<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
ELLSWORTH CONVERTIBLE
GROWTH AND INCOME FUND, INC.
65 MADISON AVENUE
MORRISTOWN, NEW JERSEY 07960
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
FRIDAY, JANUARY 12, 2001
11:00 A.M., EASTERN TIME
AT
ATLANTIS GOLF CLUB
301 ORANGE TREE DRIVE
ATLANTIS, FLORIDA 33462
To Shareholders of Ellsworth Convertible Growth and Income Fund, Inc.:
We cordially invite you to attend our 2001 Annual Meeting of Shareholders
to:
1. Elect three directors to three-year terms.
2. Approve a new Investment Advisory Agreement with Davis-Dinsmore
Management Company.
3. Ratify the board's appointment of PricewaterhouseCoopers LLP as
independent accountants for fiscal year 2001.
4. Vote on an amendment to the Company's Charter to give shareholders the
right to tender their shares during fiscal year 2001.
5. Transact any other business that properly comes before the meeting.
We are holding the Annual Meeting on Friday, January 12, 2001 at 11:00
a.m., Eastern Time, at the Atlantis Golf Club, 301 Orange Tree Drive, Atlantis,
Florida 33462.
You may vote on these proposals in person or by proxy. If you cannot attend
the meeting, we urge you to complete and return the enclosed proxy promptly in
the enclosed, self-addressed, stamped envelope so that your shares will be
represented and voted at the meeting according to your instructions. Of course,
if you attend the meeting, you may withdraw your proxy and vote your shares.
Only shareholders of record on November 21, 2000 will be entitled to vote at the
meeting or any adjournment of the meeting.
/s/ THOMAS H. DINSMORE
----------------------------------
Thomas H. Dinsmore
Chairman of the Board of
Directors
November 29, 2000
<PAGE> 3
ELLSWORTH CONVERTIBLE
GROWTH AND INCOME FUND, INC.
65 MADISON AVENUE
MORRISTOWN, NEW JERSEY 07960
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JANUARY 12, 2001
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
PROXY STATEMENT
We are sending you this Proxy Statement and the enclosed proxy card because
the Company's Board of Directors is soliciting your proxy to vote at the 2001
Annual Meeting of Shareholders. This Proxy Statement summarizes the information
you need to know to cast an informed vote at the Annual Meeting. However, you do
not need to attend the Annual Meeting to vote your shares. Instead, you may
simply complete, sign and return the enclosed proxy card.
We plan to begin sending this Proxy Statement, the attached Notice of
Annual Meeting and the enclosed proxy card on November 29, 2000 to all
shareholders entitled to vote. Shareholders who owned shares of the Company's
common stock on November 21, 2000 are entitled to vote. On this record date,
there were 9,233,538 shares outstanding. We know of no beneficial owner of more
than five percent of those shares. Each share of the Company's common stock that
you own entitles you to one vote. (A fractional share has a fractional vote.)
We are also sending along with this Proxy Statement the Company's 2000
Annual Report, which includes our financial statements.
TIME AND PLACE OF MEETING
We are holding the Annual Meeting on Friday, January 12, 2001 at 11:00
a.m., Eastern Time, at the Atlantis Golf Club, 301 Orange Tree Drive, Atlantis,
Florida 33462.
VOTING BY PROXY
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote,
your "proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign
<PAGE> 4
the proxy card but do not make specific choices, your proxy will vote your
shares as recommended by the Board as follows:
- FOR the election of all three nominees for director.
- FOR approval of a new Investment Advisory Agreement with Davis-Dinsmore
Management Company.
- FOR ratification of the selection of independent accountants for 2001.
- AGAINST the amendment to the Company's Charter.
Your proxy will have authority to vote and act on your behalf at any
adjournment of the meeting.
If you give a proxy, you may revoke it at any time before it is exercised.
You can do this in one of three ways:
- You may send in another proxy with a later date.
- You may notify the Company's secretary in writing before the Annual
Meeting that you have revoked your proxy.
- You may vote in person at the Annual Meeting.
VOTING IN PERSON
If you do attend the Annual Meeting and wish to vote in person, we will
give you a ballot when you arrive. However, if your shares are held in the name
of your broker, bank or other nominee, you must bring a letter from the nominee
indicating that you are the beneficial owner of the shares on November 21, 2000,
the record date for voting, and authorizing you to vote.
QUORUM REQUIREMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote a majority of all shares outstanding
on the record date are present in person or by proxy.
Under rules applicable to broker-dealers, if your broker holds your shares
in its name, we expect that the broker will be entitled to vote your shares on
Proposals 1, 2 and 3 even if it has not received instructions from you. However,
your broker will not be entitled to vote on Proposal 4 unless it has received
instructions from you. If your broker does not vote your shares on Proposal 4
because it has not received instructions from you, these shares will be
considered "broker non-votes."
Broker non-votes and abstentions will count as present for establishing a
quorum.
VOTE NECESSARY TO APPROVE A PROPOSAL
PROPOSAL 1. Directors are elected by a plurality vote of shares present at
the meeting, meaning that the director nominee with the most affirmative votes
for a particular slot is elected for that slot. In an uncontested election for
directors, the plurality requirement is not a factor.
2
<PAGE> 5
Abstentions will not count as votes cast and will have no effect on the outcome
of this proposal. We expect that brokers will be entitled to vote on this
proposal.
PROPOSAL 2. The affirmative vote of an "Investment Company Act Majority"
is needed to approve the new investment advisory agreement. An "Investment
Company Act Majority" is defined as the lesser of (a) the vote of holders of 67%
or more of the voting securities of the Company present in person or by proxy,
if the holders of more than 50% of the outstanding voting securities of the
Company are present in person or by proxy, or (b) the vote of the holders of
more than 50% of the outstanding voting securities of the Company. Abstentions
will not count as votes cast and will have the effect of votes against this
proposal. We expect that brokers will be entitled to vote on this proposal.
PROPOSAL 3. The affirmative vote of the majority of votes cast is needed
to approve the selection of independent accountants. Abstentions will not count
as votes cast and will have no effect on the outcome of this proposal. We expect
that brokers will be entitled to vote on this proposal.
PROPOSAL 4. The affirmative vote of two-thirds of all outstanding shares
of the Company, whether or not present at the Annual Meeting, is needed to
approve the amendment of the Company's Charter. Broker non-votes and abstentions
will not count as votes cast and will have the effect of votes against this
proposal.
3
<PAGE> 6
PROPOSAL 1
ELECTION OF DIRECTORS
STRUCTURE OF THE BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes for purposes
of election. One class is elected at each annual meeting of shareholders.
Directors in each class serve for a three-year term.
The Board of Directors currently consists of nine persons. Seven of the
directors are "independent," meaning they are not "interested persons" of the
Company within the meaning of the Investment Company Act of 1940, as amended
(the Investment Company Act). Two of the Company's directors are "interested
persons" because of their business and financial relationships with the Company
and its investment adviser.
At the 2001 Annual Meeting, the terms of three directors are expiring. The
directors nominated for election at this Annual Meeting would each hold office
for a three-year term expiring in 2004. Other directors are not up for election
this year and will continue in office for the rest of their terms. Each of the
nominees is willing to serve as a director. However, if a nominee becomes
unavailable for election, proxies will vote for another nominee proposed by the
Board or, as an alternative, the Board may keep the position vacant or reduce
the number of directors.
NOMINEES FOR DIRECTORS
The Board has approved the nomination of the following people to serve as
directors until the annual meeting of shareholders to be held in 2004. Each of
the nominees is currently a director of the Company and an independent director.
GORDON F. AHALT, 72, has been President of G.F.A. Inc., a petroleum
industry consulting company, since 1982 and a consultant with W. H. Reaves &
Co., Inc., an asset management company, since 1987. Mr. Ahalt has spent his
career as an analyst of and a consultant to the petroleum industry, and has
previously served as a director or executive officer of several energy
companies. Mr. Ahalt has been a director of the Company since 1986. He is also a
director of Bancroft Convertible Fund, Inc. (a closed-end investment company);
The Harbinger Group, an investment firm; Cal Dive International, a diving
service, and The Houston Exploration Company, an oil and gas exploration
company. Mr. Ahalt received a B.S. in Petroleum Engineering from the University
of Pittsburgh.
ELIZABETH C. BOGAN, Ph.D., 56, has been a Senior Lecturer in Economics at
Princeton University since 1992. Before joining the faculty at Princeton she was
the Chairman of The Economics and Finance Department at Fairleigh Dickinson
University and a member of the Executive Committee for the College of Business
Administration. Dr. Bogan has chaired numerous administrative and academic
committees. Dr. Bogan has been a director of the Company since 1986 and is also
a director of Bancroft Convertible Fund, Inc. Professor Bogan received an A.B.
in Economics from Wellesley College, an M.A. in Quantitative Economics from the
University of New Hampshire, and a Ph.D. in Economics from Columbia University.
Her writings on finance have been published in The Financial Analysts Journal
and in other journals.
4
<PAGE> 7
NICOLAS W. PLATT, 47, has been Managing Director of the Corporate Financial
Practice at the public relations firm of Burson-Marsteller, a division of Young
& Rubicam, WPP Group, UK, since 1997. From 1995 to 1997, he was Senior Managing
Director at Bozell-Sawyer Miller, a division of True North Communications, a
public relations firm; and from 1993 to 1995, he was Executive Vice President of
NovAtel Communications Ltd. Before joining NovAtel, Mr. Platt was Managing
Director and Corporate Vice President of the American Stock Exchange from
1983-1993. He has been a director of the Company since 1997 and is also a
director of Bancroft Convertible Fund, Inc. Mr. Platt received a B.A. from
Skidmore College and an M.A. in Economics from Columbia University.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THESE NOMINEES.
INFORMATION ABOUT THE COMPANY'S OTHER DIRECTORS
Information about the Company's other directors is presented below.
CONTINUING INDEPENDENT DIRECTORS
WILLIAM A. BENTON, 67, was a partner in BE Partners, a small options market
maker, from 1991 until the business was sold on November 1, 2000. From 1991 to
November 1999, he was a limited partner of Gavin, Benton, & Co., a New York
Stock Exchange specialist firm. Mr. Benton has been a member of the New York
Stock Exchange for more than 45 years, and has previously been a director of a
discount brokerage firm and a brokerage firm making markets in derivative
instruments. Mr. Benton has been a director of the Company since 1986 and is
also a director of Bancroft Convertible Fund, Inc. Mr. Benton graduated from
Bucknell University with a B.S. in Commerce and Finance. Mr. Benton's term as
director expires in 2003.
DONALD M. HALSTED, JR., 73, has been a self-employed businessman since
1983. Mr. Halsted has had more than thirty years experience in management and
marketing for cement companies, including several senior management positions.
Mr. Halsted served in the Army Air Force in World War II. Mr. Halsted has been a
director of the Company since 1986 and is also a director of Bancroft
Convertible Fund, Inc. Mr. Halsted received an A.B. in Economics from Princeton
University. Mr. Halsted's term as director expires in 2002.
GEORGE R. LIEBERMAN, 78, is a retired businessman. Prior to his retirement,
Mr. Lieberman spent more than thirty years as the head of an advertising agency.
Mr. Lieberman served in the U.S. Navy during World War II as a fighter pilot and
received several citations and commendations. Mr. Lieberman has been a director
of the Company since 1990 and is also a director of Bancroft Convertible Fund,
Inc. Mr. Lieberman received a B.A. from Muhlenberg College. Mr. Lieberman's term
as director expires in 2003.
DUNCAN O. MCKEE, 69, retired in 1988 from the practice of law as a partner
at the law firm of Ballard Spahr Andrews & Ingersoll, LLP. Mr. McKee was
Director Emeritus of the Company and Bancroft Convertible Fund, Inc. from 1988
to 1996. During his career at Ballard Spahr, Mr. McKee represented publicly
owned companies, including closed-end and open-end investment companies, in
mergers, acquisitions and securities offerings. He has been a director of the
Company since 1996 and is also a director of Bancroft. Mr. McKee received his
undergraduate
5
<PAGE> 8
degree from the College of Wooster and his law degree from Duke University
School of Law. Mr. McKee's term as director expires in 2002.
CONTINUING DIRECTORS WHO ARE INTERESTED PERSONS
THOMAS H. DINSMORE, 47, has been Chairman and Chief Executive Officer of
the Company, Bancroft Convertible Fund, Inc. and Davis-Dinsmore Management
Company (investment adviser to the Company and to Bancroft) since August 1996.
From 1986 to August 1996, Mr. Dinsmore was President of the Company; from 1985
to 1996, he was President of Bancroft; and from 1988 to 1996, he was President
of Davis-Dinsmore. Mr. Dinsmore is a Chartered Financial Analyst. Mr. Dinsmore
has been a director of the Company since 1986 and is also a director of Bancroft
and Davis-Dinsmore. Mr. Dinsmore received a B.S. in Economics from the Wharton
School of Business at the University of Pennsylvania, and an M.A. in Economics
from Fairleigh Dickinson University. Mr. Dinsmore's term as director expires in
2002.
Mr. Dinsmore is an interested person (within the meaning of the Investment
Company Act) of the Company and Davis-Dinsmore Management Company because he is
an officer of the Company and an officer, director and holder of more than 5% of
the outstanding shares of voting common stock of Davis-Dinsmore.
JANE D. O'KEEFFE, 45, has been President of the Company, Bancroft
Convertible Fund, Inc. and Davis-Dinsmore Management Company since August 1996.
In 1996, before becoming President of the Company and Bancroft, she was
Executive Vice President of the Company and Bancroft. From 1994 to 1996, Ms.
O'Keeffe was Vice President of the Company and Bancroft and Executive Vice
President of Davis-Dinsmore. Ms. O'Keeffe has been in the investment business
since 1980. Ms. O'Keeffe has been a director of the Company since 1995 and is
also a director of Bancroft and Davis-Dinsmore. Ms. O'Keeffe has a B.A. from the
University of New Hampshire and attended the Lubin Graduate School of Business
at Pace University. Ms. O'Keeffe's term as director expires in 2003.
Ms. O'Keeffe is an interested person of the Company and Davis-Dinsmore
Management Company because she is an officer of the Company and an officer,
director and holder of more than 5% of the outstanding shares of voting common
stock of Davis-Dinsmore.
COMMITTEES OF THE BOARD
The Board has two committees: an Audit Committee and a Nominating and
Administration Committee.
AUDIT COMMITTEE
The Audit Committee is comprised entirely of independent directors (Mr.
Benton, Dr. Bogan, Mr. Lieberman and Mr. Halsted, with Dr. Bogan serving as
Chairperson). In accordance with its charter attached as Appendix A to this
proxy statement, the Committee oversees the Company's accounting and financial
reporting policies and practices, as well as the quality and objectivity of the
Company's financial statements and the independent audit of the financial
statements. Among other duties, the Committee recommends independent accountants
for the Company, evaluates their independence and meets with them to review the
scope and results of the audit.
6
<PAGE> 9
Audit Committee Report
The Audit Committee reviewed and discussed the Company's audited financial
statements with its independent accountants, PricewaterhouseCoopers, LLP (PWC).
These discussions included the auditor's judgments about the quality, not just
acceptability, of the Company's accounting principles as applied in its
financial reporting. PWC, the Audit Committee and management also discussed
matters such as the clarity, consistency and completeness of the accounting
policies and disclosures.
The Audit Committee has received a letter from PWC required by Independence
Standards Board Standard No. 1 disclosing all relationships between PWC and its
related entities and the Company. As the Company's independent accountants, the
Audit Committee discussed with PWC their independence. The Audit Committee also
reviewed and discussed the Company's audited financial statements with
management.
Based on the review and discussions described above, the Audit Committee
has recommended to the Company's Board of Directors that the audited financial
statements be included in the Company's annual report to shareholders for the
fiscal year ended September 30, 2000 for filing with the Securities and Exchange
Commission.
Elizabeth C. Bogan, Ph.D.,
Chairperson
William A. Benton
George R. Lieberman
Donald M. Halsted
NOMINATING AND ADMINISTRATION COMMITTEE
The Nominating and Administration Committee is also comprised entirely of
independent directors (Mr. Ahalt, Mr. Halsted and Mr. Lieberman, with Mr.
Halsted serving as Chairman). In accordance with its charter, the Committee,
among other duties, recommends nominees as independent directors for the Company
and nominees for Board committees, reviews Board governance issues and Board
compensation and monitors the performance of legal counsel. In recommending
nominees, the Committee considers the diversity of experience and backgrounds of
nominees and directors. The Nominating and Administration Committee will
consider a shareholder's suggestion for a nominee for director, but the final
decision for all nominees will be made by the Committee. Any shareholder who
wishes to propose an individual for consideration to be nominated for the 2002
annual meeting of shareholders may do so by submitting, in writing, the
individual's name, together with information regarding the business experience
of the individual and any other information that the shareholder considers
relevant to the Committee's decision, to the Secretary of the Company no earlier
than September 14, 2001 but no later than October 14, 2001.
BOARD AND COMMITTEE MEETING ATTENDANCE
During the 2000 fiscal year, the Board met eight times, the Audit Committee
met three times and the Nominating and Administration Committee met twice. All
directors attended at least 75% of all Board and Committee meetings held during
the 2000 fiscal year.
7
<PAGE> 10
DIRECTORS' COMPENSATION
Mr. Dinsmore and Ms. O'Keeffe are the only officers of the Company or
Davis-Dinsmore Management Company who serve on the Board of Directors. Each
director who is not an officer of the Company or Davis-Dinsmore currently
receives (1) an annual fee of $5,000, (2) $1,000 plus expenses for each Board
meeting attended, (3) $1,000 for each shareholders' meeting attended; (4) $1,000
plus expenses for each Committee meeting attended that is not held in
conjunction with a Board meeting, and (5) $500 for each Committee meeting
attended that is held in conjunction with a Board meeting.
Davis-Dinsmore Management Company is the Company's investment adviser and
is also the investment adviser to Bancroft Convertible Fund, Inc. Because of
this connection, Bancroft and the Company make up a "fund complex." The
following table shows the compensation that was paid to the directors solely by
the Company as well as by the fund complex as a whole during the 2000 fiscal
year.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM FUND
FROM COMPANY COMPLEX
------------ ------------
<S> <C> <C>
Thomas H. Dinsmore.............................. $ -0- $ -0-
Jane D. O'Keeffe................................ $ -0- $ -0-
Gordon F. Ahalt................................. $12,125 $25,875
William A. Benton............................... $13,625 $27,875
Elizabeth C. Bogan, Ph.D........................ $12,625 $26,875
Donald M. Halsted, Jr........................... $15,625 $31,875
George R. Lieberman............................. $15,625 $31,875
Duncan O. McKee................................. $12,125 $24,875
Nicolas W. Platt................................ $12,125 $24,875
</TABLE>
PROPOSAL 2
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board is asking you to vote on this new agreement because the Company
may amend its advisory agreement only with shareholder approval. A form of the
Company's proposed Investment Advisory Agreement is attached as Appendix B to
this proxy statement. The proposed advisory agreement amends the current
advisory agreement primarily by:
- clarifying the scope of services the investment adviser provides;
- omitting expense limitation provisions that are not required by law;
- recognizing that Davis-Dinsmore Management Company acts as an investment
adviser to another registered investment company; and
- changing the governing law provision from New York to Maryland.
NO CHANGES TO INVESTMENT ADVISORY FEES ARE BEING PROPOSED, OTHER THAN TO
ELIMINATE EXPENSE LIMITATION PROVISIONS.
8
<PAGE> 11
THE INVESTMENT ADVISER
Davis-Dinsmore Management Company (Davis-Dinsmore) has been the investment
adviser for the Company since its inception in 1986. The current Investment
Advisory Agreement has been in effect since October 25, 1996, the date on which
the Company's shareholders last voted on and approved such agreement. The Board,
including a majority of the independent directors, last approved the current
advisory agreement at a meeting held on November 13, 2000.
Davis-Dinsmore is a privately owned Delaware corporation that acts as an
investment adviser to the Company and to Bancroft Convertible Fund, Inc. The
address of Davis-Dinsmore is 65 Madison Avenue, Suite 550, Morristown, New
Jersey 07960. The principal executive officer of Davis-Dinsmore is Thomas H.
Dinsmore and the directors are Thomas H. Dinsmore, Jane D. O'Keeffe, Sally Jean
Finnican and Jean H. Dinsmore.
DIRECTORS OR EXECUTIVE OFFICERS OF THE COMPANY HOLDING POSITIONS WITH
DAVIS-DINSMORE
Thomas H. Dinsmore and Jane D. O'Keeffe, both of whom are directors and
executive officers of the Company, also are directors and officers of
Davis-Dinsmore.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the current advisory agreement, Davis-Dinsmore, subject to the
supervision of the Board and in conformance with the stated policies of the
Company, provides investment information, advice and recommendations. In this
regard, it is Davis-Dinsmore's responsibility to provide the Company with the
information, advice and recommendations necessary for the Company to make
investment decisions. In making its recommendations to the Company, Davis-
Dinsmore may take into account the value of the research provided, execution
capability, commission rate, and financial responsibility and responsiveness of
the broker-dealer to the Company.
Davis-Dinsmore is also responsible for furnishing to the Company office
space and facilities, paying the salaries of the Company's executive officers,
and furnishing bookkeeping and statistical services to the Company.
The current advisory agreement provides that the Company will pay or cause
to be paid all of the costs and expenses associated with the Company's
operations and activities, except those expressly assumed by Davis-Dinsmore.
Expenses not assumed by Davis-Dinsmore include:
- expenses in connection with the Company's organization and with the
offering of its securities;
- fees and expenses of unaffiliated directors;
- legal and accounting fees, fees of its custodian, registrar and transfer
agent;
- fees of the 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 Company's business.
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<PAGE> 12
The current advisory agreement will continue in effect from year to year
only if such continuance is specifically approved at least annually by (i) the
Board of Directors or an Investment Company Act Majority, and (ii) the
affirmative vote of a majority of independent directors by votes cast in person
at a meeting called for such purpose. The current advisory agreement provides
that the Company or Davis-Dinsmore may terminate the agreement on 60 days'
written notice without penalty. The agreement terminates automatically in the
event of its assignment.
The annual rates at which Davis-Dinsmore receives monthly fees under the
current advisory agreement are computed at an annual rate of 0.75% of the first
$100,000,000 of the Company's average net assets and 0.50% of the Company's
average net assets in excess of $100,000,000. Such fee is reduced to the extent
that the Company's ordinary expenses for the year (including Davis-Dinsmore's
fee but excluding interest, local, state and federal taxes and extraordinary
expenses as determined by the independent directors of the Company) 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. These expense limitations have never been exceeded. The
Company paid Davis-Dinsmore fees totaling $764,000 during the fiscal year ended
September 30, 2000.
ADDITIONAL SERVICES PROVIDED BY DAVIS-DINSMORE
Davis-Dinsmore also provides certain administrative services, including
statistical, clerical and bookkeeping services. Davis-Dinsmore receives
reimbursement from the Company for the first $25,000 of the costs and expenses
of the Treasurer's office each year.
ADVISORY FEES RECEIVED BY DAVIS-DINSMORE FROM A SIMILAR FUND IT MANAGES
Davis-Dinsmore also receives monthly advisory fees from the following fund
which has a similar investment objective as the Company:
<TABLE>
<CAPTION>
SIZE OF FUND
(AS OF FEE ARRANGEMENT
NAME OF FUND 10/31/2000) (ANNUAL RATE) EXPENSE LIMITATIONS
------------ ------------ ---------------------- ----------------------
<S> <C> <C> <C>
Bancroft Convertible
Fund, Inc. $111,335,551 0.75% of the first Advisory fees reduced
$100,000,000 of net if ordinary expenses
assets and 0.50% of exceed 1.5% of the
the excess over first $100,000,000,
$100,000,000 and 1.0% of the excess
over $100,000,000, of
the average of monthly
net assets for the 12
months of each fiscal
year
</TABLE>
Bancroft is currently the only other fund managed by Davis-Dinsmore. Bancroft
paid Davis-Dinsmore fees totaling $804,000 during the Company's fiscal year
ended September 30, 2000.
10
<PAGE> 13
TERMS OF THE PROPOSED ADVISORY AGREEMENT
The primary differences between the current advisory agreement and the
proposed advisory agreement are:
- To clarify the scope of services that Davis-Dinsmore will provide to the
Company;
- To omit expense limitation provisions not required by law;
- To formally recognize that Davis-Dinsmore acts as an investment adviser
to another registered investment company; and
- To change the governing law provision from New York to Maryland.
Each of these changes is discussed more fully below. Except for these
changes, the terms of the current advisory agreement and the proposed advisory
agreement are substantially similar, except for the effective dates and the
renewal dates.
SERVICES PROVIDED BY DAVIS-DINSMORE
The current advisory agreement requires Davis-Dinsmore to provide the
Company with information, advice and recommendations, but does not clearly
authorize Davis-Dinsmore to make investment decisions. The Board proposes to
clarify the scope of services provided by Davis-Dinsmore by providing in the
proposed advisory agreement that Davis-Dinsmore shall: (a) supervise all aspects
of the operations of the Company; (b) obtain and evaluate pertinent information
about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or any
industry or the Company or any issuer of securities held or to be purchased by
the Company; (c) determine which issuers and securities shall be represented in
the Company's investment portfolio and regularly report thereon to the Board of
Directors; (d) place orders for the purchase and sale of securities for the
Company; and (e) take, on behalf of the Company, such other action as may be
necessary or appropriate in connection with the above.
EXPENSE LIMITATIONS
The current advisory agreement limits expenses of the Company by requiring
Davis-Dinsmore to reduce its fee to the extent that the Company's ordinary
expenses for the year (including Davis-Dinsmore's fee but excluding interest,
local, state and federal taxes and extraordinary expenses as determined by the
independent directors of the Company) 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. The Board
proposes to eliminate this provision in the proposed advisory agreement. Neither
federal nor state law requires that expense limitations be imposed on investment
companies. Moreover, the Company has never exceeded the expense limitations. The
Board believes that this change will not have a material effect on the Company's
expense ratio, and will continue to monitor the Company's expenses.
RECOGNITION OF DAVIS-DINSMORE'S OTHER AFFILIATIONS
The current investment advisory agreement is silent regarding the fact that
Davis-Dinsmore acts as an investment adviser to another registered investment
company and may act in the future
11
<PAGE> 14
as an investment adviser to fiduciary and other managed accounts and investment
companies. The Board of Directors believes that it is prudent to recognize that
Davis-Dinsmore currently acts in such a capacity and may do so for additional
entities in the future. The Board also noted that under certain circumstances
investment opportunities would be equitably allocated between the Company and
such other accounts and that such allocation could adversely affect the size of
the positions obtainable and the prices realized for the Company. Accordingly, a
provision has been added to the proposed advisory agreement recognizing
Davis-Dinsmore's other advisory obligations.
GOVERNING LAW
The current advisory agreement provides that 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 the
agreement. The parties originally chose the laws of New York as governing the
agreement because the Company and Davis-Dinsmore maintained an office in New
York City and the agreement was performed in New York. Since 1996, neither the
Company nor Davis-Dinsmore has maintained an office in New York. Instead, they
maintain an office in New Jersey and the current advisory agreement is performed
in that state.
Because neither party currently conducts business in New York, and the
Company is a Maryland corporation, the Board believes that the laws of the State
of Maryland should govern the construction, validity and effect of the advisory
agreement, except to the extent that any applicable provisions of some other law
are controlling. This change is reflected in the proposed advisory agreement.
Because Davis-Dinsmore is a Delaware corporation and the proposed advisory
agreement, if approved, will be performed in New Jersey, there can be no
assurance that, if litigation were to arise under the proposed advisory
agreement, a court would apply the laws of the State of Maryland in interpreting
the agreement.
COMPARATIVE EXPENSE INFORMATION
The amounts that would have been paid had the new investment advisory
agreement been in effect during the last fiscal year would not differ from
actual amounts paid under the current advisory agreement.
WHAT FACTORS DID THE DIRECTORS CONSIDER IN APPROVING THE ADVISORY AGREEMENT?
At the request of Davis-Dinsmore, the Board discussed the approval of the
proposed advisory agreement at a meeting held in person on November 13, 2000.
The independent directors also discussed approval of the proposed advisory
agreement with their counsel at that meeting. In evaluating the proposed
advisory agreement, the Board requested and received information from
Davis-Dinsmore to assist in its deliberations.
The Board considered the following factors in determining the
reasonableness and fairness of the proposed changes to the current advisory
agreement.
- The qualifications of Davis-Dinsmore to provide investment advisory
services. The Board reviewed the credentials and experience of the
officers and employees of Davis-Dinsmore who provide investment advisory
services to the Company, and noted that the persons
12
<PAGE> 15
providing services to the Company would not change if the new advisory
agreement is approved by shareholders.
- The range of investment advisory services provided by
Davis-Dinsmore. The Board reviewed the services to be provided by
Davis-Dinsmore under the new advisory agreement, and noted that no
changes in the level or type of services provided by Davis-Dinsmore would
occur if the new advisory agreement is approved by shareholders, other
than the execution by Davis-Dinsmore of purchase and sale orders. The
Board also noted that the officers of the Company and the officers of
Davis-Dinsmore are the same.
- The qualifications of Davis-Dinsmore to provide a range of management and
administrative services. The Board reviewed the general nature of the
non-investment advisory services performed by Davis-Dinsmore, such as
administrative services, and the fees received by Davis-Dinsmore for
performing such services. In addition to reviewing such services, the
Board also considered the organizational structure employed by Davis-
Dinsmore to provide those services. The Board concluded that the
administrative services to be provided by Davis-Dinsmore would not change
under the proposed advisory agreement.
- The performance record of the Company. The Board determined that
Davis-Dinsmore has provided high quality services with respect to the
Company, after considering performance information that it received
during the past year from Davis-Dinsmore regarding the Company. The Board
also determined that the Company's performance would not have been
affected if the proposed advisory agreement had been in effect during the
past fiscal year, since no changes to advisory fees are being proposed,
other than to eliminate expense limitation provisions. The Board noted
that the expense limitations have never been exceeded, and that it would
continue to monitor expense levels, and take whatever action it deemed
necessary if expenses rose materially.
- The profitability of Davis-Dinsmore. The Board reviewed information
concerning the profitability of Davis-Dinsmore's investment advisory and
administrative activities and its financial condition. The Board noted
that no changes to the advisory fees were being proposed, other than to
eliminate expense limitation provisions. The Board noted that it would
continue to monitor the Company's expenses.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including the changes discussed
above. The Board determined that these changes reflect the current
environment in which the Company operates, and that Davis-Dinsmore should
have the flexibility to take advantage of that environment.
After considering the above factors, the Board concluded that it is in the
best interests of the Company and its shareholders to approve the proposed
advisory agreement.
The Board reached its conclusion after careful discussion and analysis. The
Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have considered what they believe to be in
your best interests. In so doing, they were advised by counsel, retained by the
independent directors and paid for by the Company, as to the nature of the
matters to be considered and the standards to be used in reaching their
decision.
13
<PAGE> 16
WHEN WILL PROPOSAL 2 BE IMPLEMENTED?
If approved, the proposed advisory agreement will become effective
immediately and will expire, unless renewed, on December 31, 2002. If
shareholders do not approve the proposed advisory agreement, the current
advisory agreement will continue in effect.
WHAT IS THE BOARD'S RECOMMENDATION ON PROPOSAL 2?
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
PROPOSAL 3
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors seeks your ratification of the Board's appointment
of PricewaterhouseCoopers LLP as the Company's independent accountants for the
2001 fiscal year. We do not expect that a representative from
PricewaterhouseCoopers will be present at the Annual Meeting. However, should a
PricewaterhouseCoopers representative choose to attend, he or she will have an
opportunity to make a statement and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 3.
PROPOSAL 4
AMENDMENT TO COMPANY'S CHARTER
BACKGROUND
The Company's common stock trades on the American Stock Exchange. For the
12 weeks that ended on November 10, 2000, the average market price for each
share was approximately 15.97% less than its net asset value. In this
circumstance, Article IX of the Company's Charter requires the Board to adopt a
proposal, to the extent consistent with the Investment Company Act, to submit a
Charter amendment to shareholders that would permit shareholders to sell their
shares back to the Company at their net asset value on March 30, June 29, and
September 28, 2001.
At the Annual Meeting, you will be asked to approve or disapprove the
following resolution:
RESOLVED, that the Company's Charter be and it is hereby amended by
adding a new Article XII to read in full as follows:
ARTICLE XII
Each holder of shares of common stock of the Corporation shall have the
right to tender all of such shares to the Corporation for purchase on
March 30, 2001, June 29, 2001 and September 28, 2001 (each, a "Purchase
Date") at net asset value as of the close of business on each such
Purchase Date; provided, however, that no such right shall exist unless
(i) the Corporation receives an opinion of counsel selected by the
Corporation that such right is lawful under the Investment Company Act
of 1940, as amended, or
14
<PAGE> 17
(ii) the Corporation receives a "no-action" letter or interpretive or
exemptive relief from the Securities and Exchange Commission permitting
such right; and provided further, however, that the Corporation may
suspend such right (a) for any period (i) during which the New York
Stock Exchange is closed other than customary week-end and holiday
closings or (ii) during which trading on the New York Stock Exchange is
restricted; (b) for any period during which an emergency exists as a
result of which (i) disposal by the Corporation of securities owned by
it is not reasonably practicable or (ii) it is not reasonably
practicable for the Corporation fairly to determine the value of its net
assets; or (c) for such other periods as the Securities and Exchange
Commission may by order permit for the protection of security holders of
the Corporation.
THE BOARD OF DIRECTORS, INCLUDING ALL THE DIRECTORS WHO ARE NOT AFFILIATED WITH
DAVIS-DINSMORE MANAGEMENT COMPANY, RECOMMENDS THAT YOU VOTE AGAINST PROPOSAL 4.
FACTORS CONSIDERED BY THE BOARD OF DIRECTORS
In opposing the adoption of the proposed amendment to the Company's
Charter, the Board of Directors considered the following factors:
PAST PERFORMANCE OF THE COMPANY
The Company was established as a vehicle for long-term investment through
participation in a professionally managed portfolio of convertible bonds and
preferred stocks. The Company's 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 believes that the Company has succeeded in meeting its
objective. The following table illustrates the growth in the net asset value and
market price of the Company's common stock:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
PERCENTAGE INCREASE IN NET ASSET
VALUE WITH DIVIDENDS AND CAPITAL TOTAL INVESTMENT RETURN
PERIOD GAINS REINVESTED AT NET ASSET VALUE BASED ON MARKET PRICE*
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
Year ended September 30, 2000 21.85% 25.72%
-------------------------------------------------------------------------------------------------------
Five years ended September 30, 2000 110.24% 124.01%
-------------------------------------------------------------------------------------------------------
Ten years ended September 30, 2000 318.20% 362.26%
-------------------------------------------------------------------------------------------------------
June 1986 (beginning of operations)
through September 30, 2000 374.83% 348.84%
-------------------------------------------------------------------------------------------------------
</TABLE>
* Assumes reinvestment of dividends and capital gains at prices obtained by the
Company's dividend reinvestment plan.
The Board also looked at the following measurements of the Company's
performance:
- During the 2000 fiscal year, the Company paid distributions of $1.58 per
share from investment income and capital gains. This represented
approximately 13.7% of the shares' average weekly net asset value and
approximately 17.5% of their average weekly closing market price.
15
<PAGE> 18
- In addition, on October 16, 2000, the Company declared a distribution
payable on November 29, 2000 of $1.445 per share from investment income
and capital gains. On the date it was declared, this distribution
represented approximately 15.2% of the closing market price of the
Company's shares.
How the Company has performed in the past is not a guarantee of how it will
perform in the future. However, the Board believes that the Company will
continue to serve as an appropriate investment vehicle for its shareholders by
providing a high level of total return on its assets through a combination of
current income and capital appreciation.
MARKET DISCOUNTS MAY PROVIDE INVESTMENT OPPORTUNITIES
Over the past several years, numerous closed-end funds whose shares are
traded on exchanges have seen their shares trade at a discount to net asset
value. In many instances these discounts have increased in recent years. A
number of factors can influence the size of the discount, including demand for a
fund's shares, the extent to which analysts report on a fund, and a fund's
performance.
When an investor buys shares of a closed-end fund at a price that is lower
than the fund's net asset value, the investor gets an ownership interest in an
investment portfolio valued at more per share than the investor paid for the
shares. For example, if a fund has a net asset value per share of $10.00, but a
market value per share of $9.00, an investor will earn a return on securities
with a value ($10.00) that is higher than his or her investment ($9.00). This
will result in a higher return on the investor's money than would have been the
case if the investor paid net asset value. For this reason, the Board believes
that market discounts may present investment opportunities for investors. To the
extent investors act upon this investment opportunity, they may increase the
demand for and liquidity of a closed-end fund's shares.
In making its recommendation that shareholders vote against the Charter
amendment, the Board recognized that so long as the market discount remains
stable (or is reduced), investors who sell their shares are not in a worse
position than when they purchased their shares as a result of the discount. For
example, if on a given date the Company has a net asset value per share of
$10.00 and a market value per share of $8.50, investors who purchased shares on
that date bought them at a 15% discount from net asset value. Assume the net
asset value per share later increased to $11.00. If the market value per share
concurrently increased to $9.35, the discount would have remained at 15%. In
examining the return to investors, based upon net asset value, the shares
increased in value from $10.00 to $11.00, or 10%. Based upon market value, the
shares increased in value from $8.50 to $9.35, or 10%. In this example,
investors who sold their shares on the later date were not in a worse position
when they sold their shares because of the discount.
The Board also recognized that if the market price did not increase to the
same extent that the net asset value increased (thereby resulting in an increase
in the market discount), investors who sell their shares would receive a return
on their investment, based upon market value, that is lower than the return on
investment based upon net asset value. In addition, if the market price declines
to a price that is lower than the market price when the investor purchased their
shares, investors who sell their shares would recognize a loss on their
investment. For example, assume the net asset value per share of the Company's
stock increased from $10.00 to $11.00, while the market value per share
increased from $8.50 to $9.00. This would result in a market value that is
16
<PAGE> 19
at an 18.2% discount from the $11.00 per share net asset value. This increase in
market value from $8.50 to $9.00, or 5.9%, would be lower than the 10% increase
in net asset value. Investors who sold their shares would still recognize a gain
on their investment, but not to the extent that the net asset value increased.
If the discount increased to more than 22.7%, so that the market price was less
than $8.50, investors who purchased their shares at $8.50 and sold at a lower
price would recognize a loss upon the sale.
The Board of Directors has concluded that the future of the Company should
not be tied to whether its shares have traded at a market discount. Instead, the
Company's future should be based on its success in meeting its investment
objective. In making its recommendation, the Board recognized that it had
reached the same conclusion in prior years.
TENDERS WOULD ADVERSELY AFFECT THE COMPANY'S OPERATIONS AND PERFORMANCE
The Board believes that to require the Company to repurchase its shares
would not be in the best interests of the Company and its shareholders as a
whole because of the effect that repurchases would have on --
- The Company's expense ratio. Fewer shareholders would have to bear the
Company's fixed expenses.
- The Company's investment performance and its ability to achieve its
investment objective. The Company might have to sell some of its more
liquid and more desirable portfolio securities to raise the cash it would
need to repurchase its shares. This could leave the Company with less
desirable holdings.
- The Company's status as a regulated investment company under the Internal
Revenue Code of 1986, as amended. In order to maintain its status as a
regulated investment company under the Code, the Company must satisfy
certain quarterly diversification and annual distribution requirements.
The sale of securities to pay the purchase price for the tendered shares
might cause the Company's portfolio to lack sufficient diversification
for purposes of the Code requirement. In addition, payment of the
purchase price for the tendered shares might eliminate cash and other
liquid investments that would otherwise be available to pay dividends in
satisfaction of the distribution requirement of the Code.
- The Company's continued existence. The Board might have to recommend the
liquidation, merger or other reorganization of the Company if the Company
were to become too small to be operated efficiently.
VALUE OF THE COMPANY'S PORTFOLIO
The Company would have to sell securities from its portfolio to pay for
shares that it would be required to repurchase. In doing so, the Company would
have to pay transaction costs. In addition, the Company would have less
bargaining power if it had to sell its portfolio securities and might have to
sell them at lower prices than it otherwise would. These transaction costs and
lower prices might reduce the net asset value of the Company's shares and,
therefore, the amounts payable to shareholders who sell their shares back to the
Company at their net asset value.
17
<PAGE> 20
CONTINUED LISTING ON THE AMERICAN STOCK EXCHANGE
The Company's shares are listed on the American Stock Exchange. The shares
could be delisted if the aggregate market value of the outstanding shares is
less than $1 million, or less than 200,000 shares are publicly traded, or there
are less than 300 round-lot holders of the shares. Share repurchases will not
reduce the Company's authorized capital.
COMPLIANCE WITH THE INVESTMENT COMPANY ACT MAY DELAY OR PREVENT IMPLEMENTATION
The Company's Charter requires that, if the conditions of Article IX of the
Charter are met, the Board will adopt a proposal, to the extent consistent with
the Investment Company Act, to amend the Charter to give the shareholders the
right to tender their shares to the Company. The proposed Charter amendment
provides that shareholders will not have the right to tender their shares unless
the Company has received an opinion of counsel selected by the Company that the
right to tender is lawful under the Investment Company Act or unless the Company
receives a no-action letter or interpretive or exemptive relief from the
Securities and Exchange Commission (Commission) permitting such right to tender.
The staff of the Division of Investment Management at the Commission has
advised the Company that, if the Charter amendment is approved, the Company will
need to comply with the provisions of Rule 23c-3 under the Investment Company
Act to avoid the possible characterization of the Company's shares as redeemable
securities. Rule 23c-3 permits a closed-end fund such as the Company to conduct
periodic repurchases of its shares, subject to compliance with the conditions of
the Rule, without being deemed to be an issuer of redeemable securities. One of
the conditions of the Rule is that the share repurchases be conducted pursuant
to a fundamental policy, changeable only by an Investment Company Act Majority
vote of shareholders. Compliance with this condition would require shareholder
approval of the fundamental policy. If a closed-end company engages in share
repurchases under the Rule but does so other than pursuant to a fundamental
policy, share repurchases may not be made any earlier than two years after a
prior share repurchase.
The Company cannot predict at this time whether, if shareholders approve
the Charter amendment, it will be able or willing to comply with the provisions
of Rule 23c-3. As a result, even if shareholders approve the Charter amendment,
shareholders will not have the right to tender their shares to the Company until
the Company takes further action to comply with the Investment Company Act
either by obtaining an opinion of counsel selected by the Company that it is
lawful to engage in periodic repurchases under the terms of the Charter or by
obtaining a no-action letter or exemptive or interpretive relief from the
Commission so that it can conduct share repurchases in accordance with the
provisions of its Charter. There can be no assurance that the Company would be
able to obtain any such opinion of counsel, or obtain any such no-action letter
or interpretive or exemptive relief from the Commission.
POTENTIAL ADVANTAGES TO SHAREHOLDERS
In making its recommendation, the Board recognized that the Company's
market discount has been substantially greater than 5% during the past several
years. For example, the market price per share was 15.6% less than the Company's
net asset value per share at September 30, 1997, was 10.6% less than the net
asset value per share at September 30, 1998, was 16.5% less than net
18
<PAGE> 21
asset value per share at September 30, 1999 and was 16.5% less than net asset
value per share at September 30, 2000. The Board also recognized that the
average trading volume for the Company's shares is less than the average trading
volume for companies generally on the American Stock Exchange. The Board
considered two potential advantages for shareholders in adopting the proposed
Charter amendment:
- If shareholders wanted to sell shares, they would be able to do so at
their net asset value instead of at their market price, which averaged
13.81% less than their net asset value for the last fiscal year, and has
averaged 14.44% less than net asset value over the past five fiscal
years. By doing this, shareholders would maximize the return on their
investment in the near term.
- The market price for the shares may increase, thereby reducing the market
discount.
However, the effect of the Company's transaction costs and reduced bargaining
power if it had to sell its portfolio securities might decrease the net asset
value of the Company's shares and, therefore, the amounts paid to shareholders
who sell their shares back to the Company.
POTENTIAL CONFLICTS DISCLOSED
Two of the directors who considered this proposal (Mr. Dinsmore and Ms.
O'Keeffe) are interested directors because they are directors, officers and
shareholders of Davis-Dinsmore Management Company, the Company's investment
adviser. If the Company repurchased its shares, the Company would become smaller
and this would result in a reduction of the fees that the Company pays to
Davis-Dinsmore. The interested directors acknowledged the effect that the
Charter amendment would have on Davis-Dinsmore, but indicated that, in
considering their recommendation, they focused on the long-term interests of the
Company and its shareholders as a whole and believed that the Charter amendment
was not in the best interests of the Company and its shareholders as a whole.
FEDERAL INCOME TAX TREATMENT
Generally, shareholders who tender all their shares would recognize a
capital gain (or loss) for federal income tax purposes to the extent the amount
they receive is greater (or less) than the amount they paid for their shares.
This capital gain (or loss) will be taxed as long-term capital gain (or loss) if
shares tendered have been owned for more than one year. A shareholder that is
not a corporation is subject to federal income tax on long-term capital gain at
a maximum rate of 20%. However, amounts received by tendering shareholders could
be taxed at ordinary income tax rates in circumstances where, after application
of the constructive ownership rules of the Code, the purchase of their shares by
the Company did not constitute a complete termination of their interest, a
substantially disproportionate redemption or a distribution that was not
essentially equivalent to a dividend.
Noncorporate shareholders who tender their shares may be subject to backup
withholding at a 31% rate on the cash received in exchange. Backup withholding
generally will not apply, however, to a shareholder who furnishes a correct
taxpayer identification number and certifies under penalties of perjury that
such number is correct.
19
<PAGE> 22
HOW SHARES WOULD BE TENDERED
If the proposed Charter amendment is adopted and shareholders have the
right to tender their shares, the Company will be able to suspend your rights to
tender your shares during periods --
- In which the New York Stock Exchange is closed (other than customary
weekend and holiday closings) or trading on it is restricted.
- In which, because of an emergency, it is not reasonably practicable for
the Company to sell its portfolio securities or to fairly determine the
net asset value of its shares.
- In which the Securities and Exchange Commission permits the Company to
suspend rights to tender for the protection of its shareholders.
In addition, if the proposed Charter amendment is adopted and shareholders have
the right to tender their shares, the Company intends to follow a policy (which
it may change) of suspending your rights to tender your shares if, in the
Board's judgment --
- Legal action is begun or threatened that challenges the tender of the
Company's shares or otherwise materially adversely affects the Company.
- Federal, state or foreign authorities declare a banking moratorium on
banks in the United States, New York or in foreign countries in which the
Company invests, or any of those banks suspends payment.
- Federal, state or foreign authorities limit the extension of credit by
lending institutions or the exchange of foreign currency and those
limitations affect the Company or the issuers of the Company's portfolio
securities.
- War, armed hostilities or other calamity occurs that directly or
indirectly involves the United States or other countries in which the
Company invests.
If the proposed Charter amendment is adopted and shareholders have the
right to tender their shares, the Company will make a tender offer to
shareholders in accordance with the requirements of the Securities Exchange Act
of 1934 and the Investment Company Act by publication or mailing, or both. We
will establish procedures to make the current net asset value of the Company's
shares publicly available throughout the period of the tender offer. If you wish
to accept the tender offer, you may be required to tender all your shares (or
all shares attributed to you for federal income tax purposes under Section 318
of the Code). The Company will purchase shares tendered in accordance with the
offer unless it suspends the tender offer as described above.
If you tender your shares, you will be required to pay a fee directly to
the Company's transfer agent to help to defray processing costs. We anticipate
that the fee will be $25 but it could be higher or lower.
The Company will charge against capital, costs incurred by it in connection
with the tender offer. Shares that have been tendered and purchased by the
Company will become authorized but unissued shares.
20
<PAGE> 23
ADDITIONAL INFORMATION
INVESTMENT ADVISER
Davis-Dinsmore Management Company, 65 Madison Avenue, Morristown, New
Jersey 07960, is the Company's investment adviser.
EXECUTIVE OFFICERS
The Company's executive officers are elected by the Board of Directors and
receive no compensation from the Company. Information about these officers is
presented below.
THOMAS H. DINSMORE is Chairman and Chief Executive Officer of the Company.
Mr. Dinsmore is also a director of the Company and information about him is
presented earlier in this proxy statement under "Proposal 1, Election of
Directors -- Information about the Company's Other Directors -- Continuing
Directors Who Are Interested Persons."
JANE D. O'KEEFFE is President of the Company. Ms. O'Keeffe is also a
director of the Company. Information about Ms. O'Keeffe is presented earlier in
this proxy statement under "Proposal 1, Election of Directors -- Information
about the Company's Other Directors -- Continuing Directors Who Are Interested
Persons."
SIGMUND LEVINE, 76, has been Senior Vice President and Secretary of the
Company since 1996 and 1986, respectively. From 1993 to 1996, he was Executive
Vice President of the Company. Mr. Levine has been Senior Vice President and
Secretary of Bancroft Convertible Fund, Inc. since 1996 and 1982, respectively,
and was Executive Vice President of Bancroft from 1993 to 1996. Mr. Levine has
been Senior Vice President and Secretary of Davis-Dinsmore Management Company
since 1997 and 1982, respectively, and was Treasurer of Davis-Dinsmore from 1982
to 1997.
H. TUCKER LAKE, 53, has been Vice President, Trading of the Company since
joining the Company in 1994. He has been Vice President, Trading of Bancroft
Convertible Fund, Inc. during the same period. He has been Vice President of
Davis-Dinsmore Management Company since 1997.
GARY I. LEVINE, 43, has been Treasurer and Assistant Secretary of the
Company since 1993 and 1986, respectively. He has been Treasurer and Assistant
Secretary of Bancroft Convertible Fund, Inc. during the same periods. Mr. Levine
has been Treasurer and Assistant Secretary of Davis-Dinsmore since 1997 and
1994, respectively, and was Assistant Treasurer of Davis-Dinsmore Management
Company from 1994 to 1997.
GERMAINE ORTIZ, 41, has been Vice President of the Company since 1999. She
has also been Vice President of Davis-Dinmore Management Company since 1999. She
was Assistant Vice President of the Company, Bancroft and Davis-Dinsmore
Management Company from 1996 to 1999. From 1993 to 1996, Ms. Ortiz was an
Assistant Analyst with Davis-Dinsmore Management Company.
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<PAGE> 24
CERTAIN RELATIONSHIPS
Thomas H. Dinsmore and Jane D. O'Keeffe are brother and sister. H. Tucker
Lake is their cousin. Sigmund Levine is the father of Gary I. Levine.
SECURITY OWNERSHIP OF MANAGEMENT
The Company's directors and officers own the shares of the Company's common
stock shown on the following table:
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY
NOVEMBER 21,
2000*
------------
<S> <C>
Gordon F. Ahalt....................................... 2,000(1)
William A. Benton..................................... 4,441
Elizabeth C. Bogan, Ph.D. ............................ 8,881
Thomas H. Dinsmore.................................... 20,493(2)
Donald M. Halsted, Jr. ............................... 2,298
George R. Lieberman................................... 3,188(3)
Duncan O. McKee....................................... 3,270
Jane D. O'Keeffe...................................... 5,788
Nicolas W. Platt...................................... 100
Sigmund Levine........................................ 5,226
H. Tucker Lake........................................ 11,336(4)
Gary I. Levine........................................ 420(5)
Germaine Ortiz........................................ 918(6)
</TABLE>
---------------
* Represents for each director and officer less than 1% of the outstanding
shares of the Company. As of November 21, 2000, directors and officers of
the Company beneficially owned in the aggregate 68,359 shares of the Company
representing approximately 0.7% of the outstanding shares. Except as
otherwise indicated, each director and officer possessed sole investment and
voting power with respect to shares beneficially owned.
(1) Does not include 1,000 shares owned by his wife, as to which shares Mr.
Ahalt disclaims beneficial ownership.
(2) Includes 2,486 shares as to which Mr. Dinsmore possessed shared investment
and voting power; but does not include 1,949 shares owned by his wife, as to
which shares Mr. Dinsmore disclaims beneficial ownership.
(3) Includes 603 shares as to which Mr. Lieberman possessed shared investment
and voting power.
(4) Includes 9,406 shares as to which Mr. Lake possessed shared investment and
voting power.
(5) Includes 201 shares as to which Mr. Levine possessed shared investment and
voting power; but does not include 1,067 shares owned by his wife, as to
which shares Mr. Levine disclaims beneficial ownership.
22
<PAGE> 25
(6) Includes 345 shares as to which Ms. Ortiz possessed shared investment and
voting power.
PROXY SOLICITATION
The Company expects to solicit proxies principally by mail, but may also
solicit proxies by telephone, facsimile, the Internet or personal interview. The
Company will pay the cost of soliciting proxies and may reimburse firms and
others for their expenses in forwarding solicitation materials to the beneficial
owners of the Company's shares.
SHAREHOLDER PROPOSALS
If you want us to consider including a shareholder proposal in the
Company's proxy statement for the 2002 annual meeting of shareholders, we must
receive it from you no later than August 1, 2001. If you want to bring before
the 2002 annual meeting of shareholders any other business, you must notify us
no earlier than September 14, 2001 and no later than October 14, 2001.
By order of the Board of
Directors,
/s/ THOMAS H. DINSMORE
----------------------------------
Thomas H. Dinsmore
Chairman of the Board of Directors
November 29, 2000
23
<PAGE> 26
APPENDIX A
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
AUDIT COMMITTEE CHARTER
1. The membership of the Audit Committee shall consist of at least three
directors who are generally knowledgeable in financial and auditing matters,
including at least one member that has past employment experience in finance or
accounting, or any other experience or background that results in the
individual's financial sophistication. Each member shall be free of any
relationship that, in the opinion of the Board of Directors, would interfere
with his or her individual exercise of independent judgment, and shall meet the
director independence requirements for serving on audit committees as set forth
in the AMEX listing standards.
2. The purposes of the Audit Committee are:
(a) to oversee the Fund's accounting and financial reporting policies
and practices, its internal controls and, as appropriate, the internal
controls of certain service providers;
(b) to oversee the quality and objectivity of the Fund's financial
statements and the independent audit thereof; and
(c) to act as a liaison between the Fund's independent auditors and the
full Board of Directors.
The function of the Audit Committee is oversight; it is management's
responsibility to maintain appropriate systems for accounting and internal
control, and the auditor's responsibility to plan and carry out a proper
audit. The independent auditors are ultimately accountable to the Board and
the Committee.
3. To carry out its purposes, the Audit Committee shall have the following
duties and powers:
(a) to recommend the selection, retention or termination of auditors
and, in connection therewith, to evaluate the independence of the auditors,
including whether the auditors provide any consulting services to the
manager, and to receive from the auditors a formal written statement
delineating all relationships between the auditor and the Fund;
(b) to meet with the Fund's independent auditors, including private
meetings, as necessary (i) to review the arrangements for and scope of the
annual audit and any special audits; (ii) to discuss any matters of concern
relating to the Fund's financial statements, including any adjustments to
such statements recommended by the auditors, or other results of said
audit(s); (iii) to consider the auditors' comments with respect to the
Fund's financial policies, procedures and internal accounting controls and
management's responses thereto; and (iv) to review the form of opinion the
auditors propose to render to the Board and shareholders;
(c) to consider the effect upon the Fund of any changes in accounting
principles or practices proposed by management or the auditors;
(d) to review the fees charged by the auditors for audit and non-audit
services;
(e) to investigate improprieties or suspected improprieties in fund
operations; and
A-1
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(f) to report its activities to the full Board on a regular basis and to
make such recommendations with respect to the above and other matters as
the Committee may deem necessary or appropriate.
4. The Committee shall meet on a regular basis and is empowered to hold
special meetings as circumstances require.
5. The Committee shall regularly meet with the Treasurer of the Fund.
6. The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to retain special
counsel and other experts or consultants at the expense of the Fund.
7. The Committee shall review this Charter at least annually and recommend
any changes to the full Board of Directors.
A-2
<PAGE> 28
APPENDIX B
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is entered into this day of January, 2001 by
and between ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC., a Maryland
corporation (the "Company"), and DAVIS-DINSMORE MANAGEMENT COMPANY, a Delaware
corporation (the "Adviser").
BACKGROUND
The Company is registered as a diversified, closed end management
investment company under the Investment Company Act of 1940, as amended, (the
"1940 Act"). The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). The Company
desires to engage the Adviser to provide investment advisory services to the
Company, and the Adviser desires to provide such services to the Company, all on
the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
AGREEMENT
SECTION 1. Appointment of Investment Adviser. The Company hereby appoints
the Adviser to provide investment advisory services to the Company, and the
Adviser hereby accepts such appointment, subject to the terms and conditions set
forth in this Agreement.
SECTION 2. Advisory Services. Subject at all times to the supervision of
the Board of Directors of the Company, the Adviser shall supervise all aspects
of the Company's operations, including the investment and reinvestment of cash,
securities or other properties comprising the Company's assets.
In carrying out its obligations in the preceding paragraph of this Section
2, the Adviser shall (a) supervise all aspects of the operations of the Company;
(b) obtain and evaluate pertinent information about significant developments and
economic, statistical and financial data, domestic, foreign or otherwise,
whether affecting the economy generally or any industry or the Company or any
issuer of securities held or to be purchased by the Company; (c) determine which
issuers and securities shall be represented in the Company's investment
portfolio and regularly report thereon to the Board of Directors; (d) place
orders for the purchase and sale of securities for the Company; and (e) take, on
behalf of the Company, such other action as may be necessary or appropriate in
connection with the foregoing.
In placing orders for the purchase and sale of securities for the Company,
the Adviser shall be guided by the Company's investment objectives, policies and
limitations as delineated by statements contained in the various documents filed
by the Company with the Securities and Exchange Commission as such documents may
from time to time be amended. The Company will make available to the Adviser
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.
B-1
<PAGE> 29
The Adviser is hereby obligated, in placing orders for the purchase and
sale of securities 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. The Adviser may 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 the Adviser. Accordingly, to the extent provided by law, in
executing portfolio transactions, the Adviser may pay a broker-dealer which
provides brokerage or research services a commission in excess of that which
another broker-dealer would have charged for the same transaction.
SECTION 3. Independent Contractor. The Adviser shall, for all purposes of
this Agreement, 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
the Adviser, whether on behalf of the Adviser or whether purported to have been
entered into by the Adviser on behalf of the Company, shall be binding upon the
Company, and all acts authorized to be done by the Adviser under this Agreement
shall be done by the Adviser as an independent contractor and not as agent.
SECTION 4. Expenses. The Adviser 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 the Adviser in the performance of this Agreement.
The Company will pay all expenses incurred by it and not assumed by the
Adviser 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 Dividend Reinvestment
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 the Adviser or the Company, as defined by
the 1940 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 5. Compensation. As compensation for the services performed by the
Adviser, the Company will pay the Adviser 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.
B-2
<PAGE> 30
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.
If this Agreement shall become effective subsequent to the first day of a
month, or shall terminate before the last day of a month, the Adviser's
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 Agreement will begin to accrue on its effective
date.
SECTION 6. Approval of Agreement; Termination. This Agreement 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 1940 Act, this Agreement will be in effect from the date of
approval. Unless terminated by either party, this Agreement will remain in
effect until December 31, 2002, and for successive one-year periods thereafter,
provided that such continuation is 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 Agreement or "interested persons," as defined in the 1940
Act, of any such party.
This Agreement 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 Agreement 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 this
Agreement which may be required by Federal or state regulatory bodies.
SECTION 7. Liability. The Adviser shall give the Company the benefit of
its best judgment and efforts in rendering the services set forth herein. The
Company agrees as an inducement to the undertaking of these services by the
Adviser that the Adviser 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
Agreement relates, except that nothing herein contained shall be construed to
protect the Adviser against any liability by reason of willful misfeasance, bad
faith or gross negligence in the performance by the Adviser of its duties or the
reckless disregard of the Adviser's obligations or duties under this Agreement.
SECTION 8. Multiple Capacities. Except to the extent necessary for
performance of the Adviser's obligations hereunder, nothing shall restrict the
Adviser's right or the right of any of the Adviser's 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.
The Company understands that the Adviser now acts and will continue to act
as an investment adviser to another registered investment company and may act in
the future as an investment adviser to fiduciary and other managed accounts and
investment companies. The
B-3
<PAGE> 31
Company has no objection to the Adviser so acting, provided that whenever the
Company and one or more other investment companies or accounts advised by the
Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to each company and account. The Company recognizes that in some
cases this procedure may adversely affect the size of the positions obtainable
and the prices realized for the Company.
It is understood and agreed that the directors, officers, agents, employees
and stockholders of the Company may be interested in the Adviser as directors,
officers, stockholders, employees, agents or otherwise, and that the directors,
officers, agents, employees and stockholders of the Adviser may be interested in
the Company as a stockholder or otherwise.
SECTION 9. Concerning Applicable Provisions of Law, Etc. This Agreement
shall be subject to all applicable provisions of law, including, but not limited
to, the applicable provisions of the 1940 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 Maryland shall, except to the extent that any
applicable provisions of some other law shall be controlling, govern the
construction, validity and effect of this Agreement.
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 Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
ELLSWORTH CONVERTIBLE
GROWTH AND INCOME FUND, INC.
By
--------------------------------
(Chairman)
DAVIS-DINSMORE MANAGEMENT
COMPANY
By
--------------------------------
(President)
B-4
<PAGE> 32
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
Annual Meeting To Be Held January 12, 2001
DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
1. Election as directors of all nominees listed below for the terms specified
in the proxy statement.
FOR all nominees listed below /x/
WITHHOLD AUTHORITY to vote for all nominees listed below. /x/
*EXCEPTIONS /x/
Board of Directors nominees: Gordon F. Ahalt, Elizabeth C. Bogan, Ph.D. and
Nicolas W. Platt.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW.)
*Exceptions
------------------------------------------------------------------
The Board of Directors recommends voting"FOR" Proposal 2,"FOR" Proposal 3
and"AGAINST" Proposal 4.
2. Proposal to approve a new Investment Advisory Agreement with Davis-Dinsmore
Management Company.
FOR /x/ AGAINST /x/ ABSTAIN /x/
3. Proposal to ratify the selection of accountants.
FOR /x/ AGAINST /x/ ABSTAIN /x/
4. Proposal to amend Company's Charter.
FOR /x/ AGAINST /x/ ABSTAIN /x/
If shares are held jointly each
shareholder named should sign. Legal
representatives of shareholders should
add their titles when signing.
Dated: ,
------------------------ --------
----------------------------------
Signature
----------------------------------
Signature, if held jointly
SIGN, DATE AND RETURN THE PROXY VOTES MUST BE INDICATED
CARD PROMPTLY USING THE ENCLOSED (X) IN BLACK OR BLUE INK. /X/
ENVELOPE.
<PAGE> 33
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
ANNUAL MEETING TO BE HELD JANUARY 12, 2001
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 annual meeting of
shareholders of Ellsworth Convertible Growth and Income Fund, Inc. (the
"Company") at the Atlantis Golf Club, 301 Orange Tree Drive, Atlantis, Florida
33462 on January 12, 2001, at 11:00 a.m., and at all adjournments, according to
the number of shares of Common Stock which the undersigned could vote if
present, upon such subjects as may properly come before the meeting, all as set
forth in the notice of the meeting and the proxy statement furnished therewith.
UNLESS OTHERWISE MARKED ON THE REVERSE HEREOF, THIS PROXY IS GIVEN WITH
AUTHORITY TO VOTE FOR DIRECTORS LISTED ON THE REVERSE HEREOF, FOR THE PROPOSAL
TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT WITH DAVIS-DINSMORE MANAGEMENT
COMPANY, FOR THE PROPOSAL TO RATIFY THE BOARD'S SELECTION OF ACCOUNTANTS, AND
AGAINST 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
