UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-04656
---------------------------------------------
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
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(Exact name of registrant as specified in charter)
65 Madison Avenue, Morristown, New Jersey 07960-7308
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(Address of principal executive offices) (Zip code)
Thomas H. Dinsmore
Ellsworth Convertible Growth and Income Fund, Inc.
65 Madison Avenue
Morristown, New Jersey 07960-7308
(Name and address of agent for service)
Copy to:
Martha J. Hays, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103-7599
Registrant's telephone number, including area code: (973)631-1177
Date of fiscal year end: September 30
Date of reporting period: March 31, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
[LOGO]
ELLSWORTH CONVERTIBLE
GROWTH AND INCOME FUND
2005 SEMI-ANNUAL REPORT
MARCH 31, 2005
2005 SEMI-ANNUAL REPORT
MARCH 31, 2005
Ellsworth Convertible Growth and Income Fund, Inc. operates as a closed-end,
diversified management investment company and invests primarily in convertible
securities, with the objectives of providing income and the potential for
capital appreciation -- which objectives the fund considers to be relatively
equal, over the long-term, due to the nature of the securities in which it
invests.
HIGHLIGHTS
PERFORMANCE THROUGH MARCH 31, 2005 with dividends reinvested
Calendar Cumulative Cumulative
YTD 1 Year 5 Years 10 Years
---------- --------- ---------- ----------
Ellsworth market price (a,b)..................... (4.73)% (3.30)% 24.63% 173.38%
Ellsworth net asset value (b,c,d)................ (2.54) (0.50) 1.31 141.98
Closed-end convertible fund average (d).......... (2.56) 3.99 6.72 116.41
S&P 500 (a)...................................... (2.15) 6.69 (14.84) 178.60
Russell 2000 (d)................................. (5.34) 5.41 21.73 169.60
Lehman Aggregate Bond Total Return Index (d)..... (0.48) 1.15 41.16 99.32
Performance data represent past results and do not reflect future perfromance.
(a) From Bloomberg L.P. pricing service.
(b) Performance is not adjusted for dilution due to the Fund's 2003 rights
offering.
(c) For all periods shown, net asset value dilution resulting from the
Ellsworth rights offering in 2003 was 2.21%.
(d) From Lipper, Inc. Closed-End Fund Performance Analysis,
dated March 31, 2005.
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QUARTERLY HISTORY OF NAV AND MARKET PRICE
Net Asset Values Market Prices (AMEX, symbol ECF)
Qtr. Ended High Low Close High Low Close
------------ ------ ------ ------- ------ ------ -------
Jun. 04 $9.19 $8.58 $8.87 $8.34 $7.41 $7.70
Sep. 04 8.82 8.39 8.71 8.05 7.15 7.95
Dec. 04 9.07 8.60 9.07 8.08 7.80 8.08
Mar. 05 9.02 8.70 8.77 8.11 7.47 7.63
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DIVIDEND DISTRIBUTIONS (12 MONTHS)
Record Payment Capital
Date Date Income Gains Income
--------- --------- -------- --------- --------
5/13/04 5/27/04 $0.070 -- $0.070
8/16/04 8/30/04 0.070 -- 0.070
10/28/04 11/24/04 0.085 -- 0.085
2/11/05 2/25/05 0.070 -- 0.070
-------- --------
$0.295 $0.295
======== ========
TO OUR SHAREHOLDERS
May 6, 2005
We are proud to announce that Ellsworth Convertible Growth and Income Fund, Inc.
was awarded its third consecutive Lipper Performance Achievement Certificate for
ten-year performance (number one in its category of seven closed-end convertible
funds for the ten-year period ended December 31, 2004). The current certificate
is listed in the Miscellaneous Notes section. While this achievement does not
guarantee future performance it is an honor for the Fund to have realized this
achievement against such competitors as Gabelli Asset Management, Fred Alger
Management, and Putnam Investment Management.
The convertible securities market has long been characterized by two different
styles of management: outright buyers, such as Ellsworth, who intend to hold the
convertible and realize returns through yield and capital gains, and convertible
hedge funds who generally buy a convertible and short the common stock it is
convertible into. During the last several years, as interest rates fell, the
hedge funds came to dominate the convertible market with over 80% of the trading
volume. Now, as short-term interest rates are rising, many hedge funds have
started to change how they set up their hedges and appear to have reduced many
of their convertible positions. We believe that this has affected the value of
many convertible securities and made them more volatile. Convertible securities
appear to be getting cheaper (which is another way of saying that they have
fallen more relative to their underlying common stock than expected). Going
forward, we believe that this provides the convertible market with more
attractive choices than it had a year ago.
The Fund's audit committee has recently approved the hiring of our new
independent auditors, Tait, Weller & Baker. The auditor specializes in mutual
funds and other firms in the financial services industry.
Performance of the Fund during the past six months was affected by its industry
exposure. Investments in energy companies, led by Valero Energy, Kerr-McGee and
Chesapeake Energy provided the best performance for the Fund. Lagging industries
such as telecommunications and automotive held back performance. Both of these
industries were hurt by investor perception that economic growth would be slower
than expected and that higher interest rates would also affect the demand for
their products.
Since the founding of Ellsworth Convertible Growth and Income Fund in 1986, the
Fund's strategy has consistently been to use convertible securities as an equity
alternative to reduce risk and volatility. This strategy tends to outperform in
bear markets and lag in bull markets. The Fund performed in line with the
average of its peer-group for the quarter ended March 31, 2005, although it
underperformed the average for the twelve months ended March 31, 2005. Our peers
consist of the twelve closed-end convertible funds in the LIPPER CLOSED-END
PERFORMANCE ANALYSIS survey. Of these twelve funds, only six, including the
Fund, remain unleveraged convertible funds. In addition, many of our competitors
have had greater exposure to non-convertible, low-rated, high yield debt than
the Fund has had. We believe these factors contributed to the difference in
performance between Ellsworth and many of the other funds in the group.
continued on the following page
PAGE 1
TO OUR SHAREHOLDERS (continued)
Visit our website, www.ellsworthfund.com, for additional information on the
Fund. Shareholders who wish to obtain a copy of the most recent report on the
Fund issued by Standard & Poor's should contact us.
The results of the 2005 annual meeting of shareholders are shown in the
Miscellaneous Notes section of this report. We thank you for your support. At
its April meeting, the Board of Directors declared a dividend of $0.07 per
share. The dividend consists of net investment income and will be payable on
May 27, 2005 to shareholders of record on May 13, 2005.
/s/ Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board
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MAJOR PORTFOLIO CHANGES by underlying common stock
Six months ended March 31, 2005
ADDITIONS REDUCTIONS
CMS Energy Corp. Axcelis Technologies, Inc.
Fannie Mae Capital One Financial Corp.
GlobalSantaFe Corp. General Dynamics Corp.
(exchangeable from The Goldman Sachs
Group, Inc.)
Isolagen, Inc. Gilead Sciences, Inc.
The Walt Disney Company Radio One, Inc.
Weatherford International Ltd. Saks, Inc.
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MAJOR INDUSTRY EXPOSURE
Automotive ------> 3.6%
Banking/Savings & Loan -------------------------> 9.5%
Energy --------------------------------------------------> 17.4%
Entertainment ----------> 4.4%
Financial & Insurance -----------------------------------> 11.2%
Health Care -----------------------> 6.6%
Pharmaceuticals ------------------------------------> 11.5%
Retail ----------> 4.4%
Technology ----------------------> 6.5%
Telecommunications --------------------> 6.2%
PAGE 2
LARGEST INVESTMENT HOLDINGS by underlying common stock
Value % Total
(Note 1) Net Assets
------------ ------------
The Walt Disney Company........................................ $ 2,749,700 2.6%
AN ENTERTAINMENT COMPANY WHICH CONDUCTS OPERATIONS IN
MEDIA NETWORKS, STUDIO ENTERTAINMENT, THEME PARKS AND
RESORTS, CONSUMER PRODUCTS, AND INTERNET AND DIRECT
MARKETING.
Weatherford International Ltd.................................. 2,587,720 2.4
PROVIDES EQUIPMENT AND SERVICES USED FOR THE DRILLING,
COMPLETION, AND PRODUCTION OF OIL AND NATURAL GAS WELLS.
THE COMPANY OFFERS DRILLING AND INTERVENTION SERVICES,
COMPLETION SYSTEMS, ARTIFICIAL LIFT SYSTEMS AND COMPRESSION
SERVICES.
Chesapeake Energy Corp......................................... 2,301,750 2.1
PRODUCES OIL AND NATURAL GAS. THE COMPANY'S OPERATIONS ARE
FOCUSED ON DEVELOPMENTAL DRILLING AND PRODUCING PROPERTY
ACQUISITIONS IN ONSHORE NATURAL GAS PRODUCING AREAS OF THE
UNITED STATES AND CANADA.
International Rectifier Corp................................... 2,205,000 2.0
DESIGNS, MANUFACTURES AND MARKETS POWER SEMICONDUCTORS.
THE COMPANY'S PRODUCTS INCLUDE POWER INTEGRATED CIRCUITS AND
ADVANCED CIRCUIT DEVICES, POWER SYSTEMS AND POWER COMPONENTS.
Comverse Technology, Inc....................................... 2,190,075 2.0
DESIGNS, MANUFACTURES, MARKETS AND SUPPORTS COMPUTER AND
TELECOMMUNICATIONS SYSTEMS AND SOFTWARE FOR MULTIMEDIA
COMMUNICATIONS AND INFORMATION PROCESSING APPLICATIONS.
Valero Energy Corp............................................. 2,178,360 2.0
AN INDEPENDENT PETROLEUM REFINING AND MARKETING COMPANY THAT
OWNS AND OPERATES REFINERIES IN THE UNITED STATES AND CANADA.
The Chubb Corp................................................. 2,158,560 2.0
A HOLDING COMPANY THAT OFFERS PROPERTY AND CASUALTY
INSURANCE, WHICH INCLUDES PERSONAL, STANDARD COMMERCIAL AND
SPECIALTY COMMERCIAL INSURANCE.
GlobalSantaFe Corp............................................. 2,065,000 1.9
AN INTERNATIONAL OFFSHORE AND LAND CONTRACT DRILLER. THE
COMPANY OWNS AND OPERATES A FLEET CONSISTING OF MARINE AND
LAND DRILLING RIGS LOCATED THROUGHOUT THE WORLD.
Devon Energy Corp.............................................. 2,054,080 1.9
AN INDEPENDENT WORLDWIDE ENERGY COMPANY INVOLVED IN OIL AND
GAS PROPERTY ACQUISITION, EXPLORATION, AND PRODUCTION.
Lear Corp...................................................... 2,050,313 1.9
SUPPLIES AUTOMOTIVE INTERIOR SYSTEMS TO MANUFACTURERS ------------ ------------
WORLDWIDE. THE COMPANY PROVIDES SEAT SYSTEMS, FLOORING AND
ACOUSTIC SYSTEMS, DOOR PANELS, HEADLINERS, INSTRUMENT PANELS,
AND ELECTRONIC AND ELECTRICAL DISTRIBUTION SYSTEMS.
Total.......................................................... $22,540,558 20.8%
============ ============
PAGE 3
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
March 31, 2005
---------------
ASSETS:
Investments at value (cost $105,699,525) (Note 1).............................. $107,720,062
Cash........................................................................... 801,687
Dividends and interest receivable.............................................. 518,071
Other assets................................................................... 17,169
------------
Total assets................................................................... 109,056,989
------------
LIABILITIES:
Payable for securities purchased............................................... 490,465
Accrued management fee (Note 2)................................................ 78,025
Accrued expenses............................................................... 7,232
Other liabilities.............................................................. 3,355
------------
Total liabilities.............................................................. 579,077
------------
NET ASSETS....................................................................... $108,477,912
============
NET ASSETS CONSIST OF:
Undistributed net investment income............................................ $ 358,046
Accumulated net realized loss from investment transactions..................... (3,633,637)
Unrealized appreciation on investments......................................... 2,020,537
Capital shares (Note 3)........................................................ 123,623
Additional paid-in capital..................................................... 109,609,343
------------
NET ASSETS....................................................................... $108,477,912
============
Net asset value per share ($108,477,912 / 12,362,269 outstanding shares)......... $ 8.77
============
-------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (unaudited)
Six Months Ended March 31, 2005
INVESTMENT INCOME (NOTE 1):
Interest....................................................................... $ 1,092,406
Dividends...................................................................... 1,143,964
------------
Total Income................................................................. 2,236,370
------------
EXPENSES (NOTE 2):
Management fee................................................................. 398,900
Custodian...................................................................... 9,712
Transfer agent................................................................. 9,320
Professional fees.............................................................. 58,900
Directors' fees................................................................ 58,100
Reports to shareholders........................................................ 35,682
Treasurer's office............................................................. 12,500
Other.......................................................................... 63,974
------------
Total Expenses............................................................... 647,088
------------
NET INVESTMENT INCOME............................................................ 1,589,282
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions................................. 1,229,747
Net unrealized depreciation of investments..................................... (44,589)
------------
Net gain on investments........................................................ 1,185,158
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 2,774,440
============
See accompanying notes to financial statements
PAGE 4
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended Year Ended
March 31, 2005(a) September 30, 2004
----------------- ------------------
CHANGE IN NET ASSETS FROM OPERATIONS:
Net investment income.................................... $ 1,589,282 $ 3,647,400(b)
Adjustment for change in amortization policy........... -- (248,111)
-------------
Net investment income, as adjusted.................... 3,399,289
-------------
Net realized gain from investment transactions........... 1,229,747 3,243,708(b)
Adjustment for change in amortization policy........... -- 66,057
-------------
Net realized gain from investment transactions,
as adjusted.......................................... 3,309,765
-------------
Net change in appreciation of investments................ (44,589) 411,096(b)
Adjustment for change in amortization policy........... -- 182,054
-------------
Net unrealized appreciation of investments,
as adjusted........................................... 593,150
------------- -------------
Net increase in net assets resulting from operations...... 2,774,440 7,302,204(b)
Adjustment for change in amortization policy............ -- --
------------- -------------
Net increase in net assets resulting from operations,
as adjusted........................................... 2,774,440 7,302,204
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DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................... (1,910,700) (3,681,116)
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Value of shares issued on reinvestment of distributions.. 506,725 648,017
Net proceeds from rights offering........................ -- 13,037,152
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Total capital share transactions....................... 506,725 13,685,169
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CHANGE IN NET ASSETS....................................... 1,370,465 17,306,257
Net assets at beginning of period.......................... 107,107,447 89,801,190
------------- -------------
NET ASSETS AT END OF PERIOD................................ $ 108,477,912 $ 107,107,447
============= =============
Undistributed net investment income at end of period...... $ 358,046 $ 967,661(b)
Adjustment for change in amortization policy........... (288,197)
============= -------------
Undistributed net investment income at end of period,
as adjusted........................................... $ 679,464
=============
-----------------
(a) Unaudited.
(b) As previously reported.
See accompanying notes to financial statements
PAGE 5
FINANCIAL HIGHLIGHTS Selected data for a share of common stock outstanding:
Six Months
Ended Years Ended September 30,
March 31, ------------------------------------------------
2005 (a) 2004 2003 2002 2001 2000
---------- -------- -------- -------- -------- --------
OPERATING PERFORMANCE:
Net asset value,
beginning of period.............. $8.71 $8.58 $7.81 $8.67 $11.82 $11.23
-------- -------- ------- ------- ------- --------
Net investment income.............. 0.13 0.30(b) 0.32(b) 0.34(b) 0.47 0.42
Adjustment for change in
amortization policy............. -- (0.02) (0.01) -- -- --
-------- -------- ------- ------- ------- --------
Net investment income,
as adjusted................... 0.13 0.28 0.31 0.34 0.47 0.42
-------- -------- ------- ------- ------- --------
Net realized and unrealized
gain (loss)....................... 0.09 0.35(b) 0.75(b) (0.76)(b) (1.88) 1.71
Adjustment for change in
amortization policy............. -- 0.02 0.01 -- -- --
-------- -------- ------- ------- ------- --------
Net realized and unrealized
gain (loss), as adjusted...... 0.09 0.37 0.76 (0.76) (1.88) 1.71
-------- -------- ------- ------- ------- --------
Total from investment operations. 0.22 0.65 1.07 (0.42) (1.41) 2.13
-------- -------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.16) (0.32) (0.30) (0.44) (0.42) (0.35)
Distributions from realized gains.. -- -- -- -- (1.32) (1.23)
-------- -------- ------- ------- ------- --------
Total distributions.............. (0.16) (0.32) (0.30) (0.44) (1.74) (1.58)
CAPITAL SHARE TRANSACTIONS:
Effect of rights offering.......... -- (0.20) -- -- -- --
Capital share repurchases.......... -- -- -- -- -- 0.04
-------- -------- ------- ------- ------- --------
Total capital share transactions. -- (0.20) -- -- -- 0.04
-------- -------- ------- ------- ------- --------
Net asset value, end of period..... $8.77 $8.71 $8.58 $7.81 $8.67 $11.82
======== ======== ======= ======= ======= ========
Market value, end of period........ $7.63 $7.95 $8.05 $7.55 $8.35 $9.88
Total Net Asset Value
Return (%)(c).................... 2.5 5.2 14.0 (5.2) (13.3) 21.9
Total Investment Return (%)(d)..... (2.1) 2.8 10.8 (4.5) 2.2 25.7
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)................... $108,478 $107,107 $89,801 $81,125 $88,901 $109,180
Ratio of expenses to average net
assets (%)....................... 1.2(e) 1.2 1.2 1.2 1.2 1.2
Ratio of net investment income to
average net assets (%)........... 2.9(e) 3.2(f) 3.8(f) 4.0(f) 5.0 3.8
Portfolio turnover rate (%)........ 32 70 86 89 82 98
---------------
(a) Unaudited.
(b) As previously reported.
(c) Assumes valuation of the Fund's shares, and reinvestment of dividends, at
net asset values.
(d) Assumes valuation of the Fund's shares at market price and reinvestment of
dividends at actual reinvestment price.
(e) Annualized.
(f) Ratios for 2004, 2003 and 2002 reflect ratios adjusted for change in
amortization policy. Ratios previously reported for 2004, 2003 and 2002
were 3.4%, 3.9% and 3.9%, respectively.
See accompanying notes to financial statements
PAGE 6
PORTFOLIO OF INVESTMENTS March 31, 2005 (unaudited)
Principal Value
Amount (Note 1)
----------- -----------
CONVERTIBLE BONDS AND NOTES -- 55.4%
AUTOMOTIVE -- 2.6%
$1,000,000 American Axle & Manufacturing Holdings, Inc. 2% 2024 cv. sr. notes
(Baa3) (1)............................................................ $ 790,400
4,500,000 Lear Corp. 0% 2022 cv. sr. notes (Baa3)................................ 2,050,313
-----------
2,840,713
-----------
BANKING/SAVINGS AND LOAN -- 2.9%
2,077,000 The Bear Stearns Companies, Inc. 0.25% 2010 medium-term notes (A1)
(exch. for Fifth Third Bancorp common stock) (1)...................... 1,798,910
1,500,000 Ocwen Financial Corp. 3.25% 2024 contingent cv. sr. unsecured
notes (B-)............................................................. 1,398,750
-----------
3,197,660
-----------
CONSUMER GOODS -- 1.7%
1,375,000 Church & Dwight Co., Inc. 5.25% 2033 cv. sr. deb. (Ba2)................ 1,850,888
-----------
DATA-PROCESSING SERVICES -- 1.7%
1,000,000 Open Solutions, Inc. 1.4673% 2035 sr. sub. cv. notes (NR)
(Acquired 01/28/05; Cost $533,560) (2)................................ 511,490
1,500,000 Pegasus Solutions, Inc. 3.875% 2023 cv. sr. notes (NR)................. 1,367,681
-----------
1,879,171
-----------
ELECTRICAL SUPPLIES -- 1.0%
1,500,000 Graftech International Ltd. 1.625% 2024 cv. sr. deb. (B2).............. 1,117,500
-----------
ENERGY -- 8.3%
1,500,000 CMS Energy Corp. 2.875% 2024 cv. sr. notes (B1)........................ 1,635,938
3,500,000 Devon Energy Corp. 0% 2020 cv. sr. deb. (BBB).......................... 2,054,080
3,500,000 GlobalSantaFe Corp. 0% 2020 cv. deb. (Baa1)............................ 2,065,000
750,000 OMI Corp. 2.875% 2024 cv. sr. notes (B+)............................... 710,625
4,000,000 Weatherford International Ltd. 0% 2020 cv. sr. deb. (Baa1)............. 2,587,720
-----------
9,053,363
-----------
ENTERTAINMENT -- 3.5%
1,250,000 Citadel Broadcasting Corp. 1.875% 2011 cv. sub. notes (NR)............. 1,044,250
2,500,000 The Walt Disney Company 2.125% 2023 cv. sr. notes (Baa1)............... 2,749,700
-----------
3,793,950
-----------
FINANCIAL AND INSURANCE -- 2.7%
2,000,000 Leucadia National Corp. 3.75% 2014 cv. sr. sub. notes (Ba3)............ 1,980,000
1,000,000 Swiss Re America Holding Corp. 3.25% 2021 euro. sub. cv. bonds (A1)
(conv. into Swiss Reinsurance Company common stock)
(Acquired 11/15/01 - 12/05/01; Cost $1,007,875) (2)................... 945,050
-----------
2,925,050
-----------
HEALTH CARE -- 5.3%
1,500,000 Community Health Systems, Inc. 4.25% 2008 cv. sub. notes (B3).......... 1,646,775
1,750,000 Isolagen, Inc. 3.5% 2024 cv. sub. notes (NR)
(Acquired 10/29/04 - 03/30/05; Cost $1,771,250) (2)................... 1,701,875
1,000,000 LifePoint Hospitals, Inc. 4.5% 2009 cv. sub. notes (B3)................ 1,023,750
1,125,000 Mentor Corp. 2.75% 2024 cv. sub. notes (NR)............................ 1,365,469
-----------
5,737,869
-----------
METALS -- 0.9%
1,000,000 Ryerson Tull, Inc. 3.5% 2024 cv. sr. notes (NR)
(Acquired 11/05/04 - 12/09/04; Cost $1,020,000) (2)................... 903,755
-----------
MULTI-INDUSTRY -- 0.9%
1,000,000 Lehman Brothers Holdings, Inc. 1% 2011 medium-term notes (A1)
(performance linked to Cendant Corp. common stock) (1)................ 936,100
-----------
OFFICE EQUIPMENT -- 1.4%
1,500,000 IOS Capital, LLC 5% 2007 cv. sub. notes (Ba3)
(exch. for IKON Office Solutions, Inc. common stock)
(Acquired 05/08/02 - 06/02/03; Cost $1,498,125) (2)................... 1,500,000
-----------
PAGE 7
PORTFOLIO OF INVESTMENTS MARCH 31, 2005 (continued)
Principal Value
Amount (Note 1)
----------- -----------
CONVERTIBLE BONDS AND NOTES -- continued
PHARMACEUTICALS -- 6.9%
$2,000,000 Amgen, Inc. 0% 2032 LYONs (A2) (1)..................................... $ 1,455,770
1,000,000 Encysive Pharmaceuticals, Inc. 2.5% 2012 cv. sr. notes (NR)
(Acquired 03/11/05; Cost $1,013,125) (2).............................. 995,005
1,500,000 Impax Laboratories, Inc. 1.25% 2024 cv. sr. sub. deb. (NR)............. 1,278,795
500,000 Ivax Corp. 4.5% 2008 cv. sr. sub. notes (NR)........................... 498,750
1,250,000 Ivax Corp. 1.5% 2024 cv. sr. notes (NR) (1)............................ 1,272,188
1,000,000 Teva Pharmaceutical Finance II, LLC series A 0.5% 2024 cv. sr. deb.
(BBB) (exch. for ADR representing Teva Pharmaceutical Industries
Ltd. common stock).................................................... 993,750
1,000,000 Teva Pharmaceutical Finance II, LLC series B 0.25% 2024 cv. sr. deb.
(BBB) (exch. for ADR representing Teva Pharmaceutical Industries Ltd.
common stock)......................................................... 1,007,500
-----------
7,501,758
-----------
RETAIL -- 4.4%
1,250,000 Casual Male Retail Group, Inc. 5% 2024 cv. sr. sub. notes (NR)......... 1,170,313
750,000 Charming Shoppes, Inc. 4.75% 2012 sr. cv. notes (B2)................... 792,660
1,000,000 Dick's Sporting Goods, Inc. 1.6061% 2024 sr. cv. notes (B)............. 739,700
2,400,000 The TJX Companies, Inc. 0% 2021 LYONs (Baa1)........................... 2,025,096
-----------
4,727,769
-----------
TECHNOLOGY -- 5.9%
1,000,000 Advanced Micro Devices, Inc. 4.75% 2022 cv. sr. deb. (B3) (1).......... 993,750
1,250,000 Agilent Technologies, Inc. 3% 2021 sr. cv. deb. (Ba2) (1).............. 1,240,625
1,000,000 Conexant Systems, Inc. 5.25% 2006 cv. sub. notes (NR).................. 975,000
2,250,000 International Rectifier Corp. 4.25% 2007 cv. sub. notes (B2)........... 2,205,000
1,000,000 Sybase, Inc. 1.75% 2025 cv. sub. notes (NR)
(Acquired 2/15/05 - 2/16/05; Cost $1,003,750) (2)..................... 967,180
-----------
6,381,555
-----------
TELECOMMUNICATIONS -- 5.3%
1,500,000 Comverse Technology, Inc. 0% 2023 ZYPS (BB-) (3)....................... 2,190,075
1,000,000 Lucent Technologies, Inc. 2.75% 2023 series A cv. sr. deb. (B2)........ 1,053,980
500,000 Lucent Technologies, Inc. 2.75% 2025 series B cv. sr. deb. (B2)........ 550,450
1,250,000 Nortel Networks Corp. 4.25% 2008 cv. sr. notes (B3).................... 1,151,563
750,000 Tekelec, Inc. 2.25% 2008 sr. sub. cv. notes (NR)....................... 778,121
-----------
5,724,189
-----------
TOTAL CONVERTIBLE BONDS AND NOTES...................................... $60,071,290
-----------
Shares
----------- CONVERTIBLE PREFERRED STOCKS -- 20.8%
AUTOMOTIVE -- 1.0%
50,000 General Motors Corp. 6.25% 2033 series C cv. sr. deb. (Baa2)........... 1,040,000
-----------
BANKING/SAVINGS AND LOAN -- 6.6%
17,500 Commerce Capital Trust II 5.95% cv. trust pfd. (Baa1)
(exch. for Commerce Bancorp, Inc. common stock)....................... 1,094,643
40,000 National Australia Bank Ltd. 7.875% exch. capital units (NR)........... 1,468,000
20,000 New York Community Bancorp, Inc. 6% BONUSES units (Baa2)............... 1,045,000
35,000 Sovereign Capital Trust IV 4.375% PIERS (Ba1)
(exch. for Sovereign Bancorp, Inc. common stock) (1).................. 1,645,000
35,000 Washington Mutual Capital Trust PIERS units (Baa1)
(exch. for Washington Mutual, Inc. common stock)...................... 1,863,750
-----------
7,116,393
-----------
PAGE 8
PORTFOLIO OF INVESTMENTS March 31, 2005 (continued)
Principal
Amount Value
or Shares (Note 1)
----------- -----------
CONVERTIBLE PREFERRED STOCKS -- continued
ENERGY -- 4.7%
1,550 shs Chesapeake Energy Corp. 4.125% cum. cv. pfd. (NR)...................... $ 2,301,750
5,000 shs Semco Energy, Inc. 5% series B cv. cum. pfd. (NR)
(Acquired 03/09/05 - 03/10/05; Cost $1,003,750) (2)................... 975,000
20,000 shs The Williams Companies, Inc. 5.5% 2033 jr. sub. cv. deb. (B-).......... 1,822,500
-----------
5,099,250
-----------
ENTERTAINMENT -- 0.9%
22,500 shs Emmis Communications Corp. 6.25% series A cum. cv. pfd. (Caa1)......... 1,022,355
-----------
FINANCIAL AND INSURANCE -- 4.5%
20 shs Fannie Mae 5.375% non-cumulative cv. pfd. (Aa3)
(Acquired 12/29/04 - 01/11/05; Cost $2,078,125) (2)................... 1,880,000
20,000 shs Reinsurance Group of America, Inc. 5.75% PIERS (Baa2).................. 1,168,437
80,000 shs The St. Paul Travelers Companies, Inc. 4.5% 2032 cv. jr. sub. notes
(Baa1)................................................................ 1,771,600
-----------
4,820,037
-----------
HEALTH CARE -- 1.3%
28,000 shs Omnicare Capital Trust II 4% PIERS (NR)
(exch. for Omnicare, Inc. common stock) (1)........................... 1,456,000
-----------
MINING -- 1.8%
2,000 shs Freeport-McMoRan Copper and Gold, Inc. 5.5% cv. perpetual pfd. (B-).... 1,969,804
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS..................................... $22,523,839
-----------
MANDATORY CONVERTIBLE SECURITIES -- 16.8% (4)
CHEMICALS -- 0.9%
20,000 shs Huntsman Corp. 5% mand. cv. pfd. (NR).................................. 1,017,720
-----------
CONSUMER GOODS -- 1.9%
50,000 shs Constellation Brands, Inc. dep. shs. representing 5.75%
series A mandatory cv. pfd. (B)....................................... 2,020,500
-----------
ENERGY -- 3.6%
20,000 shs Amerada Hess Corp. 7% mand. cv. pfd. ACES (Ba3)........................ 1,683,400
30,000 shs Valero Energy Corp. 2% mand. cv. pfd. (BB+)............................ 2,178,360
-----------
3,861,760
-----------
FINANCIAL AND INSURANCE -- 4.0%
72,000 shs The Chubb Corp. 7% equity units (A2) (1)............................. 2,158,560
40,000 shs Platinum Underwriters Holdings, Ltd. 7% equity security units
(NR) (1)............................................................ 1,146,000
45,000 shs XL Capital, Ltd. 6.5% equity security units (A2)..................... 1,075,680
-----------
4,380,240
-----------
FOODS -- 1.8%
40,000 shs Albertson's, Inc. 7.25% HITS units (Baa2) (1)........................ 916,400
40,000 shs Lehman Brothers Holdings, Inc. 6.25% PIES (A1)
(exch. for General Mills, Inc. common stock)........................ 1,055,000
-----------
1,971,400
-----------
PHARMACEUTICALS -- 3.0%
31,500 shs Baxter International, Inc. 7% equity units (Baa1) (1)................ 1,697,220
30,000 shs Schering-Plough Corp. 6% mand. cv. pfd. (Baa3)....................... 1,509,000
-----------
3,206,220
-----------
TECHNOLOGY -- 0.6%
$1,100,000 Lehman Brothers Holdings, Inc. 6% 2005 YEELDS (A)
(performance linked to LSI Logic Corp. common stock)................ 674,630
-----------
UTILITIES -- 1.0%
45,000 shs DTE Energy Co. 8.75% equity security units (BBB-) (1)................ 1,143,000
-----------
TOTAL MANDATORY CONVERTIBLE SECURITIES (4)........................... $18,275,470
-----------
PAGE 9
PORTFOLIO OF INVESTMENTS March 31, 2005 (continued)
Principal
Amount Value
or Shares (Note 1)
----------- -------------
COMMON STOCKS -- 4.3%
AEROSPACE AND DEFENSE -- 1.0%
19,171 shs Northrop Grumman Corp................................................ $ 1,034,851
-------------
ENERGY -- 0.8%
11,372 shs Kerr-McGee Corp...................................................... 890,200
------------
PHARMACEUTICALS -- 1.6%
26,300 shs Johnson & Johnson.................................................... 1,766,308
------------
TELECOMMUNICATIONS -- 0.9%
40,000 shs SBC Communications, Inc.............................................. 947,600
------------
TOTAL COMMON STOCKS.................................................. $ 4,638,959
------------
SHORT-TERM SECURITIES -- 2.0%
COMMERCIAL PAPER -- 2.0%
$2,200,000 American Express Credit Corp. (P1)
(2.65% maturing 04/01/05)........................................... 2,199,514
------------
U.S. GOVERNMENT OBLIGATIONS -- 0.0%
11,000 U.S. Treasury notes 1.625% 04/30/05 (Aaa) (5)........................ 10,990
------------
TOTAL SHORT-TERM SECURITIES.......................................... 2,210,504
------------
TOTAL CONVERTIBLE BONDS AND NOTES -- 55.4%........................... 60,071,290
TOTAL CONVERTIBLE PREFERRED STOCKS -- 20.8%.......................... 22,523,839
TOTAL MANDATORY CONVERTIBLE SECURITIES -- 16.8%...................... 18,275,470
TOTAL COMMON STOCKS -- 4.3%.......................................... 4,638,959
TOTAL SHORT-TERM SECURITIES -- 2.0%.................................. 2,210,504
------------
TOTAL INVESTMENTS -- 99.3%........................................... 107,720,062
OTHER ASSETS AND LIABILITIES, NET -- 0.7%............................ 757,850
------------
TOTAL NET ASSETS -- 100.0%........................................... $108,477,912
============
(1) Contingent payment debt instrument which accrues contingent interest. See
Note 1(b).
(2) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction). The security may be
resold only pursuant to an exemption from registration under the 1933 Act,
typically to qualified institutional buyers. The Fund generally has no
rights to demand registration of these securities. The aggregate market
value of these securities at March 31, 2005 was $10,379,355 which
represented 9.6% of the Fund's net assets.
(3) Non-income producing security.
(4) Mandatory convertible. See Note 1(e).
(5) Collateral for a letter of credit.
ACES Automatic Convertible Equity Securities. | PEPS Premium Equity Participating Securities.
ADR American Depositary Receipts. | PIERS Preferred Income Equity Redeemable
| Securities.
BONUSES Bifurcated Option Note Unit Securities. | YEELDS Yield Enhanced Equity Linked Debt
| Securities.
HITS Hybrid Income Term Security. | ZYPS Zero Yield Puttable Securities.
LYONs Liquid Yield Option Notes. |
Ratings in parentheses by Moody's Investors Service, Inc. or Standard & Poor's.
NR is used whenever a rating is unavailable.
See accompanying notes to financial statements
PAGE 10
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES AND CHANGE IN ACCOUNTING POLICY
Ellsworth Convertible Growth and Income Fund, Inc. (the "Fund"), established in
1986, is registered under the Investment Company Act of 1940 as a diversified,
closed-end management 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:
(A) SECURITY VALUATION
Investments in securities traded on a national securities exchange are valued at
market using the last reported sales price as of the close of regular trading.
Unlisted 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 as of the close of regular trading. Securities for
which quotations are not readily available, restricted securities and other
assets are valued at fair value as determined in good faith by management with
the approval of the Board of Directors. Short-term debt securities with original
maturities of 60 days or less are valued at amortized cost.
(B) 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, including
accretion of discounts and amortization of non-equity premium. For certain
securities, known as "contingent payment debt instruments," Federal tax
regulations require the Fund to record non-cash, "contingent" interest income in
addition to interest income actually received. Contingent interest income
amounted to 3 cents per share for the six months ended March 31, 2005. In
addition, Federal tax regulations require the Fund to reclassify realized gains
on contingent payment debt instruments to interest income. At March 31, 2005
there were unrealized losses of approximately 2 cents per share on contingent
payment debt instruments.
(C) CHANGES IN METHOD OF ACCOUNTING FOR BOND PREMIUM AND DISCOUNT AMORTIZATION
Effective October 1, 2004, the Fund began amortizing discounts and premiums on
all debt securities. Prior to October 1, 2004, the Fund amortized discounts on
original issue discount debt securities. The new method of amortization was
adopted in accordance with the provisions of the AICPA Audit and Accounting
Guide, Audits of Investment Companies and the financial highlights and statement
of changes in net assets presented herein have been restated to reflect the new
method retroactive to October 1, 2001.
The effect of this accounting change is included in the financial highlights for
the years ended September 30, 2002, 2003 and 2004, and in the statement of
changes in net assets for the year ended September 30, 2004. The cumulative
effect of this accounting change had no impact on the total net assets of the
Fund or on distributions for tax purposes, but resulted in a $79,579 increase in
the cost of securities held and a corresponding $79,579 reduction in the net
unrealized gains based on the securities held on October 1, 2001. The impact of
this change during the six months ended March 31, 2005 was to reduce net
investment income by $7,898, reduce unrealized gains by $211,151 and increase
realized gains by $219,049. These changes had no effect on previously reported
total net assets or total returns.
PAGE 11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
D) FEDERAL INCOME TAXES
The Fund's policy is 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.
At September 30, 2004, the Fund had a capital loss carryforward of $4,915,273
available to the extent allowed by tax law to offset future net capital gains,
if any. To the extent that the carryforward is used, no capital gains
distributions will be made. The carryforward expires in 2011. The Fund utilized
net capital loss carryforwards of $2,804,454 during the fiscal year ended
September 30, 2004.
(E) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income are recorded by the
Fund on the ex-dividend date. Distributions from capital gains, if any, are
recorded on the ex-dividend date and paid annually. The amount and character of
income and capital gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted accounting
principles. The tax character of distributions paid during the fiscal years
ended September 30, 2004 and 2003 were $3,681,116 and $3,143,201, respectively,
both from ordinary income.
(F) MARKET RISK
It is the Fund's policy to invest at least 80% 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 of their
underlying securities. Thus they expose the Fund to greater downside risk than
traditional convertible securities, but generally less than that of the
underlying common stock. The market value of those securities was $18,275,470 at
March 31, 2005, representing 16.8% of net assets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The management fee is paid to the investment adviser, DavisDinsmore Management
Company (the "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 Adviser furnishes investment advice, office equipment and facilities, and
pays the salaries of all executive officers of the Fund. The Fund pays all
expenses incurred by it and not assumed by the Adviser and in addition 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
Fund. These services include the valuation of securities owned by the Fund, and
the preparation of financial statements and schedules of the Fund's investments
for inclusion in certain periodic reports to the Fund's Board of Directors and
to the U.S. 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.
3. PORTFOLIO ACTIVITY
At March 31, 2005 there were 12,362,269 shares of $.01 par value common stock
outstanding, (20,000,000 shares authorized). During the six months ended March
31, 2005, 64,142 shares were issued in connection with reinvestment of dividends
from net investment income, resulting in an increase in paid-in capital of
$506,725.
Purchases and sales of investments, exclusive of corporate short-term notes,
aggregated $35,546,379 and $33,127,215, respectively, for the six months ended
March 31, 2005.
A distribution of $0.07 per share from net investment income was declared on
April 12, 2005, payable May 27, 2005 to shareholders of record at the close of
business May 13, 2005.
PAGE 12
BOARD APPROVAL OF ADVISORY CONTRACT
THE INDEPENDENT DIRECTORS OF ELLSWORTH RENEWED THE ADVISORY CONTRACT WITH
DAVIS-DINSMORE MANAGEMENT COMPANY IN NOVEMBER 2004. THE FOLLOWING ARE THE
MATERIAL FACTORS AND CONCLUSIONS THAT FORMED THE BASIS FOR THAT APPROVAL.
--------------------------------------------------------------------------------
THE NATURE AND EXTENT OF THE ADVISORY SERVICES PROVIDED BY DAVIS-DINSMORE. Based
on the independent directors' review of the services provided and to be provided
by Davis-Dinsmore under the Advisory Agreement, the independent directors
concluded that the range of services to be provided by Davis-Dinsmore under the
Advisory Agreement was appropriate and that Davis-Dinsmore currently is
providing services in accordance with the terms of each Advisory Agreement.
THE QUALITY OF SERVICES PROVIDED BY DAVIS-DINSMORE. In reviewing the
qualifications of Davis-Dinsmore to provide investment advisory services, the
independent directors reviewed the credentials and experience of
Davis-Dinsmore's investment personnel, and considered such issues as
Davis-Dinsmore's portfolio and product review process, compliance function, use
of technology, portfolio administration function, investment research operations
and trading operations. Based on the review of these and other factors, the
independent directors concluded that the quality of services to be provided by
Davis-Dinsmore was appropriate and that Davis-Dinsmore currently is providing
satisfactory services in accordance with the terms of the Advisory Agreement.
THE PERFORMANCE OF THE FUND RELATIVE TO COMPARABLE FUNDS. The independent
directors reviewed the performance of the Fund against the performance of funds
advised by other advisors with investment strategies comparable to those of the
Fund. The independent directors noted that although during the past year the
Fund has underperformed its peers, the Fund's long-term performance was better,
and concluded that no changes should be made to the Fund's investment objective
or policies at this time. In addition, the independent directors determined that
the Fund's portfolio management team should remain in place.
THE PERFORMANCE OF THE FUND RELATIVE TO INDICES. The independent directors
reviewed the performance of each Fund against the performance of applicable
indices. The independent directors noted that although during the past year the
Fund has underperformed relative to relevant indices, the Fund's long-term
comparative performance was better, and concluded that no changes should be made
to the Fund's investment objective or policies at this time. In addition, the
independent directors determined that the Fund's portfolio management team
should remain in place.
MEETINGS WITH THE FUND'S PORTFOLIO MANAGER AND INVESTMENT PERSONNEL. The
independent directors noted that they meet regularly with the Fund's portfolio
manager and investment personnel, and believe that such individuals are
competent and able to continue to carry out their responsibilities under the
Advisory Agreement.
OVERALL PERFORMANCE OF DAVIS-DINSMORE. After considering the overall performance
of Davis-Dinsmore in providing investment advisory and portfolio administrative
services to the Fund, the independent directors concluded that such performance
was satisfactory.
FEES RELATIVE TO THOSE OF CLIENTS OF DAVIS-DINSMORE WITH COMPARABLE INVESTMENT
STRATEGIES. The independent directors noted that the Fund and Bancroft
Convertible Fund are the only clients of Davis-Dinsmore, and that the advisory
fee rates for the funds are the same. The independent directors concluded that,
because the fee rates are the same for each fund, the current advisory fee rate
of a fund was fair as compared to the rate for the other fund.
FEES RELATIVE TO THOSE OF CLIENTS OF DAVIS-DINSMORE WITH COMPARABLE INVESTMENT
STRATEGIES. After reviewing the advisory fee rate for the Fund against the
advisory fee rates for funds advised by other advisors with investment
strategies comparable to those of the Fund, the independent directors determined
that the Fund's advisory fee rate was at approximately the median of the funds
in its peer group, and concluded that the current advisory fee rate of the Fund
was fair and reasonable.
EXPENSE LIMITATIONS AND FEE WAIVERS. The independent directors noted that,
although there are no contractual expense limitations or fee waivers in effect
for the Fund, Davis-Dinsmore is very diligent in its efforts to keep expenses of
the Fund as low as possible. The independent directors also noted that the
Fund's expense ratios had declined as a result of the Fund's rights offering in
late 2003, but that
PAGE 13
BOARD APPROVAL OF ADVISORY CONTRACT (continued)
the cost of compliance with regulatory initiatives was increasing. The
independent directors concluded that the current level of expenses for the Fund
was reasonable.
BREAKPOINTS AND ECONOMIES OF SCALE. The independent directors reviewed the
structure of the Fund's advisory fee under the Advisory Agreement, and noted
that the fee includes a significant breakpoint when the Fund's assets reach $100
million. The independent directors noted that breakpoints had become effective
as a result of the Fund's 2003 rights offering, which resulted in lower
management fee expenses as a percentage of assets. The independent directors
concluded that it was not necessary to implement any further changes to the
structure of the advisory fee for the Fund.
PROFITABILITY OF DAVIS-DINSMORE. The independent directors reviewed information
concerning the profitability and financial condition of Davis-Dinsmore, noting
that Davis-Dinsmore's sole source of revenue was advisory fees from Ellsworth
and Bancroft Convertible Fund. The Board noted that Davis-Dinsmore's operations
remain profitable, and that the continued success of the two funds will
positively impact Davis-Dinsmore's profitability. Based on the review of the
profitability of Davis-Dinsmore and its financial condition, the independent
directors concluded that the compensation to be paid by Ellsworth to
Davis-Dinsmore under its Advisory Agreement was not excessive.
BENEFITS OF SOFT DOLLARS TO DAVIS-DINSMORE. The independent directors discussed
the fact that there are no third-party soft dollar arrangements in effect with
respect to the Fund. The independent directors recognized that Davis-Dinsmore
does receive proprietary research from brokers with whom it executes portfolio
transactions on behalf of the Fund. This research is used by Davis-Dinsmore in
making investment decisions for the Fund. The directors also considered
representations made by Davis-Dinsmore that portfolio transactions received best
execution. Because such research ultimately benefits the Fund, the Board
concluded that it was appropriate to receive proprietary research.
DAVIS-DINSMORE'S FINANCIAL SOUNDNESS IN LIGHT OF THE NEEDS OF THE FUND. The
independent directors considered whether Davis-Dinsmore is financially sound and
has the resources necessary to perform its obligations under the Advisory
Agreement, and concluded that Davis-Dinsmore has the financial resources
necessary to fulfill its obligations under the Advisory Agreement.
HISTORICAL RELATIONSHIP BETWEEN THE FUND AND DAVIS-DINSMORE. In determining
whether to continue the Advisory Agreement for the Fund, the independent
directors also considered the prior relationship between Davis-Dinsmore and the
Fund, as well as the independent directors' knowledge of Davis-Dinsmore's
operations, and concluded that it was beneficial to maintain the current
relationship, in part, because of such knowledge. The independent directors also
reviewed the general nature of the non-investment advisory services currently
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 independent directors also considered the
organizational structure employed by Davis-Dinsmore to provide those services.
Based on the review of these and other factors, the independent directors
concluded that Davis-Dinsmore was qualified to continue to provide
non-investment advisory services to the Funds, including administrative
services, and that Davis-Dinsmore currently is providing satisfactory non-
investment advisory services.
OTHER FACTORS AND CURRENT TRENDS. The independent directors considered the
culture of compliance and high ethical standards at Davis-Dinsmore, and the
efforts historically and currently undertaken by Davis-Dinsmore to engage in
best practices. The independent directors noted Davis-Dinsmore's historical
adherence to compliance procedures, as well as the Fund's investment objectives,
policies and restrictions. The independent directors concluded that this
commitment to adhere to the highest ethical standards was an important factor in
their determination that they should continue the Advisory Agreement for the
Fund.
--------------------------------------------------------------------------------
After consideration of all of the above factors, the independent directors found
that with respect to the Fund: (i) the services provided by Davis-Dinsmore to
such Fund and its shareholders were adequate; (ii) such Fund's Advisory
Agreement was fair and reasonable under the circumstances; and (iii) the fees
payable under such Fund's Advisory Agreement would have been obtained through
arm's length negotiations. The independent directors therefore concluded that
the Fund's Advisory Agreement was in the best interests of such Fund and its
shareholders and should be continued for another year.
PAGE 14
MISCELLANEOUS NOTES
RESULTS OF THE 2005 ANNUAL SHAREHOLDERS MEETING
The results of the shareholder vote at the Annual Meeting of Shareholders held
on January 14, 2005 were:
1. All directors nominated were elected.
Terms expiring in 2008 Shares voted for Shares withheld
---------------------- ------------------ -----------------
Donald M. Halsted, Jr. 11,534,148 431,254
Duncan O. McKee 11,532,927 432,475
Thomas H. Dinsmore 11,574,815 390,587
Terms expiring in 2006 Shares voted for Shares withheld
---------------------- ------------------ -----------------
Robert J. McMullan 11,539,393 426,009
2. The Audit Committee's appointment of PricewaterhouseCoopers LLP ("PwC")
as independent accountants was ratified with 11,666,651 shares voted
for, 138,499 shares voted against and 160,252 shares abstaining.
3. The proposal to amend the Articles of Incorporation that would give
shareholders the right to tender their shares during the current fiscal
year did not pass, as 1,446,658 shares voted for, 3,534,137 shares voted
against, 293,293 shares abstained, and 6,691,314 shares were broker
non-votes.
--------------------------------------------------------------------------------
CHANGE IN THE FUND'S INDEPENDENT ACCOUNTANT
On March 17, 2005, PwC resigned as independent registered public accountants for
the Fund. The Fund's audit committee appointed Tait, Weller & Baker as
independent accountants for the Fund on April 12, 2005 for the 2005 fiscal year,
which appointment was ratified by the Fund's independent directors. The reports
of PwC on the Fund's financial statements for each of the fiscal years ended
September 30, 2004 and September 30, 2003 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. During the Fund's fiscal years ended
September 30, 2003 and September 30, 2004 and during the period October 1, 2004
through March 17, 2005, there have been no disagreements with PwC on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to the satisfaction of PwC,
would have caused them to make reference thereto in their reports on the
financial statements for such years.
--------------------------------------------------------------------------------
NOTICE OF PRIVACY POLICY
The Fund has adopted a privacy policy in order to protect the confidentiality of
nonpublic personal information that we have about you. We receive personal
information, such as your name, address and account balances, when transactions
occur in Ellsworth shares registered in your name.
We may disclose this information to companies that perform services for the
Fund, such as the Fund's transfer agent or proxy solicitors. These companies may
only use this information in connection with the services they provide to the
Fund, and not for any other purpose. We will not otherwise disclose any
nonpublic personal information about our stockholders or former stockholders to
anyone else, except as required by law.
Access to nonpublic information about you is restricted to our employees and
service providers who need that information in order to provide services to you.
We maintain physical, electronic and procedural safeguards that comply with
federal standards to guard your nonpublic personal information.
PAGE 15
MISCELLANEOUS NOTES (continued)
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
In addition to the semi-annual and annual reports that Ellsworth delivers to
shareholders and makes available through the Ellsworth public website, the Fund
files a complete schedule of portfolio holdings with the U.S. Securities and
Exchange Commission (SEC) for the Fund's first and third fiscal quarters each
fiscal year on Form N-Q. Ellsworth does not deliver the schedule for the first
and third fiscal quarters to shareholders, however the schedule is posted to the
Ellsworth public website, www.ellsworthfund.com. You may obtain the Form N-Q
filings by accessing the SEC's website at www.sec.gov. You may also review and
copy them at the SEC's Public Reference Room in Washington, DC. Information on
the operation of the SEC's Public Reference Room may be obtained by calling the
SEC at (800) SEC-0330.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES / PROXY VOTING RECORD
The Fund's policies and procedures with respect to the voting of proxies
relating to the Fund's porfolio securities is available without charge, upon
request, by calling (973) 631-1177, or at our website at www.ellsworthfund.com.
This information is also available on the SEC's website at www.sec.gov. In
addition, information on how the Fund voted such proxies relating to portfolio
securities during the most recent twelve-month period ended June 30, is
available without charge at the above sources.
--------------------------------------------------------------------------------
The Fund received a LIPPER PERFORMANCE ACHIEVEMENT CERTIFICATE for total NAV
return performance achieved during the ten-year period ended December 31, 2004.
Certificates are awarded to funds that rank first in their classification over a
one-, five-, ten- or fifteen-year period depending on their peer universe.
Ellsworth outperformed the other closed-end convertible funds followed by Lipper
during this ten-year period. Past performance does not guarantee future results.
[LOGO] LIPPER (C) 2004 REUTERS. All rights reserved. Any copying, republication
or redistribution of Lipper Content is expressly prohibited
without the prior written consent of Lipper.
--------------------------------------------------------------------------------
The Fund is a member of the Closed-End Fund Association (CEFA). Its website
address is www.cefa.com. CEFA is solely responsible for the content of its
website.
--------------------------------------------------------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS TO BROKER-DEALERS
From time to time, brokers with whom the Fund's Adviser, Davis-Dinsmore
Management Company, has a pre-existing relationship may request that the Adviser
disclose Fund portfolio holdings to such broker in advance of the public
disclosure of such portfolio holdings. The Adviser may make such disclosure
under the following conditions: (i) the specific purpose of the disclosure is to
assist the Adviser in identifying potential investment opportunities for the
Funds; (ii) prior to the receipt of non-public portfolio holdings, the broker,
by means of e-mail or other written communication, shall agree to keep the
non-public portfolio holdings confidential and not to use the information for
the broker's own benefit, except in connection with the above described purpose
for which it was disclosed; (iii) the Adviser shall keep written records of its
agreement with each broker to which it distributes non-public portfolio
holdings; and (iv) the Adviser will secure a new agreement with a broker any
time the broker directs the non-public portfolio holdings to be sent to a new
recipient.
PAGE 16
BOARD OF DIRECTORS INTERNET
GORDON F. AHALT www.ellsworthfund.com
WILLIAM A. BENTON email: info@ellsworthfund.com
ELIZABETH C. BOGAN
THOMAS H. DINSMORE, C.F.A. INVESTMENT ADVISER
DONALD M. HALSTED, JR. Davis-Dinsmore Management Company
DUNCAN O. MCKEE 65 Madison Avenue, Morristown, NJ 07960-7308
ROBERT J. MCMULLAN (973) 631-1177
JANE D. O'KEEFFE
NICOLAS W. PLATT SHAREHOLDER SERVICES AND TRANSFER AGENT
American Stock Transfer & Trust Company
59 Maiden Lane
OFFICERS New York, NY 10038
THOMAS H. DINSMORE, C.F.A. (800) 937-5449
CHAIRMAN OF THE BOARD www.amstock.com
JANE D. O'KEEFFE COMMON STOCK LISTING
PRESIDENT American Stock Exchange Symbol: ECF
GARY I. LEVINE LEGAL COUNSEL
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL Ballard Spahr Andrews & Ingersoll LLP
OFFICER AND SECRETARY
INDEPENDENT ACCOUNTANTS
H. TUCKER LAKE, JR. Tait, Weller & Baker
VICE PRESIDENT
GERMAINE M. ORTIZ
VICE PRESIDENT
MERCEDES A. PIERRE
VICE PRESIDENT, CHIEF COMPLIANCE OFFICER
AND ASSISTANT TREASURER
JOSHUA P. LAKE, C.T.P.
TREASURER AND ASSISTANT SECRETARY
JESSICA K. LAKE
ASSISTANT VICE PRESIDENT
JOANN VENEZIA
ASSISTANT VICE PRESIDENT AND ASSISTANT SECRETARY
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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 its own 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.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
65 MADISON AVENUE, SUITE 550
MORRISTOWN, NEW JERSEY 07960
www.ellsworthfund.com
[LOGO]
AMERICAN
STOCK EXCHANGE
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LISTED
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ECF
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments in securities of unaffiliated issuers is included as
part of the report to shareholders, filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not currently applicable to registrant.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
During the period covered by this report, there were no purchases made by or
on behalf of Ellsworth Convertible Growth and Income Fund, Inc. or any
"affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Exchange
Act(17 CFR 240.10b-18(a)(3)), of shares or other units of any class of the
registrant's equity securities that is registered by the registrant pursuant
to Section 12 of the Exchange Act (15 U.S.C. 781).
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no changes to the procedures by which shareholders may recommend
nominees to the registrant's board of directors, after the registrant last
provided disclosure in response to the requirements of this item.
ITEM 11. CONTROLS AND PROCEDURES
Conclusions of principal officers concerning controls and procedures
(a) As of May 16, 2005, an evaluation was performed under the supervision
and with the participation of the officers of Ellsworth Convertible Growth and
Income Fund, Inc. (the "Registrant"), including the Principal Executive Officer
("PEO") and Principal Financial Officer ("PFO"), to assess the effectiveness of
the Registrant's disclosure controls and procedures, as that term is defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "Act").
Based on that evaluation, the Registrant's officers, including the PEO and PFO,
concluded that, as of May 16, 2005, the Registrant's disclosure controls
and procedures were reasonably designed so as to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR and Form N-Q is
recorded, processed, summarized and reported within the time periods specified
by the rules and forms of the Securities and Exchange Commission; and (2) that
material information relating to the Registrant is made known to the PEO and
PFO as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the Registrant's second fiscal quarter of the period
covered by this report that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) The code of ethics disclosure required by Item 2 is not applicable to
this semi-annual report.
(a)(2) Certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940, are attached hereto.
(a)(3) There were no written solicitations to purchase securities under Rule
23c-1 under the Investment Company Act of 1940 during the period covered by the
report.
(b) Certifications of the principal executive officer and the principal
financial officer, as required by Rule 30a-2(b) under the Investment Company Act
of 1940, are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Ellsworth Convertible Growth and Income Fund, Inc.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: June 15, 2005
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: June 15, 2005
By: /s/Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: June 15, 2005