... 551,625 607,750
------------ ------------
U.S. TREASURY NOTES -- 0.0%
25,000 6 1/4% 3/31/99 (C)(C) ....................................... 24,922 25,188
------------ ------------
CORPORATE SHORT-TERM NOTES -- 1.5%
1,400,000 American Express Credit Corp. 5.48% 10/2/97 (P1) ........... 1,399,347 1,399,347
------------ ------------
Total Convertible Bonds and Notes -- 68.3% ................................... $54,261,344 $64,764,133
Total Convertible Preferred Stocks -- 26.5% .................................. 19,490,635 25,117,332
Total Common Stocks -- 3.8% .................................................. 1,217,216 3,605,613
Total Corporate Short-Term Notes -- 1.5% ..................................... 1,399,347 1,399,347
------------ ------------
Total Investments -- 100.1% .................................................. $76,368,542 94,886,425
============
Other assets and liabilities, net -- (0.1)% .................................. (64,848)
------------
Total Net Assets -- 100.0% ................................................... $ 94,821,577
============
</TABLE>
* Rule 144A security, may be sold only to qualified institutional buyers.
# Structured Yield Product Exchangeable for Stock.
+ See Note A.
(C) Forced Conversion Exchangeable Notes.
++ Family of Equity-Linked Income Securities.
** Preferred Redeemable Increased Dividend Equity Securities.
## Value reflects fair value determination made by the Board of Directors
of the Company as a result of FCC financial difficulties. Ticker
symbols: CSCO, EDS, HWP, INTC, MSFT & ORCL.
(C)(C) Collateral for a letter of credit. Ratings in parentheses by Moody's
Investors Service, Inc. or Standard & Poor's, a division of McGraw-Hill
Companies, Inc., have been obtained from sources believed to be
reliable but have not been audited by Coopers &Lybrand L.L.P.
The cost of investments for federal income tax purposes is $76,368,542 resulting
in gross unrealized appreciation and depreciation of $19,801,149 and $1,283,266,
respectively, or net unrealized appreciation of $18,517,883 on a tax cost basis.
STATEMENT OF ASSETS AND LIABILITIES:
<TABLE>
<CAPTION>
September 30, 1997
-----------
ASSETS:
<S> <C>
Investments at value (Identified cost $76,368,542) (Note A) .......... $94,886,425
Cash ................................................................. 1,943,955
Dividends and interest receivable .................................... 614,904
Other assets ......................................................... 20,251
-----------
Total assets ......................................................... 97,465,535
-----------
LIABILITIES:
Payable for securities purchased ..................................... 2,601,250
Accrued management fee (Note B) ...................................... 8,466
Accrued expenses ..................................................... 34,242
-----------
Total liabilities .................................................... 2,643,958
-----------
NET ASSETS AT VALUE .................................................. $94,821,577
===========
NET ASSETS CONSIST OF:
Undistributed net investment income .................................. $ 461,274
Undistributed net realized gain from investment transactions ......... 10,543,109
Unrealized appreciation on investments ............................... 18,517,883
Capital shares (Note C) .............................................. 71,109
Additional paid-in capital ........................................... 65,228,202
-----------
NET ASSETS AT VALUE .................................................. $94,821,577
===========
Net asset value per share ($94,821,577 / 7,110,916 outstanding shares) $ 13.33
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE> 5
STATEMENT OF OPERATIONS:
FOR THE YEAR ended September 30, 1997
<TABLE>
INVESTMENT INCOME (Note A):
<S> <C>
Interest ............................................. $ 2,344,673
Dividends ............................................ 1,460,593
-----------
Total Income ........................................ 3,805,266
-----------
EXPENSES (Note B):
Management fee ........................................ 627,050
Custodian fees ........................................ 34,636
Transfer agent fees ................................... 35,245
Professional fees ..................................... 73,568
Directors' fees ....................................... 54,850
Treasurer's office .................................... 25,000
Reports to shareholders ............................... 76,126
Other ................................................. 65,301
-----------
Total Expenses ....................................... 991,776
-----------
NET INVESTMENT INCOME .................................. 2,813,490
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ........ 10,543,504
Net increase in unrealized appreciation of investments. 8,277,974
-----------
Net gain on investments ............................... 18,821,478
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $21,634,968
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
Increase in net assets from operations:
<S> <C> <C>
Net investment income ........................................... $ 2,813,490 $ 2,837,708
Net realized gain from investment transactions .................. 10,543,504 7,060,060
Net unrealized appreciation of investments ...................... 8,277,974 2,247,308
------------ ------------
Net increase in net assets resulting from operations ........... 21,634,968 12,145,076
------------ ------------
Dividends to shareholders from:
Net investment income ........................................... (2,796,764) (3,117,865)
Net realized gain on investments ................................ (7,057,407) (1,867,369)
------------ ------------
Total dividends ................................................ (9,854,171) (4,985,234)
------------ ------------
Capital share transactions (Note C)
Value of shares issued on reinvestment of distributions ......... 4,680,550 1,466,310
Repurchase of capital shares .................................... (35,184) --
------------ ------------
Change in net assets resulting from capital share transactions . 4,645,366 1,466,310
------------ ------------
Increase in net assets .......................................... 16,426,163 8,626,152
Net assets at beginning of year ................................. 78,395,414 69,769,262
------------ ------------
NET ASSETS AT END OF YEAR (including undistributed net investment
income of $461,274 and $444,548, respectively) .................. $ 94,821,577 $ 78,395,414
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(A) Ellsworth Convertible Growth and Income Fund, Inc. (the Fund) is registered
under the Investment Company Act of 1940 as a diversified, closed-end investment
company. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements:
1. Security Valuation
Investments in securities traded on a national securities exchange are valued at
market using the last reported sales price. Securities traded in the
over-the-counter market and listed securities for which no sales were reported
are valued at the mean between closing reported bid and asked prices. Where no
closing prices are available, value is determined by management, with the
approval of the Board of Directors.
2. Securities Transactions and Related Investment Income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) with gain or loss on the sale of securities being
determined based upon identified cost. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Interest
of $14,548 was earned on cash balances held by the custodian of the Fund's
assets during the year ended September 30, 1997.
3. Federal Income Taxes
It is the policy of the Fund to distribute substantially all of its taxable
income within the prescribed time and to otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies.
Therefore, no provision for federal income or excise taxes is believed
necessary.
4. Dividends and Distributions to Shareholders
The liability for dividends and distributions payable is recorded on the
ex-dividend date.
5. Market Risk
It is the Fund's policy to invest the majority of its assets in convertible
securities. Although convertible securities do derive part of their value from
that of the securities into which they are convertible, they are not considered
derivative financial instruments. However, certain of the Fund's investments
include features which render them more sensitive to price changes in their
underlying security. Thus they expose the Fund to greater downside risk than
traditional convertible securities, but still less than that of the underlying
common stock. The market value of those securities was $14,738,542 at September
30, 1997, representing 15.5% of net assets.
(B) The management fee is paid to Davis-Dinsmore Management Company, investment
adviser. The contract provides for payment of a monthly advisory fee, computed
at an annual rate of 3/4 of 1% of the first $100,000,000 and 1/2 of 1% of the
excess over $100,000,000 of the Fund's net asset value in such month. The annual
fee is subject to reduction to the extent that the ordinary expenses of the Fund
(excluding taxes and interest) 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 Fund for the year.
The adviser furnishes investment advice, office equipment and facilities, and
pays the salaries of all executive officers of the Fund, except that the costs
associated with personnel and certain non-personnel expenses of the office of
the Treasurer up to a maximum of $25,000 a year are reimbursed by the Fund. Such
reimbursements amounted to $25,000 for the year ended September 30, 1997. The
officers of the Fund are also directors, officers or employees of the investment
adviser, and are compensated by the investment adviser.
(C) At September 30, 1997 there were 7,110,916 shares of $.01 par value common
stock outstanding (20,000,000 shares authorized). During the year ended
September 30, 1997, 470,999 shares were issued in connection with reinvestment
of dividends from net investment income and capital gains. Also 3,600 shares
were repurchased at a 14% discount per share between cost of repurchase and net
asset value. During the year ended September 30, 1996, 159,598 shares were
issued.
(D) Purchases and sales of investments, exclusive of corporate short-term notes,
aggregated $57,738,065 and $59,749,408, respectively, for the year ended
September 30, 1997.
(E) A distribution of $1.55 per share, derived from net investment income of 6.7
cents, and net realized gains on investments of $1.483, was declared on October
20, 1997, payable November 29, 1997 to shareholders of record at the close of
business November 3, 1997.
<PAGE> 7
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
Per Share Operating Performance: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........ $ 11.80 $ 10.76 $ 9.72 $ 10.39 $ 9.31
------- ------- ------- ------- -------
Net investment income ..................... .40 .43 .48 .51 .53
Net realized and unrealized gain (loss) ... 2.59 1.37 1.30 (.58) 1.14
------- ------- ------- ------- -------
Total from investment operations ........ 2.99 1.80 1.78 (.07) 1.67
Less Distributions:
Dividends from net investment income ...... (.40) (.47) (.51) (.53) (.50)
Distributions from realized gains ......... (1.06) (.29) (.23) (.07) (.09)
------- ------- ------- ------- -------
Total distributions ..................... (1.46) (.76) (.74) (.60) (.59)
------- ------- ------- ------- -------
Net asset value, end of year .............. $ 13.33 $ 11.80 $ 10.76 $ 9.72 $ 10.39
======= ======= ======= ======= =======
Market value, end of year ................. $ 11.25 $ 9.875 $ 9.125 $ 8.375 $ 9.375
Total Investment Return:
Based on market value* .................. 30.93% 17.13% 18.95% (4.46)% 19.73%
Based on net asset value# ............... 27.77% 17.43% 19.50% (0.61)% 18.60%
Ratios/Supplemental Data:
Net assets, end of year ($000's) .......... 94,822 78,395 69,769 61,316 64,457
Ratio of expenses to average net assets ... 1.2% 1.2% 1.2% 1.1% 1.2%
Ratio of net investment income to
average net assets ...................... 3.4% 3.9% 5.0% 5.2% 5.5%
Portfolio turnover rate ................... 71% 70% 44% 45% 99%
Average commission rate paid+ ............. $ .0606 $ .0689
</TABLE>
- -------------
* Assumes valuation of the Fund's shares at market price, and reinvestment of
dividends at actual reinvestment price.
# Assumes valuation of the Fund's shares, and reinvestment of dividends, at net
asset values.
+ Disclosure required for fiscal years beginning after September 1995.
See accompanying notes to financial statements.
Federal income tax status of dividends paid per share during fiscal year ended
September 30, 1997 (unaudited):
<TABLE>
<CAPTION>
TOTAL ORDINARY LONG-TERM QUALIFYING
PAYMENT DATE PAID INCOME CAPITAL GAIN DISTRIBUTION*
------------ ---- ------ ------------ -------------
<S> <C> <C> <C> <C>
November 28, 1996 $ 1.13 $0.2418 $0.8882 33%
February 24, 1997 0.11 0.11 -- 37%
May 27, 1997 0.11 0.11 -- 37%
August 25, 1997 0.11 0.11 -- 37%
------- ------- -------
1.46 0.5718 0.8882
</TABLE>
*The percentages indicate the portion of each ordinary income distribution which
qualifies under the Internal Revenue Code for the deduction for dividends
received by corporate shareholders.
Ellsworth Convertible Growth and Income Fund, Inc. operates as a closed-end,
diversified management investment company and invests primarily in convertible
securities and uses other related strategies, with the objectives of providing
income and the potential for capital appreciation -- which objectives the
Company considers to be relatively equal, over the long-term, due to the nature
of the securities in which it invests.
<PAGE> 8
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Ellsworth Convertible Growth and Income Fund, Inc. (the "Fund"), including the
portfolio of investments, as of September 30, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Ellsworth Convertible Growth and Income Fund, Inc. as of September 30, 1997, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
October 17, 1997
<PAGE> 9
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
AUTOMATIC DIVIDEND INVESTMENT AND CASH PAYMENT PLAN
PLAN AND AUTHORIZATION FORM
The Bank of New York
Dividend Reinvestment
P.O. Box 11002, Church Street Station
New York, N.Y. 10286-1002
Dear Sirs:
I own, REGISTERED IN MY NAME . . . . . . . . . . . . . . . . . . . . shares
of Common Stock of Ellsworth Convertible Growth and Income Fund, Inc. (the
"Company").
I wish to invest all the dividends and distributions paid by the Company on
my shares automatically in additional shares from the date hereof until this
arrangement is terminated as stated below. As a participant in this plan (the
"Plan"), I may also wish to purchase additional shares of the Company through
the Plan. AUTHORIZATION. You are authorized to act as my agent as follows:
A. Establish an Account in my name.
B. Take into my Account all dividends and distributions paid by the Company
on all its Common Stock held in my name now or in the future and on all
additional shares of the Company (including fractions) held by you in my
Account.
C. In connection with any fiscal year-end capital gains distribution, take
the distribution (and any dividends from net investment income payable with the
distribution) in Common Stock at market price or net asset value, whichever is
lower.
D. In connection with the Company's first three quarterly dividends in each
fiscal year from net investment income (and any other dividends or distributions
declared by the Company, other than those paid pursuant to paragraph C), take
the dividend or distribution in Common Stock at net asset value if the net asset
value as determined by the Company as of the close of business on the last
trading day preceding the date of payment is lower than the closing market price
of the Common Stock on the American Stock Exchange on that trading day, plus
brokerage commissions. If the market price of the Common Stock is lower than its
net asset value, take the dividend or distribution in cash and add it to my
Account.
E. As soon as practicable after each cash payment is made to my Account in
accordance with paragraph D above, use the funds in my Account to buy on the
American Stock Exchange as many additional full shares of the Company's Common
Stock (plus a fractional interest in one share computed to three decimal places)
as are available at prices which are less than net asset value. If, before you
have completed the purchase of all shares for the distribution at prices less
than net asset value, the market price equals or exceeds the net asset value of
such shares, then you shall pay the remaining proceeds of the distribution to
the Company and take the balance of the distribution in shares of Common Stock
at net asset value.
F. I understand that as a Plan participant I may also voluntarily purchase
additional shares through the Plan by delivering a check payable to the Bank for
at least $100, but not more than $10,000 in any month for deposit into my
Account. Within 30 days, the Bank will combine all similar monies received and
purchase Company shares in the open market. Checks drawn on foreign banks are
subject to collection and collection fees and will be invested the next
investment date after funds have been collected.
G. You may mingle the cash in my Account with similar funds of other
stockholders of the Company for whom you act as agent under the Plan. The cost
of the shares and any fractional interests you buy for my Account in connection
with a particular dividend, distribution or cash purchase shall be determined by
the average cost per share, including brokerage commission, of all shares bought
by you for all shareholders for whom you act under the Plan in connection with
that dividend, distribution or cash purchase.
H. Whenever you receive or purchase shares or fractional interests for my
Account, you will send me confirmation of the transaction as soon as
practicable. You will hold such shares and fractional interests as my agent in
your name or the name of your nominee. Do not send me stock certificates for
full shares until I so request in writing or until my Account is terminated as
stated below. You will vote any shares so held for me in accordance with any
proxy returned to the Company by me in respect of the shares of which I am a
record owner.
(over)
<PAGE> 10
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
I. I understand that there is presently no service charge for you serving as
my agent and maintaining my Account, except that my Account will be charged a
$1.25 service fee for each cash purchase transaction on my behalf pursuant to
paragraph F. You may, in addition, charge me for extra services performed at my
request. I further understand that the Company reserves the right to amend the
Plan in the future to impose an additional service charge.
J. You will be liable only for willful misconduct or gross negligence in
acting as my agent under the Plan.
NAME AND ADDRESS. My name as shown on my Common Stock certificate or
certificates (including all names if more than one) and my address, are as
follows:
Please Print:
NAME OR NAMES ..............................................................
(PRINT NAMES EXACTLY AS ON STOCK CERTIFICATE)
NUMBER AND STREET ..........................................................
CITY, STATE AND ZIP CODE ...................................................
SOCIAL SECURITY NUMBER......................................................
STOCK CERTIFICATES. I understand that if I hold more than one Common Stock
certificate registered in similar but not identical names or if more than one
address is shown for me on the Company's Common Stock records, all my shares of
Common Stock must be put into the same name and address if all of them are to be
covered by one Account. I understand that additional shares subsequently
acquired by me otherwise than through the Plan will be covered by my Account if
and when they are registered in the same name and address as the shares in my
Account.
INCOME TAX. I understand that participation in the Plan for automatic investment
of dividends and distributions and cash purchase of shares does not relieve me
of any income tax which may be payable by me on such dividends and distributions
and on expenses incurred by the Company on my behalf.
AMENDMENTS AND CHANGE OF AGENT. I understand that the company may amend the
terms of the Plan and reserves the right to change the agent which acts for all
participants in the Plan at any time by giving written notice thereof to each
participant at his address as shown on your records. Any such change shall be
effective as to all dividends and distributions payable to shareholders of
record on any date more than 30 days after mailing of such notice and shall be
effective 30 days after the mailing of such notice as to cash purchases.
Further, I understand that the Company in connection with any dividend or
distribution will change the price at which shares of its Common Stock are
issued to participants in the Plan if the net asset value of the shares is less
than 95% of the market price of such shares on the last trading day preceding
the payment date of any distribution of net investment income or net capital
gain, unless the Board obtains a legal opinion from independent counsel that the
purchase of shares at net asset value under these circumstances will not have a
material adverse effect upon the federal income tax liability of the Company.
The Board may not authorize issuance of shares offered to Plan participants
only, if such issuance is at a price less than net asset value, without the
prior specific approval of the Company's stockholders or of the Securities and
Exchange Commission.
TERMINATION. I may terminate my Account at any time by delivering written notice
to you prior to the record date of any dividend or distribution. I understand
that you or the Company may terminate all authorizations for any reason at any
time by sending written notice addressed to participants at their address as
shown on your records, such termination to be effective as to all dividends and
distributions payable to stockholders of record on any date more than 30 days
after mailing of such notice and shall be effective 30 days after the mailing of
such notice as to cash purchases. I understand you will terminate my Account if
you are informed of the transfer of all shares of the Company's Common Stock
registered in my name. Following the date of termination, you shall send me at
my address shown on your records a stock certificate or certificates for the
full shares held by you in my Account and a check for the value of any
fractional interest in my Account based on the market price of the Company's
Common Stock on that date.
Signature(s) ................................ Date .............................
(if shares are in more than one name, all must sign.)
......................................
(over)
<PAGE> 11
PRINCIPAL PORTFOLIO CHANGES
July 1 to September 30, 1997
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT
---------------------------------------------
HELD AT
ADDITIONS REDUCTIONS 9-30-97
--------- ---------- ---------
<S> <C> <C> <C>
American Retirement Corp. 5 3/4% 2002 cv. sub. deb 1,000,000 1,000,000
CalEnergy Capital Trust III 6 1/2% cv. pfd 20,000 20,000 --
Costco Companies, Inc. 0% 2017 cv. sub. notes 144A 1,000,000 1,000,000
Goldman Sachs Financial Products U.S., L.P. 3% 2002 medium-term notes 1,500,000 500,000 1,000,000
Houston Industries, Inc. 7% 2000 automatic common exchange securities 20,000 20,000
Intermedia Communications, Inc. depositary shares 40,000 40,000 --
representing 7% D jr. cv. pfd. 144A
Ralston Purina Co. 7% 2000 stock appreciation income linked securities 30,000 30,000
Republic National Bank of NY 1 7/8% 2002 exch. sr. notes 1,500,000 1,500,000
Rite Aid Corp. 5 1/4% 2002 cv. sub. notes 144A 750,000 750,000
Telefonica De Espana 2% 2002 gtd. exch. deb. 144A 1,000,000 1,000,000
The Rouse Company 5 3/4% 2002 euro cv. sub. deb 750,000 750,000
Kapson Senior Quarters Corp. 8% cv. exch. pfd. 144A 30,000 15,000 15,000
Mandatory Exchange Securities 7 1/4% trust issued mandatory exch. securities 17,500 17,500 --
WBK Trust 10% structured yield product exch. for stock 75,000 75,000
Complete Management, Inc. 8% 2003 cv. sub. deb 500,000 --
Jefferson-Pilot Corp. 7 1/4% 2000 automatic common exchange securities 5,000 20,600
Medco Containment Services, Inc. 6% 2001 cv. sub. deb 750,000 250,000
Nabors Industries, Inc. 5% 2006 cv. sub. notes 375,000 1,000,000
USA Waste Services, Inc. 4% 2002 cv. sub. notes 1,000,000 --
Westbridge Capital Corp. 7 1/2% 2004 cv. sub. notes 1,000,000 --
</TABLE>
AUTOMATIC DIVIDEND INVESTMENT AND CASH PAYMENT PLAN Shareholders may
participate in our reinvestment plan whereby all dividends and distributions are
automatically invested in additional Ellsworth shares at the current market
price or net asset value, whichever is lower (but not less than 95% of market
price). When the market price is lower, The Bank of NY (The "Bank"), as your
agent, will combine your dividends with those of other Plan participants, and
purchase shares in the market, thereby taking advantage of the lower commissions
on larger purchases. There is no other charge for this service.
Plan participants may also voluntarily send cash payments of $100 to $10,000
per month to the Bank, to be combined with other Plan monies, for purchase of
additional Ellsworth shares in the open market. You pay only a bank service
charge of $1.25 per transaction, plus your proportionate share of the brokerage
commission. All shares and fractional shares purchased will be held by the Bank
in your dividend reinvestment account.
All registered shareholders are eligible to join the Plan. If your shares
are held by a broker or other nominee, you should instruct the nominee to join
the Plan on your behalf. Some brokers may require that your shares be taken out
of the broker's "street name" and re-registered in your own name.
To join the Plan, fill out and mail the authorization form located on the
previous page.
Pursuant to Section 23 of the Investment Company Act of 1940, notice is hereby
given that the Fund may in the future purchase shares of Ellsworth Convertible
Growth and Income Fund, Inc. Common Stock from time to time, at such times,
and in such amounts, as may be deemed advantageous to the Fund. Nothing herein
shall be considered a commitment to purchase such shares.
<PAGE> 12
DIRECTORS
GORDON F. AHALT
WILLIAM A. BENTON
ELIZABETH C. BOGAN
THOMAS H. DINSMORE, C.F.A.
DONALD M. HALSTED, JR.
GEORGE R. LIEBERMAN
DUNCAN O. MCKEE
JANE D. O'KEEFFE
NICOLAS W. PLATT
OFFICERS
THOMAS H. DINSMORE Chairman of the Board
JANE D. O'KEEFFE President
SIGMUND LEVINE Senior Vice President
and Secretary
H. TUCKER LAKE Vice President, Trading
GERMAINE M. ORTIZ Assistant Vice President
GARY I. LEVINE Treasurer and
Assistant Secretary
MERCEDES A. PIERRE Assistant Treasurer
INVESTMENT ADVISER
Davis-Dinsmore Management Company
65 Madison Avenue, Morristown, NJ 07960-7308
(973) 631-1177
http://www.bcvecf.com
email: [email protected]
SHAREHOLDER SERVICES AND TRANSFER AGENT
The Bank of New York
Shareholder Relations Department - 11E
P.O. Box 11258, Church Street Station
New York, NY 10286-1258
(800) 432-8224
http://stkxfer.bankofny.com
COMMON STOCK LISTING
American Stock Exchange
Symbol: ECF
[RECYCLE LOGO] Printed on recycled paper.
ELLSWORTH
CONVERTIBLE
GROWTH AND
INCOME FUND
[SEAL]
ANNUAL REPORT
SEPTEMBER 30, 1997
